“These sanctions are not aimed at the Iranian people,” said the US Ambassador to the UN, Susan Rice, in the Security Council session where the new resolution was passed.
“These sanctions are as tough as they are smart and precise.”
Targeting banks, shipping lines and companies which help the government’s nuclear and missile programmes, the sanctions are supposed to be persuasive rather than punitive, to make the cost of Iran’s nuclear programme too high. But there is little evidence that this is likely to work – sanctions are a policy of last resort, a sign that no-one can think of anything else.
Economists suggest that the Iranian economy is already in such bad shape that it will be hard to distinguish between the impact of sanctions, and poor management or bad policy on the part of the Iranian government.
Iran depends on the oil and gas sector for 85 per cent of its revenue. China and Russia held out against sanctions on this sector, but it’s already in decline because of low investment and outdated technology.
Official statistics suggest that Iran’s oil production is declining by about 8 per cent a year, from 4.1 million barrels of oil per day in 2008 to 3.5 million bpd today. Domestic consumption remains at about 1.5 million bpd, so the amount available for export is declining and with it, foreign currency revenues.
Government subsidies ensure that Iranians pay very little for domestic energy – maybe only US$10 or US$20 a month for gas. President Ahmadinejad has said those subsidies will be replaced by cash hand-outs, but that policy – which would preserve foreign currency reserves but probably stoke inflation – hasn’t been implemented.
Maybe the government fears protest if Iranians find their gas bills have suddenly shot up by a factor of ten. This policy would have more impact on ordinary people’s lives than sanctions.
In the medium-term, the Iranian economy is in trouble. A parliamentary committee, headed by the hardline (but anti-Ahmadinejad) MP Ahmad Tavakoli, carried out a study suggesting that if there is inadequate investment, in 15 years time they won’t be able to export oil and gas at all. If they get no investment at all, that day could come after 8 years.
Iran is looking to Sinopec, the Chinese oil company, to replace European oil majors which are reluctant to risk the wrath of the USA by investing further in the Islamic Republic. But China isn’t yet as technologically advanced as western companies, so that doesn’t solve the problem.
In the last few weeks, Iranians banks and companies which knew they were likely to be on the sanctions list have been moving their assets out of sight, reportedly using shadow companies and accounts in Turkey, Malaysia and Dubai.
That won’t save Iran’s economy, but it will stave off collapse and enable the Revolutionary Guard, who are estimated to control up to 50 per cent of Iran’s economic activity, to survive and probably prosper.