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    Sam's Exchange: The Irony of Iranian Sanctions

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    Let me make two clear points from the outset. We should have a world free of Nuclear weapons, and I think economic sanctions are favored by the intellectually lazy.

    Let me make two clear points from the outset.  We should have a world free of Nuclear weapons, and I think economic sanctions are favored by the intellectually lazy.

    Two simple questions: are the sanctions against Iran effective, and will they last?  There have been sanctions against Iran in one form or another since the 1979 revolution, when the American Embassy in Tehran was stormed and diplomats were held hostage for 444 days. The American Embassy has remained closed ever since.  The current sanctions on Iran are due to the alleged and hotly debated subject of Iran’s nuclear ambition.  The sanctions are economic; while the debate around Iran’s nuclear ambition is political.  The threat from the USA and NATO is war against Iran, and the spoils are the massive hydrocarbon (oil and gas) reserves to the victor.  The likely hood that we will see any kind of invasion of Iran is extremely low, and the war is economic.  The fact is, no one benefits from sanctions against Iran and the policy from Iran and for Iran should be one of positive engagement. The sanctions are completely in-effective and they will not, and should not last.  It is that simple.

    Oil and gas resources can no longer be considered a political or indeed a military tool when it comes to foreign policy.  Hydrocarbons are an economic reality, and as such need to be treated as finite resources, and must be addressed in a co-operative efficient manner.  Sanctions do not achieve this.  Energy needs to be depoliticized.  Competing by way of limiting your rival’s ability to grow is intellectually lazy.  This is what sanctions attempt to do.  Driving efficiency in markets through innovation in technology and trade creates optimum results.  Iran has huge hydrocarbon reserves, but lacks world class technology and investment.  The USA and Europe have the world class technology, but lack the huge accessible hydrocarbon reserves.  India and China have the demand for efficiently produced hydrocarbons going forward. Sounds like an obvious trade to me.  Reserves + technology = demand.  If politics is added to this equations it becomes inefficient, and all the parties to the trade lose.

    The current round of Iran’s sanctions is focusing on oil exports. So far, China has completely ignored the oil sanctions on Iran and is increasing its import of Iranian oil. India also imports oil from Iran, and has had well documented troubles actually settling the oil transactions.  Pressure from the US government on India has meant that third party countries have had to step in and settle the multibillion dollar trade account India has had with Iran. Recently, Pakistan has brushed off threats of sanctions against them from the US for perusing a gas pipeline from Iran to Pakistan.  Pakistan needs the gas to grow its economy, and Iran’s gas is a natural choice.  It should be noted that both Iran and Pakistan are members of ECO (Economic Co-operation Organisation). http://www.sbimarkets.com/blog/template_permalink.asp?id=116 .

    Of course the biggest loser out of sanctions on Iranian oil is Europe.  Europe currently imports about 900,000 barrels a day of Iranian oil.  Europe has not been able to agree a ban on oil imports, and is unlikely to. The biggest importers of Iranian oil in Europe is Spain, Italy Greece and Portugal. Any sanctions on Iranian oil would cripple these already struggling economies.  There would be an energy crisis which would lead to even more civil unrest in these countries. Refineries in these countries would also be hit, which would increase the price of petrol across Europe.

    Sanctions create mispricing in Energy markets. Sanctions on Iran’s oil means Europe would have an energy crisis, the G8 countries, most of which are heavily in debt and have no oil, would be paying more for oil while China and India would be buying Iranian oil at a discount.  Only intellectually lazy people could possible think this is a good result.

    The current round of sanctions against Iran is so economically ridiculous, that they in fact create an opportunity. The opportunity is to scrap sanctions and fully engage Iran economically. Everyone benefits. Europe and USA could provide technology in the oil and gas sector, creating jobs in their faltering economies. Iran could apply this technology to its oil and gas extraction to ensure the most efficient use of natural resources. Let’s not forget that BP, the fourth largest company in the world, and the third largest energy company, started life in 1901 as the Anglo Persian Oil Company, and in 1935 became the Anglo Iranian Oil Company, before becoming BP in 1953.

    We need 21st Century solutions to 21st century problems. Sanctions are neither 21st century nor a solution. The US and Europe should embrace Iran economically, and rely on this economic interdependence for political solutions, rather than economic sanctions as a solution to political problems.

     

    Current markets are anything but global or integrated.  What if we had a paradigm shift in the way we think and transact when doing business with each other?  Balanced global trade can only occur if we have transparent, accessible and efficient markets.  We are on the cusp of achieving this, although most people cannot see it.  Sam’s Exchange aims to give its readers a clearer view and a platform for discussion.  Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.

    Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company.  Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East.  He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction.  He holds a degree in economics and finance from Victoria University, Melbourne, Australia.

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