Iran Embargo May Backfire, Experts Say
The biggest losers from the U.S. economic embargo of Iran will be American companies, and the big winners will be their foreign competitors, economists predict.
Iran stands to gain too, since it will have no problem finding buyers for its top export - oil - and it may even temporarily get a better price if the embargo disrupts normal supply channels.
The embargo has two main problems, said experts on the Middle East. America came up with the embargo on its own, with no sanctions against companies from other countries who continue to trade with Iran. As well, the United States is not among Iran’s key trading partners, so the impact of the sanction will be diluted.
Edmund O’Sullivan, editor-in-chief of the weekly Middle East Economic Digest in London, was not optimistic about the U.S. action.
“It’s not going to work,” O’Sullivan said, explaining that it is too easy to circumvent the embargo.
Economists who follow the Middle East say the U.S. action will have little impact on either total imports into Iran - which came to about $10 billion last year - or Iran’s exports, which came to $18 billion, mostly from oil sales.
Last year, U.S. companies sold Iran about $326 million in goods, slightly more than 3 percent of the total and well behind the sales from Germany, Japan, Italy, France, Britain and others.
‘It will have a big impact on American businesses because the Europeans will move in,” said Mary-Jane Deeb, editor of the academic Middle East Journal and a professor of international politics at American University in Washington.
“I really am rather puzzled, particularly since Iran has not done anything spectacular recently in terms of terrorism,” she said.
Even though major U.S. oil companies will now be prohibited from buying Iranian crude oil for their foreign operations, there will be no shortage of buyers for the 3.6 million barrels of crude pumped each day by OPEC’s No. 2 producer.
Oil prices were nudged higher on Monday in response to President Clinton’s move, but many analysts called the rise an overreaction in the often volatile futures markets. Traders said any lasting price increases should be minimal and based on disruptions in the normal supply channels of the world market.
“The oil will still be produced and go elsewhere,” said Lindsay Horn, executive director of energy derivatives for the investment bank Lehman Brothers in London.
Other Iranian exports, including carpets and a growing number of manufactured goods, totaled about $4 billion last year, and should face little disruption from the U.S. boycott, experts said.
As a result of the embargo, Iran may have problems replacing certain types of specialized oil drilling equipment it got from the United States, although one solution would be to find a third party to do the shopping.
Whatever its economic impact, the embargo will provide grist for anti-Western groups throughout the Middle East, said the economists.
“The embargo reinforces their feeling of being threatened by a major superpower,” Deeb said. “It simply makes the Islamic groups more anti-West.”