Last Sunday [1st July] the threatened EU oil embargo went into effect. Simultaneously the US threatened any country that continued to trade in oil with Iran with economic and financial sanctions. But is Iran ’frightened’ of EU sanctions or have other countries complied with the threatened US sanctions? The pivot in the matter is of course what attitude China takes for it is the one country that has in its power to make the sanctions a success or a failure.

Curiously just as the sanctions were to come in to force, the US announced that China had been ’exempted’ from such sanctions for a further period of six months. In all about twenty countries, including India, have received such exemptions. The Chinese are clearly elated at what they see as a US climb down. Hong Lei, a Chinese foreign ministry spokesperson, said on Friday at a regular press briefing that China was conducting legal business with Iran based on its own economic development needs, rather than compliance with US sanctions. The Chinese Foreign Ministry spokesman added that China imports Iran’s crude oil through legal channels, without violating the UN Security Council’s resolutions or harming the interests of a third party and the international community and that China opposes imposing unilateral sanctions against others according to one country’s domestic law and will not collude with others in doing so. Just to rub it in, it was put out that China’s oil imports from Iran did indeed fall about 25 percent in the first few months of the year, but that was due to a pricing dispute with Tehran that was quite unrelated to sanctions or pressure from the US. And China’s imports in May this year have bounced back to around 500,000 barrels a day, roughly the same level of imports as last year. So what are the exemptions about?

Iran is an oil and gas exporting giant that holds 11.1% of the worlds proven oil reserves and about 970 b/cms of gas reserves. About 43 % of Iranian government expenditures are met from its oil revenues. It would therefore be natural to conclude that if Iranian oil exports could be curtailed its government would come under severe pressure and would succumb to western diktat and abandon its nuclear weapons programme. Most EU and US leaders believe that this is the only course open to them short of taking military action. In an election year in the US where the fight for the presidency promises to be both bitter and close, the US leadership is loathe to initiate any military action considering their experience in Iraq.

Presently the picture in Iran is both confusing and unclear as to whether the sanctions are having any effect at all. The Iranian currency, the Rial has lost about 40% of its value against the US dollar. Consequently consumer prices are rising leading to inflation and hardship for the general public in Iran. On the other hand Porsche has sold more cars in Iran in 2012 than it did in 2011, corresponding period. In Teheran the public parks are well maintained, street lights are rarely broken and as opposed to what is seen in many Asian countries there are no beggars on the streets of Teheran. Nevertheless the Iranians have admitted that oil exports are down about 20-30% from about 2.5mb/d to 1.5mb/d, but as the Iranians say that this is also a double edged sword for EU andUS action would threaten energy security and the balance of world energy markets. For the present both theSaudis and Iraq to some extent have been able to pick up the Iranian slack, but that is also due to the fact that the world demand is also down at the moment. Should it pick up, then this would be a whole new ball game.

The Iranian regime is no push over and, unlike Saddam Hussein of Iraq is well versed in strategic tactics. The Shiites of Iran have the ability to with stand considerable pain and martyrdom for a cause comes easily to them. They are formidable opponents and there should be no mistaking their commitments to a cause. The west would do well to understand this particular aspect of Shiite psychology. The Iranians are also well aware that it is indeed a geographical oddity that most of the oil bearing areas in the Middle-East are in areas dominated by the Shiites. Southern Iraq, North-East Saudi Arabia, Bahrain and of course Iran are Shiite areas that come to mind. With the Gulf region holding 27% of the world’s oil and 57% of its proven oil reserves along with 45% of the world’s natural gas reserves makes this a very strategic and an immensely important area. Therefore the propensity of the Iranian regime to fish in the troubled waters of the Shiite dominated areas where the real oil reserves of the middle- east are should never be foreclosed.

The battle for the Iranian sanctions has just been joined in earnest. The outcome is still very problematical and the western powers have put much at stake. Should the sanctions fail the 27 member EU will take the brunt of the hit. The next few months will determine what happens. For the moment the new leaders that are likely to emerge in China later this fall probably hold most of the cards.

ConcludedViews are those of the author
The author is a former Secretary, Ministry of External Affairs.

Author can be contacted at rskalha@hotmail.com