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Friday, July 11, 2008

Sanctions against Iran having an economic impact?

I have finally found an instance where the ineffectual sanctions are having an effect on Iran. Unfortunately, it's only an economic effect. French energy group Total has decided that it's 'too risky' to invest in Iran right now and therefore it has backed out of a massive natural gas project. Mind you, NOT because of the sanctions, but because it's 'too risky.' But the economic impact on Iran of Total's withdrawal may yet be significant.
Together with Malaysia’s Petronas, Total was due to develop phase 11 of the South Pars field and had until Wednesday maintained it had not decided to drop its interest in the project. After May’s announcement that Royal Dutch Shell and Repsol YPF of Spain would pull out of Phase 13, Total was left exposed.

Total’s move is a big blow for Iran, which is now unlikely to be able to significantly raise its gas exports until late in the next decade at the soonest. Samuel Ciszuk, Middle East energy analyst at Global Insight, called Total’s decision “a death blow” for Iran’s LNG ambitions, because the country would now be unable to gain the knowhow it needed for such complex projects, even if it teamed up with Russia or China.
But let's not get our hopes up too much.
None of the western oil companies including Total is willing definitively to close the door on Iran’s massive hydrocarbon reserves. Shell and Repsol said they could still join later stages of the development of the field.
Of course not. Business is business.

And on another economic front, Iran is actually doing quite well. On Tuesday, I mentioned that Italy's Fiat automotive group is planning on manufacturing the Siena in Iran, the first time that has happened in over fifty years. In Thursday's JPost, Calev Ben David argued that the manufacture of the Siena in Iran was actually a greater threat to Israel than the Shihab-3 missiles Iran tested on Wednesday.

According to an auto-consumer report, the Siena will be equipped with "an ABS brake system, dual airbags, cooling system, anti-theft alarm, lateral window and mirror, backseat seat belt, trip computer, remote control for the car's trunk and gas tank, and a trunk with 515 liters of capacity."

And we haven't even mentioned the Siena's most distinctive feature - some of its models will boast a dual-fuel system, enabling it to run both on gasoline and on CNG (compressed natural gas).

The latter feature will make it especially attractive for the local market, because as the above report blandly notes, "fuel is ironically a problem for drivers in Iran."

It sure is, because while Iran sits on oceans of oil and natural gas, it lacks the refinery capacity to convert the former into gasoline, which is not a problem with the latter.

That's why those who advocate stronger economic measures against Iran to get it to halt its illegal uranium enrichment program have especially focused on sanctions aimed at preventing it from getting the technology to update and expand its creaky oil-refining infrastructure.

News that production of the Siena will begin in Saveh this autumn broke just as Italian Foreign Minister Franco Frattini arrived in Jerusalem this week to talk about the Iran situation, among other issues.

"A military attack on Iran would be a disaster, a catastrophe for the entire region, but above all Israel," Frattini declared after touching down here.

On Wednesday, the Iranians tried to buttress his point with a demonstration of their long-range Shahab-3 missiles, which can reach a range of 2,000 kilometers, enabling them to strike Tel Aviv and other Israeli cities.

But most defense experts believe Iran has yet to build a substantial arsenal of these weapons; these Shahab models have yet to prove they can carry a sufficient conventional explosive payload to wreak major havoc here; and at any rate, they may well be overmatched by Israel's own missile-defense systems, including the Arrow.

A case could be made, then, that the Iranian technological advancement Israel should really be more worried about right now is not the Shahab-3, but the dual-fueled Siena.
Unfortunately, this kind of news fuels the people who believe that sanctions haven't been given a chance. There are two problems with that approach. First, while it's true that sanctions haven't been given a chance, they never will be given a chance either. There will always be countries that will be willing to trade with Iran for the money if not for the principle. Countries also traded with Nazi Germany during World War II because it was profitable.

But the second problem with that approach is the more important problem. Ahmadinejad really is trying to bring about the apocalypse. Sending his country back to the stone age economically would be a small price for him to pay to bring the 12th Imam. And right now, the world's not even making him pay it.


At 2:07 AM, Blogger NormanF said...

Exactly. Sanctions will have only a marginal impact on Iran's decision makers and if they were fully implemented, they might just raise the costs of going nuclear high enough to give Iran's elite the pause. Since they will never be, there's only one thing that can be done. The only question is whether to do when the costs of doing it are still low or to do it when they're higher. One way or another Iran's nuclear ambitions will have to be stopped with armed force, since its clear diplomacy and sanctions in and of themselves will never get the job done.


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