Saturday, September 4, 2010

Sanctions on Iran and Its Effects (Part I)

By Amir Taheri

What are sanctions? They can be best described as economic arm-twisting to reach a certain goal. While most can agree on its purpose what has been debated over the years are its effects and it impacts. Are they able to change minds and directions? Cases of western sanctions being used include Cuba, Iraq, North Korea, Sudan, Syria, and of course Iran.

There have been claims that they are "torn pieces of paper" as president Ahmadinejad often says. Other officials have been more pragmatic and said that while sanctions will have a negative effect in the beginning, in the long run Iran will come out ahead. Lets analyze that a little further. Could there be truth to this statement.

We know that sanctions have definitely had an impact. Reports from varies news agencies have claimed Iranian businesses having difficulties sourcing parts or equipment but in the end they purchase their wish lists but with a higher price. Iranians have millennia of experience as traders and today practically anything can be bought whether American, European or even Israeli if needed. You just need the right front companies and delivery ports in place. Iran famously received many spare parts and equipment upgrades during its war with Iraq in the 80s from Israel, showing to be quite pragmatic in its economics when needed.

What makes the impact of sanctions vary amongst target countries is the size of the targeted market and its industrial base of course. Iranian officials have said their plan is to reduce imports and increase home production to meet demand aiming for as much self-sufficiency as possible. Now if Cuba or any other sanctioned country were to claim this, one might have reason to have doubts. But Iran is truly in a unique situation with having a population nearing 80 million (above 70 million is considered economical for a home industry) and an industrial base that is able to produce a wide variety of products, no other current targeted sanctioned regime approaches this.

Starting in the war years of the 80s, Iran due to funds being targeted to the war front and hard currency needed for military imports, Iran started a massive "do it at home program". Necessity is truly the mother of all inventions and by the 90s Iran was practically producing most of its needs albeit with a lower quality and higher costs than international products. On many of my trips in the late 90s I was amazed how much of the product offerings were "made in Iran". Surprisingly, new consumer items that would showcase in the US market would be instantly copied and sold to a receptive home market hungry for a piece of the outside world. This was all of course supported by low oil prices at the time and heavily restricted imports and high tariffs on foreign products by president Khatami. What changed was the beginning of the oil price surge. And with the entry of president Ahmadinejad, ironically a populist president, further reduced tariffs that had partially begun under the later years of Khatimi's presidency. Local production was reduced and we have a situation today where many Iranian brands are even outsource their manufacturing to China. These include many home appliance brands.

Today, faced with having to pay two to three times the normal price for any standard product like auto parts, home electronics, mechanical machines and other vital items why would any sane importer go through front companies, higher interest rates, lack of obtaining letters of credit, lost time and simply being treated like a terrorist for wanting to import a car alternator. Local manufactures that were pushed out of the market in the early 2000s due to lower import tariffs will be happy to again sell their products and maybe even now for a higher price than what they would normally have been charging for. In the long run prices will come down as more domestic suppliers aim for a piece of the pie. Not to forget that Iran has a powerful dragon patron as well. There have been numerous reports lately of massive multi-billion Chinese investments. Apart from subway expansions, steel factories, railroad projects, and shipping there have been billions invested in those areas where sanctions have been targeted, gasoline imports. Plans are progressing for complete self-sustaining gasoline refineries coming online in 2 years with funds from China. Additionally, it has been said that Iran has been stockpiling gasoline and enough is stored for a 2-year supply. With this stockpile in place, even though providers from China and Turkey have guaranteed future gasoline supplies; August gasoline imports from Turkey have been lowered by 90%. A sign that Iran might be drawing on stored supplies purchased when gasoline prices were experiencing a glut across the world. With all of this no wonder Ahmadinejad is not having trouble sleeping at night and can claim sanctions as torn pieces of paper.

Written by Amir Taheri


Anonymous said...

the reality is this section will make iran 90% sufficaint as home production or two years become world power stand as go to usa depend 65% of all his industral need from out side of us bring for japan 98% of them product that will live iran in next 2 years only country in the world has capable to produce and export product to 90% so not the section will hart iran any longer plus help them to become much superior forces in the world therfore eu and north amirican in 2012 have very hard time to face new black and new strategy in international maket iran by 2012 will increas his export by 10 times more the new studies show iran reach the level of 375 billion dollers of export by 2012 and reach 435 billion by 2015 and 750 billion in 2018 that is segnificant plan they have in the future term.

reader said...

As always, Taheri has given an excellent and informed analysis of the real effect of sanction. It is my humble personal view that a parallel to the Soviet era situation will eventually evolve whereby the defence industries will be given the highest national priority in terms of allocation of technology and talent. I would not be surprised if it goes as far as 20 percent of the gross national product and labor force as it did in Soviet Union. The civilian manufacturing will also flourish but they will probably tune themselves to production quantity rather than quality and innovation .

Anonymous said...

you can read by this Site, Reports abote Iran Stockexchangew which goes from one Record to another.

The Economy im Iran is running good, Iran ist not the Soviet union with a crusted system , Iran ist the Vital Asian country, like India or China or Turkey.
Taheri ist not a objektiv person, he is paid by CIA/Mossad.

Anonymous said...

There are some that insist the sanctions are a means of economic warfare directed against the Islamic Republic of Iran. The nuclear issue being nothing but a pretext; the real effort against Iran being led by the US/Israel in order to maintain Israeli superiority in the region, and to keep Iran from attaining its naturally aspired role and position in the region.

That being the case, Iran has no other choice but to endure this means of economic warfare, or submit to a pro-Zionist order in the region, thereby relinquishing that important element of its sovereignty, in the manner of Egypt, Jordan and Saudi Arabia. If it were to do so (effectively reverting to a foreign policy once espoused by the Shah), it would, internally, be a grossly unpopular (some would say unthinkable) move, that would place the interests of Jewish majority rule in Palestine (a people numbering around five million) above the wishes of hundreds of millions of people in the region. You can plainly see how unfair that is.

b said...

Nader, do you really want to mess up your blog with pieces from this man?


"A Colour Code for Iran's Infidels" written by Taheri, a "prominent U.S. neo-conservative" [3], was published May 19, 2006, by Canada's National Post. The story "regarding new legislation in Iran allegedly requiring Jews and other religious minorities to wear distinctive colour badges circulated around the world this weekend before it was exposed as false," Jim Lobe wrote May 22, 2006, for Inter Press Service.

"The National Post retracted the article hours after it was posted to their site, and blamed Taheri for the bad info." [4] Eleana Benador later admitted that her PR firm, Benador Associates, had planted the false story.

Anonymous said...

To think I was dissapointed with this blog before. Well, I was more than dissapointed, but now you've managed to fall out of the gutter and into the sewer. Nothing is worth this. It's been years since the color-coding-minorities propaganda written by this sleazbag were published by the National Post, but neither the Newspaper or the currently featured author have issued an apology, or even a retraction. Mr. Taheri still maintains such a bill is still in process.

It's not that this blog wasnt simplistic and transparent before, but it was never this overtly sleazly.


Nader Uskowi said...

To our loyal readers,

b and masoud are probably referring to another Amir Taheri than the gentleman writing for this blog. They probably have not even bother to read his posts, or if they read them they could not understand them, to know that the author could not have possibly be the man they are referring to. The "mess' and "sleazebag" adjective used by these two commentators probably best describe their own comments.

Amir Taheri said...

Dear all, please hold in the realm of possiblity that I am not the same Amir Taheri that you are refering to. The names both the first name "Amir" and last name "Taheri" are somewhat common. So any faults that you might find with my writing are mine alone!