Nuclear Thugging: What Real Effects Do The Sanctions Have On Iran?

By Joshua Pidek
Oregon Catalyst’s International Affairs Reporter

Despite statements by the Iranian Minister of Finance citing the increased growth of the Iranian stock exchange and the recent expansion of domestic gasoline production as evidence that the Iranian economy is unaffected by sanctions, the fact is that the sanctions are affecting the Iranian economy.

The fourth rounds of UN sanctions, enacted on 09 June 2010, are designed to target Iran’s financial sectors and make it difficult to transfer and secure currency. The United States augmented the sanctions with additional financial and travel restrictions on eight of Iran’s top government officials in an executive order signed on 29 September. Among those named were Mohammad Ali Jafari, head of the Revolutionary Guard, Intelligence Minister Heydar Moslehi, and current minister of welfare and social security Sadeq Mahsouli, as well as four other police chiefs and prosecutors.
Although the latest round of sanctions has placed heavy restrictions on the Iranian business sector, the government has continued to deny that the economy is being affected.

Iranian Foreign Minister Manouchehr Mottaki stated during a meeting with Czech Foreign Minister Karel Schwarzenberg at the UN General Assembly a few weeks before that the sanctions are failing. Mottaki cited the recent expansion of domestic production of gasoline and gasoline production equipment as evidence of Iran’s resourcefulness. He said that while “Iran could only build 10% of its required devices for oil and gas industry domestically when it faced the initial set of sanctions, now it can produce 70% of its required pieces of equipment, showing that sanctions against Iran have failed.” Mottaki also said that “Iran’s economy not only is not in recession despite the global international turndown, but also it is in good condition and managed to reduce [its] unemployment rate.”

During a meeting of the International Monetary Fund in Washington D.C. on 08 October, Iranian finance minister Shamseddin Hosseini echoed Mottaki in saying that while the sanctions “cause some kind of problem for us,” “after these sanctions we are a much stronger country.” Hosseini also said that “when people solve problems, they get stronger. Today, we are much stronger.” The minister denied that Iranian companies were having difficulties obtaining hard currency in order to trade, stating that “the world is big, and the people who are trading with us find ways to transfer money. There is no substantive obstacle regarding that.”
Oil production is also under scrutiny. Iran’s daily production has already fallen from an average of 4.2 million barrels per day of crude oil to 3.7 million barrels per day, though Iranian oil minister Masoud Mir-Kazemi claimed that the sanctions are having “no impact at all on production, not only for crude oil, but not even for gasoline.”
Regardless of how frequently or vocally Iran denies the efficacy of the sanctions, however, the effects are obvious.

Several major investors in Iran have already begun to cut back or completely shut down their operations in Iran due to the difficulties of operating under the new restrictions. Statoil, Eni, Royal Dutch Shell, Total, and Inpex all agreed to shut down their operations in Iran and pull investments to avoid falling under the U.S. sanctions. Several other major companies, including India’s Reliance, Kuwait’s Independent Petroleum Group, Russia’s Lukoil, and Turkey’s Tupras all agreed to halt sales of refined petroleum to Iran, in accordance with new sanctions enacted this year.

Japan, one of the main countries supporting the U.S. in enforcing sanctions against Iran, stated on 03 September 2010 that all new oil and gas investment in Iran had been suspended. Japan has also frozen assets of 88 organizations and 24 individuals that are in violation of the sanctions. Nomura International, Japan’s largest brokerage firm, said in a report on 04 October that the latest round of sanctions “could force oil exports to below 1.5 million barrels a day in the near term from 2 million barrels a day currently, negatively affecting global supply while helping push oil prices higher.” Nomura also stated that Iranian oil production “will likely decline by 15% from 2010-2015, compared with Iran’s pre-sanction target of 35% growth.”

As to the increased domestic production of gasoline to reduce the need for imports, Bloomberg stated on 17 October that the increase is unsustainable. The International Energy Agency (IEA) stated that Iran loses twice under the scheme, firstly by producing poorer quality gasoline and selling it domestically at steep losses under the current pricing cap system, and also by introducing a shortage of petrochemical plants needed for producing other products.
Iranian businesses have also had difficulties maintaining ready access to hard currency, as the United Arab Emirates, including Dubai, has frozen dozens of bank accounts in Iran and cut off currency transfers, sending the rial into a 15% drop against the U.S. dollar.

The main reason for the effectiveness of the latest round of sanctions is increased support for the sanctions by most major European countries, allowing the United States to enforce unilateral sanctions against energy investments in Iran. While the laws have been on the books since the mid 1990s, the U.S. has previously lacked the support necessary to enforce them.

Along with the recent wave of new sanctions, Iran’s situation is further complicated by the damage done to Iranian industrial networks by the Stuxnet malware. Symantec code analyst Nicolas Falliere stated that the Stuxnet worm is “the most complex piece of malware we’ve seen in the last five years or more. It’s the first known time that malware is not targeting credit card data, is not trying to steal personal user data, but is attacking real-world processing systems. That’s why it’s unique and is not over-hyped.”

The point of interest with the Stuxnet worm, which has infected over 100,000 computers globally, is that it is designed to target a specific configuration of the Simatic Supervisory Control and Data Acquisition (SCADA) systems, which are designed to run pipelines, nuclear plants, utility companies, and large-scale manufacturing operations. Researchers state that the very narrow focus of the virus indicates not only a desire to target specific facilities, but also the extensive knowledge of the programmer or programmers of their intended target. Iran, in which has the majority of the infected computers are located, has been floated as an intended target. Several computer experts have postulated that the nuclear facilities at Bushehr and Natanz may have been the intended recipients of the virus, but data is inconclusive at this point.

In conclusion, the sanctions are certainly having a real effect on the Iranian economy, by discouraging foreign investment, reducing access to cash, and by damaging Iran’s ability to produce oil and gasoline in sustainable and profitable quantities.

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