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July 12, 2012: The new, and more severe, sanctions against Iran have been in force for nearly two weeks, and they are hurting. Oil shipments, according to the Iranian government, are down 30 percent. Inflation, according to the government is somewhere north of 20 percent. It's actually closer to 30 percent, largely because the government just prints more money to give angry Iranians, to help offset the ever-rising prices. This just makes the inflation worse. The U.S. made no secret of sending more mine clearing equipment to the Persian Gulf. This is one of several American responses to increasingly belligerent threats coming from Iran. The new sanctions, meant mainly to cut Iranian oil sales and smuggling efforts (in response to earlier sanctions) are hurting. Inflation and shortages of imported goods are both getting worse. This hurts most Iranians and has turned public opinion against the nuclear weapons program. The religious dictatorship that has run the country for three decades long ago lost the loyalty of most Iranians. The corruption, brutality and hypocrisy of the government has been matched by brutality and the loyalty of a quarter of the population that, for religious reasons, backs the clerics. Officially, the sanctions are meant to persuade the Iranian government to halt their nuclear weapons program. Unofficially, the sanctions will only do that if enough Iranians get angry enough to rebel, or convince the government that the long anticipated rebellion is about to happen. No sign of that yet.
Some countries have been granted temporary exemption from the Iranian sanctions. These include the major customers (China, India, South Korea and Japan) for Iranian oil, who are being given several months (or as long as needed) to line up other suppliers. Most oil sales are via multi-month contracts for huge (millions of barrels) amounts. The gives the supplier and customer certainty that makes it possible to efficiently run pumping, shipping, refining and distribution to end-users.
Normally Iran pumps three million barrels a day. But about a third of that output has already lost its customers and oil wells are being shut down to reduce production. In June, Iranian production officially shrank 150,000 barrels a day. But the reality is greater. Iran has been storing unsold oil on ships, but there are no more unused tankers for this (despite ordering 12 new ones from China and India) and Iran is hustling to expand the black market for oil. Iranian sales agents are making it known that deals can be made, to get large quantities of oil at large discounts. There is some risk, but the profits would be great. The United States is using its extensive intelligence, and oil industry resources to find these Iranian deals going down, and to inflict pain on the buyers. For this reason, selling the oil on those "storage tankers" has been very difficult. Iran, however, has a tremendous incentive (survival of the clerical dictatorship) to move the oil. Iranian smugglers have been very resourceful in the past, but smuggling oil that must be moved in 330 meter long super tankers, is much more difficult.
Iran has made it clear that if the sanctions really hurt (they already do), the Straits of Hormuz could be closed by Iranian missiles, mines and warships. This is unlikely, as this would be a declaration of war against most of the world. The threat was mainly for internal consumption, because the oil sales sanctions are hurting.
Right now, the Iranian government is facing monthly losses of $3 billion a month because of lost oil sales. The Iranian government budget is $38 billion a month, so that lost oil income is a major problem for cash-strapped Iran. Because the Iranian currency is rapidly losing value against foreign currencies, the government budget's buying power outside the country is closer to $25 billion a month. This makes it much more expensive to buy foreign goods. Much of the budget goes to aid the poor and unemployed (who got that way largely because of the corruption and economic mismanagement of the religious dictatorship). Money must also be lavished on the quarter of the population who support the ruling clerics. Many Iranians are already feeling the pinch and they are not happy.
Kenyan is holding two Iranians, who were arrested on June 19th and later found to be in possession of weapons and bomb making materials which, it turned out, had been shipped from Iran. The Kenyans have concluded that the two are working for Iran to organize terror attacks in Kenya. Iran denies everything. |
