Opinion: Sanctions Would Hurt Europe and Iranians, but not US
July 9, 2006
The five veto powers in the United Nations Security Council presented Iran with a comprise in early June that promises tempting economic advantages in exchange for the abandonment of uranium enrichment.
The G8 nations also decided at their recent Vienna summit to threaten Iran with economic sanctions if the country doesn't agree to the UN proposal by July 5 -- which could have serious consequences for Iran in particular, but also for the global economy.
Located between the Persian Gulf and the Caspian See, Iran has a geographically strategic position in the Middle East, where much of the world's petroleum and natural gas can be found. Next to Saudi Arabia, the Islamic republic of Iran possesses the second largest oil deposit in the world.
As the fourth largest petroleum producer, four million barrels are turned out every day. Some 2.4 million of these are exported, primarily to Asian countries, which receive 60 percent of Iran's total oil exports. More importantly, petroleum is Iran's principal source of income and crude oil makes up nearly 85 percent of the country's exports.
Consequences for the global economy
Japan is with 23 percent the largest importer of Iranian oil, followed by China with 12.5 percent. Then come Italy (9.4 percent), France (7.3 percent), India (over 6 percent), South Africa (5.8 percent), South Korea (5.4 percent), Turkey (4.4 percent) and the Netherlands (4 percent).
If petroleum sanctions are enforced, these countries will be affected first. As an alternative, they will try to compensate for the loss of Iranian imports on the world market. But that could make the price of "black gold" explode and a barrel of oil could bring in $100 (78 euros) or more within just a few days.
Thus, the global economy will be compelled to sympathy. Price hikes and growth setbacks will, particularly in energy-poor Western Europe, will be the first consequences. Sectors with high energy consumption like auto manufacturers and chemical producers -- and their customers -- would be hit the hardest.
Europe as a trade partner
In reaction to the sanctions placed on Iran by the Clinton administration in 1996 and to general political tension with the West, Tehran has attempted to build up its economic relationship with Russia and East Asian industrial nations.
Despite successes in certain areas like power generation and the consumption industry, the Islamic republic is still largely dependant on European know-how for the infrastructure necessary to the distribution of its key export. Therefore, countries like Germany, Switzerland, France and Italy play a central role in the Iranian economy.
Iranian market important for Germany
Over 17 percent of Iran's imports come from Germany, its largest importer by far. According to statistics from the German Chamber of Commerce, currently more than 500 German companies are actively cultivating business relationships with Iran. In the past four years, German exports to Iran have doubled, from 2.2 billion euros in 2002 to 4.4 billions euros in 2005.
In the case of sanctions, German and European imports would cease. The losses won't be restricted to the affected companies; thousands of jobs could be lost in the middle-term. And by threatening sanctions, Germany is also threatening one of its most important traditional markets in the Middle East.
Catastrophic consequences for the Iranian people
The biggest losers from economic sanctions against Iran are not the country's trade partners, but its people. Damages on the Iranian side will spread beyond the economic realm. Food and medication will run short and a human catastrophe, similar to that in Saddam Hussein's Iraq, could repeat itself more quickly than expected.
At the economic level, various sectors will run out of replacement parts and necessary equipment. Auto manufacturers and ship builders will suffer the most. Even the Iranian energy sector won't remain untouched by the sanctions, since the modernization of oil rigs and refineries requires western technology.
Unlike the Iranian population and Iran's trade partners, mafia groups and corrupt rulers may profit from the sanctions and fill their pockets by smuggling crude oil across the border, which would be a striking reminder of what happened when international sanctions were enforced in Iraq under Saddam Hussein.
It is neither the US nor the Mullah regime, but Europe, the global economy and the Iranian people who would be hit the hardest by the negative consequences of the proposed sanctions against Iran.