Thursday, January 25, 2007

Iranian regime feels the heat

Kash Kheirkhah

One month after The United Nations Security Council unanimously voted to impose sanctions against Iran over its failure to halt uranium enrichment, Iranian leaders seem to be coming to grasp with the grave consequences of defying the international community.

This past Monday, EU foreign ministers vowed on to implement "in full and without delay" the sanctions banning transfers of sensitive nuclear material to Iran and freeze assets of those associated with the nuclear program. The US government's decision to extend unilateral financial sanctions are also reported to have a bigger economic impact than expected. Earlier this month, the United States imposed sanctions on Bank Sepah, a state-owned Iranian bank, which accused of financing acquisitions for Iran's missile programme. This followed the US action in September against another major Iranian bank "Bank Saderat," which was also accused of facilitating the operations of the militant Hizbollah movement. What's more, The UN resolution has now made it difficult for Iran to conduct customary transactions, even with non-US banks. Some European banks, including UBS Bank and Credit Suisse of Switzerland, HSBC and ABN Amro, have already suspended most new dealings with Iran and the Commerzbank of Germany, the leading provider of international bonds for Iran, said it will stop handling dollar transactions for Tehran.

The US has also put the squeeze on Iran's main industry: Oil. The new U.S. campaign to dry up financing for oil and natural gas development seems to be the biggest crisis the Iranian regime has faced in the past 28 years. According to a report in Los Angeles Times in early January, the efforts by the United States and its allies over the last few months to persuade international banks and oil companies to pull out of Iran threaten dozens of projects, including development of Iran's two massive new oil fields have been very effective. Oil Ministry officials in Iran have admitted banks are no longer granting letters of credit for delivery of some supplies.

L.A. Times reports that "as nations such as Japan begin to back out of Iran oil development under U.S. pressure, the government in Tehran is being forced to dig into its own reserve funds to get crucial new projects off the ground." The report says if Iran were to suddenly stop exporting its 2.6 million barrels of oil a day, such as in the event of a military strike, world oil prices probably would skyrocket. But analysts believe a gradual decline might be offset by other OPEC members, particularly as Iraq increases its oil production and Saudi Arabia carries out plans for significant increases in its production capacity.

Times of London reports today, "since last July, a barrel of oil has fallen from $78 to just over $50, reducing the Iran Government’s revenues by one third. If the oil price fell into the $35 to $40 range, Iran would shift into deficit, and with access to foreign borrowing cut off by UN sanctions, the Government’s capacity to continue financing foreign proxies would quickly run out. Iran has reacted to this threat by calling on Opec to stabilise prices but, in practice, only one country has the clout to do this: Saudi Arabia. Earlier this month, in a highly significant statement, Ali al-Naimi, the Saudi Oil Minister, publicly opposed Iranian calls for production cuts to halt the decline in prices. Mr Naimi's pronouncement was cast as a technical matter unconnected with politics, but it seemed to confirm private warnings by King Abdullah that his country would try everything to thwart Iran’s hegemony in Iraq and throughout the region, whether by military intervention or more subtle economic means."

Robert Windrem from NBC News writes in his latest report that Saudis are letting the price of oil and thus, “waging an oil-price war” on Iran. The Saudi oil minister has steadfastly refused calls for a special meeting of Organization of Petroleum Exporting Countries (OPEC) and announced that the nation is going to increase its production, which will send the price down even further. Oil Minister Ibrahim al-Naimi, during a recent trip to India, had said that oil prices are headed in the “right direction.”

Such grim prospects for Iran's economy under Mahmoud Ahmadinejad's government, combined with the US military build-up in Iraq and the Persian Gulf to stop the Iranian regime from challenging US interests in the Middle East, have, for the very first time in the Islamic republic's history, prompted the highest-ranking Iranian officials, including the spiritual leader Ali Khamenei, to both publicly and privately admit the looming threat against Iran is indeed "grave."

But with the UN Security Council deadline for halting Uranium enrichment approaching, will such a realization result in major concessions by the Iranian regime as it also prepares itself to celebrate the 28th anniversary of the Islamic revolution?

Sources: Financial Times, Los Angeles Times, Times of London, MSNBC.