US anti-Iran embargo hits a BRICS wall

Tahir Mustafa

Jumada' al-Akhirah 09, 1433 2012-05-01

Editorials

by Tahir Mustafa (Editorials, Crescent International Vol. 41, No. 3, Jumada' al-Akhirah, 1433)

The era of US unilateralism has ended. Apart from its European allies — and there too, only some of them — the rest of the world has dismissed Washington’s demands to impose oil and trade embargo on Iran.

Even countries that an-nounced they will reduce Iranian oil imports have done so to seek exemption from US trade and banking restrictions. In most cases, these countries have opted to increase trade with Iran in other areas.

Sanctions can never be airtight. There are always ways to get around them. Before delving into how US-led sanctions can and are being circumvented, let us first consider the reaction of some of Iran’s major trading partners. Members of BRICS — Brazil, Russia, India, China and South Africa — in their meeting in New Delhi on March 31 declared that they were not bound by US sanctions. They made clear that such unilateralism was not conducive to peaceful international relations. The BRICS members essentially declared US sanctions were illegal as well as counterproductive. Further, they made clear that it is long past time for US bullying.

The BRICS stance has important implications for global politics. It also signals that other countries are not willing to accept US dictation in global politics or trade anymore. Nor do they feel the US has the right to conduct itself in such a blatant manner disregarding international treaties and other countries’ obligations under them. Washington has imposed trade, oil and banking sanctions on the Islamic Republic of Iran over its nuclear program that it alleges is geared toward weaponization, a charge vehemently and repeatedly denied by Tehran. Beyond allegations, which often emanate from the Zionist State as well as Western intelligence agencies’ operatives, no proof has been proffered about Iran’s diversion of nuclear fuel for military purposes.

What is interesting to note is that while Iran’s oil exports at 3.5 million barrels per day bring in about $100 billion annually, its non-oil exports have also experienced a steady growth. In the year that ended in March, Iran’s non-oil exports surged 29% to nearly $44 billion in the year. Overall exports excluding crude oil reached $48 billion, according to Kiumars Fathollah Kermanshahi, deputy head of Iran’s Trade Promotion Organisation, while talking to the Islamic Republic News Agency (IRNA) at the end of March. Of the $48 billion non-oil exports, $4.2 billion were for exporting technological services. The price of oil has soared in the past year as a result of uncertainty caused by US sanctions and threats of war against Iran. It has brought ever higher earnings for Iran, the very opposite of what Washington had intended.

China, the United Arab Emirates (UAE) — which acts as the hub for the re-export of goods to Iran — as well as Iraq and India have emerged as principal destinations for the country’s non-oil goods. Iraq in particular, sharing a long border with Iran in addition to strong religious and cultural ties, has emerged as a leading market for Iranian goods. The US destruction of Iraqi infrastructure during its brutal occupation from March 2003 to December 2011 has created a huge demand in Iraq for a variety of products. In fact there is talk in international circles that Iraq should lodge a case against the US in the International Court of Justice (ICJ) to seek reparations for damages caused to its economy resulting from the illegal war that was launched on a pack of lies. American lies have been meticulously documented in the just-released book, The Age of Deception: Nuclear Diplomacy in Treacherous Times by Dr. Mohammed al-Baradei, former chief of the International Atomic Energy Agency. Framed in the language of international law, ElBaradei writes that since the US showed such “disdain for international norms” in its invasion of Iraq, the United Nations should request an opinion from the ICJ about the war’s legality. Convinced that the court would find the US guilty, ElBaradei then suggests that the International Criminal Tribunal should be approached to “investigate whether this constitutes a war crime.”

While threatening war against Iran — largely instigated by the Zionists and their neocon allies in the US — President Barack Obama finds himself on the horns of a dilemma.

While threatening war against Iran — largely instigated by the Zionists and their neocon allies in the US — President Barack Obama finds himself on the horns of a dilemma. He has become the prisoner of his own rhetoric and needs to find a way out of a tight spot especially with the approach of presidential elections in October. Equally significant, Iran has shown no evidence that it is scared of US threats or affected by US sanctions in any significant way.

Dismissing the effects of sanctions, President Mahmoud Ahmedinejad said in a speech on April 10 that even if Iran were to not sell a single barrel of oil for two or three years “We have as much hard currency as we need and the country will manage well.” In any case, it is impossible to keep Iranian oil out of the market completely. Neither China nor India can do without it. Their energy needs are so huge that any disruption in supply — and there is no country that can substitute for Iranian crude — would seriously undermine their economic growth. India’s refineries are all geared toward processing Iranian crude oil. These refineries are Iranian-crude specific and thus cannot switch to other types. Claims that Saudi Arabia will replace Iranian crude are just crude propaganda; they have no merit. Besides, Saudi Arabia is already pumping oil to its maximum capacity; any attempt to produce more would cause serious damage to its equipment and will lead to long-term production problems.

Among major importers of Iranian crude, only Japan (18%) and South Korea (9%) have said they will reduce imports by about 10–12%. This was intended to secure exemption from US sanctions and the blacklisting of their banks. Turkey, too, announced that it would reduce oil imports from Iran but when Turkish Prime Minister Recep Tayip Erdogan visited Tehran early last month, he signed a number of trade agreements worth billions of dollars, easily dwarfing the cuts in Iranian oil imports. What these moves indicate is that while countries try not to upset Washington too openly, they tend to look after their own interests first.

The more difficult challenge for Iran is US attempts to block Iranian banks, especially its Central Bank, from carrying out international transactions. Other countries’ banks that violate this embargo run the risk of being cut off from access to US banks and trading in dollars. Iran has not been sitting idle; its financial managers have worked hard to find ways around it. On March 2, Rafeeque Ahmed, President of the Federation of Indian Export Organizations (FIEO), released a statement that surprised many observers. “The payment problem with Iran has been resolved with the operationalization of rupee payment mechanism through UCO Bank.” Officials from Iran’s Central Bank had been meeting with Indian officials for several months to iron out most of the problems with the new payment mechanism. Iran agreed to accept payment for oil in rupees and use these funds to purchase Indian goods, primarily iron and steel, pharmaceuticals, rice, tea, and wheat. Iran’s Parsian Bank has opened an account at the Kolkata-based UCO Bank, and will now accumulate its rupees there.

India did not agree to this arrangement because of its love for Iran. The arrangement is purely commercial and based on self-interest. Currently, India exports about $2.7 billion worth of goods to Iran. From March 10 to 14, when a large Indian trade delegation visited Tehran, they came away with contracts worth $30 billion. Paying for Iranian oil in rupees and barter deals with Tehran have eased pressure on India. In December 2010, the Reserve Bank of India left the Asian Clearing Union (ACU) mechanism through which Indian firms paid for Iranian oil. Arrangements through the Turkiye Halk Bankasi and the Germany-based Europaisch-Iranische Handelsbank AG provided short-term means for Indian firms to reach Iran, but under EU and US pressure these paths were closed down last year. The Belgian-based SWIFT network for financial messages has also been denied Iran’s Central Bank making life difficult for it to complete transactions (SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication). Other options under consideration to facilitate Iran-India trade are to use Russia’s banking system.

Saudi prince Muhammad ibn Abdullah offered to provide oil at concessionary rates, something the Pakistanis had enough sense and courage to politely decline.

Iran has entered into similar barter deals with Pakistan. An agreement was signed to purchase 600,000 tons of wheat from Pakistan and pay for it in oil. Other projects under consideration are for Iran to sell electricity to Pakistan that currently faces severe shortages. Iran has also agreed to build an oil and gas pipeline and Islamabad has so far resisted US pressure to abandon the project. The Americans, however, do not give up easily. Even while their relations with Pakistan have gone into cold storage because of American bloody-mindedness, they sent the Saudis to dissuade Pakistan from purchasing Iranian oil. Saudi prince Muhammad ibn Abdullah offered to provide oil at concessionary rates, something the Pakistanis had enough sense and courage to politely decline.

India sees the Iranian connection in a much broader context: access to Central Asian markets. They have speeded up work on the Iranian port of Chah Bahar in southeastern Iran. This will serve as an entry point for Indian goods northwest into Central Asia. The Indians are also financing the construction of a railway line to connect the port to Afghanistan's iron ore regions of Hajigak (in Bamyan Province) and its copper mines of Zabul Province.

American attempts to undermine Iran financially may lead to unintended consequences: undermining of the dollar as reserve currency if a large number of countries for reasons of their own, enter into barter agreements with Iran or begin to trade in local currencies. The US greenback has already lost much of its sheen — and value. It is likely to depreciate further with increasing volume of trade being transacted in currencies other than the dollar and the euro.