As Iran continues to move forward with its nuclear program, and
as attempts at diplomacy have given way to more aggressive rhetoric, the
specter of economic sanctions has once again stepped out on to the
international theatre's main stage. Unlike previous sanctions, though,
the current US proposal being circulated among UN Security Council
members would reportedly call for an outright ban on specific
transactions between UN countries and the Islamic Republic, in an
attempt to more precisely target the banking, insurance and shipping
sectors under the control of the Islamic Revolutionary Guard Corps
(IRCG).
The debate rages on, however, over how effective a new
slate of sanctions would be in halting or even deterring Iran's uranium
enrichment efforts. While most Western powers have come out in favor of
the proposed sanctions, support from Russia and China remains critical.
Not coincidentally, both hesitant, veto-wielding countries also have
significant economic interests within Iran's borders.
The debate
may be shrouded in political discourse, but it's unquestionably driven
by economics. And while experts and policy-makers may continue to
disagree over the capacity of sanctions to bring about real political
change, the only way to undertake a cost-benefit analysis of prospective
economic sanctions is from the bottom, with a more detailed excavation
of the Iranian trade climate and the trade relations governing it.
Iran's Trade Landscape
With
a full 10% of the world's known oil reserves within its vast borders,
Iran's economy revolves, not surprisingly, around energy. In 2007, the
Iranian state pulled in $57 billion in oil export revenue, comprising
about half of all governmental revenue. Oil currently comprises about
80% of all Iranian exports.
Under the administration of President
Mahmoud Ahmadinejad, though, the country's domestic economy has
staggered under the weight of enormous government subsidies, rising
unemployment, and double-digit inflation levels. Without proper
infrastructure to refine its massive supply of crude oil, the country
has been forced to import gasoline. According to a recent Reuters
report, Iran imported 23% more gasoline in February of 2010 than it did
during the same month last year.
While many agree that sanctions
targeting the IRCG would exert some deleterious effect upon the Iranian
economy, others believe that sanctions could actually benefit specific
partners. Dr. Arang Keshavarzian, associate professor at the Department
of Middle Eastern and Islamic Studies at New York University, claims
that "the tightening of sanctions will benefit three groups-traders
based in free trade zones in the Gulf (especially in Dubai), business
interests in countries able to resist or skirt sanctions 9especially in
East and Southeast Asia), and large parastatal organizations in Iran."
Since
1996, when the US government unilaterally passed the Iran and Libya
Sanctions Act (ISLA), Iran has greatly expanded its trade relations with
specific partners. Although the EU and the People's Republic of China
lead the list of Iran's top trade partners, recent years have seen a
surge in Iranian trade with other developing countries, such as Syria,
Venezuela, Cuba, and India.
With the prospect of multilateral
economic sanctions once again looming over Iran, two of the Islamic
Republic's trade partners-Russia and China-have each stepped in to
particularly pivotal political roles, warranting a closer look at their
economic ties to Tehran.
Russian Uncertainty
Russian-Iranian
trade stems primarily from a similar abundance in natural gas. The two
countries possess the two largest reserves of natural gas in the world,
and have developed strong economic relations in an effort to capitalize
on their endowment. In October 2008, Russia, Iran and Qatar, together
comprising a full 40% of the world's natural gas reserves, entered into a
formal agreement to strengthen their energy related economic bonds. In
addition to their energy related endeavours, Russia and Iran have, since
2008, expanded trade in agriculture, telecommunications, and aviation.
Although
the Russian government officially supported each of the three previous
rounds of UN Security Council sanctions against Iran, it has openly
helped the Islamic Republic develop its nuclear facilities in Bushehr,
which will reportedly be completed in 2011. After vehemently arguing
against bringing economic sanctions up for Security Council deliberation
in 2005, Russia promptly voted in favour of the measures in 2006. Once
again, Russian diplomats have expressed discontent over current
proposals, while acknowledging the danger that a nuclear Iran could
present.
The most contentious issue surrounding Russo-Iranian
relations remains the impending delivery of air defense missile systems
to Iran, which were guaranteed under a 2005 contract signed between
Tehran and Russia's state owned Rosoboron export agency. The deal has
been met with derision from Western leaders, who argue that Russia is
merely giving Iran the safety net incentive it needs to pursue uranium
enrichment.
There has also been considerable concern expressed
over Russia and Iran's comparatively blatant exchange of scientific
knowledge. For years, Iran has been allowing Russian and Ukrainian
scientists free entry into the country via what policy experts call an
"underground tunnel" of suspicious visa policies. Unlike other
commodities traded across Russian and Iranian borders, it's virtually
impossible to gauge the true value of this knowledge exchange, although a
2009 CIA report firmly claims that the assistance of Russian experts
has "helped Iran move toward self-sufficiency in the production of
ballistic missiles."
The Chinese Enigma
While
the EU has long been Iran's largest trading partner, accounting for
over $35 billion of total trade in 2008, China appears poised to
overtake the Europeans-if it hasn't already. According to a February
article in the Financial Times, China may have officially accounted for
only $29 billion of Iran's 2008 trade, but the actual figure is probably
much higher, since a substantial portion of Iranian-Chinese trade flows
are funnelled through the UAE. When these shipments are taken into
account, experts estimate the grand total value of trade flows to be at
least $36.5 billion.
Much of Iran's imports from China consist of
consumer goods and machinery, while Iran, in turn, provides roughly 12%
of China's energy needs, as evidenced by the 23 million tons of crude
oil it exported to the People's Republic in 2009. According to recent
projections from the China National Petroleum Corporation, Chinese
imports of Iranian oil could rise by as much as 9.1 percent in the
coming year.
Iran, crippled by its inadequate refinery
infrastructure, has begun importing greater amounts of refined fuel from
China. According to a September report from the Financial Times,
somewhere between 30,000 and 40,000 barrels of Chinese petrol arrive in
Iran on a daily basis, usually via third party intermediaries.
Much
like Russia, China's outward approach to Iran has often been orthogonal
to their economic and commercial actions. Although China has supported
the three previous sets of sanctions, in recent years, it has only
stepped up economic cooperation with Tehran. Several Chinese firms have
assisted in developing Iran's energy capacities, including last year's
$1.76 billion contract to development of the North Azadegan oil field,
and a $3.39 billion deal to produce liquefied natural gas in the South
Pars field, agreed to in March 2009.
Most critical to diplomatic
negotiations, though, are rumoured Chinese sales of missile technology
to the Islamic Republic. China, like Russia, has a long history of arms
trade with Iran, dating back to the 1979 Islamic Revolution. The ability
of Chinese scientists to reverse engineer military technology has
allowed them to reproduce old Soviet missile technology, and funnel the
end products to Iran.
Just last year, an investigative report by
the AP bureau in Taipei revealed that Chinese merchants had successfully
delivered over 100 pressure transducers to Iran, via an elaborate chain
of delivery that masked the end destination of the devices. According
to nuclear experts, the only logical explanation for a country
purchasing that many transducers at one time would be for uranium
enrichment activities. The Chinese government maintains it knew nothing
of the clandestine trade, but many have read their defense as a veiled,
diplomatic attempt to avoid ruffling Iran's feathers.
For the
moment, then, the fate of a new round of economic sanctions remains,
rather ironically, dependent upon support from two of Iran's most
prominent trade partners. Furthermore, while the set of sanctions
currently under consideration would not directly affect Iran's energy
sector, it's clear that the complexity of its political economy goes far
beyond oil. In a diplomatic climate in which words are invalidated by
actions, and in which economic figures, on their own, only tell part of
the story, separating political from profit-seeking behavior has become a
nearly impossible task.
It's too early to say whether politics or
economics will ultimately decide the course of action the international
community takes with Iran. But judging from the deeply entrenched trade
relations the Islamic Republic enjoys with two enormously important
world powers, arriving at a global consensus may only be part of the
equation. At the end of the day, holding Iran's trade partners
accountable to their words may prove even more difficult.
First published: Tuesday 06 April 2010.
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