[R-G] U.S. Dilemma: Targeting Iran's Oil Industry Could Hurt America More

[Yoshie Furuhashi]

<http://www.iht.com/articles/ap/2007/11/05/africa/ME-GEN-Iran-Targeting-Oil.php>
U.S. dilemma: Targeting Iran's oil industry could hurt America more

The Associated Press
Monday, November 5, 2007

CAIRO, Egypt: The United States has begun increasing the pressure on
Iran's lucrative oil industry, targeting individual firms for one of
the first times in the nuclear standoff. But the effort remains
limited — mostly because aggressive oil measures could hurt America's
economy more than Iran's.

The dilemma for the U.S. is clear: Hitting Iran's energy industry with
strong sanctions now could cause world oil prices to spike, at a time
when they are already at record levels, enriching Tehran and harming
the U.S.

With oil trading around US $95 a barrel, the U.S. has little room to maneuver.

"If Iran sees US $100 a barrel oil, Iran is likely to conclude, and it
may well be true, that no matter how severe the sanctions ... the
regime could sneak by," said Matthew Levitt, a former U.S. Treasury
Department terrorism expert, who is now with the Washington Institute
for Near East Policy.

Yet long-term, finding some way to target Iran's oil is crucial, some
analysts say, because its oil exports generate billions of dollars in
hard currency, providing Iranian President Mahmoud Ahmadinejad with
strength to defy the international community.

The U.S. sanctions announced last week were something of "a shot
across the bow in the direction of the oil and gas industry," said
Levitt. They targeted several Iranian oil-services firms allegedly
linked to the country's powerful Revolutionary Guards, but did not go
further.

Washington is also limited by the reality that even if it wanted to
take a more aggressive stance, it can do little to hinder Iran's oil
sales at a time when global demand is bulging.

"Unless there is a major land and naval blockade, there are always
going to be buyers for Iranian oil," said Karim Sadjadpour, an Iran
expert who works at the Washington-based Carnegie Endowment for
International Peace.

The U.S. does not buy oil directly from Iran, but oil is traded as a
commodity on the world market. That means even if other countries
followed America's boycott, Tehran would easily find alternative
buyers, especially among European and Chinese companies that continue
to pursue energy deals in Iran.

Sadjadpour said a more productive form of pressure against Iran would
be a lowering of world oil prices, overall.

"If you can get oil down to US$60, their (Iran's) calculation might
change," he said.

But the U.S. has few ways to accomplish that. The only short-term way
might be to persuade Saudi Arabia to dramatically increase oil output,
Sadjadpour said. But Saudi Arabia's ability and willingness to take
such a step is questionable, and there is no sign the U.S. has
contemplated such a move.

Faced with such constraints, the U.S. chose what Levitt described as a
"middle of the road option." The new unilateral sanctions, announced
late last month, target a handful of Iranian oil services companies
allegedly tied to the Revolutionary Guards, an elite force Washington
has linked to terrorism and missile proliferation.

One of the firms, Khatam al-Anbiya, has secured deals worth at least
US$7 billion in the oil, gas and transportation sectors among others,
according to the U.S. Treasury. Levitt said the other eight companies
listed by the U.S. are also linked to Iran's energy industry. These
include Oriental Oil Kish and Ghorb Nooh, which have substantial
contracts in the oil and gas sectors.

The U.S. has long prohibited American firms from doing business with
Iran, including any type of oil business. But Washington hopes that
associating these oil-services companies with the Revolutionary Guards
will persuade companies in other countries — especially in China and
Europe — to cut off ties.

But even supporters of the new measures, like Levitt, acknowledge
unilateral U.S. sanctions have no hope of changing Iran's behavior on
their own.

"The people involved in smart sanctions are the first to tell you that
this will not solve the problem," said Levitt. All it does, he said,
is "create leverage for diplomacy."

Instead, U.S. officials apparently hope to use the oil and other
sanctions to exploit Ahmadinejad's main weakness — the rising
criticism from a public angry over the country's poor economy and from
politicians disillusioned by what they call the president's
mismanagement.

Even some conservatives in Iran have expressed fears Ahmadinejad is
pushing Iran into future trouble over the nuclear issue.

U.S. pressure against European banks to stop doing financial
transactions with Iran has made it harder for Iranians to access the
international financial system to do everything from get money from
overseas relatives to finance imports.

The move has also slowed down much-needed foreign investment in Iran's
oil industry. But many analysts say Iran could remedy that by offering
better deal terms to international firms.

The U.S. also has been successful in leading two rounds of U.N.
Security Council sanctions against Iran and is pushing for a third set
if the country refuses to suspend uranium enrichment.

Through all this, Ahmadinejad has continued to insist that Iran's
nuclear program is peaceful and that the sanctions haven't hurt the
country's economy.

Saeed Laylaz, an economist in Tehran, shares the view that oil is key
— and so far, little touched. No amount of Western sanctions pressure
will alter Ahmadinejad's stance as long as Iran can continue selling
oil, Laylaz said.

"Because of the huge amounts of oil revenue, we can compensate for all
the sanctions and much more," he said.


--
Yoshie
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