Iranian Sanctions: New Wine in Old Bottles?

In contrast to comprehensive policies, targeted economic sanctions minimize adverse humanitarian effects on civilians.

Aniseh Bassiri Tabrizi and Ruth Hanau Santini emphasize the international community’s shift, beginning in the early 1990s, from comprehensive sanctions toward targeted policies in their recent report “EU Sanctions against Iran: New Wine in Old Bottles?” The ongoing transition broke down this year, however, when the European Union (EU) joined an oil embargo set to take effect July 1, 2012 in reaction to Iran’s alleged nuclear ambitions. This course of action aims to cause a contraction in the Iranian economy, which depends heavily on oil revenues. The report also investigates the embargo’s possible economic consequences for both the EU and the Iranian communities.

While the EU publicly retains a united front regarding the coercive sanctions, some member nations may suffer disproportionate adverse economic effects. Greece is a prime example. Greek policymakers must strive to balance economic and diplomatic considerations because approximately one third of the country’s oil imports come from Iran. A comprehensive embargo on the fuel industry would raise the effective price of crude oil, which could exacerbate the government’s fiscal woes and increase the country’s already high unemployment rate. Recognizing this, the U.S. State Department recently announced a list of countries, including Greece, that are exempt from penalties for dealings with the Iranian Central Bank.

As of 2010, oil represented approximately 90 percent of total EU imports from the Iranian Republic, a figure which amounts to 18 percent of total Iranian oil exports. Inevitably, comprehensive sanctions will trickle down to the average Iranian in the form of decreased economic activity, higher business costs, and potentially reduced energy subsidy packages from the Iranian government.

The authors conclude that the potential winners from the comprehensive sanctions are the United States and Russia, with the latter taking advantage of potentially higher oil prices to fund development initiatives such as subsidizing domestic energy consumption and curbing inflation. While the Iranians will undoubtedly suffer, Tabrizi and Santini suggest that many Europeans will also feel an economic bite should the Iranian authority preempt the embargo by halting all European oil exports before the EU can find an affordable replacement.

The oil embargo, which the authors deem “the new wine” packed into the old bottles of comprehensive sanctions, will not only have serious development consequences for Iran but may also lead to a hefty hangover for all of those involved.