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Why Iranian sanctions by US are not working

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Why Iranian sanctions by US are not working

 

The recent geopolitical tensions in the Middle East have their origins from the economic sanctions imposed on Iran by the US after the Americans unilaterally pulled out of the Iran Nuclear Agreement. The US planned to apply maximum pressure on Iranians through oil export sanctions to force them to renegotiate the Agreement.

But the sanctions have had very little impact simply because the world is producing surplus oil, while the limping global economy is consuming less of the commodity. The result is high stocks and relatively low prices making this the wrong setting for effective oil export sanctions.

The Iranians have also been creative in busting the sanctions. GPS tracking systems on Iranian oil tankers are switched off making oil movement traceability difficult, while ship-to-ship oil transfers and exports on the high seas are a common feature. Oil payments are being made with Euros or other convertible currencies instead of US dollars while also bartering oil for other goods. All these actions have kept a reasonable amount of Iranian oil in the global markets and prevented an economic collapse, which is what the US expected.

US actions against Iran have brought the Iranians closer to Russians and Chinese who have devised new ways to keep Iranian oil and gas flowing into global consumption. For the US, this Iran-Russia-China political and economic realignment into a formidable geopolitical grouping will perhaps be the most significant lasting unintended consequence for the US.

Let us not forget what really triggered the sanctions on Iran. It was a sustained diplomatic push by Israel that prompted President Donald Trump to pull out of the Iranian nuclear deal previously concluded by the Obama administration. Then the US and Israel easily co-opted Saudis, regional enemies of Iran. In a rush, the trio did not create a sustainable strategy against Iran, and this is why the push is crumbling. There was war of words and threats, followed by physical incidents of sabotage and retaliation on oil ships, and this culminated with the mid-September missile attack on Saudi Arabia crude oil processing facilities which knocked off about 50 percent of Saudi Arabia oil production and export capacity.

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The Iran-affiliated Yemeni Houthis claimed responsibility, with allegations of Iran’s direct government involvement in the missile attack never conclusively confirmed.

The Saudi facility attack was a moment of reckoning especially for the Saudis who felt vulnerable at a time when the country was planning for a high profile Saudi Aramco initial public offering (IPO), a legacy project for the kingdom. The Iran Foreign Minister statement that “if there is war no one will be safe in the region” seems to have rattled the Saudis to take caution.

In the meantime the Israelis were preoccupied with a non-conclusive election, as the US has been distracted by local politics and the ongoing US-China trade negotiations. The exit of John Bolton, the former US National Security Advisor who was the real warmonger against Iran has apparently reduced US pressure and rhetoric against Iran.

In 1970s, there were two significant oil sanctions and embargoes connected with the US and the Middle East. There was the 1973 Arab oil embargo against the US and selected European nations for their support of Israel during the Arab-Israel war, and the 1979 Iranian economic blockade by US which included Iranian oil exports.

These sanctions and boycotts impacted global economies severely and prompted the world to successfully develop alternative oil sources away from the Middle East.

In the 1970s the Middle East supplied about 70 percent of global oil while today it is below 30 percent.

What does the ongoing Middle East geopolitics mean for Kenya? The security of supply is fairly assured by increased oil production across the world, while prices in the $50-70 range will keep local pump prices reasonably stable.

In respect of oil and gas exploration, at these relatively low prices and with global oil oversupply, low appetite for investors to put their dollars in Kenya oil prospecting will remain a challenge. It is different from when we discovered oil in 2012 and prices were above $100.

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