Why the US Wants Sanctions on Iran’s Oil

Anchor Marco Werman talks with Michael Singh, managing director at the Washington Institute for Near East Policy, about proposed US sanctions on Iran’s oil exports.

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Marco Werman: There was more back and forth between the United States and Iran today. The latest escalation of tensions began when the U.S. and European Union moved to tighten sanctions against Iran. The Iranians responded with the threat to block oil shipments through the Straits of Hormuz. Then the U.S. Fifth Fleet said that it would not allow any disruption to shipping in the Straits. Today, Iran said the U.S. is not in a position to tell it what to do. We’ll consider who can tell who what to do and who can back it up, but first, we consider those sanctions with the help of Michael Singh, he’s Managing Director at the Washington Institute for Near East Policy. Michael, explain what new sanctions or measures have been proposed and when they would likely take effect.

Michael Singh: Well, what the United States wants to do is it wants to impose restrictions on other countries dealing with the Central Bank of Iran. The idea being that this would severely constrict not only Iran’s various commercial activities but especially constrict their ability to sell oil easily, and would essentially reduce their oil revenues by forcing them to sell it at a discount.

Werman: Would it discourage any particular countries from buying oil from Iran?

Singh: Well, you know Iran just has a handful, frankly, of oil customers, the largest of which are countries in Asia – China, Japan, South Korea. It also has some important customers in Europe, such as Greece, Italy and Spain which obviously are undergoing their own severe economic difficulties right now. But it most important customers really are those Asian customers, and especially China as far as the U.S. is concerned.

Werman: So, do you think these sanctions will work across the board? I mean, will China play ball?

Singh: Well, I think it’s a tough road to hoe. I think that what the United States hopes is that perhaps you would’nt need to get China on board. China has been very difficult when it comes to getting international agreement on sanctions. But the thought is that maybe if you can get the other countries on board to reduce or even eliminate their oil purchases from Iran and switch, say, to Saudi Arabia or other Gulf countries, that essentially that would give China more bargaining power with Iran and again force the Iranians to sell their oil at a discount. Now, there are a lot of assumptions built into that and whether or not those assumptions hold I think is the big question.

Werman: And right now, what value is it to the United States that China would have more bargaining power with Iran?

Singh: Well, I think again, the idea is that the key is not so much Iran’s oil export, per say. The key thing is Iran’s oil revenues – how much it’s getting paid. The idea is that if China was in a position, or if any country were in a position, to force Iran to sell at a cheaper price, that would substantially eat into Iran’s oil revenues. And those revenues, bear in mind, make up 70 percent of Iran’s government budget and 50 percent of Iran’s GDP.

Werman: How big a gamble is it to impose sanctions like this? Couldn’t it potentially restrict oil supply and therefore drive up oil prices?

Singh: Well, certainly. Many other countries do see this as a gamble and that’s been the chief difficulty for U.S. diplomats and for the Treasury Department officials that have been trying to get other countries on board. They are not convinced that sanctioning the Central Bank of Iran wouldn’t result in a large increase in oil prices, or that it wouldn’t lead Iran to do something rash in the Persian Gulf. And, of course, the exercises which have been taking place in the last few days just contribute to those worries.

Werman: Why do you think we are seeing such a strong response from the Iranians?

Singh: Well, I think that what Iran is trying to communicate to the world and to the United States in particular is that they have red lines and that one of those red lines is their oil exports, and that any attempt to interfere with their oil exports will provoke a strong response by Iran. Now, one thing that’s important to keep in mind this context, is that Iran does engage in war games and Iran does make blustery threats almost on a daily basis. And so, while this one has garnered more international attention because of the context perhaps, I think that these threats do not necessarily carry a great deal of credibility either with government officials or frankly even with investors around the world.

Werman: Michael Singh, Managing Director at the Washington Institute for Near East Policy, thank you.

Singh: Thank you.

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