Analysis published last Friday in the National Post piles on doubts regarding the Obama administration’s figures for the immediate sanctions relief that the Joint Plan of Action (JPA) provides to Iran. The administration has insisted that the relief being provided to the Islamic republic will amount to roughly $7 billion, and further that the rest of the sanctions regime – what the White House describes as core sanctions – will be maintained and enforced. Skeptics have emphasized that both claims are likely over-optimistic. Emanuele Ottolenghi and Saeed Ghasseminejad, respectively a senior fellow at the Foundation for Defense of Democracies and a Ph.D. Candidate in finance at City University of New York, last Friday published analysis suggesting that the administration’s $7 billion simply undercounted the value of the sanctions’ relief. Instead – based on stated Iranian oil sale figures, the ability to sell oil at market prices, the ability to leverage lower insurance premiums, and so on – Iran seems set to gain a minimum additional $4.5-$5 billion from sanctions relief, above the administrations $7 billion figure.
How did we get to such figure? Under sanctions Iran’s oil buyers could still purchase some Iranian oil legally, provided they offered evidence of considerable reductions. In the 19 months since the U.S. oil sanctions’ implementation, those reductions diminished Iran’s production by 1.65 million bpd, approximately 87,000 bpd monthly or 2,900 bpd daily. We thus assume a gradual reduction of 2,900 bpd every day: In a six month period, every day Iran would sell 2,900 barrels less than the previous day, ending up losing a total of 47.24 million barrels.
With sanctions’ relief, it will sell those 47.24 million barrels. Assuming a median oil price of $95 per barrel, this equals $4.487-billion, which increases to $4.724-billion if one assumes a median oil price of $100. Combined with the other sources of relief, this puts the total two billion higher than Mr. Kerry’s red teamed figure, and it does not include gold, petrochemical, and automotive industry sanctions’ relief.
Why should the ability of Iran to continue circumventing sanctions be incorporated in the sanctions’ relief calculus? Very simply because there will be laxer international scrutiny and a basic assumption among Iran’s oil customers that relief will continue and US waivers will be renewed.
Critics had already pointed out that the Obama administration’s calculations would need be revised upward based on fundamental economic considerations, including multiplier effects and the benefits of currency stabilization seemingly not taken into account. Meanwhile, opposite administration claims that the sanctions regime will remain robust, critics have outlined the likelihood that a feeding frenzy will take hold and substantially erode remaining sanctions. Countries and companies, according to this logic, would scramble to ensure that they were not left behind as Iran reopened its markets. Such concerns gained traction as investors from specific sectors began to rush back into Iran, until last week Der Spiegel was ready to declare that “[a]lthough none of the sanctions have been lifted, droves of Western business people are already flocking to Tehran.”
[Photo: Stefan Krasowski / Flickr]