Could EU’s new Iran sanctions work?

Iran, with its infamous starring role in President George W Bush’s “axis of evil” speech, is one of the most sanction-bound states in the world alongside North Korea.

A vast number of interconnected sanctions have been imposed on it, largely because of the uncertainty over the nature of Tehran’s nuclear enrichment activities, which the United Nations says may contravene the nuclear non-proliferation policy to which Iran has committed.

From July 1 the EU has banned the sale of protection and indemnity insurance for ships which carry Iranian oil. A similar move by a British insurer which saw insurance withdrawn for the MV Alaed (believed to be carrying Russian armaments to Syria) meant the craft had to return to port.

“The era of bullying nations has past. The arrogant powers cannot monopolise nuclear technology. They tried to prevent us by issuing sanctions and resolutions but failed,” Iranian President Mahmoud Ahmadinejad said in a live television broadcast in February.

Following the revolution in 1979 which saw the overthrow of the Shah, Iran has pursued a course in its domestic and foreign policy which has frequently seen it at loggerheads with powerful states and blocs such as the US and EU.

Since 2010 when the UN passed resolution 1929 prohibiting a wide range of trade and financial transactions with the Persian state, it has been playing a game of cat and mouse with the US and EU trying to circumvent sanctions. Recently, it was reported that Iranian oil supertankers have been disguised in a bid to make it more difficult to track their movements.

However, it is a major producer of oil and gas which, in an international economy which depends on carbon products, makes it a powerful player.

EU resolve

The US has pursued sanctions via various legal authorities since 1979 following the seizure of the US embassy in Tehran. Its Iran Sanctions Act “authorizes sanctions on businesses or individuals engaging in certain transactions related to Iran’s energy sector and Iranian weapons of mass destruction and advanced conventional weapons.”

Both this and the EU oil clampdown are aimed at making Iran adhere to the UN Security Council resolution 1929. As Professor Ali Ansari of the international affairs think-tank Chatham House told Channel 4 News: “What the sanctions have done is to make it very expensive to do business with Iran”.

Prof Ansari says that the EU’s resolve in imposing these measures will come as a shock to President Ahmadinejad as Iran does not believe that the economically-challenged 27 EU states would follow through on their threats to stop buying its oil.

But Prof Ansari thinks that there are less obvious reasons why sanctions this time may bite.

“I think the two areas of more interest are the managerial incompetence of the government and the impact of voluntary activities – that means companies pulling out of contracts, removing insurance and taking their business elsewhere because it’s just too difficult to do business with Iran.

“Iran has not invested in its oil infrastructure and they don’t produce much. If it can’t sell its oil, it can’t pay salaries,” and in a regime where the president is known for his political patronage, this could have a destabilising effect.

Geopolitical games

Iran’s friends are few. China is still buying its oil but is very much playing a geopolitical power game – it is swapping oil for agricultural products. India is also still buying Iranian crude but is paying for it in rupees not US dollars.

Some think the sanctions may actually have an impact. Professor Ali Ansari thinks the Iranian government may be in for a nasty shock: “I don’t think it’s going to be good for the Iranian people; I’ve seen estimates that there could be a drop in oil sales of 50 per cent and that would be disastrous for Iran, ” said Prof Ansari.

“But this is because of the way the state is being run. The sanctions are rubbing salt in a self-inflicted wound; if the economy was running properly, the sanctions would have little effect because Iran is rich. It has oil and gas and people want oil and gas.”