Last week, the US imposed additional sanctions on Iran after it targeted Aramco’s production plant in Saudi Arabia. The sanctions were against the Central Bank of Iran and its National Sovereign Wealth Fund, a move which traps the Iranian economy from all sides.
The sanctions follow previous ones cutting off its oil exports to almost zero and isolating Iran from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) payment mechanism. Although Iranian-backed Houthi militia in Yemen claimed responsibility of the attack on Saudi facilities, the facts indicated otherwise. The missiles and drones were coming from the northwest, i.e., from Iran.
This is what the five major countries know, thanks to satellites that monitor movement on earth 24x7.
A loud and clear threat
This is not surprising. If we refer to President Hassan Rouhani’s statement when sanctions were implemented to zero out Iranian oil exports last May, he said: “If Iran is prevented from exporting oil, no one in the Gulf will be able to do so.”
This was a clear threat to target oil exports in the region. But hey Rouhani, has anyone prevented Iran from exporting oil? Absolutely not.
The problem is not the prevention — Iranian oil is available in international markets at attractive discounts of up to 20-30 per cent. But no country risks buying it unless in a confidential manner.
It goes without saying that the Iranian president is mixing things up, as has been the pattern of the mullah regime, which is playing with fire after striking Saudi oil production sites. This has caused Iran to lose a lot, producing counterproductive results.
First, the attack did not affect the kingdom’s oil exports, given that it has a stockpile of 188 million barrels that compensates for the decline in production for more than a month. The impact on oil prices too was limited, as markets quickly absorbed the repercussions of the strike and returned to balance.
Tough going for central bank
Additional sanctions imposed on Central Bank of Iran — a key conduit through which major deals, including trade-related ones, are concluded — was one of the remaining outlets for Iran’s foreign financial transactions following the May sanctions.
Meanwhile, the damages will be compounded by the targeting of Iran’s National Sovereign Wealth Fund, which sponsors many deals, investments and foreign funding and will significantly affect Iran’s arms and agents abroad.
As of now, international financial institutions will avoid dealing with the Central Bank of Iran and its sovereign fund, further isolating Iran and exacerbate the crises for its collapsed economy.
This is despite empty talks of some governments that announced they would not abide by the new sanctions in a bid to preserve their independence. Yet, they seem, or are trying to be, unaware of the fact that economies in modern times are not run by governments, but by big companies. And they will abide by the sanctions regardless of the position of their governments, in order to maintain their interests and those of shareholders.
The other side of this oil terrorism is the great gain Saudi Arabia has achieved, first by the global solidarity thanks to its balanced position and the sagacity of its long-term policy.
Second, by its great ability to restore the confidence of markets and importers, by announcing the return of oil production to normal levels in less than a month. This is despite experts’ forecasts that it will take months to restart production, which on the face of it, is ridiculous. This prompted Moody’s credit rating agency to say, “Aramco’s ability to quickly restore its production capacity proved Saudi Arabia’s capability to successfully deal with shocks.”
Lessons to learn
Will Iran learn that the age of extremist ideologies and terrorism is over? That the world cannot allow anyone to manipulate the most important energy resource? And that cooperation and non-interference in the internal affairs of others is the right path towards peaceful coexistence and development?
We hope so.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.