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Efficacy of Sanctions on Oil-Exporting Countries Doubtful

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By Erfan Ghassempour* | IDN-InDepth NewsEssay

TEHRAN (IDN) - One of the main reasons for putting sanctions in place is to restrain the target government, individual or group from continuing an activity which is believed to be against international peace and security.

Sanctions usually involve the restriction or ban on international trade and finance. One prominent example is oil sanctions. These can be imposed on import or export of petroleum products. An example of the former is the sanctions imposed by Arab oil-producing countries against the U.S. and European countries supporting Israel and of the latter sanctions by the U.S. and European countries against Iraq in 1990s and Iran. The other way of imposing sanctions in the oil industry is to forbid foreign oil companies from investing in the sanctioned country.

Have sanctions against oil-exporting countries reached their purpose so far? At first glance, history shows that sanctions have put a lot of pressure on the countries that have been subject to them, but they have not influenced their behavior.

The main sufferers of sanctions are people rather than governments, because in many sanctioned countries, many people’s lives are tied to oil, directly or indirectly. The world has seen the grave impact of oil sanctions on the people of Iraq. Sanctions forced the country close to a state of famine.

The recent onerous sanctions against Iranian petroleum exports have diminished the government’s earnings which account for over 50 per cent of its revenues. Sanctions have taken a dramatic toll on Iran’s economy during 2012-2013 and caused some unintended consequences such as the shortage of medicine. Sanctions have also plunged the country’s currency value.

The Rial has lost two-third of its dollar value since 2011. This resulted in an intense inflation, which also impacts the people rather than the government, because it has caused industrial devastation and layoffs that are more related to people than the government.

Sanctions on exporting oil also are ineffective from another view. Oil is a global industry that can be connected to many countries from its extraction from an oil field to be consumed as varied petrochemical productions. Crude oil may be produced in one country, refined in another and consumed in a third one. Once refined it becomes difficult to determine whether the oil originated from a sanctioned country.

Although sanctions decrease the amount of oil sales of the sanctioned country, and in Iran’s case, they caused Iran to be paid in goods, but it is completely impossible to ban all countries from importing petroleum from an oil-exporting-sanctioned country.

After imposing sanctions, many countries do not pay attention to them and carry on importing oil from the sanctioned country and some others evade sanctions. For example, and according to Oil Price, “some of Iran’s problems (in exporting oil) came from the unwillingness of tanker companies to risk US retaliation by carrying Iranian oil…Iran therefore has bought from China 12 huge oil tankers, each of which can carry 2 million barrels of petroleum. It will therefore be in a position over coming years to export to China and India with its own tankers”.

Meanwhile many countries are inevitably exempted from sanctions. 18 months after U.S. sanctions targeting Iran’s oil sales, half a dozen countries, particularly China are still importing large volumes of Iranian crude and are repeatedly being exempted from the sanctions.

Although sanctions made some huge multinational companies such as Total and Eni to leave Iran, the two government-owned Chinese companies, namely Sinopec and CNPC have replaced them in Iran and are now working in two of the country’s largest joint oil fields with Iraq. Sinopec is world’s fifth largest company by income and CNPC has 30 international projects around the world.

Meanwhile, in February this year, Iran offered Russian companies to develop some of its oil fields and according to Russia Beyond The Headlines, Russia’s energy minister has stated that “Zarubezhneft has expressed its desire to take part in hydrocarbon projects in Iran. The company is 100-percent state-owned and has no need to fear U.S. sanctions”.

Furthermore, according to The Times of India, India has expressed its determination to continue to pursue its energy cooperation with Iran. The Indian refinery possessed the capacity of 177 million metric tons by 2012. The country is emerging as a refinery hub and refining capacity exceeds the demand. Therefore, India needs safe and secure imports and will need to import more oil from Iran.

Other countries are in need of Iranian crude and cannot buy crude oil from other suppliers, because their refineries are designed to just process the Iranian crude.

Ineffective

Western authorities have stated that oil sanctions are a tool to cut funding for Iran’s suspected pursuit of nuclear weapons and make it to cease its nuclear program immediately, but Iran’s government has a huge amount of hard currency reserves worth billions of dollars with which it can keep up its nuclear program for oncoming years.

There is a consensus sanctions have not, to date, reached their objective of compelling Iran to halt its suspected nuclear program. According to some U.S. officials, sanctions have slowed Iran’s nuclear efforts, but this was not their main objective.

Not only sanctions have not reached their main purpose, they have also caused many negative collateral consequences. Kenneth Katzman in his several CRS reports for the U.S. Congress has stated that sanctions did not have an adverse effect on Iran’s nuclear program decisions and capabilities.

Sanctions have reached their collateral objectives, but many experts predict that reaching the main objective is almost impossible by sanctions. As it is stated in Russia’s foreign ministry statement posted in 2011, "Such a practice seriously obstructs advancement toward a constructive dialogue with Tehran. Stronger sanction pressure, which some of our partners see almost as a goal in itself, will not encourage Iran to sit down at the negotiating table."

The government’s activities are not ones that could be damaged by sanctions. The tool should be changed to be proportioned to the objective or the objective should be changed to be proportioned to the tool. The global community can make a country to change its behavior by two different ways: either by compelling or by persuading it. The main tool for the former is imposing sanctions and the main tool for the latter is negotiation.

Why do governments impose sanctions even when they harm harshly the sanctioned country but don’t serve the goal? One has to investigate this issue in two periods; before and after imposing sanctions.

Before imposing sanctions and by threatening an oil-exporting country to impose sanctions on it in the near future, the said country would not bow to them, because either it thinks that the sanctions may or will not completely harm its economy or even if it speculates that the sanctions will be harmful, its pride will not allow it to change its behavior.

After imposing sanctions which have harmed the target country’s economy (such as Iran), the government leaders of sanctions imposing countries may claim that sanctions have been effective, but may continue their actions because of false pride or obstinacy.

Subsequently, although oil sanctions are very strong tools to put pressure on a country, the pressure does not change the target country’s behavior at all.

*Erfan Ghassempour is doing Masters in International Law at the Allameh Tabatabai University, Tehran, with focus on ‘Indirect Expropriation in the International Oil and Gas Arbitration’. As Bachelor in Law he wrote thesis on ‘The Role of United Nations on Prevention of Wars’. [IDN-InDepthNews – November 5, 2013]

Picture credits: Veterans For Peace (top left) and The writer (bottom left)

2013 IDN-InDepthNews | Analysis That Matters

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