Iran and the oil embargo

Is it wise for the US and Iran to challenge one another at a time like this?

When it comes to the face off between the United States and Iran over Iran’s nuclear program, there are signs that things could escalate into something that neither country will be able to handle. Is it wise to challenge one another at a time like this and threaten each other's security and resources?

Global powers are not what they once used to be. Is this stand-off supposed to result in something, or is it an indication that we cannot stop playing games with one another?

Recently, the European Union finally approved an oil embargo on Iran, which prohibits any EU member from importing oil from Iran. The sanctions also include the freezing of Iran’s central bank’s assets until the Iranian government resumes talks on their nuclear program.

After being approved in Brussels by the EU’s 27 foreign ministers, one has to wonder how EU members such as Italy, Spain, and especially Greece, a country going through the toughest of economic times, will cope with this ban. All three countries import oil from Iran and may feel the brunt of the burden more so than their fellow members.

Iran continues to reiterate that its nuclear program is safe and for peaceful purposes such as efficient energy. However, countries around the globe, including the United States, Australia, Japan, South Korea, and those in the EU, have raised suspicion about Iran’s increase in uranium enrichment which could lead to the development of a nuclear weapon. The fact that Iran does not want foreign interference either from the UN or IAEA and does not wish to talk more about its nuclear program, creates more suspicion

How effective will these sanctions be?

Firstly, when it comes to Iran, its oil exports constitute around 80% of the country’s revenue. Iran is the second largest exporter of oil in the Organization of Petroleum Exporting Countries (OPEC), and produces around four million barrels of oil per day, exporting around 3 million daily. Iran mostly exports oil to Asia and Europe; European oil exports amount to around 20% of Iran’s oil revenue, while Asian oil exports amount to nearly 60%. The Asian countries include China, Japan, South Korea, and India etc.

Is Iran feeling that 20%? Most probably yes, but the key lies in Asia. While Iran is being ostracised by members of the global community, they are not going down without a fight, and have threatened to close the Strait of Hormuz, through which around 20% of the world’s oil sails through.

The potential impact is apparently the impact that the EU and the United States are willing to face, but is it wise in this economic crisis? Not only could oil exports be threatened through the Strait but more Iranian naval war games could be a result of the sanctions. Any rift between the US and Iran can send speculators to propose that the price of oil will rise. And of course, if the situation were to arise to military action in the Middle East, it would be disastrous. A spike in crude oil will kill recovery in the US economy.

Japan

Earlier Japan was hesitant to approve sanctions on Iran. Questioning how effective the sanctions could be, this EU decision could pull Japan in now. Both the US and UK have discussed plans for the sanctions with Japan and the country could be considering reducing their oil imports from Iran. Although still reeling from a devastating earthquake last year puts them in a fragile position.

Japan imports around 9% of its oil from Iran and has been reducing that percentage for years. Japan has been hesitant to go forth with the deal, and says that the sanctions on Iran will not be as effective from the US and EU, but would be more effective if Russia and China were to put an embargo on the exports.

China

China is the world’s largest energy consumer and has not considered sanctioning Iran. China has said that its dealings with Iran have nothing to do with their nuclear program and therefore see no point in the sanctions. It has also expressed its scepticism about how effective the sanctions will be.

South Korea

US officials have also attempted to get South Korea to reduce its crude oil imports from Iran. South Korea imports around 10% of its oil from Iran and is still undecided on whether or not they want to sanction the country. South Korea has already suspended ties with over 200 organisations that have suspected ties to Iran. Koreans are, however, hesitant because they are afraid that the sanctions on Iran could destabilize the global crude oil market.

United States

Suspicious of Iran’s nuclear capabilities for years, the United States was the first country to sanction Iran’s oil exports and freeze Iran’s central bank’s assets. US officials have been trying to pressure allies to join the sanctions on Iran. Its goal is to put so much pressure on Iran that it does not have any choice but to start seriously considering talks on its nuclear program.

Venezuela

In the midst of it all, Ahmedinejad decided to take a four nation tour to South America for support, meeting with his greatest ally, Hugo Chavez of Venezuela. Chavez and other allies argue that Iran’s nuclear program is safe and claims that the US and EU want to hype up claims about Iran's nuclear weapons like they hyped up claims about weapons of mass destruction in Iraq. They also believe that the US is afraid of Iranian development.

Chavez, singing praises of Iran, said that Iran had helped built thousands of homes and factories that produced food, tractors, and vehicles in Venezuela, however, he cannot push his alliance with Iran too far, since he too is faced with economic sanctions.

So we have gone through the claims, the sanctions, the allies, and the threat, but what about the weapons? Iran does not have weapons… yet, however, there are a few countries around the world that do, which includes the US, UK, France, Russia, China, India, Pakistan, and North Korea. And a few of which have not signed the non-proliferation act. So, is it fair (for lack of better word) to sanction Iran while these countries are happily armed?

Timing is everything

When it comes to sceptics, timing is everything. There could be a reason that some countries have jumped on the sanction bandwagon at this time, and were hesitant to before.

At the beginning of this year we found out that Iraq would start shipping crude oil in February of this year from three offshore terminals in the Gulf. This move will increase its export capacity to 900,000 barrels a day. The billion dollar expansion project of Iraq’s export infrastructure in the Gulf is probably worth little, compared to the money that will come in because of these three new offshore terminals. And if countries are looking for other avenues, besides Iran, to import oil from, then Iraq may be a contender.

Companies to gain from this include Shell, BP, and ExxonMobil who have all been awarded development contracts by the Iraqi government. Each corporation targets an output of 12 million barrels per day by the year 2017.

Besides a revival of its oil glory days, Iraq has also been granted an 11 billion dollar worth deal of arms and training from the United States.

Saudi Arabia

Also, right before the new year, the United States confirmed the sale of around 30 billion dollars worth of fighter jets and arms to Saudi Arabia. The agreement, which is actually half of a 60 billion dollar deal over the period of 10 to 15 years, was approved by Congress last year. The fact that it was publicised now is a great indication to Iran that American allies are in the region and prepared. That preparation comes in the form of Apache helicopters, missiles, bombs, and delivery systems that the US has and will provide Saudi Arabia.

The United States says that the arms deal with the Kingdom will deter any threat to Saudi Arabia’s sovereignty. Last I checked, Saudi Arabia’s sovereignty was not being threatened by any foreign country.

Although, last year, the United States did accuse Iran of plotting to assassinate the Saudi Ambassador to the United States. Coincidence?

Libya

Now that Libya is not under the rule of dictator Mummar Qaddafi, there is potential for oil exploration and exportation. Nicholas Sarkozy and David Cameron already took care of Libya when they visited the Middle East and gave arms to “small democracies who deserved to defend themselves.” Did he also maybe do an oil for arms deal?

All in all, the world is a different place and is not as easily “run” as it was before, when oil rich countries were not majority stakeholders in their own resources, Iraq, Kuwait, Libya, etc.

So, should you sanction a resource that is so important to the world? Especially in this economy?

There is still not as much transparency as there should be in the world, but then again, when has there ever been?

Can we afford, as a global community, to stay quiet while security and resources are threatened? No, therefore, diplomacy needs to prevail and not in the same way it used to, by exploitation and defense deals. Like when oil rich countries were the only ones not in control of their oil.

Diplomacy needs to work through this new economic shift and through the new world we live in. There cannot be another Iraq. There needs to be more global communication between the East and the West to create a “diplomacy over war” attitude.