Sanctions

With Bashar al-Assad’s government thumbing its nose at global anger as it continues a violent crackdown on protesters, the international community should step up pressure and invoke tough sanctions against Syria’s oil exports, says expert Andrew Tabler.

The Obama administration’s plan to seize frozen Libyan assets and use them for Libyan aid is a dramatic, and probably unilateral, exercise of U.S. power that is likely to yield a relatively modest sum of money, says CFR’s Stuart Levey.

I took the picture in this post somewhere outside of Tehran in early 2006. The number at the bottom is the price of gasoline – at the time, a massively subsidized 800 rials (about 8 cents) per liter, equivalent to about 30 cents per gallon. As of a few days ago, the price of gasoline was still 1000 rials per liter for the first 60 liters a month. On Saturday night, though, the Iranian president announced that subsidies would be abruptly slashed. Each of the first 60 liters of gasoline per person will now cost 4000 rials (about $1.50 per gallon), and additional gasoline will go for 7000 rials per liter (about $2.70 per gallon). What’s prompting this price hike, and what will the consequences be? The Iranian government spends tens of billions of dollars each year subsidizing gasoline consumption. That’s money that the financially squeezed government could be spending elsewhere. Press reports have been emphasizing this factor: Iran is also ending subsidies for a host of other basic commodities, and hopes to save as much as $100 billion each year. I’m surprised, though, not to have seen another angle: Iran is struggling to match gasoline supply with demand. Despite being an oil exporter, Iran imported about forty percent of its gasoline until recently, in order to make up for a shortage of domestic refining capacity. U.S. and European sanctions have, however, prompted many of its suppliers to pull back in the last year. Iran has apparently managed to temporarily bridge the gap by switching some of its petrochemical plants to produce gasoline, but that’s undoubtedly even more costly than paying for imports. Higher gasoline prices should help ease the strain by curbing demand. How much? This sort of thing is inevitably very difficult to predict, but we can make a crude estimate. A recent paper by three economists at Tehran University and the University of Surrey surveys estimates of elasticities of gasoline demand in Iran. The short-run price elasticity of gasoline demand appears to be somewhere between -0.1 and -0.15. If that’s right, a fourfold increase in gasoline prices should translate into a cut of approximately 10-20% in gasoline consumption. This would make a material contribution to addressing Iran’s sanctions-induced challenge. Indeed as I write this, the Iranian oil ministry is reporting a 16.6% drop in gasoline consumption from Saturday to Sunday – though it’s impossible to know how much of that is driven by the price hike, and how much is the result of other factors. Setting that aside, there are important caveats, beyond the simple fact that the past studies might not be all that good. Higher gasoline prices normally curb demand in part by shifting it to other products. But because Iran is hiking the prices of a wide range of other products too, that effect might be reduced. Moreover, a fourfold increase in gasoline prices is way outside the range of past experience; it may not be possible for drivers to quickly reduce their gasoline use as much as theory predicts. Regardless, the big question now is how this all goes over in Iran. Police are bracing for violence. It probably won’t be long until we know how this plays out.

Sanctions have weakened Iran, but expert Hossein G. Askari says the country’s leaders continue to muddle through, in part because of popular support for uranium enrichment--the cause of mounting global pressure.

Washington’s new sanctions against North Korea, focusing on international financial institutions and banking systems, are likely to have more impact than trade sanctions, says North Korea economic expert Marcus Noland.

The latest round of UN and U.S. sanctions on Iran are unlikely to push Iran to negotiations, says sanctions expert Meghan O’Sullivan, which means the U.S. and its allies will need to look at options including military force, among others.

Analyst Joseph S. Nye Jr. says the Obama administration’s emphasis on multilateralism raises the prospects for dealing with Iran effectively on its nuclear program but expects no diplomatic breakthroughs in the short term.  

Korea expert Victor D. Cha says effective implementation of the UN sanctions imposed on Pyongyang in June prompted recent conciliatory gestures from the regime. He says the United States might resume bilateral talks with North Korea in addition to pursuing multilateral discussions on Pyongyang’s nuclear program.

Low oil prices are undermining Iran’s economy, a political liability for President Mahmoud Ahmadinejad as he seeks reelection in June. Djavad Salehi-Isfahani, a former Iranian central bank economist, assesses the link between politics and economy in Iran.

Karim Sadjadpour, an Iran political analyst, says the sanctions imposed by Washington on Iran this week are unlikely to have much of a financial impact on Tehran.  

Abbas Bolurfrushan, the former president of the Iranian Business Council in Dubai, discusses the Iranian economy and the effects of sanctions on Iranian businesses.

Backgrounder: The financial levers Washington is applying to bring about a suspension of Iran’s nuclear program.

Despite a spotty record of effectiveness, Western states continue to promote UN sanctions in cases ranging from North Korea to Iran. But the UN Security Council is more divided than ever about implementing these coercive measures.

As UN Security Council members mull sanctions against Tehran, experts say such a move, even with climbing oil prices, could deal a devastating blow to Iran’s economy.

The president of the American Council on Germany sees a "definite improvement" in U.S.-German relations since Angela Merkel became chancellor five months ago. Ahead of Merkel’s second visit to Washington this year, William Drozdiak says that a key issue for Merkel and President Bush is what to do about Iran’s nuclear program.