November 5, is the US deadline for the world to cease business with Iran following which strict penalties will be imposed on individuals and companies.
These US sanctions are not new. Under the D’Amato Law the US had imposed sanctions against Iran in 1996, against companies investing more than $10 million in the energy sector. However, the difference between the two sanctions is that while from 1996 till 2010, the world by and large continued business with Iran, after the disclosure of Iran’s clandestine nuclear programme in 2003, the US vigorously followed on much wider sanctions. This time the US succeeded in obtaining the consent of the UN Security Council, including Russia and China. A protracted dialogue that followed culminated into UNSC resolution 2231 in 2015 in which Iran committed itself not to follow the nuclear path and, in return, the UN sanctions against Iran would be lifted.
However, the US sanctions were not lifted even during the Obama administration. Consequently, there was a level of reluctance in the international business community to do business with Iran although French giant Total announced its intention of heavy investment in Iran’s energy sector. China, Japan and South Korea also announced big plans of investment in Iran. India was in advance stages of striking a $10 billion deal on Farzad B gas, fields but it fell through due to disagreement on prices. Russia and China looked for defence and infrastructure sectors for their investments. The US while forbade its citizens and entities in doing business announced in October 2017, that Non-US citizens or entities could have normal business with Iran.
Even during UN sanctions against Iran, countries could get a waiver because of their energy needs; China, Japan, India and South Korea were the major importers of oil from Iran. In order to escape American dragnet these countries concluded currency swap agreements with Iran to conduct their businesses without attracting American wrath.
Have these sanctions worked against Iran? The overall picture is grey as in some sectors such as energy, which requires investments to the tune of $200 billion have suffered badly. Iranian oil exploration techniques require modern technology which American technology can fulfill, although other international companies are equally capable of meeting the Iranian requirements.
Second, the world financial system is predominantly dollar based which gives the US an edge as a clearinghouse, for the business transactions between Iran and rest of the world. This is leverage in the American hands which they are now using ruthlessly.
The US may have its plans to pressurise Iran, but the latter has developed substantive resilience to withstand such pressures although the country may still face economic difficulties. There are host of factors that favour the present dispensation in Iran to face the American sanctions
Third, this time the US has directly approached the oil importing countries, not to do business with Iran or drastically cut down on their imports. Iran’s OPEC quota is 4 million barrels per day (mbd) but its present capacity to extract oil is estimated at 2.7 mbd. If half of 2.7 mbd were out of Iran’s exports it would mean loss of $32 billion at $ 60 per barrel prices.
Fourth, the US is endeavouring to cause unrest in Iran and disturb the present order in the country. The resulting chaos in the country is what the neocons in the US want to capitalize on which National Security Advisor John Bolton describes as “regime change”.
The US may have its plans to pressurise Iran, but the latter has developed substantive resilience to withstand such pressures although the country may still face economic difficulties. There are host of factors that favour the present dispensation in Iran to face the American sanctions: (a) geo-strategically, Iran has forged close alliances with Russia, China and Turkey to overcome the difficulties in bilateral trade, especially the export of Iranian oil; in the defence field Russia and China would be ready to meet Iran’s requirements; (b) Iran has already indicated that it would be ready to enter into currency swap agreement with countries doing business with Iran; this may be a big incentive to the countries which have traditionally maintained good business relations with Iran; (c) even European Union has declared its readiness in doing business with Iran despite US sanctions and to use Euro as a business currency, bypassing the US dollar; and, (d) Iran has approximately $60 billion or equivalent of this amount staked in international banks as proceeds of oil and gas which can support the country’s import bills.
Parallel to the above factors, the Supreme Leader has encouraged the country’s economic managers to promote “resistance economy” which basically relies on domestic manufacturing to attain autarky. However, this quasi-Soviet model is doubtful to succeed given tough competition in research and development and economies of scale. Nevertheless, together with Russia, China and Turkey, Iran can weather the American bullying in a region which is volatile and can become another source of embarrassment for the Americans. Iran and Russia stood by Syria to defeat anti-Assad forces and retrieved the situation from the brink. Iraq is much better now and Iran can rightly claim about its contribution in stabilising the situation in the country.
Being a neighbour and the country which stood by Pakistan at every crucial moment, doing business with Iran should have been a normal affair. Turkey is also a neighbour of Iran and has an annual trade of $10 billion, of which import of natural gas constitutes $7 billion. Turkey has announced to continue its business with Iran uninterrupted. Similarly, Iran-Pakistan Gas Pipeline agreement signed in March 2013, can meet energy shortages to the extent that Iranian gas can add 5500 megawatt for which we have the production capacity. Apart from gas, Iran is ready to supply up to 3500-megawatt electricity which can address our immediate power shortages. Both countries have 912 km long border with tremendous scope for border trade which can also address the problem of unemployment in the Balochistan province.
American pressure would be obvious to discourage Pakistan-Iran trade as was the case when Presidents Zardari and Ahmedinejad in Chabahar signed IP gas pipeline agreement in March 2013. The American Ambassador would come to the Presidency every second day to persuade President Zardari not to sign the agreement with Iran. However, when asked to help address the problem of energy shortages in Pakistan, the ambassador had no answer and justification to discourage Pakistan from signing the IP gas pipeline agreement. Not only energy trade both Pakistan and Iran have tremendous scope to be successful trading partners in many commodities and can also serve as transit hub for Russia, Central and South Asia and Europe.
Finally, we must realise that both Iran and Pakistan have had differences in perception on regional issues but being neighbours they always stood by each other. We also stood by China despite the fact that we were in the American camp during the thick of Cold War. We have withstood such pressures in the past; we can do it now President Trump’s November 5 deadline notwithstanding.
The writer is a former ambassador
Published in Daily Times, October 25th 2018.
Source: https://dailytimes.com.pk/314279/pakistans-response-to-us-sanctions-against-iran/
