October 6, 2011

Analysts Say New Sanctions Bill Would Increase Gas Prices; Unlikely to Change Iran’s Behavior


NIAC Leadership Briefing

From the left: Barbara Slavin (Moderator), Lucian Pugliaresi, Bijan Khajehpour, Robert Pape

A panel of sanctions experts concluded Tuesday that new sanctions legislation that Congress is considering could create a “very large, very sudden” increase in gas prices in the U.S. and abroad if passed.

“A supply disruption anywhere is a disruption everywhere,” explained Lucian Pugliaresi, President of the Energy Policy Research Foundation. “If you remove the oil from the market and you shift expectations on production, you’re going to have an effect on the price.”

The House Foreign Affairs Committee is set to vote on legislation later this month that would impose extraterritorial sanctions against foreign companies that ship, refine, or otherwise facilitate Iran’s oil and gas exports.

The panelists also said sanctions are unlikely to force Iran to halt its nuclear program.

“The main problem is that economic sanctions themselves are a very poor tool for achieving ambitious goals like stopping a WMD program,” said Professor Robert Pape of the University of Chicago. He warned that, based on a study of the use of sanctions since World War I, “economic sanctions are often a prelude to using military force.”

Pape’s research found that sanctions were successful in only 5 out of 115 cases since World War I. 18 other cases, Pape added, “were determined by military force, military coercion, foreign-sponsored coups, or even ground invasions.” Pape explained sanctions “were politically convenient in the short run and then as pressure mounted the right used the failure of sanctions to press for more use of force down the road.”

Iranian economist Bijan Khajehpour agreed that on Iran, “sanctions have missed their actual objective.” He explained that economic sanctions have undermined Iran’s private sector and have “massively” harmed the middle class, while failing to change the Iranian government’s behavior. Khajehpour also argued that sanctions are “undermining moderate forces on all levels” in Iran and alienating Iranian politicians and businesspeople who had supported developing relations with the U.S.

Khajehpour said that Iranian government officials discount the effects of sanctions on government finances since the same tensions increase concern about global oil supplies and thus increase the price of Iran’s oil exports. Khajehpour asserted that global crude oil prices are at least $8 higher than they would be without tensions between the U.S. and Iran, which earns Iran an extra $8 billion for its oil exports. Khajehpour estimated that sanctions increase the cost of Iran’s imports by 10% for a total $6 billion dollars in increased costs, resulting in a net windfall of at least $2 billion for the Iranian government.

Separately, Professor Pape said Iran was preparing for the possibility that the U.S. may impose sanctions on its Central Bank by moving its money and isolating itself from European banks. Pape warned that that these sanctions would create a nationalist backlash.

“Imagine, if you would, the Iranians were suddenly able in one single day to create a banking crisis in the United States that made it impossible for us to cash our checks…I don’t think it would make us do what Iran wanted,” Pape said.




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