The Real Impact Of Sanctions Against Iran Differs From The Political Impact
Talks between International Atomic Energy Agency officials and Iranian nuclear negotiators stretched out over several days this past week. At the same time, efforts among European countries and the US to devise their own or new sanctions against Iran also continued. The implications of the European initiative to devise its own sanctions against Iran are difficult to estimate in any real sense. Politically, their impact reflects who holds what kind of power on the planet.
The French led initiative to devise more sanctions, isn't a grand success by any means. Austrian Foreign Minister Irsula Plassnik told the German newspaper Handelsblatt in no uncertain terms that her country is opposed to the French proposal. Vladimir Putin, the Russian president, took it upon him to voice his discontent too, when he met with his French counterpart Nicolas Sarkozy last week. Chris Cook, the originator of the Iran Oil Bourse knows the country inside out and says that so far he hasn't really noticed any significant impact, despite a recent changes due to a tightening on the part of the US government.
Cook heads up a UK consortium that is involved in developing the Iran Oil Bourse (IOB). He’s a former director of the International Petroleum Exchange, and the originator of the idea behind the IOB. The launch of this bourse, which has been repeatedly delayed, will cut out the dollar as its trading currency.
He believes that if sanctions are imposed, he'll be able to live with one less worry; a bigger company won't come along and snatch his business from him."[Sanctions are not going to harm us] in the slightest. In fact it's brilliant for us, because we know that the big consultants aren't going to come in and then sub-contract us at [low] rates," he says.
Cook is part of the Wimpole Consortium that's commissioned by the Iranian government with creating the IOB. He has been plodding on in Iran for the last three years. Without success. He wasn't even paid for his work for over two years. The platform's launch, much hyped in the media, has been delayed time and again. Iranian oil ministry officials have been hampering his work. In utter desperation, he decided a while ago to write to President Ahmedinejad. Who soon afterwards finally managed to brush off some of his own enemies in the Majlis and ordered a drastic shake up of the Oil Ministry.
Three oil ministers he'd appointed since he first took office in 2005 had all virtually no backing from hardline politicians. That's public knowledge, yet Cook's letter to the President wasn't pointless. As a matter of fact, he might have inadvertently been instrumental in providing President Ahmadinejad the backing he needed.
To date, he hasn't received a reply "[..] but we know (through top level contacts) he read it. We know he put the Oil Minister on the spot with it, and we know it was a major reason why he was able to sack the Oil Minister recently, who is busily sacking some of the oil mafia, while he can".
Cook has been an oil/energy insider for way longer than the past three years. The Iranian connection was established in 2001, when he "blew the whistle" about investment banks' greedy immoral market manipulation and pointed out the nasty effects on producers and consumers. A well-connected Iranian introduced him to the Iranian Central Bank Governor, who was convinced of the necessity for a Middle Eastern oil exchange which was not susceptible to speculator driven volatility and manipulation by middlemen. "A couple of years later [the Wimpole Consortium was] invited to draw up blueprints for the "IOB" project", says Cook.
So what is the Iranian Oil Bourse about, if it's not a deliberate attempt to kick the US dollar in the goolies, as is so often suggested? "The currency of the IOB contracts was never a consideration," says Cook. Nevertheless, the exchange completely takes the dollar out of the equasion. The bourse will be trading on a concept that is new in the oil markets but which is already operating in other fields. It's bafflingly simple. Buyers and sellers connect via the internet on a a peer to peer market place. A clearing function ensures the actual delivery of contracts. There won't be any trading intermediaries such as investment banks as middlemen that are making hefty profits.
While the global oil price is determined by supply and demand, Cook believes that the proposed IOB structure will remove much of the current price volatility caused by a toxic combination of speculation by hedge funds and market manipulation by intermediary traders.
It's most likely that the pool the IOB starts out with is going to be an uncontroversial item like Bitumen (thick stuff that's a main ingredient in tarmac). "You can't run before you can walk, and there is huge resistance in Iran to transparency in the existing market in crude oil. That's why [ ..] we got nowhere with crude oil", Cook says.
The IOB's scrapping the dollar, if not practically then psychologically is going to significantly embody a counterweight to dollar domination of the oil markets. The US economy's weakness is that it is deficit based. It is beginning to make all Americans loath their own consumption addiction with a vehemence. Cook hates this type of hyped up speculation but he admits that the US has got a problem. A dollar currency is traded on oil markets globally, but it's without an equivalent asset base in the US.
The result is, Cook says, that oil is not priced in dollars but dollars are priced in oil. Both from an investor point of view and from a US government point of view, this is eery. "If proceeds from oil sales are not being invested in US Treasury Bonds or other US assets (or liabilities), then it makes it that much more difficult for the $ to avoid further declines", he says.
Asked what he believes the impact of sanctions is on Iran, he says there's not a great deal more damage the US can do in excess of what it has already done. "They caused a bit of inconvenience to the elite. [They've] had to stop banking with the Swiss and the Germans, but there are plenty of Far Eastern banks only too keen for the business.''
Cook comments that there's going to be slow progress in the Iranian oil sector not least because it is still corruption riddled. The current Iranian 'buy-back' contracts to most international oil companies also has has held up Iranian energy investment generally. An excerpt from his letter to President Ahmadinejad highlights what resistance the Wimpole Consortium been up against; "[..] it appears to be the case that the Oil Ministry took the view that the best way to prevent the Project from progressing was to refrain from paying those responsible for carrying it out, and we therefore remain unpaid after 2 years and 3 months in respect of work done in good faith for the Ministry. While we might not be surprised at such business conduct in a bazaar, we did not expect it from one of Your Excellency's Ministers."
Perhaps one significant blow that the Americans managed to administer to the Iranian oil sector was the 2006 pull out of the largest Japanese oil company Inpex. Reports suggest that US lobbyists discouraged the oil giant from proceding with its 2004 signed landmark USD2 billion deal to explore the Azadegan field, which is one of the world's largest untapped oil reserves. Two years later, nothing had been effected because the company could not get a financial structure in place that the Iranian officials could live with.
Global Insight, an analysis firm wrote this assessment; "The factors at play in the Inpex withdrawal have still to become fully apparent, with behind-the-scenes lobbying by the United States and the hardline position of Iran's parliament both thought to be instrumental in the pull-out."
Inpex withdrawal was said to have been instrumental in Iran's significant adjustment of its oil production targets for 2010. But again, not all the blame for the faltering of the entire sector can be put on sanctions related developments. Aside from the setback in Azadegan, the BBC pointed out, Iran also suffers from huge problems with older field maturity.
Angelique van Engelen is a freelance reporter based in Amsterdam. She participates in www.reportwitters.com, a journalist platform for twitter users.
Tags: Iran , Sanctions , Nicolas Sarkozy , Vladimir Putin
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