High Oil Prices Cushion Iran from Sanctions, Hurt Obama

So far, high petroleum prices are helping Iran beat the new, ‘crippling’ US and EU sanctions. And, ironically, it is the Obama reelection campaign that is suffering most from the sanctions, not Iran

While Iran is producing about 500,000 barrels a day less today than was typical for it in recent years, the price has risen over 20% in recent months.

As the Bernama article points out, if Iran made $250 million a day on petroleum exports of 2.5 million barrels a day at $100 a barrel (the Brent crude price of last fall), and if the exports have fallen to 2 million barrels a day but the Brent crude price has risen to $125, then the income isn’t that much reduced.

Moreover, it is likely that some of the reduced sales to China were temporary, as a result of a tough price renegotiation. As Iran’s Asian importers realize that Iranian petroleum is a buyer’s market because of the European boycott, they will seek a price reduction.

Some of Iran’s problems will come from tanker companies being unable to secure insurance if they carry Iranian petroleum. This obstacle, however, is likely to be overcome by trucking gasoline through Asia and by building overland pipelines to Pakistan, India and China. Pakistan is already openly defying the US on this score. Petroleum is fungible, and once it leaves Iran, it is hard to see how it can be sanctioned. In essence, it can be laundered. During the sanctions on Iraq in the 1990s, the Baath regime was able to smuggle petroleum through Jordan and Turkey and to squirrel away billions with which to cushion its officials. The Iraqi middle classes were destroyed, but that development benefited the regime, since they no longer had the wherewithal to oppose it.

That production by countries like Iraq could increase fast enough to offset strong Asian demand and bring down the price substantially seems to me unlikely in the short run.

But it is clear that if what Iran really wants is energy independence, it should rapidly expand its solar, wind and geothermal sectors, which would allow it to carry out another moratorium on its nuclear enrichment and jump start negotiations with Europe.