The Heavy Cost of Iran Sanctions for US Economy

Sunday, June 15, 2008

Mostafa Azari

Unilateral sanctions imposed by the United States against other countries have imposed direct and indirect heavy costs on the American economy. Hudson Institute which is based in Washington and is assigned to evaluate the results of sanctions, has recently published a book called “Economic Sanctions and US Interests” in which annual losses suffered by the American companies through sanctions has been estimated at about 20 billion dollars. Also, based on a recent study by the Institute for International Economics, in 1995 alone, the American companies have suffered 15-19 billion dollars in losses through sanctions, which have weighed down on the lives of 200,000 American workers. International Trade Commission has issued a report noting that 42 federal acts, which impose sanctions on 75 countries, cost 5-20 billion dollars in losses for the American companies, especially oil firms, and companies producing equipment, aircraft and agricultural products.

Direct costs of sanctions include losses resulting from losing investment and trade benefits. Losses resulting from not purchasing US commodities by Iran, not purchasing Iran’s oil by the United States and absence of the American companies from investments in Iran are included in direct losses.

US exports to Iran amounted to 616 million dollars in 1993 and to 326 million dollars in 1994. In addition, despite unilateral sanctions, the American companies purchased about one-fourth of crude oil that they sold to other countries from Iran, which was worth 4 billion dollars, and also sold 3 billion dollars of various equipment to Iran per year. That money is now lost and its total amount is currently estimated at hundreds of millions of dollars. Meanwhile, Iran has purchased American needs through reexport from Dubai, which has rendered sanctions practically ineffective.

As for agricultural products, since 9 percent of total wheat in the world is produced by the United States and it also accounts for one-fourth of global wheat exports, surplus wheat and reduced prices has forced American farmers to reduce their wheat farmlands to its lowest in the past 16 years. When Iran announced that it was ready to purchase 3.5 million tons of agricultural products, agriculture unions of the United States, especially Nikki Trading Company urged the Clinton Administration to agree to grain sales to Iran.

Another part of losses resulting from economic sanctions for the American companies emanates from loss of investment opportunities in Iran. In 1994, Coca Cola was planning to establish a soft drink plant in Iran, but was pressured by the Clinton Administration to change its mind.

Boeing Company was willing to sell 16 Boeing 737-S400 to Iran, but the one-billion-dollar deal was called off by the American government. According to an estimate by Boeing, the Iranian national airlines and those of other smaller countries would need more than 100 planes in the next five years due to increasing demand for air travel and dilapidation of existing planes. Boeing, which is aware of that potential, has teamed up with 440 other American companies to form an anti-sanctions group called USA Engage, which tries to dismantle unilateral sanctions against Iran, Libya, and Cuba.

Losing investment opportunities in the Iranian oil and gas industries by the American companies was another spinoff of unilateral sanctions enforced by the United States. The American oil firms tried to enter the Iranian market, but their government prevented them from signing contracts with Iran. Therefore, their void was rapidly filled by energy companies from Europe and other countries.

A national security report in 1998 saved Total, Gazprom and Petronas companies from sanctions. Of course, removing sanctions would be also very costly because the president is sure to come under heavy fire from the public opinion, especially senators. Even if secondary sanctions were removed, it would not be in the benefit of American oil companies because in that case, their rival companies would be able to invest in Iran.

  • During the current year, the French ELF and the Italian ENI signed a contract worth one billion dollars with Iran to redevelop Doroud oil field in the Persian Gulf and increase its output up to 220,000 barrels per day.
  • Also, during the current year, ELF and a Canadian energy company signed a contract worth 300 million dollars to develop Balal oil field while the Spanish SEPSA Company signed a 300-million-dollar contract to invest in southern Iranian oil fields.
  • The Royal-Dutch Shell has finished negotiations with Iran for conclusion of a contract worth 850 million dollars for simultaneous development of Soroush and Norouz oil fields and does not consider US sanctions an impediment. The deal with Shell has bolstered Iran’s standing for the attraction of foreign capital and technology in order to renovate old oil fields.
  • While the US government has not even let its companies engage in swap deals with Iran, non-American companies have been able to manage Iran’s oil swap with Kazakhstan. Also, two non-American companies have started carrying Kazakh oil to Iran for oil swap. They carry oil to Tehran refinery and, in return, receive as much Iranian oil at Kharg Island. In 1998, British tanker ships carried the first 250,000-ton swap cargo from Kharg port.

Indirect costs of sanctions for the United States are even heavier. A result of recent sanctions in medium-term is increased concentration of oil production among member states of (Persian) Gulf Cooperation Council. US interests call for diversification of oil sources in order to reduce risks resulting from market fluctuations. Therefore, a policy which restricts oil production in three major members of the Organization of Petroleum Exporting Countries, that is, Iran, Iraq and Libya, would be against US national interests. Imposing sanctions and limiting production capacities of three major oil exporting countries can potentially reduce oil supply to world markets and increase prices. Just in the same way that it takes many years for oil exporting countries to offset untoward effects of reduced foreign investments in their oil industries, it would take many years to change the resultant trends of the sanctions. Therefore, oil sanctions will be followed by long-term consequences and the next generations will have to pay more to buy oil because of reduced investments opportunities and decreased oil production capacity. Therefore, it would not be to the benefit of the United States, which is one of the biggest oil importing countries in the world, to pursue an active policy for reducing oil supply.


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