Moon of Alabama Brecht quote
January 09, 2012

Sanctions On Iran - Economic Pain For The "West"

In mid December I called the new "western" sanctions on Iran a self inflicted wound:

In total the markets will be more nervous and the risk premium included in oil prices will go up. Iran and the other Persian Gulf countries will make more money. Everyone else will have to pay more for oil with the price increase for the "west" likely much higher than for the "east". This while the "west" is in economic trouble and the "east" is still expanding.

It will be the most stupid self inflicted wound world policy has seen for a while.

Since then the price of oil has increased from some $104 per barrel Brent crude to $113/bbl today. Considering that in 2006, with most economies humming, Brent was around $70 and that unlike then major economies are now still in recession the price hike is enormous. Iran is clearly showing that it too can play the economic sanctions game. Since mid December it increased its oil export income by $22.5 million per day which further damages "western" economies.

That may well be the reason why U.S. defense secretary Panetta in yesterdays TV interview somewhat played down the Iran case and moved the U.S. "red line", which once was "enrichment", to actual nuclear weapons:

Are they trying to develop a nuclear weapon? No. But we know that they're trying to develop a nuclear capability. And that's what concerns us. And our red line to Iran is do not develop a nuclear weapon. That's a red line for us.

We can be sure that Iran will not cross that red line. It has said all along that it does not want a nuclear weapon and there is no reason to suspect that this will change.

But if only nuclear weapons are the red line, why is the administration still preparing more sanctions?

Unofficial administration spokesman David Ignatius reveals the plans for the 2012 foreign policy:

As for the Iranians, they seem for the first time in years to be genuinely nervous — not because of U.S. or Israeli saber-rattling but because economic sanctions are causing a run on their currency and the beginnings of a financial panic in Tehran. And more sanctions are on the way this year. At some point, the Iranian regime will actually be in jeopardy — and it will punch back. That’s the scenario the White House must think through carefully with its allies. If the current course continues, a collision with Iran is ahead.

The recent rapid devaluation of the Iranian currency, the Rial, is not a success of the sanctions. The slump has other long term economic reasons and, as Prof. Djavad Salehi-Isfahani explains, was "largely expected and welcomed by economists". It will help the Iranian industry to increase its non-oil exports and will make unwelcome cheap imports from China and elsewhere more expensive thereby helping the local Iranian industry and increase employment in Iran.

More sanction means more pain for "western" economies. As it has already shown with its recent maneuver Iran can easily inflict such pain. One does not even have to consider a full closure of the Strait of Hormuz and the economic panic and military consequences (pdf, 38 pgs) that would cause. An explosion on a pipeline in Iraq, a mishap in a Saudi refinery or one lone old mine in the Straits of Hormuz damaging an empty (even Iranian?) old tanker would be enough to push oil prices to even higher levels. Just as the U.S. uses clandestine methods, the killing of scientists and cyber attacks, to inflict damage on Iran, Iran can, if it wants to, use such methods to increase the price of oil without leaving its fingerprints.

There is also much less unity in applying these sanctions than the U.S. wants to acknowledge. The French foreign minister tried a fait accompli when he announced that the EU had agreed "in principle" to similar oil sanctions and central bank on Iran as the U.S. has enacted. It had not and is unlikely to do so:

The three biggest EU importers have serious debt problems. Greece imports a quarter of its oil from Iran, Italy about 13 percent and Spain nearly 10 percent.
...
Other aspects of the prospective embargo are being discussed and a final decision is unlikely to be quick, diplomats said. Some EU capitals are suggesting the impact of sanctions be reviewed after a fixed period, with the possibility of suspending them if they prove ineffective.
...
Some capitals have raised concerns, they said, that sanctions on the central bank would harm the chances of getting Tehran to negotiate over its nuclear work.

I expect that any further EU sanctions on Iran to be rather superficial and easily circumvented.

That is good because the "western" sanctions are not only creating self inflicted damage, they may even be counterproductive in that they leave no way out for Iran and may raise the incentive for Iran to eventually build a nuclear weapon.

That "more sanctions are on the way" from the U.S. side, as Ignatius asserts, must then have other reasons than Iran's nuclear program. There they do not make sense. But we have know that for quite a while. The U.S. sanctions are designed to lead to regime change in Iran. They will not achieve that. Within Iran they will united the people and the Iranian leadership. Iran is also smart enough to not provoke an open war that could endanger the regime. At the same time the U.S. can not start a war on Iran without inflicting catastrophic damage on the world economy.

So what do I expect will happen?

More sanctions may well come. But they will hurt "western" economies more than Iran. They will be responded to by Iran tit for tat with ever increasing oil prices. Iran has already announced more maritime maneuvers in the Strait of Hormuz. When those and the accompanying propaganda have passed the price of Brent crude may well be at $120/bbl and the U.S. economy on its way into another downturn.

Posted by b on January 9, 2012 at 16:39 UTC | Permalink

Comments

I certainly agree that these sanctions curiously counterproductive to the west, and that this is going to further box Iran in. At some point they will believe that they have nothing left to lose (economically) if they just go ahead and create these weapons. After all, they do not have them, are not developing them, nonetheless they are paying the price for them. So they might as well create them to gain the marginal utility from actually possessing these weapons. Right now all they have is stick. They might as well grow some carrots.

Here is an interesting piece in The Diplomat. I would be interested in hearing opinions on this authors opinions.

http://the-diplomat.com/2012/01/07/will-iran-lash-out-at-weak-israel/

Posted by: Base | Jan 9 2012 17:49 utc | 1

The price of oil these days is largely determined by inside speculation, and really has nothing to do with supply and demand. As we saw with the last sharp rise in oil several years prior, it translated to enormous profits for the energy giants, as well as huge gains for the speculators who make profit when the price rises and falls, so it's win-win for them. It's just another way to tax the already almost bloodless Masses and further concentrate wealth for the next chapter in Feudalism 101.

http://www.commondreams.org/headline/2011/05/14-1


Posted by: Morocco Bama | Jan 9 2012 18:08 utc | 2

@ Base -- "t this is going to further box Iran in."
No way. This has gone on for years. Iran is not "boxed in" at all, not politically, not economically and not militarily. The world, with the exception of the US and its western allies, supports Iran. Why not? Iran, an Asian country, has done nothing wrong. The world knows that the U.S. has no sensible objective.

The surface U.S. purported goal of stopping Iran's fully-supervised legal uranium conversion is simply a cover for US/UK hegemonic ambitions which have persisted for years. China, Japan, India -- the major Asian countries (which need Iran energy supplies) are all outside the "box". Russia supports Iran. Even Arabs support Iran b/c they mostly fear Israel and dislike the U.S.

Posted by: Don Bacon | Jan 9 2012 18:14 utc | 3

@3, "the world" is happy the U.S. is doing the dirty work for them.

Posted by: Morocco Bama | Jan 9 2012 18:25 utc | 4

@Base - that piece at the diplomat by Meir Javedanfar (who is Israeli of Iranian heritage) is boilerplate Iranian exile nonsense.

@MB really has nothing to do with supply and demand

Rubbish. While speculation can have some short-term effect on prices the long-term trend is certainly determined by demand and supply.

Posted by: b | Jan 9 2012 18:26 utc | 5

@5, it's not rubbish. Seventy percent of the trades in oil are done by substantial speculators (Goldman Sachs) who are not required to take physical possession of the oil. In otherwords, they can game it, and are, so any supply and demand effect, if it exists at all anymore, is so greatly obscured, it cannot be teased out.

Posted by: Morocco Bama | Jan 9 2012 18:38 utc | 6

Understanding Crude Oil Prices
University of California, San Diego
October 2008
Our overall conclusion is that the low price-elasticity of short-run demand and supply, the vulnerability of supplies to disruptions, and the peak in U.S. oil production account for the broad behavior of oil prices over 1970-1997.
http://dss.ucsd.edu/~jhamilto/understand_oil.pdf

Posted by: Don Bacon | Jan 9 2012 18:50 utc | 7

@6 Are you arguing that speculation in commodities is unrelated to demand for them? And their supply?
Good luck!

Posted by: bevin | Jan 9 2012 19:00 utc | 8

@8
usually, the arguments presented by mr. morocc obama are only that: speculation

Posted by: citizen x | Jan 9 2012 19:22 utc | 9

@8, yes, current speculation is not concerned with supply or demand, but rather at gaming the system, just as someone who counts cards games the blackjack table. When you don't have to take possession, you're in it for gambling purposes only, and those gambling are the House.

@7, that report covered a period that ended 1997, and it does not contradict what I have asserted, nor what was covered in the link I provided.

Posted by: Morocco Bama | Jan 9 2012 19:23 utc | 10

The "red line" has always been a nuclear weapon* but since there has not been even a hint of one the U.S. has had to focus its diplomatic attention on Iran's fully-supervised uranium enrichment, which highlights to the world the paucity of thinking in the District of Columbia. Then they use weasel words like "Iran's illicit nuclear program." That's a favorite phrase of Obama.

Clinton, Dec 2010: "But the position of the international community is clear. You have the right to a peaceful nuclear program. But with that right comes a reasonable responsibility: that you follow the treaty you signed, and fully address the world’s concern about your nuclear activities." (The international community being the US and a few allies.)

Of course Iran is following the treaty it signed and there is no evidence otherwise. As with Iraq, Iran is naturally unable to prove that it doesn't have a nuclear weapons program. How would it do that?

*Whatever happened to "weapons of mass destruction?" Oh yeah, Iraq. The dumb war that discredited WMD.

Posted by: Don Bacon | Jan 9 2012 20:23 utc | 11

Panetta's statement is actually encouraging...it seems to signal that the military is not on board with the crazies.

IMHO speculators feed off of threats to the oil supply. The mystery here is why Obama would shoot himself in the foot my creating conditions that fuel speculation, hurt the economy along with his re-election chances.

Posted by: JohnH | Jan 9 2012 20:32 utc | 12

@MB you are getting on my nerves. Yes there is speculation that creates peaks like in 2007. But the underlying trend 2006 to 2012 I wrote about can NOT be explained by that.

The issue of the post is that U.S. economic sanctions can be answered by Iran by economic sanctions via oil prices.

Speculation plays a role in that because it anticipates certain risks. But real supply and demand plays the long term role. For some time the "west" underestimated the growth of use of oil in the developing "east". The margins of reserve supply get smaller. The Saudis are assumed to be able to provide 12 million barrels per day but have never produced more then 10 million barrels per day, their record output in November 2011: See the Financial Times The Saudi production puzzle.

There is currently a demand/supply situation that justifies above $100/bbl. That is likely to get worse (from the "western" pov) next year which gives Iran plenty of room to use scare tactics to influence the future markets or clandestine moves to influence real supply.

There is a serious miscalculation in the Obama tactics of oil-squeezing Iran that will fire back (not only) on the "western" societies.

Posted by: b | Jan 9 2012 20:36 utc | 13

@John H The mystery here is why Obama would shoot himself in the foot my creating conditions that fuel speculation, hurt the economy along with his re-election chances.

To be fair to Obama (who I do not like) it was Congress (bought and paid by the Israel Lobby (T.Friedman)) that demanded with 100:0 in the Senate and only 8(?) "no" in the House the boycott of Iran's central bank through third country sanction. (i.e. the U.S. unilaterally sanctions third country banks for paying Iran for oil). Obama was at least publicly against this but he did not veto it as he should have.
He may well have signed his loss in the next election with that law.

Posted by: b | Jan 9 2012 20:43 utc | 14

remember this http://www.bloomberg.com/news/2011-05-28/alwaleed-says-saudi-arabia-seeks-70-to-80-oil-to-preserve-sales-to-west.html

or this

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

or this

http://english.cri.cn/855/2005/09/17/262@20170.htm

or this

http://en.wikipedia.org/wiki/1973_oil_crisis

yes, they are desperate, no it is not about speculation, no I would not like to be Israeli, no, Iran does not need a nuclear bomb, they are safe in the geographic and strategic position they are in, yes, sanctions are a joke, yes, we did Iran a favour by not trading financially, yes, it is silly of Gulf emirates to fund the US weapons industry, but no, they would not survive on their own, so Europe and the US are going to protect the most fundamentalist dictatorships in Islam.

no, Iran is not the beacon of enlightenment either ...

so Rurope and the US had better turn their rivers and windcraft into electricity fast, if we do not want nuclear desasters engineered by ourselves. never mind any Iranian bombs. they do not need nuclear weapons for respect, they should get rid of their nuclear fetish though as they do have a habit of earthquakes.

http://en.wikipedia.org/wiki/List_of_earthquakes_in_Iran

and that is the real issue. is nuclear power safe for Iranians?

Posted by: somebody | Jan 9 2012 20:53 utc | 15

Regarding banking in Iran, I like this story from Ted Koppel at NPR.
Dec 26, 2011
KOPPEL: Except, remember, we had almost 40 years of this now. They have grown accustomed to the sanctions. The sanctions do bite. I don't think there's any question about that. But a quick story. I was in Iran about four years ago, and I was trying to check out of the hotel and handed my credit card to the cashier at the hotel. He said, would you come back for your credit card in half an hour, please? I did. I'd forgotten, totally, that, you know, obviously, he can't use an American credit card in Iran. But I'd handed the credit card in without thinking about it, came back half hour later. The bill was paid. I forgot about it. Two or three weeks later, my assistant came in to see me and said, Ted, did you buy $1,300 worth of sporting goods in Dubai?

(SOUNDBITE OF LAUGHTER)

KOPPEL: And I said, how much is that again? And it turned out to be precisely the sum of my hotel bill in Tehran. I tell that story only to point out that the Iranians have found numerous ways of getting around those sanctions.

Posted by: Don Bacon | Jan 9 2012 21:02 utc | 16

@b
Yes, the U.S. is still a democracy in some ways, and especially when the congress passes a law nearly unanimously there's little that a differing decider can do about it. Israel, a country the size of New Jersey with fewer people, owns the U.S. congress. That's a fact.

Posted by: Don Bacon | Jan 9 2012 21:07 utc | 17

Yes, it would be quite easy for Iran to retaliate to the sanctions and threats with some little covert deniable tricks The USrael axis wants a quick easy military strike but without any rise in the oil prices; and this is of course impossible. The sanctions are an intermediate step to try for regime change but even these are upping the prices. I'm sure the Bibi/Obama boys are really furious with Iran.

Posted by: JohnE | Jan 9 2012 21:36 utc | 18

Regime change is no solution. The opposition also favors the nuclear program.

Posted by: Don Bacon | Jan 9 2012 21:44 utc | 19

@ Don Bacon - Even Arabs support Iran b/c they mostly fear Israel and dislike the U.S.

That is debatable given Saudi animosity for Iran due to several reasons which include religious ideological differences, the Iranian revolution that Saudi feared would spread and even Saudi support for Saddam Hussein during Iran-Iraq war. GCC is neatly tucked in Saudi control and it's no secret that Saudi supports a regime change. Perhaps Saudis and Israelis share opinions on Iran. The GCC has strong relations with US and that guarantees that Israel does not have much to fear from them, only Iran, who doesn't function as an US puppet.

Posted by: Irena | Jan 9 2012 22:51 utc | 20

@Irena
You are correct on the Arab monarchies but I said Arabs.

University of Maryland
2011 Annual Arab Public Opinion Survey
October 2011
Egypt, Jordan, Lebanon, Morocco and UAE

64% Iran has right to nuclear program
25% should be pressured to stop

71% Israel biggest threat
59% U.S. " "
18% Iran " "


Posted by: Don Bacon | Jan 9 2012 23:08 utc | 21

Mark Zandi, chief economist at Moody's rating agency, had this to say on Oil Prices effects on the larger Economy.

"If oil prices average $100 a barrel for the year, growth will be 0.3 percentage point lower than if prices had stayed at last year's level. A few months of $125-a-barrel oil would slash economic growth by a full percentage point. And a few months at $150 a barrel would push the economy back into recession."

Source: http://www.huffingtonpost.com/2011/04/06/oil-prices-us-economy_n_845540.html

Also I love all the talk about Iran being "isolated" the same week its President is touring a half dozen South American countries. It might be "isolated" in Europe and the US but Iran has what is sometimes called "the global south" solidly in its corner not to mention Japan and South Korea even asking for exemptions from the Iran oil ban.

As for the European sanctions... I call B.S. As any European surely knows, the EU will always approach an issue by doing the smallest, most watered-down version of it possible. Bold action and the EU don't mix, despite how much the French Foreign Minister pushes for it. Thank god Sarkozy will be gone in a few months, at the rate his re-election is going he will be lucky if he doesn't come in third to Hollande followed by Le Pen.


Posted by: Colm O' Toole | Jan 9 2012 23:24 utc | 22

b@14: Yes, Congress forced Obama's hand. However, I have yet to see Obama miss an opportunity to demonize Iran, though his intelligence services would certainly appreciate the affirmation of their position that Iran is not developing a nuke.

Instead, Obama is determined to lead from behind, supporting whatever cockamamie scheme his liberal interventionist and neocon handlers choose to push, thereby shooting himself in the foot.

What a pathetic excuse for a President!

Posted by: JohnH | Jan 10 2012 0:13 utc | 23

The Iran sanctions does not make any sense from a US national interest perspective. Ron Paul is right on when he says the US should talk to Iran not antagonize them. The NIE on Iran has consistently noted that Iran does not have nuclear weapons. Panetta further reinforced that. It should be clear that the only reason for all the saber rattling and threats is because the Likudnik lobby owns the US Congress and every mainstream presidential contender including the current incumbent. They also own most western european country politicians. The increased risk premium on crude only accrues to the benefit of the producers. I am sure Putin, the Norwegians and the gulf sheikhs are laughing all the way to the bank.

On the matter of closing the Straits of Hormuz - it should also be clear that again it's all propaganda by all sides. Iran has no ability to militarily close the straits for an extended period. It would be extremely foolish on their part to do so as it would provide the casus belli for massive air and naval retaliation by the US and it's European allies. Iranian infrastructure would be completely destroyed. This would be the Likudniks wet dream.

Posted by: ab initio | Jan 10 2012 0:17 utc | 24

If you want to see something scary -- at least to me -- goggle "Muslim Man From Kosovo Charged in Fla. Bomb Plot"
I went through five pages at ten or more per page of the exact same headline from 50 sources about "Muslim Man. . ." I've never seen such headline about a crime committed by "Christian Man," etc.

Posted by: Don Bacon | Jan 10 2012 0:35 utc | 25

That would be "google."

Posted by: Don Bacon | Jan 10 2012 0:35 utc | 26

@3

Don,

Respectfully, that is not exactly a compelling argument. Libya had done nothing to the US except play ball with the US and host every vile politician that the US and UK could throw at them (see McCain and Blair) and they took him out. Iraq did nothing and they took them out.
When I say did nothing, I mean externally, of course. They were of course barbarians, but given the NDAA I dont think that we have much moral standing to cast aspersions. Not that we wont - our capacity for hypocrisy knows no bounds.

Iran is getting boxed in, though the sanctions are in many ways actually helping Iran. They are of course also a pain in their ass. There will come a point though that Iran will be boxed in. Certainly that perception exists among the Iranian masses. Given that we are cruising around the Straits trying to pick a fight it is just a matter of time before we get our wish.

Posted by: Base | Jan 10 2012 14:49 utc | 27

B, on oil speculation you're off. First off, the Commodities Futures Modernization Trading Act was passed in 2000. In 2001 oil speculation totaled $7 billion/annum, but in 2007 the figure grew to $300 billion/annum. Oil demand is down in the US and globally, yet prices are higher. The Saudis offered to offset any Libyan disruptions, but still the price spiked.

Goldman Sachs just last week issued a report predicting $200/barrel oil, despite slackening demand. Goldman Sachs is notorious for their Chicken Little predictions on oil prices. If you have any questions on the issue, I would direct you to Ed Wallace, a local reporter. His website, www.insideautomotive.com is an aggregator like Drudge with a Dallas Ft.Worth. Ed is responsive, and would offer a better defense of our position than anyone else.

Posted by: scottindallas | Jan 10 2012 14:55 utc | 28

This reminds me of a few years ago when there was an attempt to stop banking relations with Iran.

That created a flap in Switzerland, as you may imagine. I’ve forgotten the exact scope of the ‘sanctions,’ sorry.

First, it was not realistic, capital flows freely thru the world, and money has such obscure origins - in fact one of its functions is to be an anonymous, universal medium of exchange - it really is sort of impossible to do without destroying swatches of economic arrangements, incl. the buying and selling of oil.

Second, the banksters were of course against it, so naturally it fell by the wayside.

To make a point, here in CH, several ordinary Iranians were forbidden bank privileges, two of them went postal and appeared all over the media, UBS and Credit Suisse backed down.

A cynical commentator said, well now the US is satisfied, all that is needed is to make a show of willingness and hound some cyphers. Discussion took place at higher levels: possibly - my imagination - CH argued that it could not comply because CH offers considerable services to the US (by representing it diligently in Iran), its diplomatic servitude and efficiency could not proceed ahem smoothly were it seen to be discriminating against and attacking valiant, blameless Iranians.

No more was said.

Oil is somewhat similar. Its trade operates in a ‘free’, world market. (Taxes on it are locally levied.) One of the only ones, in fact, along with capital.

Which, btw, is a state of affairs that ostensibly the US has worked hard to bring about.

Iran will sell its oil as usual and nothing much will happen. There won’t be dire consequences, or price moves because of this, as they are for a large part (not only) due to other factors, as M Bama stated or suggested. It is not a question, really, of ‘speculators’, but of intermediaries in the finance world, raking off the top and manipulating prices. As usual. (Irish construction of estates, anyone? Sub-prime in the US?)

One ex:

Chris Cook, “Naked Oil”, on naked capitalism.

http://www.nakedcapitalism.com/2012/01/chris-cook-naked-oil.html

Posted by: Noirette | Jan 10 2012 15:35 utc | 29

@ Base
Iran is different from Libya and Iraq, which by the way haven't turned out very well. That severely lessens the chance they will be repeated -- see Syria.

Please specifically define your "boxed in" claim in factual terms regarding politics, military and/or finances and I will address each one and show why the facts indicate that Iran is not "boxed in." Also your claim about the perception of the "Iranian masses" feeling "boxed in" needs evidence.

Remember this is a country with a strong military, a strong diplomacy, was a big winner in Iraq (the now control an energy-rich country formerly their enemy) and has powerful friends who respect the fact that Iran ranks in the top three globally in oil and gas which other Asian countries need.

Meanwhile the top financial guy in the most powerful economy in the world has struck out.

Jan 9, 2012
China rejects linking trade and Iranian nukes ahead of Geithner visit to lobby for sanctions
BEIJING (AP) — A top Chinese diplomat on Monday rejected linking Iran's nuclear program to trade, adding to tensions with Washington on the eve of a visit by U.S. Treasury Secretary Timothy Geithner to seek support for sanctions on Tehran's oil industry

Posted by: Don Bacon | Jan 10 2012 15:45 utc | 30

Forgive my OT post, but, this is relevant for those who think the West lost the battle for Iraq, or that Iran controls Iraq's oil future. While the history isn't completely written yet, this article is telling.

http://www.truth-out.org/western-oil-firms-remain-us-exits-iraq/1326134840

Posted by: ben | Jan 10 2012 15:57 utc | 31

Interesting post on this subject @ http://occupyatlanta.org/events/event/rally-against-the-death-penalty-in-georgia/#.TwvRUs0peHw this morning.

Posted by: Eureka Springs | Jan 10 2012 16:04 utc | 32

Sorry, here's the correct link:
http://www.nakedcapitalism.com/2012/01/chris-cook-naked-oil.html

Posted by: Eureka Springs | Jan 10 2012 16:05 utc | 33

Remember, it's in US interest to manipulate the price of oil higher in order to backstop the value of USD through petrodollar recycling.

"The economic game is ending now and has been from the start of 1997! Watch closely as the world currencies and markets fall one by one. Watch in absolute wonder as the demand for oil plunges and it's price goes through the roof. Yes, oil stocks will crash with the markets. And gold? You will never know it's price. It will stop all trading as it slices thru $10,000" - ANother, Nov. 1997

Posted by: nikon | Jan 10 2012 16:08 utc | 34

@29, you're right, to call what is going on "speculation" is an inappropriate use of that term, although it is still the term used, because in polite parlance, it isn't referred to by what it really is.....and that's out and out price manipulation. It's not speculation when you have determined the outcome in advance of laying your "bets".

Posted by: Morocco Bama | Jan 10 2012 16:10 utc | 35

I would recommend people to read an excellent book titled 'Osmans Dream' which covers the entire history of the Ottoman empire. The single lesson from it is that empires at their peak are not driven by rational decisions. They seem to get caught in a process dictated by their internal power structure and continue to make decisions that are counterproductive to their interests. And the nominal head of state is very limited in his personal choices. This may help explain what US is doing vis a vis Iran in particular as well as in the Middle East in general. The actions are very counterproductive to the US's own interests long term but are driven by the political climate within the US.

On Israel, my thoughts are at this is the turning point of its power within the US. And that is why they are exerting it so fiercely, they can see the reverse trend. It starts with increasing number of US jews who no longer care about Israel and the continued decline in the Jewish population here (nearly all US Jewish congregations are shrinking). It may take a decade to play out it the trend is inevitable.

Regarding Iran's recent activities, it seems to no longer want to be passive (i.e., keep absorbing the punches for US/Israel and bide its time), they are deciding to go on offense. That doesn't mean war but it does mean they will now do everything to make things difficult for US/Israel and that may include disruption of oil supply. If I was in their shoes the problem to tackle would be how to cut supplies to the west without cutting them to China? If they are able to figure that out it we may get $150/barrel crude prices.

Posted by: Khalid Shah | Jan 10 2012 16:24 utc | 36

@ Khalid Shah
I seriously doubt that Iran has any intention of disrupting oil supply. It's the "all options on the table" game that any politician can play. And I don't understand your conjecture on how Iran might cut oil supplies to the west since the topic of this thread is "Sanctions On Iran - Economic Pain For The "West."

Posted by: Don Bacon | Jan 10 2012 17:06 utc | 37

@ ben #31

ben: "Forgive my OT post, but, this is relevant for those who think the West lost the battle for Iraq, or that Iran controls Iraq's oil future. While the history isn't completely written yet, this article is telling.

The article is telling, all right. The money quote:
"The US and other western oil companies and their governments had been lobbying for passage of a new national law in Iraq, the Iraq Oil Law, which would move Iraq from a nationalised to a largely privatised oil market Iraq from a nationalised to a largely privatised oil market using Production Sharing Agreements (PSAs), a type of contract model used in just approximately 12 per cent of the world's oil market."

Do you think that Iran would allow that to happen?

Give it up -- Iran was the big winner in Iraq and the U.S. was the big loser, in many ways.

Posted by: Don Bacon | Jan 10 2012 17:24 utc | 38

@ Don Bacon,

In the past Iran seemed to have the attitude let the US/Israel keep inflicting pain on themselves and just absorb their actions without retaliation. So there did not seem to be any response from them to the Stux virus, past sanctions, flooding Iran with Heroin from Afghanistan etc.

But recently they seem to be taking initiative. Bringing down the drone. They most likely had the capability for quite some time but only now chose to use it. Killing off the entire CIA unit in Iran. Again they chose to do it now though probably had the intel for some time. I do not remember in the past any senior Iranian official even mention stopping the sale of oil to the west, as was done by one of the senior minister's just a few weeks ago. And now the threats on cutting of the straits of Hormuz.

The point is the west is not only going to suffer from self inflicted economic pain. Seems like Iran will actively seek to add to the pain wherever and whenever it can. Just my 2 cents worth.

Posted by: Khalid Shah | Jan 10 2012 17:32 utc | 39

@30

Don,

Make no mistake, I am not disagreeing with you on Libya or Iraq and the complete and utter failure that has transpired in Iraq and will soon come to light in the same obvious way in Libya. The term 'unmitigated disaster' is probably optimistic.

It is just that here in the US it appears that we have an unlimited capacity for bullshit when it comes to the demonization and fear of the nations in the Middle East. It also seems that we never actually learn from out mistakes. Hence the rhetoric in the run up to the war in Iran looks VERY similar to the run up to the war in Iraq. Also, just because we (the US/West) don't have a 'reason' to invade doesn't make a damn bit of difference. We will manufacture the reason, just like we did in Libya and are trying to do in Syria right now.

Don't you believe that if NATO believes it could get a resolution through the UN on Syria it would push it though and let the bombs fly? Syria has not (yet) happened because Russia and China will have nothing to do with it this time around because it absolutely does not behoove them to have the US control the entire Med and that is why it has not happened. Iran is China's #2 oil supplier and a large patron for weapons from both (and would like to be even larger, I am sure!) In the case of Syria you are giving the US WAAAY too much credit for acting rationally. We are clearly out of our minds and never learn. We never have.

I also agree that the sanctions are both working against the west's own interests as well as actually, in some ways, bolstering the Iranians. However there is no dispute that at some level they are also a pain in the ass for the Iranians.

I am of the belief that Iran can absolutely fight back against the US, and cause significant damage to the US. In an all out war, however, the US would eventually flatten Iran and have at least a short term pyrrhic victory. The end result, of course, would be a 'victory' in the same horrible way that Iraq is a 'victory'.


Posted by: Base | Jan 10 2012 17:47 utc | 40

@ Khalid Shah
Iran hasn't retaliated against the U.S.? You ought to read some military blogs where they complain about Iran killing US troops with IED's in Iraq and getting away with it. Iran also shares a long border with Afghanistan. The jury is still out on how that will shake out, but I wouldn't bet against Iran pulling another victory over the U.S. And why was that U.S. drone over eastern Iran?

The US, in a highly public manner, supported by the MSM, conducts its foreign affairs using the traditional imperialistic methods perfected by the Brits. Their victims, out of necessity, can't compete on these grounds so they compete differently, asymmetrically. They use diplomacy and black operations to protect their sovereignty and further their goals.

That's what Iran does. It may seem like Iran is unresponsive, but that's not so. Look at the results -- Iran now controls Iraq -- their past mortal enemy? Thanks to The Great Satan! That's success!

So now this little pip-squeek country can poke its finger in Uncle's eye, with blabber about closing the Strait and cutting of oil. It's just political bravura -- but something that Iran would have dared to do ten years ago.

Posted by: Don Bacon | Jan 10 2012 18:04 utc | 41

@ Base
So you've dropped "boxed in."

Posted by: Don Bacon | Jan 10 2012 18:07 utc | 42

@Don

Not at all. To think that Iran is not feeling the effects of the sanctions is to defy logic and evidence (which apparently you are fine with). We can see that the sanctions are having an effect, and are, by many accounts, an act of war.

http://www.zerohedge.com/news/hyperinflation-comes-iran

http://www.irantracker.org/us-policy/sanctions-iran-reactions-and-impact

http://www.atimes.com/atimes/Middle_East/NA11Ak03.html

http://www.dailymotion.com/video/xnbv45_unified-front-leaving-iran-boxed-in_news

http://www.foreignpolicy.com/articles/2012/01/09/iran_s_kamikaze_hormuz_threat

http://www.nytimes.com/2011/12/20/world/middleeast/iran-admits-western-sanctions-are-inflicting-damage.html

What I am saying (most logically) is that at some point Iran could be boxed in and feel like they have to strike out overtly.

So "dropped it"? No.

Why dont you just converse instead of trying to prove every sinew of your point?

Posted by: Base | Jan 10 2012 18:23 utc | 43

@ Base

"Why dont you just converse instead of trying to prove every sinew of your point?"

Priceless. Let's convert this to b's chat room. Tea served. Except I must have whiskey.

Posted by: Don Bacon | Jan 10 2012 18:32 utc | 44

Except I must have whiskey.

Well this is somewhat the successor of Billmon's Whiskey Bar so whiskey will be served.

@Khalid Shah If I was in their shoes the problem to tackle would be how to cut supplies to the west without cutting them to China? If they are able to figure that out it we may get $150/barrel crude prices.

As I have suggested Iran could use clandestine means to disrupt supplies from Saudi Arabia and other oil producers. With Shia friends sitting on the pipelines of Iraq and Saudi Arabia that should be quite simple to do. Then do what the U.S. always does: blame Al-Qaeda.

Posted by: b | Jan 10 2012 18:53 utc | 45

Everybody wants more Saudi oil but Saudi can't supply much especially since their domestic petroleum needs are increasing and the citizens can't be further shortchanged.

Posted by: Don Bacon | Jan 10 2012 19:25 utc | 46

Also Saudi doesn't mind high prices at all.

Posted by: Don Bacon | Jan 10 2012 19:27 utc | 47

Obama was at least publicly against this but he did not veto it as he should have.

b, it takes 2/3 majority of congress to override a presidential veto, therefore when the original vote is 100-0 it makes little sense for the prez to veto unless he's in the mood for more humiliation.

Posted by: annie | Jan 10 2012 23:11 utc | 48

Don 47, Not just the Saudis, but the Russians too. In fact, it was low oil prices that felled the Soviet Union, not Starwars and Ronnie.

Posted by: scottindallas | Jan 12 2012 0:33 utc | 49

I heartily enjoyed the chest-thumping comments from the usual suspects. It's tonnes better than TV! And I learned more too - from both sides of the argument.

Posted by: arthurdecco | Jan 19 2012 0:41 utc | 50

The obvious: Reuters: Oil industry sees China winning, West losing from Iran sanctions

As the European Union prepares to ban Iranian oil and the United States turns the screw on payments, oil executives and policymakers say China and Russia stand to gain the most and Western oil firms and consumers may emerge the biggest losers.
...

Posted by: b | Jan 28 2012 2:02 utc | 51

China wins twice.
DAVOS, Switzerland - The leaders of Denmark and Finland said on Friday that China has showed a willingness to contribute to global efforts to bail out debt-ridden European countries. However, a senior Chinese policy adviser said there should be preconditions.

"China understands we are in a multi-polar era, meaning the world is not led by the US and China, so other global players should have equal chance to solve the global challenge," he said. "In this context, China will join in IMF process."

However, the process will be complicated, he said, adding that if "emerging economies such as China, India and Russia put (in) money the IMF should continue to reform its governance and voting rights".
http://usa.chinadaily.com.cn/business/2012-01/28/content_14496623.htm

In other words, the days of western monopoly of the IMF may be over.

Posted by: Don Bacon | Jan 28 2012 3:19 utc | 52

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