In perhaps his boldest foreign policy move during his presidency, Barack Obama Wednesday announced that he intends to establish full diplomatic relations with Cuba.
While the president noted that he lacked the authority to lift the 54-year-old trade embargo against Havana, he issued directives that will permit more American citizens to travel there and third-country subsidiaries of US companies to engage in commerce. Other measures include the launching a review of whether Havana should remain on the US list of “state sponsors of terrorism.” The president also said he looked forward to engaging Congress in “an honest and serious debate about lifting the embargo.”
“In the most significant changes in our policy in more than fifty years, we will end an outdated approach that, for decades, has failed to advance our interests, and instead we will begin to normalize relations between our two countries,” said Obama in a nationally televised announcement.
“Through these changes, we intend to create more opportunities for the American and Cuban people, and begin a new chapter among the nations of the Americas.”
The announcement, which was preceded by a secret, 45-minute telephone conversation Tuesday morning between Obama and Cuban President Raul Castro, drew both praise from those who have long argued that Washington’s pursuit of Cuba’s isolation has been a total failure and bitter denunciations from right-wing Republicans. Some of them vowed, among other things, to oppose any effort to lift the embargo, open the US embassy in Havana, or confirm a US ambassador to serve there. (Washington has had an Interest Section in the Cuban capital since 1977.)
“Today’s announcement initiating a dramatic change in US policy is just the latest in a long line of failed attempts by President Obama to appease rogue regimes at all costs,” said Florida Sen. Marco Rubio, one of a number of fiercely anti-Castro Cuban-American lawmakers and a likely candidate for the Republican presidential nomination in 2016.
“I intend to use my role as incoming Chairman of the Senate Foreign Relations Committee’s Western Hemisphere subcommittee to make every effort to block this dangerous and desperate attempt by the President to burnish his legacy at the Cuba people’s expense,” he said in a statement. “Appeasing the Castro brothers will only cause other tyrants from Caracas to Tehran to Pyongyang to see that they can take advantage of President Obama’s naiveté during his final two years in office.”
The outgoing Democratic chair of the Foreign Relations Committee, New Jersey Sen. Robert Menendez, also decried Obama’s announcement. “The United States has just thrown the Cuban regime an economic lifeline,” he said.
“With the collapse of the Venezuelan economy, Cuba is losing its main benefactor, but will now receive the support of the United States, the greatest democracy in the world,” said Menendez, who is also Cuban-American.
But other lawmakers hailed the announcement.
Today President Obama and President Raul Castro made history,” said Sen. Patrick Leahy, a senior Democrat and one of three lawmakers, including Republican Sen. Jeff Flake, who escorted Alan Gross, a US Agency for International Development (USAID) contractor, from Havana Wednesday morning as part of a larger prisoner and spy swap that precipitated the announcement.
“Those who cling to a failed policy (and) …may oppose the President’s actions have nothing to offer but more of the same. That would serve neither the interests of the United States and its people, nor of the Cuban people,” Leahy said. “It is time for a change.”
Other analysts also lauded Obama’s Wednesday’s developments, comparing them to historic breakthroughs with major foreign policy consequences.
“Obama has chosen to change the entire framework of the relationship, as (former President Richard) Nixon did when he travelled to China,” said William LeoGrande, a veteran Cuba scholar at American University, in an email from Havana. “Many issues remain to be resolved, but the new direction of US policy is clear.”
Michael Shifter, president of the Inter-American Dialogue, a Washington-based hemispheric think tank that has long urged Washington to normalize ties with Havana, told IPS the regional implications would likely be very positive.
“Obama’s decision will be cheered and applauded throughout Latin America,” he said.
“The Cuba issue has sharply divided Washington from the rest of the hemisphere for decades, and this move, long overdue, goes a long way towards removing a key major source of irritation in US-Latin American relations,” Shifter said.
Obama also announced Wednesday that he will attend the 2015 Summit of the Americas in Panama in April. Castro had also been officially invited, over the objections of both the US and Canada, at the last Summit in Cartagena in 2012, so there had been some speculation that Obama might boycott the proceedings.
Harvard international relations expert Stephen Walt said he hoped that Wednesday’s announcement portends additional bold moves by Obama on the world stage in his last two years as president despite the control of both houses of Congress by Republicans.
“One may hope that this decision will be followed by renewed efforts to restore full diplomatic relations with even more important countries, most notably Iran,” he told IPS in an email.
“Recognition does not imply endorsing a foreign government’s policies; it simply acknowledges that U.S. interests are almost always well served by regular contact with allies and adversaries alike,” he said.
Administration officials told reporters that Wednesday’s developments were made possible by 18 months of secret talks between senior official from both sides—not unlike those carried out in Oman between the US and Iran prior to their landmark November 2013 agreement with five other world powers on Tehran’s nuclear program.
Officials credited Pope Francis, an Argentine, with a key role in prodding both parties toward an accord.
“The Holy Father wishes to express his warm congratulations for the historic decision taken by the Governments of the United States of America and Cuba to establish diplomatic relations, with the aim of overcoming, in the interest of the citizens of both countries, the difficulties which have marked their recent history,” the Vatican said in a statement Wednesday.
The Vatican’s strong endorsement could mute some of the Republican and Cuban-American criticism of normalization and make it more difficult for Rubio and his colleagues to prevent the establishment of an embassy and appointment of an ambassador, according to some Capitol Hill staff.
Similarly, major US corporations, some of whom, particularly in the agribusiness and consumer goods sectors, have seen major market potential in Cuba, are likely to lobby their allies on the Republican side.
“We deeply believe that an open dialogue and commercial exchange between the US and Cuban private sectors will bring shared benefits, and the steps announced today will go a long way in allowing opportunities for free enterprise to flourish,” said Thomas Donohue, the president of the US Chamber of Commerce in a statement. Donohue headed what he called an unprecedented “exploratory” trip to Cuba earlier this year.
“Congress now has a decision to make,” said Jake Colvin, the vice president for global trade issues at the National Foreign Trade Council, an association of many of the world’s biggest multi-national corporations. “It can either show that politics stops at the water’s edge, or insist that the walls of the Cold War still exist.”
Wednesday’s announcement came in the wake of an extraordinary series of editorials by the New York Times through this autumn in favour of normalization and the lifting of the trade embargo.
In another sign of a fundamental shift here, former Secretary of State Hillary Clinton, whose husband Bill took some steps to ease the embargo during his tenure as president, disclosed in her book published last summer that she had urged Obama to “take another look at our embargo. It wasn’t achieving its goals, and it was holding back our broader agenda across Latin America.”
That stance, of course, could alienate some Cuban-American opinion, especially in the critical “swing state” of Florida if Clinton runs in the 2016 election. But recent polls of Cuban-Americans have suggested an important generational change in attitudes toward Cuba and normalization within the Cuban-American community, with the younger generation favoring broader ties with their homeland.
Photo: Alan Gross talks with President Obama onboard a government plane headed back to the US, Dec. 17, 2014. Credit: Official White House Photo by Lawrence Jackson
]]>via Sanctions Law
This was a big year for sanctions. Although 2012 isn’t over yet and there is some pending legislation threatening to impose more sanctions against Iran and a forthcoming set of regulations from OFAC on some of the additional Iran sanctions we saw in the late summer/early fall, [...]]]>
via Sanctions Law
This was a big year for sanctions. Although 2012 isn’t over yet and there is some pending legislation threatening to impose more sanctions against Iran and a forthcoming set of regulations from OFAC on some of the additional Iran sanctions we saw in the late summer/early fall, I thought I would recap some of the big sanction developments of 2012. I may update this list if additional events do come to pass.
December 31, 2011: President Obama signs into law the National Defense Authorization Act (NDAA) of 2012 (NDAA), which includes Section 1245, calling on the President to block all Iranian banks and the Central Bank of Iran.
January 23, 2012: Bank Tejarat is designated under Executive Order 13382 for its involvement in Iran’s weapons of mass destruction proliferation efforts. Tejarat was frequently used to initiate payments for U.S. exports of agricultural commodities, medicine, and medical devices. That same day the European Union (EU) institutes an oil embargo against Iran and targets the Central Bank of Iran for sanctions.
February 6, 2012: President Obama issues Executive Order 13599, effectively blocking all Iranian financial institutions.
February 23, 2012: Designations under the Transnational Criminal Organizations sanctions program applied to a number of individuals believed to be members of Brother’s Circle and Yakuza.
February 27, 2012: The EU applies sanctions to the Central Bank of Syria.
February 28, 2012: The first NDAA deadline passes.
March 15, 2012: EU prohibits SWIFT from providing financial messaging services to EU designated banks.
March 20, 2012: First NDAA exemptions are announced. Eleven (11) countries receive sanctions waivers.
April 23, 2012: The Grave Human Rights Abuses by the Governments of Iran and Syria Via Information Technology (GHRAVITY) executive order is issued.
May 1, 2012: Foreign Sanctions Evaders Executive Order is issued.
May 16, 2012: Yemeni Sanctions Executive Order is issued. EU suspends sanctions targeting Burma.
May 22, 2012: Belarus based JSC CredexBank is targeted as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act.
June 6, 2012: The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) announces $619 million sanctions settlement against ING Bank. The announcement marks the largest settlement in the history of OFAC.
June 11, 2012: 2nd NDAA exemptions are announced.
June 28, 2012: 2nd NDAA deadline concerning oil activity and public/private banks.
July 1, 2012: EU Oil Embargo against Iran goes into effect.
July 11, 2012: OFAC issues two general licenses which significantly ease U.S. sanctions targeting Burma.
July 17, 2012: U.S. Senate releases report and holds hearing on the activities of HSBC which includes evidence of money laundering and sanctions violations.
July 31, 2012: First designations under the Comprehensive Iran Sanctions Accountability, Divestment Act of 2010 (CISADA). Kunlun Bank and Elaf Islamic Bank added to the new Part 561 List. President Obama also issues Executive Order 13622 implementing further sanctions against Iran, specifically targeting the National Iranian Oil Company, and Naftiran Intertrade Company.
August 6, 2012: New York Department of Financial Services announces violations of banking laws and sanctions by Standard Chartered Bank.
August 10, 2012: The Iran Threat Reduction and Syria Human Rights Act of 2012 (“TRA”) is signed into law.
October 9, 2012: Executive Order 13628 issued. U.S. parent companies become liable for their foreign subsidiaries dealings with Iran.
October 11, 2012: MS-13 is designated under the Transnational Criminal Organizations sanctions program.
October 15, 2012: EU bans dealings between EU financial institutions and Iranian banks.
– Erich Ferrari an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.
Okay, it seems I spoke too soon. Hamas is now back in the “Iranian-supported” camp according to this editorial in the New York Times, which identifies Hamas as both “backed by Iran” and pathologically “consumed with hatred for Israel.”
President Shimon Peres has also refocused on Iran, as [...]]]>
Okay, it seems I spoke too soon. Hamas is now back in the “Iranian-supported” camp according to this editorial in the New York Times, which identifies Hamas as both “backed by Iran” and pathologically “consumed with hatred for Israel.”
President Shimon Peres has also refocused on Iran, as shown by his response to a prompt by Piers Morgan of CNN. Morgan doesn’t beat around the bush and without displaying a modicum of impartiality asks: “If you believe Mr. President, that Iran is behind a lot of the Hamas terror activity, as you put it, then what action do you intend to take against Iran?”
Peres’ response?
Not that I guess so, I know that is the case. And we are not going to make a war with Iran but we are trying to prevent the shipping of long range missiles which Iran is sending to Hamas. And they are urge to Hamas to fire ….Iran is a problem, world problem. Not only from the point of view of building a nuclear danger, but also from the point of being a center of world terror. They finance, they train, they send arms, they urge, no responsibility, nor any moral consideration. It’s a world problem and you know it.
And what of the closure of the Hamas headquarters in Damascus, which according to many commentators supposedly created enormous strains with Iran and resulted in much less funding and material to Hamas than in the past? What of the recent visits by high profile non-Iranian regional leaders? Not much.
The Gaza problem, in the minds of the Netenyahu-Barak duo, is caused by Iran, according to Salam Masalha, writing in Haaretz: “[t]he current operation can be called “the little southern Iranian operation,” since it’s designed to paralyze Iran’s southern wing. The next operation will be “the little northern Iranian operation “: It will try to destroy Iran’s Lebanon wing.”
Israeli officials must be feeling like they’re losing their public relations war on Gaza. The meme of Hamas, the terrorist group, no longer seems sufficient. Hence “Hamas, the terrorist group supported by Iran” comes to the rescue.
Even the New York Times is noticing this problem and wants the “Arab leaders to speak the truth and stop ignoring the culpability of Hamas.” The unhappiness with the changed region and the difficulty it poses for the usual conceptualization of the disproportionate Israeli attacks on Gaza as self-defense and a fight against terrorism, is palpable. After all, it is not Mahmoud Ahmadinejad who is calling Israel a “terrorist state” these days, but Prime Minister Recept Tayyip Erdogan of Turkey.
The reality is that even the re-attachment of Hamas to Iran will neither resolve Israel’s occupation problem nor its public relations predicament. Israel is deemed the aggressor and out of control in the region not because it is unable to tell and re-tell its anti-terrorism narrative loudly enough, but because it cannot convince most of the world that its reckless bombing of a civilian population is a fight against terrorism (and its presumed chief sponsor, Iran).
As Sherine Tadros points out in her discussion of why reporting on Gaza is hard: “Hamas is not Gaza.” The reason Israel, after a few days of bombing, invariably loses its ability to sell the Iranian-backed terrorism meme in the court of regional public opinion — although not to US policy-makers who are its chief concern — is because most people know that no society and its livelihood can be reduced to its government, no matter how bad that government is.
To be sure, the current Israeli government can take the honest route and call for the punishing of the entire society in the way Gilad Sharon, son of former Prime Minister Ariel Sharon, did when he said that “We need to flatten entire neighborhoods in Gaza. Flatten all of Gaza… The residents of Gaza are not innocent, they elected Hamas. The Gazans aren’t hostages; they chose this freely, and must live with the consequences.”
But this is not the route most Israeli leaders (excepting Interior Minister Eli Yishai who posited the goal of Pillar of Defense Operation as “sending Gaza back to the Middle Ages”) have taken. The route taken is to say that Israel had no choice but to respond disproportionately because of Hamas terrorism (now, again, supported by outside terrorists).
This is not a credible argument given the impact of Israeli actions — including the almost 6-year old embargo — on Gaza and not Hamas. And blaming or even militarily attacking Iran will not make Gaza go away.
- Farideh Farhi is an independent researcher and an affiliate graduate faculty member in political science and international relations at the University of Hawaii-Manoa.
]]>The world economy would bear substantial costs if the United States took steps to significantly escalate the conflict with Iran over its controversial nuclear programme, according to the findings of a Federation of American Scientists’ (FAS) special report released here Friday.
Based on consulations with a group of nine bipartisan [...]]]>
The world economy would bear substantial costs if the United States took steps to significantly escalate the conflict with Iran over its controversial nuclear programme, according to the findings of a Federation of American Scientists’ (FAS) special report released here Friday.
Based on consulations with a group of nine bipartisan economic and national security experts, the findings showed the effects of U.S. escalatory action against Iran could range from 64 billion to 1.7 trillion dollars in losses for the world economy over the initial three-month term.
The least likely scenario of de-escalation, which would require U.S. unilateral steps showing it was willing to make concessions to resolve the standoff, would result in an estimated global economic benefit of 60 billion dollars.
“The study’s findings suggest that there are potential costs to any number of U.S.-led actions and, in general, the more severe the action, the greater the possible costs,” Mark Jansson, FAS’s special projects director, told IPS.
“That being said, even among experts, there is tremendous uncertainty about what might happen at the higher end of the escalation ladder,” added Jansson, the second author of the report after Charles P. Blair, an FAS senior fellow on state and non-state threats.
The six plausible scenarios of U.S.-led actions against Iran included isolation and a Gulf blockade, which would include U.S. moves to “curtail any exports of refined oil products, natural gas, energy equipment and services”, the banning of the Iranian energy sector worldwide (incurring an estimated global economic cost of 325 billion dollars), and a comprehensive bombing campaign that would also target Iran’s ability to retaliate (incurring an estimated global economic cost of 1.082 trillion dollars).
The report is explicit in not endorsing any particular policy recommendation, although others are not so reticent.
United Against a Nuclear Iran (UANI) and the neoconservative Foundation for Defense of Democracies (FDD) are leading hardline Washington-based advocacy groups arguing for sweeping economic measures against Iran.
“The White House must build on this momentum, intensifying economic warfare in an effort to shake the Islamic Republic to its core,” wrote FDD executive director Mark Dubowitz in June.
Paul Sullivan, an economics professor specialising in Middle East security at Georgetown University, told IPS that, “The fact that the hardest core of the neoconservative ‘strategists’ have not thought through the costs of escalating conflict with Iran is proof of their group intellectual inadequacy.
“The main effects to the U.S. if there is escalation is through the price of oil and increased military and other national security costs,” said Sullivan, who evaluated the scenarios as an expert but could not comment on the specific figures due to Chatham House Rules.
“If there is an attack on Iran, with the expected counterattacks the price of oil could quite easily go to 250 dollars or higher. This could push the U.S. right back into a recession,” he said.
As tensions rise over the decades-long dispute over Iran’s controversial nuclear programme, analysts are increasingly examining a range of costs associated with escalating the so-far cold conflict between the U.S. and Iran.
The Iran Project Report released in September showed that the cost of Iranian retaliation would be “felt over the longer term” by the U.S. and could result in a regional war.
“In addition to the financial costs of conducting military attacks against Iran, which would be significant…there would likely be near-term costs associated with Iranian retaliation, through both direct and surrogate asymmetrical attacks,” according to the report, which was endorsed by a long list of high-level, bipartisan national security advisers.
The Iran Project report’s findings support the notion that greater escalatory action will result in greater costs – shown in financial terms by the FAS findings: “A dynamic of escalation, action, and counteraction could produce serious unintended consequences that would significantly increase all of these costs and lead, potentially, to all-out regional war,” notes the report.
An Oct. 19 event on the economic and military considerations of war with Iran at the Center for the National Interest (CNI) offered similar assessments.
“You could lose eight million barrels a day of production, and it would not come back quickly,” said J. Robinson West, who has also held senior positions in the White House, the Energy Department, and the Pentagon under various Republican administrations. “We believe the price of oil will go above 200 dollars a barrel.”
On Oct. 20, the New York Times reported that the U.S. and Iran had “agreed in principle for the first time” to direct negotiations.
But Tehran and Washington did have “limited bilateral talks” in 2009 “when the Iranian leadership saw a potential in the newly elected Obama administration to address some of Iran’s bottom lines regarding the country’s right to enrichment,” Farideh Farhi, an independent scholar and affiliate graduate faculty at the University of Hawai’i, told IPS.
On Wednesday, President Obama denied the Times report but did not dismiss the notion of one-on-one talks. In fact, he strongly suggested that the U.S. would seriously engage if the Iranians proved their sincerity.
“If Iran is serious about wanting to resolve this, they’ll be in a position to resolve it,” he said during his first press conference following his successful presidential re-election campaign.
“The situation is different now insofar as the Iranian leadership is much more sceptical of Obama’s words regarding his desire to resolve the nuclear issue instead of going for the Islamic regime’s jugular after a show of desire for talks,” said Farhi.
“To be sure, there will always be hardline naysayers in Tehran no matter what. A similar situation exists in the U.S.. But if the past is any guide, Tehran will come around and abandon its current resistance to bilateral talks if it sees a potential for breakthrough,” she said.
]]>By Juan Cole
Posted by Tom Dispatch
It’s a policy fierce enough to cause great suffering among Iranians — and possibly in the long run among Americans, too. It might, in the end, even deeply harm the global economy and yet, history tells us, [...]]]>
By Juan Cole
Posted by Tom Dispatch
It’s a policy fierce enough to cause great suffering among Iranians — and possibly in the long run among Americans, too. It might, in the end, even deeply harm the global economy and yet, history tells us, it will fail on its own. Economic war led by Washington (and encouraged by Israel) will not take down the Iranian government or bring it to the bargaining table on its knees ready to surrender its nuclear program. It might, however, lead to actual armed conflict with incalculable consequences.
The United States is already effectively embroiled in an economic war against Iran. The Obama administration has subjected the Islamic Republic to the most crippling economic sanctions applied to any country since Iraq was reduced to fourth-world status in the 1990s. And worse is on the horizon. A financial blockade is being imposed that seeks to prevent Tehran from selling petroleum, its most valuable commodity, as a way of dissuading the regime from pursuing its nuclear enrichment program.
Historical memory has never been an American strong point and so few today remember that a global embargo on Iranian petroleum is hardly a new tactic in Western geopolitics; nor do many recall that the last time it was applied with such stringency, in the 1950s, it led to the overthrow of the government with disastrous long-term blowback on the United States. The tactic is just as dangerous today.
Iran’s supreme theocrat, Ayatollah Ali Khamenei, has repeatedly condemned the atom bomb and nuclear weapons of all sorts as tools of the devil, weaponry that cannot be used without killing massive numbers of civilian noncombatants. In the most emphatic terms, he has, in fact, pronounced them forbidden according to Islamic law. Based on the latest U.S. intelligence, Secretary of Defense Leon Panetta has affirmed that Iran has not made a decision to pursue a nuclear warhead. In contrast, hawks in Israel and the United States insist that Tehran’s civilian nuclear enrichment program is aimed ultimately at making a bomb, that the Iranians are pursuing such a path in a determined fashion, and that they must be stopped now — by military means if necessary.
Putting the Squeeze on Iran
At the moment, the Obama administration and the Congress seem intent on making it impossible for Iran to sell its petroleum at all on the world market. As 2011 ended, Congress passed an amendment to the National Defense Authorization Act that mandates sanctions on firms and countries that deal with Iran’s Central Bank or buy Iranian petroleum (though hardship cases can apply to the Treasury Department for exemptions). This escalation from sanctions to something like a full-scale financial blockade holds extreme dangers of spiraling into military confrontation. The Islamic Republic tried to make this point, indicating that it would not allow itself to be strangled without response, by conducting naval exercises at the mouth of the Persian Gulf this winter. The threat involved was clear enough: about one-fifth of the world’s petroleumflows through the Gulf, and even a temporary and partial cut-off might prove catastrophic for the world economy.
In part, President Obama is clearly attempting by his sanctions-cum-blockade policy to dissuade the government of Israeli Prime Minister Binyamin Netanyahu from launching a military strike on Iran’s nuclear facilities. He argues that severe economic measures will be enough to bring Iran to the negotiating table ready to bargain, or even simply give in.
In part, Obama is attempting to please America’s other Middle East ally, Saudi Arabia, which also wants Iran’s nuclear program mothballed. In the process, the U.S. Department of the Treasury has even had Iran’s banks kicked offinternational exchange networks, making it difficult for that country’s major energy customers like South Korea and India to pay for the Iranian petroleum they import. And don’t forget the administration’s most powerful weapon: most governments and corporations do not want to be cut off from the U.S. economy with a GDP of more than $15 trillion — still the largest and most dynamic in the world.
Typically, the European Union, fearing Congressional sanctions, has agreed to cease taking new contracts on Iranian oil by July 1st, a decision that has placed special burdens on struggling countries in its southern tier like Greece and Italy. With European buyers boycotting, Iran will depend for customers on Asian countries, which jointly purchase some 64% of its petroleum, and those of the global South. Of these, China and India have declined to join the boycott. South Korea, which buys $14 billion worth of Iranian petroleum a year, accounting for some 10% of its oil imports, has pleaded with Washington for an exemption, as has Japan which got 8.8% of its petroleum imports from Iran last year, more than 300,000 barrels a day — and more in absolute terms than South Korea. Japan, which is planning to cut its Iranian imports by 12% this year, has already won an exemption.
Faced with the economic damage a sudden interruption of oil imports from Iran would inflict on East Asian economies, the Obama administration has instead attempted to extract pledges of future 10%-20% reductions in return for those Treasury Department exemptions. Since it’s easier to make promises than institute a boycott, allies are lining up with pledges. (Even Turkey has gone this route.)
Such vows are almost certain to prove relatively empty. After all, there are few options for such countries other than continuing to buy Iranian oil unless they can find new sources — unlikely at present, despite Saudi promises to ramp up production — or drastically cut back on energy use, ensuring economic contraction and domestic wrath.
What this means in reality is that the U.S. and Israeli quest to cut off Iran’s exports will probably be a quixotic one. For the plan to work, oil demand would have to remain steady and other exporters would have to replace Iran’s roughly 2.5 million barrels a day on the global market. For instance, Saudi Arabia has increased the amount of petroleum it pumps, and is promising a further rise in output this summer in an attempt to flood the market and allow countries to replace Iranian purchases with Saudi ones.
But experts doubt the Saudi ability to do this long term and — most important of all — global demand is not steady. It’s crucially on the rise in both China and India. For Washington’s energy blockade to work, Saudi Arabia and other suppliers would have to reliably replace Iran’s oil production and cover increased demand, as well as expected smaller shortfalls caused by crises in places like Syria and South Sudan and by declining production in older fields elsewhere.
Otherwise a successful boycott of Iranian petroleum will only put drastic upward pressure on oil prices, as Japan has politely but firmly pointed out to the Obama administration. The most likely outcome: America’s closest allies and those eager to do more business with the U.S. will indeed reduce imports from Iran, leaving countries like China, India, and others in Asia, Africa, and Latin America to dip into the pool of Iranian crude (possibly at lower pricesthan the Iranians would normally charge).
Iran’s transaction costs are certainly increasing, its people are beginning to suffer economically, and it may have to reduce its exports somewhat, but the tensions in the Gulf have also caused the price of petroleum futures to rise in a way that has probably offset the new costs the regime has borne. (Experts also estimate that the Iran crisis has already added 25 cents to every gallon of gas an American consumer buys at the pump.)
Like China, India has declined to bow to pressure from Washington. The government of Prime Minister Manmohan Singh, which depends on India’s substantial Muslim vote, is not eager to be seen as acquiescent to U.S. strong-arm tactics. Moreover, lacking substantial hydrocarbon resources, and given Singh’s ambitious plans for an annual growth rate of 9% — focused on expanding India’s underdeveloped transportation sector (70% of all petroleum used in the world is dedicated to fuelling vehicles) — Iran is crucial to the country’s future.
To sidestep Washington, India has worked out an agreement to pay for half of its allotment of Iranian oil in rupees, a soft currency. Iran would then have to use those rupees on food and goods from India, a windfall for its exporters. Defying the American president yet again, the Indians are even offering a tax break to Indian firms that trade with Iran. That country is, in turn, offering to pay for some Indian goods with gold. Since India runs a trade deficit with the U.S., Washington would only hurt itself if it aggressively sanctioned India.
A History Lesson Ignored
As yet, Iran has shown no signs of yielding to the pressure. For its leaders, future nuclear power stations promise independence and signify national glory, just as they do for France, which gets nearly 80% of its electricity from nuclear reactors. The fear in Tehran is that, without nuclear power, a developing Iran could consume all its petroleum domestically, as has happened in Indonesia, leaving the government with no surplus income with which to maintain its freedom from international pressures.
Iran is particularly jealous of its independence because in modern history it has so often been dominated by a great power or powers. In 1941, with World War II underway, Russia and Britain, which already controlled Iranian oil, launched an invasion to ensure that the country remained an asset of the Allies against the Axis. They put the young and inexperienced Mohammed Reza Pahlevi on the throne, and sent his father, Reza Shah, into exile. The Iranian corridor — what British Prime Minister Winston Churchill called “the bridge of victory” — then allowed the allies to effectively channel crucial supplies to the Soviet Union in the war against Nazi Germany. The occupation years were, however, devastating for Iranians who experienced soaring inflation and famine.
Discontent broke out after the war — and the Allied occupation — ended. It was focused on a 1933 agreement Iran had signed with the Anglo-Iranian Oil Company (AIOC) regarding the exploitation of its petroleum. By the early 1950s, the AIOC (which later became British Petroleum and is now BP) was paying more in taxes to the British government than in royalties to Iran for its oil. In 1950, when it became known that the American ARAMCO oil consortium had offered the king of Saudi Arabia a 50-50 split of oil profits, the Iranians demanded the same terms.
The AIOC was initially adamant that it would not renegotiate the agreement. By the time it softened its position somewhat and began being less supercilious, Iran’s parliamentarians were so angry that they did not want anything more to do with the British firm or the government that supported it.
On March 15, 1951, a democratically elected Iranian parliament summarily nationalized the country’s oil fields and kicked the AIOC out of the country. Facing a wave of public anger, Mohammed Reza Shah acquiesced, appointing Mohammed Mosaddegh, an oil-nationalization hawk, as prime minister. A conservative nationalist from an old aristocratic family, Mosaddegh soon visited the United States seeking aid, but because his nationalist coalition included the Tudeh Party (the Communist Party of Iran), he was increasingly smeared in the U.S. press as a Soviet sympathizer.
The British government, outraged by the oil nationalization and fearful that the Iranian example might impel other producers to follow suit, froze that country’s assets and attempted to institute a global embargo of its petroleum. London placed harsh restrictions on Tehran’s ability to trade, and made it difficult for Iran to convert the pounds sterling it held in British banks. Initially, President Harry Truman’s administration in Washington was supportive of Iran. After Republican Dwight Eisenhower was swept into the Oval Office, however, the U.S. enthusiastically joined the oil embargo and campaign against Iran.
Iran became ever more desperate to sell its oil, and countries like Italy and Japan were tempted by “wildcat” sales at lower than market prices. As historian Nikki Keddie has showed, however, Big Oil and the U.S. State Department deployed strong-arm tactics to stop such countries from doing so.
In May 1953, for example, sometime Standard Oil of California executive and “petroleum adviser” to the State Department Max Thornburg wrote U.S. ambassador to Italy Claire Booth Luce about an Italian request to buy Iranian oil: “For Italy to clear this oil and take additional cargoes would definitely indicate that it had taken the side of the oil ‘nationalizers,’ despite the hazard this represents to American foreign investments and vital oil supply sources. This of course is Italy’s right. It is only the prudence of the course that is in question.” He then threatened Rome with an end to oil company purchases of Italian supplies worth millions of dollars.
In the end, the Anglo-American blockade devastated Iran’s economy and provoked social unrest. Prime Minister Mosaddegh, initially popular, soon found himself facing a rising wave of labor strikes and protest rallies. Shopkeepers and small businessmen, among his most important constituents, pressured the prime minister to restore order. When he finally did crack down on the protests (some of them staged by the Central Intelligence Agency), the far left Tudeh Party began withdrawing its support. Right-wing generals, dismayed by the flight of the shah to Italy, the breakdown of Iran’s relations with the West, and the deterioration of the economy, were open to theblandishments of the CIA, which, with the help of British intelligence, decided to organize a coup to install its own man in power.
A Danger of Blowback
The story of the 1953 CIA coup in Iran is well known, but that its success depended on the preceding two years of fierce sanctions on Iran’s oil is seldom considered. A global economic blockade of a major oil country is difficult to sustain. Were it to have broken down, the U.S. and Britain would have suffered a huge loss of prestige. Other Third World countries might have taken heart and begun to claim their own natural resources. The blockade, then, arguably made the coup necessary. That coup, in turn, led to the rise to power of Ayatollah Khomeini a quarter-century later and, in the end, the present U.S./Israeli/Iranian face-off. It seems the sort of sobering history lesson that every politician in Washington should consider (and none, of course, does).
As then, so now, an oil blockade in its own right is unlikely to achieve Washington’s goals. At present, the American desire to force Iran to abolish its nuclear enrichment program seems as far from success as ever. In this context, there’s another historical lesson worth considering: the failure of the crippling sanctions imposed on Saddam Hussein’s Iraq in the 1990s to bring down that dictator and his regime.
What that demonstrated was simple enough: ruling cliques with ownership of a valuable industry like petroleum can cushion themselves from the worst effects of an international boycott, even if they pass the costs on to a helpless public. In fact, crippling the economy tends to send the middle class into a spiral of downward mobility, leaving its members with ever fewer resources to resist an authoritarian government. The decline of Iran’s once-vigorous Green protest movement of 2009 is probably connected to this, as is a growing sense that Iran is now under foreign siege, and Iranians should rally around in support of the nation.
Strikingly, there was a strong voter turnout for the recent parliamentary elections where candidates close to Supreme Leader Ali Khamenei dominated the results. Iran’s politics, never very free, have nevertheless sometimes produced surprises and feisty movements, but these days are moving in a decidedly conservative and nationalistic direction. Only a few years ago, a majority of Iranians disapproved of the idea of having an atomic bomb. Now, according to a recent Gallup poll, more support the militarization of the nuclear program than oppose it.
The great oil blockade of 2012 may still be largely financially focused, but it carries with it the same dangers of escalation and intervention — as well as future bitterness and blowback — as did the campaign of the early 1950s. U.S. and European financial sanctions are already beginning to interfere with the import of staples like wheat, since Iran can no longer use the international banking system to pay for them. If children suffer or even experience increased mortality because of the sanctions, that development could provoke future attacks on the U.S. or American troops in the Greater Middle East. (Don’t forget that the Iraqi sanctions, considered responsible for the deaths of some 500,000 children, were cited by al-Qaeda in its “declaration of war” on the U.S.)
The attempt to flood the market and use financial sanctions to enforce an embargo on Iranian petroleum holds many dangers. If it fails, soaring oil prices could set back fragile economies in the West still recovering from the mortgage and banking scandals of 2008. If it overshoots, there could be turmoil in the oil-producing states from a sudden fall in revenues.
Even if the embargo is a relative success in keeping Iranian oil in the ground, the long-term damage to that country’s fields and pipelines (which might be ruined if they lie fallow long enough) could harm the world economy in the future. The likelihood that an oil embargo can change Iranian government policy or induce regime change is low, given our experience with economic sanctions in Iraq, Cuba, and elsewhere. Moreover, there is no reason to think that the Islamic Republic will take its downward mobility lying down.
As the sanctions morph into a virtual blockade, they raise the specter that all blockades do — of provoking a violent response. Just as dangerous is the specter that the sanctions will drag on without producing tangible results, impelling covert or overt American action against Tehran to save face. And that, friends, is where we came in.
Juan Cole is the Richard P. Mitchell Professor of History and the director of the Center for South Asian Studies at the University of Michigan. His latest book, Engaging the Muslim World, is available in a revised paperback edition from Palgrave Macmillan. He runs the Informed Comment website. To listen to Timothy MacBain’s latest Tomcast audio interview in which Cole discusses the consequences of sanctions on Iran, click here, or download it to your iPodhere.
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Copyright 2012 Juan Cole
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