In the latest NightWatch, John McCreary makes some important points about recent developments in Iran, and about the West’s policy of economic sanctions:
Iran: Comment: Several reputable analysts have suggested that the attacks against the British Embassy are symptoms of a fundamental political struggle in the Iranian leadership elite. The argument is not new, but suggests that the underlying disagreements are not resolved.
The strong fundamentalists, embodied by the Revolutionary Guards Corps and the Basij militia, are hostile to outsiders and react violently to sanctions on Iran. They advocate that Iran can survive and be strong without concessions to the UN or the West.
A more pragmatic and worldly-wise group of leaders advocates dialogue with the West and others to discuss differences. This group has influence but lacks power at this time.
UK-Iran: Foreign Secretary William Hague said Britain ordered Iran to vacate its embassy in London by Friday, stressing it did not mean diplomatic ties between the two countries had been entirely cut off. It does mean they have been downgraded.
Norway-Iran: Norway has temporarily closed its embassy in Tehran due to security concerns after the British mission was attacked by an angry mob, the government said on Wednesday.
France-Iran: The French Foreign Ministry said it is recalling the French ambassador to Iran for consultation after the attack on British Embassy in Tehran. According to a Ministry statement, the attack was a violation of the Vienna Convention on Diplomatic Relations and that France must respond.
US-Iran: The United States unveiled sanctions against the energy and petrochemical sectors, as US Secretary of State Hillary Clinton spoke of a “significant ratcheting-up of pressure” on Iran.
She said Iran’s oil and gas industry and its financial sector would also be targeted by the sanctions.
Comment: Sanctions on oil and gas and on banks dominate public conversations about restraining Iranian nuclear programs. The logical or practical connection between oil and banking sanctions and Iran’s nuclear program, however, has not been well explained. To paraphrase Kissinger, means must match ends in order to achieve successful policy outcomes. Thus far that match has not been established, demonstrably.
Both oil and banking sanctions contain significant threats of unintended consequences. China relies on Iran for 10% of its petroleum imports. That means that it will never cooperate in imposing sanctions on oil exports because it cannot without disastrous effects on its economy and Europe’s economy as well, because of global economic linkages.
Germany and Italy import Iranian oil, as well as India, China, Japan and South Korea. The economic stability of those countries could be affected by French President Sarkozy’s proposal to sanction Iranian oil.
Higher oil prices would ripple across the world. Oil producers would reap a windfall and consumers would go into recession. That is why hedge fund managers are buying options that oil will reach $140 or $150 the barrel.
Banking sanctions have extensive backlash potential as well. India favors non-proliferation of nuclear weapons programs and related capabilities. Earlier this year an Indian bank agreed to cooperate in limited banking sanctions against Iran.
When Indian oil refiners found they could not use Indian banking facilities to pay for Iranian oil imports, Iran stopped shipping oil to India, 12% of whose oil imports come from Iran. The refiners found a work-around to keep the oil flowing.
The lesson is that sanctions on Iranian banks would have consequences for China, India, Russia, Italy, Germany, Japan, South Korea, the UAE and Turkey, before the sanctions hurt Iran. Iran is one of the few countries that continued to grow during the 2008 global economic crisis; has a favorable balance of payments, and has significant cash reserves owing to the high price of crude in the past three years.
It might be time for world leaders to devise more imaginative policy responses than punishment through sanctions to achieve compliant behavior by Iran. One of the downsides of an increasingly integrated global economy is the unintended consequences of sanctions.
He also had this to say about the recent “friendly”-fire incident on the Af-Pak border:
NightWatch research of operations reports from the northern border region of Afghanistan, where the Haqqanis operate, suggests that Pakistani tribal paramilitary forces or regular army forces stationed near the border routinely provide artillery and mortar fire across the border into Afghanistan in support of Taliban infiltration or Haqqani attack operations inside Afghanistan. This has been occurring for a decade, but this time it backfired.
Meanwhile, John Hood comments at the Corner on the rash of explosions in Iran:
I guess U.S. and Western politicians has been treading carefully around the reality of the situation, perhaps for good reason, but does the political class really think the rest of us don’t know what’s happening in Iran right now? The Israelis or agents acting in their behalf or interests are subjecting the Iranian nuclear program to attack. First they hit a base outside of Tehran two weeks ago, taking out the head of Iran’s missile defense force along with a couple dozen other military personnel and some key real estate. Then on Monday they hit a facility near Isfahan that houses one of the country’s uranium-enrichment sites.
Presumably, American leaders and other Western officials know what is going on, even if they haven’t been actively supporting the strikes on Iran. In response, the Iranian government orchestrated an assault on the British embassy ”” there being no comparable Israeli or American target handy ”” and will attempt terrorist or military reprisals as soon as they can.
In other words, the question of whether the military option should be used against Iran’s nuclear program is now moot. It is being used. Now what?
With regard to Pakistan, today STRATFOR published a substantial essay, by Nate Hughes, on the context and consequences of the latest mishap. Read it here.