Iran is ready for planned U.S. sanctions targeting fuel imports, analysts say

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By Thomas Erdbrink and Colum Lynch
Washington Post Foreign Service
Thursday, June 24, 2010

TEHRAN -- As Congress prepares to target Iran's vital fuel imports as part of its most far-reaching sanctions package yet, observers say the Tehran government has already done much to deflect the impact of the new U.S. measures.

Under the pressure of earlier Western sanctions, Iran has over the past four years reduced its dependence on foreign imports of refined oil products from about 40 percent of its domestic needs to just under 30 percent, according to analysts. The government is seeking to reduce that figure further by expanding its capacity to refine its own oil, experimenting with alternative fuels and cutting consumption by gradually eliminating subsidies on gasoline.

In the past six months, thanks to an elaborate rationing system, domestic gasoline consumption has dropped by nearly 20 percent, official statistics show. At the same time, Iran has boosted the supply available for everyday needs and built up its strategic reserves by buying refined oil products from countries such as India, Turkmenistan and the Netherlands. Government budgets show that it has spent more than $10 billion on such purchases since 2008.

"I think it's kind of a fool's errand to try to go after them by restricting their flow of imported gasoline," said Flynt Leverett, a former White House expert on the Middle East at the New America Foundation. "Other companies have stepped into the breach; the Chinese have stepped up their shipments of gasoline to Iran. There is a whole network of companies in the [Persian] Gulf that are prepared to trade refined products to Iran."

At the annual Tehran oil fair in May, hundreds of firms from Europe, Asia and South America were on hand. Oil executives and analysts at the fair said companies with links to Iran's powerful Revolutionary Guard Corps had taken the place of Western companies forced out of Iran by existing sanctions. Chinese representatives said sanctions had greatly expanded their business opportunities in the Islamic republic.

"I am puzzled as to why we might think of using embargoes of petroleum products to Iran -- first of all, because they wouldn't work," Total chief executive Christophe de Margerie told a panel at Columbia University in November.

Proponents of the new measures see Iran's dependence on gasoline imports as the country's Achilles' heel -- an area of acute vulnerability for a government that has already faced considerable public resistance following a disputed election a year ago. They have lobbied Congress to target that area in an effort to squeeze the government further.

This week, Sen. Christopher J. Dodd (D-Conn.), the chairman of the Senate banking committee, and Rep. Howard L. Berman (D-Calif.), the chairman of the House Foreign Affairs Committee, agreed on a draft bill crafted to address concerns about the challenge of enforcing fuel sanctions.

The legislation would expand on existing U.S. and U.N. sanctions by targeting for the first time foreign companies that sell refined petroleum products to Iran and invest in its domestic refineries. It would also penalize foreign banks, suppliers and insurance companies that trade with sanctioned Iranian companies.

"In effect, this Act would present foreign banks doing business with blacklisted Iranian entities a stark choice: Cease your activities or be denied critical access to America's financial system," Dodd and Berman said in a statement.

But Tehran has been laying the groundwork to resist the U.S. sanctions. In January, the country needed to import 5.8 million gallons of gasoline each day, Farid Ameri, head of the state petroleum distribution company, was quoted as saying by the Oil Ministry's news agency, Shana. On Sunday, Ameri told the state newspaper Jam-e-Jam that the figure has dropped to 4.7 million gallons a day.

Iran's total reserves are a well-kept secret, but Ameri said in May that almost half a billion gallons of gasoline were added to the stock last year, that amount alone being enough to meet domestic consumption needs for at least 80 days.

Fariborz Ghadar, an expert on Iranian trade at the Center for Strategic and International Studies in Washington, said the new restrictions would have little impact on Iran's ability to import fuel but would provide political cover for the government to lift subsidies on Iranian gas. He also cautioned that fuel sanctions may hit ordinary Iranians hardest, an outcome that would undercut the Obama administration's assertion that it wants to punish only the regime.

"Someone will refine it. Someone will smuggle it in," said Ghadar, who served as an export minister under Iran's shah. "I just don't think these sanctions on petroleum will work, and even if they did work, they would be counterproductive. The Iranians would blame the suffering on the Americans."

Lynch reported from New York.


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