Strategy Page fills us in on the nature and effects of the sanctions imposed against Iran:
These sanctions ...prohibited Iran's major customers from buying Iranian oil, and made it more difficult to pay for it if they did buy the stuff. The Europeans are switching suppliers, and East Asian ones (at least Japan and South Korea) are under pressure to do so. China is lining up suppliers outside the Persian Gulf. The $110 billion annual oil revenue is what keeps the Iranian religious dictatorship in power. As those new sanctions went into effect at the end of 2010, the value of the Iranian currency plummeted over ten percent and the Iranian economy shuddered.
Actually, in the last year, the Iranian currency has lost 60 percent of its value against foreign currencies. Now, it costs 16,000 Iranian riyals to buy one U.S. dollar. A year ago, it only cost 10,000. So not only are smugglers demanding higher fees to get forbidden goods to Iran (because of the increased risk of getting caught and prosecuted), but it costs 60 percent more to buy foreign currency to pay the smugglers, or legitimate suppliers of goods. All this grief doesn't get much attention in the foreign press, but in Iran it's big and seemingly unending bad news. Iran also sees income cut by ten percent because of additional banking sanctions, which makes it riskier to do business with Iran (and not have your transaction seized for violating sanctions.)
The new sanctions will not be completely successful, but if Iranian oil income were cut by a third or more, most Iranians would feel it. Iran has responded with threats, saying it will close the Straits of Hormuz (the narrow entrance to the Persian Gulf, where 40 percent of world oil passes on its way to world markets). Another aspect of the new sanctions makes it more difficult (and expensive) for Iranian banks to operate overseas. Iranian economists and financial experts have convinced Iran's leaders that the new sanctions are worse than any previous ones and a real threat to the Iranian economy, and the survival of the religious dictatorship.
So the new sanctions have teeth, or will have if they're imposed rigorously. How will the Iranians respond? Strategy Page lays out the likely scenario:
Iran has long issued dire threats, and never followed through. Iran much prefers to operate in the shadows by quietly supporting terrorists and irregulars. Iran could use this approach by using submarines and small boats to plant naval mines in the Straits of Hormuz. This would quickly escalate as local and foreign navies moved in mine-clearing forces, along with warships and aircraft to protect the continuous mine-clearing operation. Iranian bases would be attacked to destroy the mines and delivery vehicles (small subs and boats). This would quickly escalate to an attack on all Iranian military equipment.
That is not likely to happen any time soon, as it will take months before the sanctions actually translate into significant lost Iranian oil sales. During that time, negotiations, many of them secret, will take place with Iran about nuclear weapons, support for terrorism and other bad behavior.
Perhaps the one thing that will give the Iranian fanatics pause as they try to find a way to survive an all-out war such as the one that toppled Saddam Hussein is that they have precious few friends in the world, not even in the Middle East:
Iran's bad behavior (supporting terrorism, developing nuclear weapons, threatening neighbors) has left it with few foreign friends. China, one of its major trading partners, is its major customer for oil. But China has made it clear that if Iran finds itself with more oil than customers, China will expect to pay less for Iranian oil, if only to compensate for any sanctions damage China might suffer.
Russia is another Iranian ally, but will not do much to help, because closing, or even trying to close, the Straits of Hormuz will be a bonanza for Russia, a major oil exporter that does not use the Straits of Hormuz. Oil prices will surge as long as there are problems at the Straits of Hormuz. Other Iranian friends, like North Korea, Venezuela and Cuba, are more a burden than a benefit.
Iran is holding very few high cards in this poker game. The smart thing to do would be to fold and follow the Libyan example of giving up nuclear aspirations. Unfortunately, fanatics don't always do the smart thing, and even when they do they often push matters to the very brink before they pull back.
There are other factors working against Iran. For instance, our pullout from Iraq has opened up Iraqi airspace making it much easier for Israeli warplanes to reach Iranian targets. Will Israel avail themselves of the opportunity?
Another is the coming presidential election. How will Mr. Obama's electoral prospects bear on what we do in Iran? If he's polling behind his opponent in October will he be more likely or less likely to launch a strike at Iran's nuclear facilities in order to gain a popularity surge?
My own feeling is that the Iranians will not back down and neither will the Israelis. In the end, neither will the U.S. The Iranians believe they're on a mission from God. The Israelis believe their survival is at stake, and the U.S. has said many times that we will not accept a nuclear-armed Iran. Given those three positions it's hard to see how the worst will be averted, unless there's a change in leadership in Iran.
