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A Moment Of Truth For Energy Sanctions

By Ilan Berman
Forbes.com
September 30, 2010


For quite a while now, policymakers in Washington have worked diligently to try and test a simple hypothesis: that energy sanctions can help derail Iran’s march toward the bomb.

Over the years, this effort has taken the form of a number of legislative initiatives aimed at curtailing Tehran’s energy trade with the world. Of late, however, American pressure has honed in on Iran’s most glaring economic dependency, its deep reliance on foreign refined petroleum. The culmination was the passage by Congress this summer of the Comprehensive Iran Sanctions, Accountability and Divestment Act, a sweeping set of new provisions aimed in large measure at throttling the Iranian regime’s oil sector.

The logic underpinning these efforts is clear. With more than two-thirds of its budget and some 80 percent of its export earnings tied to its oil and natural gas sectors, Iran is the epitome of an energy economy. Gasoline, however, is its weakest link. Iran, though a major oil exporter, suffers from an acute shortage of refining capacity. As a result, 30 percent or more of Iran’s annual consumption of gasoline is fueled by purchases of the product from a select group of foreign suppliers. And because it is, U.S. policymakers have reasoned, targeting Iran’s gasoline dependency would dramatically ratchet up the costs of Tehran’s nuclear endeavor, and ultimately could change the strategic calculus of Iran’s ayatollahs.

The world is about to find out whether this logic is correct. That’s because Iran’s imports of refined petroleum from abroad have plunged precipitously since the passage of gasoline sanctions some three months ago.

In July alone, Iran’s gasoline acquisitions reportedly fell by half, and since then imports have constricted still further. Experts now estimate that between August and September, Iran imported just 12,000 tons of refined petroleum from abroad – less than one half of an average tanker shipment, and as much as 80 percent less than the previous month’s total. Iran’s gasoline trade, in other words, is imploding.

Officials in Tehran insist that this is intentional. Earlier this month, Masoud Mirkazemi, Iran’s Oil Minister, triumphantly declared that the Islamic Republic had attained “gasoline self-sufficiency,” and was no longer dependent on foreign refined petroleum. More recently, Iranian Vice President Mohammad Reza Rahimi announced that his country had boosted its refinery capacity by some 50 percent, and as a result had stopped importing gasoline altogether.

But has it? Iran has indeed been acutely aware of its vulnerability to gasoline sanctions for years, and attempting to eliminate it for almost as long. Over the past three years, the Iranian government has imposed a strict rationing plan limiting the availability of refined petroleum to ordinary Iranians. Iranian leaders are now eyeing additional cuts to domestic subsidies on energy-related products, such as gasoline, in an effort to tighten the country’s economic belt. Simultaneously, Iran’s oil ministry has outlined an ambitious plan for upgrades to its nine existing refineries and the construction of seven new ones. Cumulatively, experts estimate, these moves will make Iran a net gasoline exporter by mid-decade. The Iranian government, however, would have the world believe that it is well on its way to that goal already.

Whether it is will make all the difference. If U.S. sanctions, and their European counterparts, have indeed caused Iran’s gasoline trade to collapse, we are soon likely to see major economic disruptions and commodity shortages within Iran. And, just maybe, such pressure will also yield a more compliant attitude on the nuclear front from the regime in Tehran.

If, however, Iran has indeed managed to become self-sufficient and no longer requires gasoline supplies from abroad in order to survive, it will mean that the international community has lost its most valuable source of leverage over Iranian behavior. If that is the case, the United States and its allies will need to decide whether they are willing to stop Iran’s nuclear program by more forceful means.

Either way, the answer will not be long in coming.

Ilan Berman is vice president of the American Foreign Policy Council in Washington, D.C.


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