You don't hear much, these days, about a "window closing" on nuclear diplomacy with Iran. That's because the Obama Administration is now confident that time is on the side of the Western camp, thanks to the punishing new sanctions that formally took effect over the weekend.
The combination of last Friday's U.S. banking sanctions against financial institutions doing business with Iran’s central bank, and Sunday’s European Union embargo on importing Iranian oil and insuring tankers carrying it anywhere in the world, is putting an unprecedented squeeze on Iran’s economy. That's why Western leaders believe that their leverage over Iran continues to grow while talks remain stalemated -- which is why, in the recent Moscow round, they toughened their demands on Tehran.
The Obama Administration believes sanctions will cost Iran $32 billion in lost oil revenues this year, and they are ready to tighten the sanctions “noose” with further measures in the coming months. The impact on Iran is obvious: The price of chicken rose by 30% last week alone, as a result of a shortage of feed-stock caused by sanctions. Grain prices have risen by more than 50% in recent months, sending the bread price soaring. Fruit costs 66% more, now, while vegetable prices have almost doubled, as inflation bites into the living standards of ordinary Iranians.
The regime is starting to acknowledge these hardships, but blames them on sanctions imposed by Western powers seeking to deny Iran nuclear rights supported by a majority of the population. Obama Administration officials earlier this year told the Washington Post that the goal was to impose sufficient economic pain to "create hate and discontent at the street level so that the Iranian leaders realize that they need to change their ways."
It remains to be seen, of course, whether such hatred is directed against the regime, or against those imposing the sanctions. But even the most fervent advocates of sanctions in Washington acknowledge that the latest measures are unlikely to change the regime's nuclear calculations -- already, they're pushing for more.
Still, it's clear that Tehran has some margin to absorb the new measures, most which were already in effect in the markets before their start dates. Most of Iran's main oil customers have received waivers from the Obama Administration sparing them from U.S. banking sanctions after they trimmed, but did not end, their Iran oil purchases. Although China, which was granted a last-minute waiver on Thursday, had cut back its imports significantly earlier in the year, that appears to have been based on a pricing dispute and the import figure has bounced back to previous levels. Still, President Obama appeared more willing to risk the derision of the hawks in Washington than seek to punish America's largest creditor for refusing to comply with sanctions that have no UN standing and are opposed by Beijing.
Some Asian countries are reportedly seeking ways of circumventing the insurance ban, and finding other work-arounds on the sanctions. Iran, meanwhile, has turned off the tanker-tracking devices that would allow monitoring of oil sales, further complicating efforts to monitor Iran's oil trades. There's no question Iran takes a hit from such
measures -- those willing to court the opprobrium of the U.S. by continuing to buy from Iran will be in a position to demand significant discounts.
But even this year's sharp cuts in Iran's oil revenues should be measured against the massive boost in those revenues over the past decade. Oil revenues predicted for this year by the IMF before the sanctions took effect, had been $104 billion -- four-and-a-half times the figure for 2002. Even if sanctions cut half of that projected income, Iran would still be earning twice as much as it did a decade ago. And the Iranians are believed to have close to $100 billion in
foreign exchange reserves.
The coming months, then, will likely see pressure for new sanctions in Washington, and potential showdowns with BRIC countries when the waivers come up for renewal in six months. And, of course, if the sanctions have made the U.S. and its allies more comfortable about walking away from the negotiating table pending to await Iran's
capitulation, then the logic of the chess game might compel Iran to create a crisis in order to boost its own leverage and change its adversary's calculations. In which case the months ahead could be stormier than would suit President Obama out on the campaign trail
