Despite Sanctions, Iran's Economy Limps Along

In the 20th century, upright moral nations developed a new method of showing international opprobrium to rogue nations, the implantation of economic sanctions, designed to modify a recalcitrant nation's behavior to accommodate international political mores.

The most infamous example is the U.S. unilaterally imposing an oil embargo on Japan in July 1941, which most historians now agree led directly to Pearl Harbor, as energy bereft Japan, importing 4/5 of its crude oil needs from the U.S., decided to seize the oil assets of the Dutch East Indies in order to continue its imperial adventures in China and southeast Asia.

Fast forward to 2013, and Washington is seeking yet again to use sanctions to influence Iran's domestic policies, most notably its support for insurgent (terror) regimes and its civilian nuclear uranium enrichment program, which Tehran maintains is entirely peaceful, but which the U.S. and Israel assert in fact masks a covert program to develop a nuclear weapon capacity.

Iran is now unique in the world that it is currently subject to a series of sanctions regimes, including those imposed by the U.S., the European Union and the United Nations Security Council.

Even plucky Australia has gotten into the act, with Australian Foreign Minister Bob Carr announcing on 10 January that Canberra's new sanctions targeted Iran's financial, trade, energy, and transport sectors, telling reporters, "These sanctions further increase pressure on Iran to comply with its nuclear nonproliferation obligations and with UN Security Council resolutions and to engage in serious negotiations on its nuclear program."

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So, how effective has western pressure been in bringing Tehran's mullahcracy to heel?

On 7 January Iranian Oil Minister Rostam Qasemi told the country's budget and planning parliamentary commission that  Iran's oil exports have plummeted by 40 percent as a result of the Western sanctions targeting the country's nuclear program and that there had also been  "a 45 percent decrease in repatriating oil money."

Qasemi's candidness was a significant climbdown, as previously he had persistently maintained that Iran's crucial oil exports were entirely unaffected by the U.S. and EU sanctions.

Whatever yardstick is used, the Western sanctions have diminished Iranian oil exports. While in 2011 the EU had purchased 18 percent of Iran's oil exports, that figure has now shrunk to zero, while other Iranian export markets, including China, Japan, South Korea, India and Turkey have  decreased Iranian crude oil imports from anywhere from 15 percent to more than 40 percent during 2012. According to the Organization of Petroleum Exporting Countries, of which Iran is the second largest producer, and the International Energy Agency, Iranian crude exports have fallen from around 2.4 million barrels per day in late 2011 to roughly one million barrels per day by December 2012.

Financial analysts estimate that plummeting exports, combined with the U.S. sanctions designed to exclude Iran from using international banking transactions to repatriate oil revenues are now costing the country roughly $5 billion per month in lost revenues. On 9 January Iran's central bank stated that by the end of 2012 the country's annual inflation rate soared by 27.4 percent, and that in October 2012, the Iranian rial lost about 50 percent of its value in one week.

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Tehran refutes the nuclear allegations and maintains that, as a signatory to the Non-Proliferation Treaty and a member of the International Atomic Energy Agency, it is entitled to develop and acquire nuclear technology for peaceful purposes.

So, how effective have the sanctions been in moderating Iran's behavior up to now?

Current indications are not much, despite the damage inflicted on the country's economy.

On 9 January Iranian President Mahmoud Ahmadinejad said that Iran should establish more processing industries in the oil and gas sectors to reduce dependency on exports of crude oil and that the budget plan for the next Iranian year of 1392 (to start on 21 March) envisaged less dependence on crude oil revenues as the government intends to replace crude oil exports with oil derivatives to allow the nation's economy to participate in the oil sector's lucrative downstream industry.

An Islamic regime has controlled Iran for the last 34 years, and it is worth bearing in mind that, according to the CIA World Factbook, the median age of Iran's population is 26, which means that half the country's population knows no other political system.

Accordingly, what is the Farsi word for "stalemate?" A regime that has weathered more than three decades of tumult in its efforts to construct an Islamic society seems unlikely in an energy-starved world to ameliorate its behavior solely to please the dictates of Washington, Brussels, the UN and Canberra.

And oh, on 14 September 2012 the United States exempted Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and Japan from complying with the sanctions for another 180 days, a list that was expanded on 8 December to include China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan.

And, of course, the military option remains "on the table."

By. John C.K. Daly of Oilprice.com