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Juan Cole

Juan Cole

Juan runs the popular geopolitics blog Informed Comment where he provides an independent and informed perspective on Middle Eastern and American politics.

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India and China Ignore US Sanctions Against Iran

The US House of Representatives approved a bill at the beginning of this month aimed at completely closing off Iranian petroleum exports. Not since President Roosevelt told Japan in July 1941 that he was going to cut it off from American petroleum has the United States threatened to use oil to strangle a country so completely. And FDR’s threat caused the Japanese to decide to take Indonesia away from the Dutch, which required crippling the US Pacific Fleet at . . . Pearl Harbor.

Iran natural gas

The bill is intended as a slap in the face of the incoming president, Hassan Rouhani, who has pledged more cooperation with nuclear inspectors and says he will allay the anxieties of the West concerning Iranian enrichment.

Among the more effective lobbies for this Congressional war on Iranian oil (which is arguably an act of war in international law) is the uber-hawkish, pro-Israel “Foundation for Defense of Democracies”, the three biggest funders of which are Sheldon Adelson, Home Depot CEO Herman Marcus, and hedge fund billionaire Paul Singer, all of them also big backers of Republican politicians. In other words, the US financial blockade of Iranian petroleum is being pursued for purposes of Israeli security. Congress is attempting to punish Iran economically into mothballing its civilian nuclear enrichment program, which Israel and the US Israel lobbies maintains is aimed at producing a nuclear weapon (there is no firm evidence that Iran has a nuclear weapons program and the International Atomic Energy Agency inspectors continue to affirm that no uranium has been diverted to military uses). Israel itself is estimated to have as many as 400 nuclear warheads, as many as China, but unlike Iran, Israel does not permit IAEA inspections and it refuses to sign the Nuclear Non-Proliferation Treaty.

Related article: Iran-Iraq-Syria Pipeline Must Tempt Europe

Congressional sanctions have already in the past 12 months reduced Iranian petroleum exports by half from an average of 2.2 million barrels a day last year. They succeeded by threatening importing countries with third-party US Treasury Department sanctions if they did not reduce their oil imports from Iran. (I’m not sure these threats are legal under the World Trade Organization’s rules).

There is some evidence that Congress is over-reaching and that not only is its new goal of zero Iranian petroleum exports not attainable but that Iranian exports may rebound somewhat. Some of the fall in exports this year is unrelated to the US, for instance in late winter Iran was engaged in a dispute over prices with China, its number one customer. Exports increased in July to 1.16 mn barrels a day up from 960,000 in June.

A further US financial blockade on Iranian oil would likely cause world gasoline prices to rise, hurting global economies and eliciting howls of outrage from American allies. In part because of the missing million barrels a day from Iran, Brent crude is around $108 / barrel, which is historically very high. Problems with North Sea production and oil workers strikes in Libya have taken some other production off line and raised prices. The world produces roughly 86 million barrels a day of petroleum, but the high prices suggest that it wants more than that. Some governments may be secretly buying up petroleum to increase their strategic reserves.

India looks set to defy the US by increasing its imports of Iranian petroleum. Those imports had fallen dramatically in April and since because European insurance firms, fearful of incurring US sanctions themselves, stopped insuring Iranian petroleum exports to Indian refineries. The Indian government, however, may step in to offer the insurance itself. Iran is also offering to insure.

India’s rupee has fallen 11% in value in the past year, in part because it is running a budget deficit so big that it worries currency traders. (Governments that spend more money than they take in make up the difference by printing extra money. Since that extra money is not backed by any real increase in productivity or the production of goods or services, it serves to dilute the value of the currency against other currencies.).

When the rupee declines in value it makes imports (often denominated in US dollars) more expensive. Hence, India’s bill for imported petroleum went up starkly this year.

Related article: China’s Energy Policies Unsettle Neighbors Both East and West

Iran, on the other hand, has offered to let India pay for its oil in rupees (which locks Iran into spending that money on imports from India, since the rupee is not a hard currency and wouldn’t be accepted by most other states). If India buys more of its oil from Iran in rupees at this point, it will essentially be saving itself 11% on the price. In addition, its economy will benefit when Iran spends the rupees on Indian imports.

India’s fuel crisis is sufficiently severe for the country to risk a tiff with the US over the oil imports from Iran. India still does relatively little business with the US, and apparently the ruling Congress Party feels it can risk the wrath of the US Israel lobbies better than it can risk the fury of the Indian electorate.

Some of Iran’s problems came from the unwillingness of tanker companies to risk US retaliation by carrying Iranian oil. Iran therefore has bought from China 12 huge oil tankers, each of which can carry 2 million barrels of petroleum. Iran just took delivery of 4 more of these tankers. It will therefore be in a position over coming years to export to China and India with its own tankers, holding itself harmless from Congressional sanctions.

At the same time, China says it will abide by UN sanctions against Iran, but sees no reason to conform to arbitrary sanctions applied unilaterally by the US.

US sanctions against Iran are hurting its standard of living and hitting its middle classes. Over time the country could see downward mobility, as happened in Iraq under US/ UN sanctions. A weakened middle class will increasingly find it impossible to defy a strong state (as also happened in Iraq). Likewise, punitive sanctions on Iran will weaken Rouhani, who has slight reformist tendencies, in favor of his hard line opponents.

The main effect of US sanctions is to strengthen the state against potential challengers.

By. Juan Cole




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  • Sam Strellson on August 15 2013 said:
    This has to be one of the most ridiculous attempts at propaganda I have recently read. The US is at most 3 years away from energy independence, and Israel probably five. The huge gas field to be developed off Israel / Cyprus will make the Israelis net energy exporters by 2020.
    How stupid does Juan Cole think we are? The Iranian "civilian nuclear enrichment program" ?!! Really? A country that is awash in cheap oil, technologically decades behind the rest of the world, and constantly threatening to wipe a country (yes, Israel, Mr. Cole:) off the map - needs a 'civilian' nuclear program!!/
    We've heard all the leftist conspiracy theories from the likes of Juan Cole before, and we are not stupid enough to believe that when the president of Iran publicly declares their intent to gain nuclear weapons - he really means a 'civilian program'.
    The embargo against Iranian oil may or may not work in the short term, but within two years the oil flowing from the Middle East to the rest of the world will be flowing much cheaper, and facing very high quality competition from North American shale oil, which generally yields light sweet crude.
    And by then Juan Cole will be onto peddling some other Republican (read Jewish) conspiracy. Games up Mr Cole, anybody reading a newspaper for the past decade sees your silly agitation for what it really is.
  • Angry Grandparent on August 15 2013 said:
    I am sorry but Sam Strellson seems to suffer from being taken in by propaganda's himself whilst accusing others of presenting it.

    The former Iranian president has never stated his intention or wish to "wipe" Israel off the map but to wipe the Zionist entity meaning the government from the annals of history in context to Israels brutality towards Palestinians.

    Nor has the former President claimed a desire to obtain nuclear weapons, the various western intelligence agencies all concur and Israel is one of these nations whose agencies concur that Iran abandoned its nuclear weapons programme in 2003, so I would ask who to trust, the intelligence agencies who have access to huge amounts of information and intel or the politicians who say what they wish to say whether its truthful or not, if the CIA and MI6 say Iran abandoned its programme then I am more likely to listen to that than any posturing by Obama or Netahanyu.

    The lack of Iranian oil is causing division, Italy is one such country who were customers of Iranian cheap oil and their economy is hurting through the lack of it, the EU is not behind America on this except toadying Britain, the EU is being forced to buy expensive oil and a time is coming where the EU is going to call the US's bluff on this.

    Israel's energy independence is not as clear cut as you would claim, certainly two areas are subject to territorial claims by the Palestinians and the Lebanese and Cyprus is looking into whether the oil and gas there is not partly theirs, we shall see in 5 years but then again the CIA suggested several years ago that the clock was ticking against Israel becoming a failed rogue state, what will arrive sooner?
  • gmathol on August 15 2013 said:
    Just for the records America's so called energy independence is far from becoming reality - ever!

    ...but the declining US economy use much less oil every year.

    @Sam Strellson - We will soon see an embargo of civilized World (minus US, UK and terror group Israel) against US and there terrorist friends. You think Israel can steal Cyprian resources? Laughable.
  • Louise on August 17 2013 said:
    Great comment by Angry Grandparent.

    One of the reasons that the US wants sanctions against Iran is to try and control the world's oil supply in order to control China and India economic growth. Also Iran, unlike Saudi Arabia, is not signatory to using the Petrodollar and it is now selling it oil using a range of currencies.

    The US unilateral sanctions against Iran and the constant threats by Israel and talk of war by America was done to try and scare away Iran's investors and oil customers, but the governments of China and India are not that silly that they did not fall for it.

    Since the inception of the euro the EU countries have been interested in buying their oil using the euro rather than the US dollar, and Iran is likely to agree to doing this, which is why the Americans have cut Iran off from using SWIFT, the international payment system, and also stopped Iran's media using satellites in the EU's so that no one could see Iran's media in Europe. My thinking is that the European Governments are not totally stupid nor are they totally useless and they are aware of what the Americans are trying to do.

    Without the Petrodollar the US is in a far worse situation than the PIIGS were in 2010, all in its own making.

    China, India, South Korean and some other Asians countries have no intentions of not buying Iran's oil. So the Iranians are buying lots of goods from these countries which is helping to build their economies, especially China's.

    In many people's eyes 'Asia' is Japan through to Turkey (Asia minor). Iran is in West Asia.

    America is an empire in serious decline, time is not on its side and one of the powerful players in the future, especially in West Asia, is going to be Iran. Australia should build a good relationship with Iran for good strategic reasons as well as helping them out economically.
  • LOB on August 17 2013 said:
    The US led sanctions on Iran are all about US/Israeli hegemony in the region, the sanctions are nothing to do with nuclear weapons for regional security.

    The most senior leader of Iran had done a Fatwa against their country having nuclear weapons, there is no way they can acquire nuclear weapons with this fatwa in place.

    All 16 US intelligence agencies agree that Iran is not trying to obtain nuclear weapons, this is well known internationally.

    The conflict in Syria is a proxy war. The majority of the Syrian people want to keep Assad. The Syrians have won and the US led terrorists have lost. The Russians are not willing to walk away from owning their military base in Syria for good reason. The main reason that the Syria conflict has taken place is because the Israelis want to 1) Put a puppet in power, 2) Get rid of Russia's military base, 3) Seriously damage the country so that the Israeli can steal Syria's land the same way it is stealing Palestinian land.

    The reason why the Americans and Israelis are pushing so hard to get everything they want now is because by 2020 China will have the world's number one economy and the US will slip to the number two position and America is likely to lose some allies. The Americans are trying to lock in as many allies as possible and cripple the economies of countries who are not allies who are potentially very powerful players in a particular region, such as Iran in the Middle East/West Asia.

    None of the above is a secret, it is very well known by governments and security services around the world.
  • ayatoilet1 on August 17 2013 said:
    Maggie Thatcher had a plan – when she said we can “Do Business” with Ghorbachev. What she really meant was they would get Russia to agree to a ‘split’ and grab oil and gas concessions from Russia’s former republics - and keep Britain a float after North Sea Oil runs out. And voila – the Brits did that.



    One problem though, these former ‘republics’ – Azerbaijan, Turkmenistan, etc. had their oil and gas fields in the Southern part of the Caspian Sea….which technically belongs to Iran. Iran after all has a ratified treaty with Russia the “Turkmenchay” agreement (ratified over multiple governments over 200 years) where the ownership of the Caspian belongs 50/50 between Russia and Iran. Iran, after all, gave up its claims to Azerbaijan and Georgia in exchange for an even split of the Caspian Sea. If they wanted to adjust the terms of the agreement – Azerbaijan (and Georgia by the way) would have to be returned to Iran.



    With these oil and gas fields in mind, Thatcher’s Russian split, had to accompany the “weakening” of Iran ... so that it would NOT assert its proper territorial rights. Also, critically puppet dictators would need to put in place – like Aliev in Azerbaijan, so the Brits could milk all the oil and gas and throw a small bone back to the Azeri’s. In essence, all of Iran’s (and Azerbaijan’s wealth) is being sucked into London.



    The Brits cleverly brought the Mullahs to power – and have kept Iran essentially on a ‘giant’ defensive – with an 8 year war, and then under sanctions … unable to assert any of its rights. The Mullahs are not only British Nokars but they are also scared livid of asserting Iran’s territorial rights.



    Britain not only controls the largest fields in Azerbaijan, but also critically the ONE and only pipeline exporting Caspian oil – no matter who is extracting it. If you don’t believe the Brits (and their cohorts) are behind all this, simply consider these irrefutable facts (as they said in Watergate, just follow the money).



    UK, Norway and Denmark (to a lesser extent) and also Germany and Netherlands (to an even smaller extent) extracted oil to the tune of almost 2 million barrels a day (peaking at roughly 6 Million barrels) out of the North Sea from the Late ‘70’s through to 2000. By 2007, this had dropped to 600,000 barrels a day (roughly). UK’s natural gas production was roughly 100 billion m³ of gas in 1999.



    Azerbaijan’s production sits 800,000 barrels of oil per day (as of November 2011) and 1 billion cubic meters of gas per year. Also critically, the Brits own the BTC pipeline (Baku, Tblisi, Ceyhan) pipeline that sits squarely a major part of the development of world energy supply with its more than 1 million barrels per day capacity.



    Interestingly, Turkey, Georgia, and Britain’s European (North Sea) partners are all playing into the “Iran” game to support their most recent “interests”. For example thanks to this project alone, Turkey is also expected to earn about $300 million annually. Around 15,000 people were also employed during the construction of the pipeline which cost $3 billion



    BP operates the largest oil field in Azerbaijan, the Shah Deniz field. This field is one of BP's largest gas field finds in recent decades.



    Europe's gas consumption is expected to increase from 502 billion cubic meters, in 2005, to 815 billion cubic meters in 2030, which would mean Russia alone would not be able to meet the demand. Russia also currently has a monopoly of gas supply to many European countries, there is a major interest in diversifying Natural Gas supply to Europe. If you're in Eastern Europe, and you are quite heavily dependent on Russian gas, you pay more than $500/TCM; if you're in the UK, where North Sea gas is still available you pay $300, and $370+ in Germany, which is somewhere in between the two sources.



    Turkey has a major gas pipeline to Europe called the Nabucco pipeline. Azeri gas currently feeds into the Nabucco pipeline. Its current capacity is 10 billion cubic meters per year. This capacity will be scaled up to 23 billion cubic meters to compensate for an anticipated increase in demand. Where will this additional supply come from? Qatar and Israel…hence the war in Syria and very soon Lebanon. Both Israel and Qatar need access to Syria to connect to the Nabucco pipeline – and Russia fiercely wants to protect its monopoly, which is why its supporting the Assad’s regime, and Iran wants to (actually needs to) supply Nabucco too!



    Anyway, my simple point is the Brits have propped up a former double agent KGB officer to rule Azerbaijan with a firm hand. The Brits grabbed key oil, gas and pipeline concessions – and are now sitting fat dumb and happy in London milking the Azeris. AND, they don’t want Iran to screw with their money scheme.



    Hence, they put the Mullahs in power, and they have them sanctioned. The Shah, after all, in 1979 decided NOT to renew Iran’s deal with the Oil & Gas consortium (which was 40% owned by BP), and

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