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Are US Sanctions Against Iran Working?

In a word: “no."

The U.S. State Department has been adamant that the economic pressure it has been putting

on Iran will force that country to come to the negotiation table and abandon or modify its nuclear ambitions. Having said that, it looks as if Tehran is not serious about negotiating until after the U.S. elections in November. Despite Western government-sponsored attempts to hit Iranian infrastructure using cyberwarfare—such as the Flame data-deleting malware deployed to computers on the Kharg Island oil terminal, or the Stuxnet virus found on centrifuge controllers and industrial process controllers across Iran—the main thrust of actions against the regime in Tehran have been in the form of economic sanctions.

Crippling inflation and denial of access to SWIFT, the global electronic financial transfer mechanism, will definitely foment increased internal opposition to the regime, but Iran has been able to implement certain tactics to give itself breathing room. The International Energy Agency (IEA) estimates that Iranian oil exports have dropped 40 percent since January, but alternative arrangements have allowed the regime to continue to delay nuclear negotiations. In this article I’m going to review some of these arrangements and how they’re contributing to Iran’s overall nuclear strategy of development while simultaneously stalling negotiations.

Alternative Providers of Insurance

Iran’s main success in thwarting attempts to curb its oil sales has been the provision of temporary insurance policies. Protection and Indemnity (P&I) Insurance is a form of marine insurance provided by a mutual insurance association whose members lay off risk on one another. This form of insurance is necessary to cover the liabilities that heavy tankers carrying oil in sensitive coastal areas incur. As of July 1, European P&I clubs cannot extend coverage to ships carrying Iranian oil, which greatly hamper Iranian efforts to market their oil.

Necessity has led to the diminishment of this harm to Iran’s oil exports, though. Japan, prior to the closing of its nuclear power facilities earlier this year, generated almost 30 percent of its energy through nuclear power. After the Fukushima disaster, Japan has largely been forced to import oil to make up for the shortfall. Japan tried to gain an EU exemption to this insurance ban, but to no avail. Due to these circumstances, the absence of Eurozone-based P&I insurance has been replaced by a $7.6 billion Japanese government-sponsored insurance facility which was offered beginning June 27. Although this will decrease the amount of Iranian oil imported to Japan, it shows the flexibility of some of the arrangements that have taken place in order to circumvent economic sanctions.

India has also skirted sanctions and the insurance ban by securing an exemption from U.S. sanctions by cutting its imports of Iranian oil by 20 percent, which allow its to continue to import Iranian oil while furthering Delhi’s own nuclear ambitions. In this case, P&I coverage is being provided by the Iranian government. Additionally, Iranian trade delegations have arranged to buy rice, sugar and soybeans from India with rupees, not dollars, which mitigates the effects of Iran not being able to readily access U.S. funds. Following this lead, Iran has also entered into negotiations with Pakistan to barter wheat for oil.

China, which has not won an exemption to U.S. sanctions, continues to import Iranian oil. Iran has begun to accept yuan as payment for oil shipments, as well as bartering directly with China and exchanging oil for gold.

Finally, the National Iranian Oil Company is further facilitating exports by paying freight by delivering oil on Iranian tankers and giving its customers terms of up to 180 days. This is possible due to one of the more creative techniques that Iran has used to circumvent sanctions: the "ghosting" of its tanker fleet. As of April, most Iranian ship captains of the government-owned National Iranian Tanker Company (NITC) have been told to turn off their black box transponders. These largely un-trackable ships are delivering to customers across Asia that are very tight-lipped about their purchases. Oil traders have commented that neither cell phone nor e-mail communications are being used to discuss these shipments. The delivery of 12 supertankers by China to NITC beginning in May has furthered this ability to market invisible oil with a phantom fleet.

Oil sanctions have had the effect of reducing Iranian oil exports, but already 10 European countries, Japan, India, Turkey, Taiwan, South Korea, Malaysia and South Africa have reduced their imports of Iranian oil to the point where they’ve had exemptions lifted. The sanctions have likely hit their near-term pressure peak, but still the Iranian regime has not made any nuclear concessions and does not seem willing to change this stance.

—This story originally appeared on Oilprice.com.

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