Iran, Nuclear Program and Oil Embargo Essay

The nuclear crisis in Iraq has been developing for not less than a decade. It exhibits neither indications of ceasing nor deteriorating. Iran has maintained its entitlement to utilize nuclear energy in a peaceful manner throughout its negotiations with Western diplomats. Worried that Iran will finally own nuclear weapons, on one hand, Western nations have been coercing it to stop the program and allow the International Atomic Energy Agency (IAEA) to oversee Iran's nuclear program. However, on the other hand, Western countries have made consistent efforts in toughening economic sanctions, including oil embargos. Having seen that non-military alternatives, such as oil embargo, seem ineffective, some countries, such as Israel have proposed the use of force to compel Iran to stop.

Reasons why Oil Embargo Is Forcing Iran to Abandon Nuclear Weapon

According to Crumley (2012), oil embargos have slowed Iran's industrial growth, significantly limited a foreign direct investment, spurred national currency devaluation, caused declination in Iran's GDP, and caused a reduction of oil and gas production as well as export. Some authors have described the gravity of the effects caused by embargos as no less than a military war (Escribà‐Folch & Wright, 2010; Esfandiary & Fitzpatrick, 2011). According to Escribà‐Folch and Wright (2010), sanctions are likely to affect the Iranian economy and its crude oil levels. Companies, including the Italian energy company (ENI), have continuously reported some difficulties in getting oil out of Iran for the second straight month because of banking and insurance problems. These ones arise from the legal regulations of embargos. Intergovernmental organizations, such as OPEC and FATF, have reported that inflation in Iran stands at 22.9% this year after ending the previous year flat (Mohaddes & Pesaran, 2013).

According to Esfandiary and Fitzpatrick (2011), with the increasing indications of domestic disgruntlement in Iran, the targeted financial measures can elevate political pressures on the Iranian regime. Its previous chief of a nuclear negotiator, Hasan Rowhani, has lately pointed out Iran's increasing global isolation. He has also added that oil embargos and other economic sanctions on Iran were ultimately affecting the country (Esfandiary & Fitzpatrick, 2011). Regardless of the increasing global oil prices, Esfandiary & Fitzpatrick (2011) have noted that the country does not witness a healthy and dynamic economy as expected when the demand of oil increases.

Kinaci (2012) has pointed out that oil embargos, nuclear crisis, and sanctions are inflicting the heavy opportunity costs on the economic development of Iran. It slows down the investment in oil and gas, petrochemical, and economic sectors. Since oil and gas are the backbones of Iran's economy, the effects of slow economic development and the lack of investments are eventually crippling other critical infrastructure projects, such as electricity (Escribà‐Folch & Wright, 2010). Some internal banking companies have stopped their dealings with the Iranian government. It has occurred because of the slow economic development and international isolation (Esfandiary & Fitzpatrick, 2011). According to Kinaci (2012), this trend is likely to grow in forthcoming years if Iran does not abandon its nuclear program.

Another reason is that both Russia and China, Iran's main trading partners, have also begun backing the infliction of oil embargos on this country through intergovernmental bodies such as FATF (Financial Action Task Force) (Mohaddes & Pesaran, 2013). The latest moves by these states through such bodies imply that Iran will continue experiencing its global isolation. Iran, China, and Russia are the members of FATF, which is an intergovernmental umbrella body operating by consensus (Escribà‐Folch & Wright, 2010). FATF has warned that Iran's lack of the all-inclusive government to avert money laundering and terrorist financing is the considerable vulnerability in the international financial system (Escribà‐Folch & Wright, 2010).

The country's overreliance on oil as an economic backbone is another reason why oil embargos are an effective weapon against it (Escribà‐Folch & Wright, 2010). Iran, similarly to other oil exporters, highly depends on oil revenues. Therefore, it cannot support production cutbacks for a sustained period. Global statistics show that oil revenues accounts for about 85% of Iran's export and contributes to about 65% of the governmental income (Mohaddes & Pesaran, 2013). In relation to this, a successful employment of oil embargo could increase oil prices to a level that any loss from a lower output could be offset by increased total revenue.

Its private sector is essentially limited to the small-scale workshops and services (Escribà‐Folch & Wright, 2010). The International Monetary Fund (IMF) has argued that Iran has a comparatively well-diversified economy with a sizable industrial base. However, a large-scale dependence on oil has limited the country to develop its non-oil reliant economy. By imposing oil embargos, Iran's oil-economy will cripple forcing the regime to review its stand on progressing with nuclear programs (Kinaci, 2012).

According to Levitt (2007), the country will succumb to pressure from Western powers to abandon its nuclear program. It is so because its economy is marked by an ineffective state sector and state polices offering most of the government income. Iran's productivity growth has been low. Its intensiveness in energy has increased in the few recent years (Mohaddes & Pesaran, 2013). Regardless of some latest improvement, Iran managed to become the 129^th nation out of the 183 countries in the ease of doing business in 2010 (Xiangang, 2013). According to Mohaddes and Pesaran (2013), medium-term risks have linked to operating Iranian economy comprising of an increased inflation, an elevation in unemployment during the restructuring of the corporate sector, and a slowdown in the progress of reforms. In 2010, Iran's unemployment rate was about 14.5%. It is prevalent among the youth (Mohaddes & Pesaran, 2013). Imposing oil embargos on Iran will decisively accelerate further unemployment rates, risks related to doing business in the Iranian economy, and the increased inflation (Levitt, 2007). Additionally, oil embargos and sanctions will directly hinder the Iranian trade. The accelerated effects will eventually compel its government to cease its nuclear weapon programs.

Reasons why Oil Embargo Is not Forcing Iran to Abandon Nuclear Weapon

The first reason why oil embargos are effective of dealing with Iran is the temptation by other nations to assist this country (Taylor & Doren, 2002). According to Mohaddes and Pesaran (2013), as of the last year, embargos have been effective in decreasing Iranian oil sales up to 600,000 b/d despite increased prices mitigating considerably the country's revenue loss. Provided the global prices of oil remain at the current levels or below the present ones, the alliance will be strengthened. More nations will join western powers (Crumley, 2012). However, some countries, such as India and China, will gain from the embargo imposed on Iran. They will provide reduced prices and increase trade with them in order to decrease their own trade imbalances (Escribà‐Folch & Wright, 2010). According to Xiangang (2013), these nations have an ability to purchase all the Iranian export oil. Esfandiary & Fitzpatrick (2011) have added that they could also resolve some issues relating to a financial transaction between them. Moreover, they could acquire assistance from third parties, such as Russia. Esfandiary and Fitzpatrick (2011) have pointed out that the commitment between China, Russia, India, and Iran would make it extremely difficult to supervise borders of Iran in order to stop smuggling and seal all the loopholes. Despite the United States deploying its naval forces to the Persian Gulf region, presently there seems to be no sea barricade or other initiatives to patrol the Persian Gulf Region in order to inhibit oil smugglers.

Pressure groups in the nations inflicting embargos might be pitted against their imposing embargos. The sharing of a burden is a problem not only among the countries inflicting the embargos but also among different interested groups in the participating embargo-imposing country (Escribà‐Folch & Wright, 2010). The effects of an economic crisis seem to be a burden on European countries, with the load varying from one nation to another. For the United States and the European Union to continue keeping the pressure level on Iran to abandon its nuclear program, they will have to continue offering waivers to all countries, except Iran. The embargos will have the vastest negative effect (Esfandiary & Fitzpatrick, 2011). In relation to the interest groups in the United States, Iranian embargos have a limited effect because the levels of trade are so low that they are already being overlooked. Nevertheless, the effects of embargos will result in an increase in the prices of oil. It will result in responses from interested groups in the country as well as in the wider alliance (Mohaddes & Pesaran, 2013). The international oil trade is a very complicated and dynamic one. The impacts of raised prices of oil will be witnessed different on various sides of the Atlantic as oil imports of the US have waned substantially in the recent years.

The second reason that points to the ineffectiveness of the embargo is the following fear. Economic embargos might result in a military confrontation, rather than solving an intended problem of compelling Iran to abandon its nuclear programs (Escribà‐Folch & Wright, 2010). Over the past twenty years, Iran has continuously improved its military ability in order to upset traffic in the Strait of Hormuz. Oil embargos singly would perhaps not result in this scenario (Esfandiary & Fitzpatrick, 2011). Nevertheless, Iran has recently threatened to block the Strait of Hormuz. It has compelled the United States to increase its military presence in the Persian Gulf in order to protect oil in transit. According to Mohaddes and Pesaran (2013), the Strait of Hormuz is one of the world's most significant choke points because it offers a passage of about 18 million barrels of oil every day. Iran might have its capability of blocking the Strait of Hormuz for a comparatively short period of time. It would result in the skyrocketing of global oil prices. Whereas this likelihood is limited, it cannot be disregarded (Esfandiary & Fitzpatrick, 2011).

The third reason highlighting the ineffectiveness of oil embargos is a hardening position of Iran (Esfandiary & Fitzpatrick, 2011). According to Esfandiary and Fitzpatrick (2011), there is the likelihood that oil embargos might harden Iran's attitude. The country's political leader, in this case, Mahmoud Ahmadinejad, might excite some political sentiment in Iran by stigmatizing embargos as a humiliation and affronting to the county (Esfandiary & Fitzpatrick, 2011). It might promote a remarkable national unity in the face of international pressure. The target country has been a subject of several sanctions and embargos for about two decades. It still exhibits a robust nationalistic sentiment established against Western powers (Escribà‐Folch & Wright, 2010). Such sentiments have also been backed on religious grounds. It is because the Supreme Leader, Ayatollah Ali Khamenei, also supports Iran's development of nuclear programs (Mohaddes & Pesaran, 2013). The leadership of this country has been additionally attempting to create a connection with its trade partners. The country's top political leader has visited China, Russia, Venezuela, and India, in a span of one year in order to tighten the political and economic ties (Levitt, 2007).

The infliction of oil embargo will not have an effect on Iran because the country has other capable trade partners, such as Turkey, China, India, and Russia (Mohaddes & Pesaran, 2013). If Western powers boycott buying its oil, these countries will have the largest share of its oil. It will offset the expected effects of compelling the country to abandon its nuclear ambitions. For instance, Turkey imports approximately one-third of Iranian oil. This import amount might increase if western powers boycott importation of its oil. The same might happen with China, which is taking an advantage of Iran's embargo-affected economic scenario. China has been quoted to demand better oil deals in its oil transactions with the country. According to Esfandiary and Fitzpatrick (2011), Iran might not have any trouble sourcing new oil partners for Western-shunned oil exports. Most of the new buyers are anticipated to be Asian nations (Esfandiary & Fitzpatrick, 2011).

Conclusion

As established by this paper, non-military alternatives, especially the imposing of oil embargos on Iran, will not pressurize the country to abandon its nuclear program. Some of the reasons why embargos might not be effective include the temptation by other nations to assist Iran; and the fear that economic embargos might result in military confrontation. Also, the causes involve such as a hardening position of the country; and capable trade partners, such as Turkey, China, India, and Russia. However, some of the reasons why embargo might compel this country to stop its engagement with nuclear programs include overreliance on oil as an economic backbone. Iran's economy is marked by an ineffective state sector and statist policies. The country's private sector is essentially limited to some small-scale workshops and services, as well as disgruntlement in Iran.

References:

1. Crumley, B. (2012, January 5). Can a European ban on Iranian oil push Tehran to fold its nuclear program?
2. Escribà‐Folch, A., & Wright, J. (2010). Dealing with tyranny: International sanctions and the survival of authoritarian rulers. International Studies Quarterly, 54(2), 335-359.
3. Esfandiary, D., & Fitzpatrick, M. (2011). Sanctions on Iran: Defining and enabling ‘success.' Survival, 53(5), 143-156.
4. Kinaci, M. (2012, August 7). Tightening oil sanctions on Iran. Journal of Energy Security.
5. Levitt, M. (2007, October 25). Iran sanctions: Can they be effective? The Washington Institute.
6. Mohaddes, K., & Pesaran, M. H. (2013). One hundred years of oil income and the Iranian economy: A curse or a blessing? CESifo Working Paper Series, 4118. Munich.
7. Taylor, J., & Doren, P. V. (2002, April 10). An oil embargo won't work. Cato Institute.
8. Xiangang, G. (2013, June 26). Middle Eastern denuclearization and the Iranian nuclear issue. China Institute of International Studies.