By Michael Levi, CFR
Michael Levi is director of the Program on Energy Security and Climate Change at the Council on Foreign Relations. This entry originally appeared here. The views expressed are his own.
Last week, the Obama administration tightened its oil-related sanctions against Iran. This was followed by new congressional legislation that promises to extend those sanctions further. Yet less than a year ago, most observers found such stringent sanctions against the Iranian oil sector unthinkable.
What has happened to so fundamentally change the picture? It’s worth looking at three things.
A Change in Politics
There’s no question that the Obama administration was initially less enthusiastic about oil sanctions than Congress was. But political power moved in ways that gave Congress more control. Ultimately, the administration struck a bargain rather than try to defeat sanctions legislation. It got language that allowed it to exercise extensive discretion in applying the sanctions: it could hold off if the economy would be put at substantial risk; it could also exempt other countries that were making solid efforts to wean themselves off Iranian crude. The decision to cooperate with Congress was critical – it opened the door for other factors to push the United States further down the sanctions road.
A Change in Philosophy
For years the basic debate over oil market sanctions was simple. One side said that the Iranian threat was so great that any tool that could put pressure on Tehran should be used. The other side said that the price was too high: blocking crude shipments from Iran would tighten world oil markets, raising prices for gasoline and diesel, and threatening to bring the economy down. Both arguments gained strength over time: the Iranian nuclear threat advanced, increasing the urgency of raising pressure; meanwhile, a weak economy made policymakers allergic to anything that might threaten recovery. In any case, many agreed, sanctions could easily be undermined, since China would continue to buy Iranian crude.
More from CFR: Who are the Muslim brothers?
In late 2011, another strain of thinking rose in prominence. The logic was straightforward. Most countries would shun Iranian crude. A few, though, would continue to buy it. Since Iran would now be desperate for customers, though, it would be forced to offer the crude at a discount. Iranian revenues would fall, but world oil supplies wouldn’t; as a result, world oil prices would remain stable. Chinese purchases of Iranian crude bad become a selling point rather than a flaw.
This theory hasn’t quite played out in practice. China has been able to extract discounts, but Iranian exports have also been slashed in half. Regardless, the change in philosophy was essential to getting the sanctions rolling in the first place.
A Change in Markets
Over the long run, oil markets tend to do a good job of balancing supply and demand. Over the short run, they’re considerably quirkier. A central question when people debated Iran oil sanctions a year ago was whether Saudi Arabia could quickly make up for lost Iranian crude. If they did, markets would remain well supplied, without prices needing to rise; if they didn’t, all hell could break loose. Indeed, even a strong response from Saudi Arabia wasn’t without potential problems, since a surge in output would have left Riyadh without much spare capacity left in case of other problems.
But two big market trends came to the rescue. The first was a surprisingly weak global economy, which left oil demand below the levels that many had expected. The second was the surge in U.S. oil production, which has risen by nearly a million barrels a day over the last year. Over the long run, that much extra production has limited consequences for world oil markets and prices, which adjust considerably to compensate. Over the short run, though, it’s critical. Surprise gains in U.S. output have largely offset surprise falls in Iranian exports. The result for markets has been nearly neutral, something that crude oil prices reflect.
Each of these three factors holds lessons as the sanctions proceed. Politics will continue to shape U.S. decision-making. Expectations that China can absorb Iranian oil at a discount seem to be on the wane. Sustained gains in U.S. oil supplies no longer come as a surprise to markets – and continued weakness in the global economy isn’t much of a shock either. All of these factors may make ever-tighter sanctions an increasingly challenging task.
And it’s important to keep the big picture in mind. Sanctions alone won’t solve the Iranian nuclear problem. They need to be combined with effective diplomacy to have a real chance of success. Pulling that off is a far taller task than imposing the sanctions in the first place.
© 2012 Cable News Network. Turner Broadcasting System, Inc. All Rights Reserved.
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Why wouldn't they bite? I'm sick and tired of the politics of hunger practiced in Washington trying to force other countries to accept the will of the M.I.C. Evidently these people feel no compassion at all.
They bend to the will of israeli puppetmasters.
Only a nation united can ever hope to undo the web that snuffs the life from our beloved culture...
When you say "our beloved culture", whose culture are you talking about?
At last an article that dosent say "all options are on the table" / "no options are off the table" – a warmonger bluff.
China getting access to cheap Iranian crude is something that the United States should worry about. Even though companies like Apple and the likes can source its products cheaper, China can now produce defense and military gear at a cheaper cost, something the US cant. Lower costs benefit directly the Chinese population, which Americans cannot. This will reduce inflation and trigger growth in the medium to long run, and in the same context the Americans are at a disadvantage.
So in short, Americans are shooting themselves in the foot while sanctioning Iran. Not good at all.
The Arab Spring the only mechanism capable of infiltrating the regime, and they know it.
Except for Egypt and Tunisia, the so-called Arab Spring appears to be a dismal failure! In Yemen for example, nothing has truly changed. The hated dictator Ali Abdullah Saleh continues to rule that country with an iron hand from Saudi Arabia through his right hand man!
It is mixed the results, the outcomes were unknown, it is such a wide brief you can't say, no knows including those running regimes how susceptible they are to regime change. If they don't know it is very hard for other nations too know. No one saw Egypt, if it happened it could be managed. Jordan has suffered from the Arab Spring along with all the others but it has been managed. The Yemen model was what was proposed for Egypt at the time. If you look at Libya an Syria color revolutions turned into armed uprisings, Qaddafi was stopped, Assad has been allowed to conduct genocide, as far as Iran goes the Arab Spring is yet to reach it. So as a colored revolution it was a failure, that view depends on your own view, many US allies have fallen, now if people support the democracy project at all cost as Bush has proposed, then it is successful US ally or not. I see little prospect of the Arab Spring reaching Iran, if it was going to move to other countries it would have by now. As you can see from 2009/10 an Syria even with a large demographic from both the blue and green movement it would not be a color revolution that removed the regime. Which is why Syria done by the people against the support of the Iranian, Russian and Chinese is important, that will scare the Mullahs in Tehran. That may give them thought for a rethink.
Oil sanction would not have been possible unless demand was limited, it would not be sustainable so the GFC was good for something.
1000 years from now things will still be the same in the "Arab" world because religion is firmly in charge.
This seems remarkably similar to an article I published a month ago elsewhere. At least the markets portion does. I wonder if CNN forgot to include a citation/link just because the root story appeared on a non-affiliated site.
Google "Iran's oil market suicide pact" and see what you think.
It is correct oil sanction will not nothing our nuclear weapon programme because we know that halting nuclear weapon programme will not put an end on western hostility . We want to be a role model for Muslim country . It is the main reason of why west dislike us . West will not be satisfied untill we become slave of them like puppet Soudi Arab. Hey War Option will always be in your table . We will destroy your economic life line if we are attacked . If you can defeat our military , you can not defeat Irani people who will not accept puppet government formed by west after war .
Watch out, it's a pi$$ing contest.
Sure everybody knows that Irani. And thats the reason why there will be no war. All this warmongering is PURE BLUFF. Even today the US government is spending beyond its means. And there will be no improvement unless and until there is a massive, say 70% cut on military spending. So war is absolutely off the table. And keep in mind that Iraq was attacked because it had no WMDs. Iran will not be attacked because it has them.
“We want to be a role model for Muslim country. It is the main reason of why west dislike us”
That is not the reason. I dislike you because you chant “death to America, death to England death to Israel”, pretty much death in general. Atomic bomb would encourage your death culture. You are obsessed with death.
Oh I see. In the greed for oil and in the name of freedom, you kill half the population of Iraq. And if the Iranians just shout "Death to America", its a big thing. Iran is dealing with the biggest cheater in the world.
At a ceremony marking the International Day against Drug Abuse in Tehran earlier this week (June 26), Iranian vice president Mohammad Reza Rahimi delivered an unprecedented, public anti-Semitic tirade in front of local and international dignitaries.
http://www.al-monitor.com/pulse/originals/2012/al-monitor/in-iran-anti-semitic-outbursts-r.html
Muslims hate all those, including Jews, who are better, smarter, more humane than them. What do they do with all that hate? Muslims shoot themselves in the foot by poisoning their own environments with hate and war mongering propaganda while the world laughs at their idiocy.
More of the same politics of hunger. These stupid sanctions are only deepening the resentment that the Muslims and other people around the world feel toward us! This says that we need a new President in the White House who is willing to just ignore the M.I.C.
Gee whiz Quigley, aren't you a muzzie? So what do you mean by "toward us". Noone sees you as an American. Have you read the crap you have written? The thing is when you say something, it is possible for you to say that people have misunderstood your comment, but in this case, we can go back and read the poison you are spewing. You are a real big jerk. If it was up to me I would throw you back to the sandpit you come from without a second thought.
I think the West is being too harsh on Iran. Every country has a right to build a nuclear power plant. The US intelligence agency officials themselves stated that Iran had stopped it's weaponization program in 2003. Yet they continue to persist their sanctions. I find that to be unfair and also counterproductive as it effects oil prices.
So upsetting, all that you Iranians want to do is build a bomb so you can send it to Israel, the USA, Europe but they will not let you. What is wrong with these people! No, no, Iranians do not lie about making bombs, gee whiz!
ferhat,,, your sadly mistaken... Iran threw out all the international inspectors, pulled all the cameras and any way for anyone to verify what they are doing... IRAN is a rogue state who is intent on destoying any country that isnt Muslim.. they are all wackos and radicals... we should should shoot a lot of them while yelling Alah Akbar!
Just read todays Reuters report on China's inflation at 30 years low. Just google China consumer inflation falls to 30 month low.
Yes, thats the magic when the United States buys oil at 100$ and China buys Iranian oil at 70$. Expect China to overtake US economy and military, soon.
Sanctions alone don't hurt the Iranian leaders effectively. Not yet! It's the disgruntled people in the country that poses a threat to the regime. Depreciation of the Iranian Riyal, high costs of living, the shortage of fuels and meat and other imported merchandises etc. would lead to an implosion that the Green Revolution in 2009 and other protest movements had so far failed to achieve.
The trend has been exacerbated by the declining quality of regime officials. As a result of the thwarted Green uprising following fraud-tainted 2009 presidential elections, more experienced and moderate politicians have been sacked, jailed, left the country or are simply lying low.
The brain drain which has hit the top ranks of politicians and advisers has meant that the education and world view of many politicians in Iran now is far more limited than before. This could be a major reason behind why Rahimi had no qualms about making such remarks.
http://www.al-monitor.com/pulse/originals/2012/al-monitor/in-iran-anti-semitic-outbursts-r.html
A report in Ha'aretz Thursday, citing American officials, said that a new U.S. report says Iran has made a great deal of progress in its nuclear program in recent months. According to the report, U.S. President Barack H. Obama has seen the National Intelligence Estimate (NIE) report, prepared by U.S. government intelligence groups.
http://www.israelnationalnews.com/News/News.aspx/158741
Columnist Colbert King issued a strong warning against Iranian anti-Semitism this week in a column for the Washington Post. King, a Pulitzer prize-winning columnist, termed Iranian hatred “the most virulent form of state-sponsored anti-Semitism since Nazi Germany.”
Iran “is more than a threat to a piece of geography called Israel,” he said. It is “the greatest threat to Jews to emerge in the past 70 years.”
King quoted multiple statements from Iranian President Mahmoud Ahmadinejad accusing “Zionists” of “ruling the major world affairs” to support his argument that “the Iranian government is as anti-Semitic as the Third Reich.” He also noted Iranian Vice President Mohammad Reza Rahimi’s claims that “Zionists” and the Talmud are behind the global drug trade.
http://www.israelnationalnews.com/News/News.aspx/158706
"Allah is to be praised and thanked for ridding us of the vices and pride
of the days of ignorance. O People! Note that all men( the noun includes
women as well) are divided in two categories only: the pious and
God-fearing who are esteemable in Allah's reckoning, and the transgressors
and hard-hearted, who are lowly and contemptible in the eye of Allah."
Prophet Muhammed, peace be upon him.
Another "unbiased article" . Sanctions on Iraq resulted in deaths of children. Sanctions on Cuba resulted in keeping the Marxists in power and impoverishment of the Cuban people.
In case of Iran , we are just shooting ourselves in the foot. They already have the bomb. All our sanctions will do is to increase the price of oil, which the Wall Street loves, stir up trouble to get war racket profits up. The Europeans found the hard way how Iran sanctions work. They have to buy Iranian oil now through India , I think, and are paying a higher price for the same oil they were getting before.
I forgot to mention. CFR, for which the author writes is a big propaganda machine funded by the very rich for the Glory of the Globalist Holy Writ.
America has invaded sixty countries since world war 2.
In 1953, America overthrow Iran's democratic government and installed a brutal dictator Shah of Iran. America helped Shah to established secret police and killed hundreds of thousands of Iranians.
During Iran-Iraq war, America helped Saddam Hussein and killed one million Iranians. America is the only country that shot down Iran's civilian air plain and killed all 290 passengers.
In 2003, America invaded Iraq and killed 1,000,000+ innocent Iraqi people and displaced 4,000,000+ Iraqi people.
Now, America is a failed country with huge debt. Its debt will be 24 trillion by 2015.
Every other day a city in America is declaring bankruptcy. ha ha ha
America will always fight the war of sentiment which may cause there downfall in a couple of years to come. Its will be killing and maiming other people and trying to protect its own. But it has forgotten that so many nation has ruled these same world and the power shifted from them. But why is america always after islamic country? But sooner or later power must shift.
Good artical.....
Dancing around the issue thought..none of these things is going to STOP Iran from putting together a weapon...There almost singlemindedness about having a Atomic Bomb or a suitcase bomb or a Very powerful car bomb...is unnerving...Whats even more unnerving is The Supreme Council of Iran..Will use a weapon like that without a moments thought...Of course once they use it... Iran will no longer exsist as a Nation...So the only solution is to MAKE IT CLEAR to Iran... If there is any Nuclear detonation anywhere in the Middle East....Anywhere...Iran will be held responsible...It makes Iran become a responsible member of the Nuclear Club....It will also makes Iran run around the Middle East making sure NONE of there Touchy feely Terrorist Buddies get there hands on Atomic weapons...
A nuclear detonation anywhere in the near east and Iran will be held responsible! Interesting. Mean while their are 27,000 nuclear weapons in the world and Iran has none. Pakistan is a failed government with over 100 bombs and we cry over Iran. Iran has not started a war outside their boundaries in over 200 years. I wish the US could say that. No one stops to consider what Iran can do when attack. How would you like oil at $300.00 a barrel for starters!
Anti oil sector sanctions are good for a country they are applied against. They may be hard short turn, but if applied consistently over the course of many years they help development of own economy and break dependence on cheap imports. So after a time they do not bite as hard and have to be tightened for the subject to even feel it.
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please war is not good ! no one wants to see another war again. Imagine in DRC ( CONGO) 8 million of people are dead due to minerals. thanks to Rwanda's Arm who are killing congolese like flies ( vampire killing ) in 21st century.
I think the tough sanctions on Iran will suffocate the Green Movement.
The WAR monger magician in US is out of tricks ? Now nobody buys those ' FREEDOM' craps anymore.
I am a useless piece of camel dung. I post anti American, anti GB, anti semite, anti India, anti modern anything because I am a good moooooslem. I steal people's monikers because I am so ashamed of myself and post the most stupid comment. When people get angry with me, I claim insanity. I am the same guy.
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