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.

Works Cited
“6 mysteries about Stuxnet.” 27 September 2010. Foreign Policy. 17 October 2010.

“A worm in the centrifuge.” 30 September 2010. The Economist. 17 October 2010.

“Blockbuster Worm Aimed for Infrastructure, But No Proof Iran Nukes Were Target.” 23 September 2010. Wired. 17 October 2010.

“Energy groups agree to end Iran operations.” 01 October 2010. Financial Times. 17 October 2010.

“Iran faces fuel policy fears: IEA.” 14 October 2010. Al Arabiya. 17 October 2010.

“Iran may not sustain gasoline output rise – IEA.” 15 October 2010. Steel Guru. 17 October 2010.

“Iran says country “stronger” after sanctions.” 09 October 2010. Al Arabiya. 17 October 2010.

“Iran says it builds 70 percent of oil, gasoline devices despite sanctions.” 26 October 2010. Iranian Students News Agency (ISNA). 17 October 2010.

“Iran to try five for spying for “enemies”.” 13 October 2010. Al Arabiya. 17 October 2010.

“Is Iran capable of it?.” 15 October 2010. Al Arabiya. 17 October 2010.

“Iraqi PM to arrive in Jordan to seek support.” 17 October 2010. Al Arabiya. 17 October 2010.

“Japanese energy group to quit Iran oilfield.” 30 September 2010. Financial Times. 17 October 2010.

“Japanese Sanctions May Cut Iran Oil Exports by 25%, Nomura Says.” 05 October 2010. Bloomberg Businessweek. 17 October 2010.

“Lebanon: The Syrian – Saudi – Iranian Equation.” 16 October 2010. Al Arabiya. 17 October 2010.

“Lebanon vacillates between Ahmadinejad’s two speeches.” 15 October 2010. Al Arabiya. 17 October 2010.

“More background about Stuxnet.” 29 October 2010. Wired. 17 October 2010.

“Negotiations on Iran nuclear issue back on track.” 15 October 2010. Al Arabiya. 17 October 2010.

“Opec leaves production levels unchanged.” 14 October 2010. Financial Times. 17 October 2010.

“Sanctions begin to bite.” 07 October 2010. The Economist. 17 October 2010.

“Sanctions hit Iran petrol imports.” 11 October 2010. Financial Times. 17 October 2010.

“Security: A code explodes.” 01 October 2010. Financial Times. 17 October 2010.

“The Increase of Iraq’s oil reserves: timing and credibility.” 14 October 2010. Al Arabiya.

“The meaning of Stuxnet.” 30 September 2010. The Economist. 17 October 2010.

“The Sanctions Debate Heats Up in Iran.” 15 October 2010. Al Arabiya. 17 October 2010.

“What does Stuxnet tell us about the future of cyber-warfare?” 07 October 2010. Foreign Policy. 17 October 2010.

“Will the Obama administration sanction Chinese companies doing business in Iran?” 05 October 2010. Foreign Policy. 17 October 2010.

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  • Rupert in Springfield

    >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.

    That’s really great, however having an effect on the Iranian economy is not the end purpose of the sanctions. Their effect on the economy should be evaluated, but their strategic effectiveness cannot be judged by whether or not this occurs.

    The sanctions are not an end unto themselves, they were put in place primarily to dissuade Iran from its pursuit of nuclear weapons with hopeful secondary effects, in conjunction with our efforts in Iraq, of preventing mid east Iranian hegemony.

    Have the sanctions worked in that regard?

    Hardly, and there is really no reason to expect they will. Economic isolation rarely dissuades military pursuit. We saw this with post WW1 Germany and currently in North Korea. Clearly economic isolation is not enough to overcome pursuit of something that overnight transforms a country from a third rate military power into a world player.

    Indeed sanctions may be counter productive. Slow steady increase in hardship exerted on a country can often strengthen its resolve against the enemy. This was the primary military lesson of Vietnam.

    In addition, slow steady increases in hardship gives a power tremendous propaganda opportunity to the leaders of the nations one is trying to effect. We see this endlessly, in Vietnam all the way through Iraq. In the latter Iraq was able to make a mockery of its surrender because it was enforced with slow steady increase in pressure. Obviously simply allowing Dessert Storm forces to continue on another ten miles into Baghdad and remain there until Saddam’s fulfillment of the surrender was complete would have been more effective than what happened – handing Saddam the opportunity to send UN inspector Hans Blix out of the country with his tail between his legs.

    Indeed, the only place sanctions had full success that most can name would be South Africa where they did eventually force the end of apartheid. That only worked because giving up the system enhanced the nations standing rather than degraded it. This is not the case with nuclear weapons as giving up pursuit of them hardly enhances the state but rather relegates it to eternal vassal status in the eyes of the leaders.

    There is only one way sanctions can work in this regard and that is in conjunction with an internal political movement. If a nations leaders are hell bent on acquiring nuclear weapons, economic sanctions wont affect them for reasons stated above. However they can encourage internal elements to perhaps have a recruiting tool in an effort to overthrow the leaders.

    This can then result in a change of power with leaders anxious to cement control of the country. In such a coup those new leaders might look to accede to the demands of the sanctions, thus acquiring foreign aid and establishing their power base.

    Obviously a lot of things have to occur for this to happen. Those exerting the sanctions cannot do so in a vacuum. Active engagement with internal political factions has to occur on both a clandestine and overt basis. Absent that you have nothing.

    For this reason sanctions have no hope of working in Iran in anything like the near term that is needed. This was the first major foreign policy disaster of the Obama administration. When internal struggle in Iran resulted in a government crack down it was the chance for Washington to give an indication of support to Iran’s internal factions hostile to the government. Instead the Obama administration issued a statement as far from solidarity with such factions as could be imagined. In calling the event “an internal struggle, not our business” the White House sent a clear signal that there would be no support coming from Washington to anyone interested in overthrowing the current government.

    With such a position coming from the administration, there is little point in really even examining the sanctions in Iran. There is precious little chance the leaders of the country will give up their nuclear program because they would like to import the latest fashions or maybe buy a Hershey bar. As for inducing internal turmoil and possibly seeing a friendly political group overthrow the government, the ill thought out remarks of the Obama administration have done much to hurt our interests in that regard.

  • Bob Clark

    Even Bama recognizes the need to foster Iraq’s recovery as a countervailing force to Iran. Hussein used to do this job for us and much of the rest of the world, but he was getting too demanding when he took out Kuwait. I guess this one is one that will be mauled over quite abit by historians as to the usefulness of the Bushs (I & II) invasion of Iraq. Was there another way to change horses in Iraq without invasion?

    It is a cruel world one peacefully ignores at his/her own peril.

  • Rupert in Springfield

    Must be a full moon out.

    • valley p

      Not just that. A harvest moon. Very powerful.

      Hell may freeze over, but I agree with Rupert on the sanctions. If Iran is determined to develop and build nukes they will do so. Even a change in regime might not matter, because Iranian “moderates” are just as determined for Iran to get a bomb. Why? They live in a rough neighborhood. They saw what happened to Saddam. They fear Israel and maybe Pakistan.

      Short of invasion and occupation we are not going to prevent Iranians from doing what they see as their own interest. Get used to the idea.

      • Rupert in Springfield

        >Even a change in regime might not matter, because Iranian “moderates” are just as determined for Iran to get a bomb.

        Actually there are varying levels of support for the Iranian nuclear program. Rafsanjani supports is less than others for example. In addition it is absolute lunacy not to be fostering a street level opposition to the program.

        The administrations bungling of the recent uprising as well as its alienation of Israel have represented true diplomatic failures that have made the situation worse. More careful wording from the administration towards Iran coupled with an abandonment of the administrations foolish efforts to curry Islamic favour by antagonising Israel would be a real help.

        It’s important to remember that Iran does not actually want to develop and demonstrate possession of a bomb as such would lead to instant attack from Israel or the US. Iran wants the capability to develop a bomb in short order should the situation warrant as that fulfills both defensive and bargaining chip goals.

        That doesn’t mean the situation shouldn’t be addressed, it should. However the traditional throwing up of hands and saying there is nothing we can do in order to extricate Democratic presidents from their foreign policy blunders is singularly unhelpful. That was the lesson of Rwanda and it should be the lesson here. Iran is a modern country with a populace that is hardly rabid traditionalists. Fostering counterinsurgency or at least grooming a friendly faction and leader should be done so if there is a power vacuum, say in the case of Israeli attack, there would be someone to step in. Obamas cavalier language during the recent street demonstrations gave every signal possible to the current leadership that such is not the case. Hopefully he has considered that and will do better next time.

      • a retired professor

        Iran fears Israel and that’s why they want to get the bomb? What an insane inversion of reality. Like saying that Hitler rearmed Germany and started WWII out of fear. Like saying cancer cells act to protect themselves from the immune system. Whatever nugget of truth, bizarre and perverse in the extreme.

        The weakness of the West and the Obama administration re Iran is pathetic. It wouldn’t take an occupation. The Israelis may even be doing it with the new computer virus Stuxnet. Or it may take them to take out Iran’s nuclear programs by other means. Pathetic what it says about us.

        • valley p

          “Iran fears Israel and that’s why they want to get the bomb?”

          Among other things, yes. Israel has hundreds of nuclear weapons, and it has attacked other nations on multiple occasions. Additionally, Iran saw what happened to Saddam versus what has happened to North Korea. The one without the bomb was invaded, the other not.

          I’m not taking Iran’s side, but I’m stating the logic of the way they think when they look at the world from inside their borders.

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