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Iran, The Illusion
by James Dunnigan
February 1, 2012

A new year brought new sanctions against Iran. These sanctions were different as they prohibited Iran's major customers from buying Iranian oil and made it more difficult to pay for it if they did buy the oil. The Europeans are switching suppliers, and East Asian ones (at least Japan and South Korea) are under pressure to do so. China is lining up suppliers outside the Persian Gulf. The $110 billion annual oil revenue is what keeps the Iranian religious dictatorship in power. As those new sanctions went into effect at the end of 2010, the value of the Iranian currency plummeted over ten percent and the Iranian economy shuddered. Actually, in the last year, the Iranian currency has lost 60 percent of its value against foreign currencies. Now, it costs 16,000 Iranian riyals to buy one U.S. dollar. A year ago, it only cost 10,000. So, not only are smugglers demanding higher fees to get forbidden goods to Iran (because of the increased risk of getting caught and prosecuted) but it costs 60 percent more to buy foreign currency to pay the smugglers, or legitimate suppliers of goods. All this grief doesn't get much attention in the foreign press, but in Iran it's big and seemingly unending bad news. Iran also sees income cut by ten percent because of additional banking sanctions, which makes it riskier to do business with Iran (and not have your transaction seized for violating sanctions).

The new sanctions will not be completely successful, but if Iranian oil income were cut by a third or more most Iranians would feel it. Iran has responded with threats, saying it will close the Straits of Hormuz (the narrow entrance to the Persian Gulf, where 40 percent of world oil passes on its way to world markets). Another aspect of the new sanctions makes it more difficult (and expensive) for Iranian banks to operate overseas. Iranian economists and financial experts have convinced Iran's leaders that the new sanctions are worse than any previous ones and a real threat to the Iranian economy, and the survival of the religious dictatorship.

Iran has long issued dire threats and never followed through. Iran much prefers to operate in the shadows by quietly supporting terrorists and irregulars. Iran could use this approach by using submarines and small boats to plant naval mines in the Straits of Hormuz. This would quickly escalate as local and foreign navies moved in mine clearing forces, along with warships and aircraft to protect the continuous mine clearing operation. Iranian bases would be attacked in order to destroy the mines and delivery vehicles (small subs and boats). This would quickly escalate to attacking all Iranian military equipment. How successful this would be will not be known until it happens. That's because both sides have made considerable efforts to (on the Iranian side) hide their anti-ship missiles and other weapons and (on the non-Iranian side) to find all the Iranian weapons and develop methods to quickly destroy them. Historically, the defense (Iran) has the advantage. But you don't know how this all plays out until you actually do it. That is not likely to happen anytime soon, as it will take months before the sanctions actually translate into significant lost Iranian oil sales. During that time, negotiations, many of them secret (or just very discreet) will take place with Iran about nuclear weapons, support for terrorism, and other bad behavior. The Iranian leadership does not want war, because, by their own calculation, they would be the big loser. Meanwhile, one can bluff and bluster and hope for the best. The Iranian leadership does believe God is on their side and they are hoping that God will be a little more helpful this year.

Iran's bad behavior (supporting terrorism, developing nuclear weapons, threatening neighbors) has left it with few foreign friends. China, one of its major trading partners, is its major customer for oil. But China has made it clear that if Iran finds itself with more oil than customers that they will expect to pay less for Iranian oil, if only to compensate for any sanctions damage China might suffer. Supply and demand and all that. Other remaining Iranian oil buyers will demand similar concessions. Russia is another Iranian ally, but will not do much to help because closing, or even trying to close, the Straits of Hormuz will be a bonanza for Russia, a major oil exporter that does not use the Straits of Hormuz. Oil prices will surge as long as there are problems at the Straits of Hormuz. Other Iranian friends, like North Korea, Venezuela, and Cuba are more a burden than a benefit.

As scary as a nuclear armed Iran may appear, it does not mean that Iran would actually use any nukes it had. Iran, historically (and currently), does not play that way. Iran prefers to use bluster and bluff, and less obvious forms of violence (like terrorism) to achieve its goals. Nukes are very scary and that's why Iran wants them, or at least the illusion of having them.

The government continues its efforts to identify and arrest opposition leaders. Even some senior clerics have been placed under house arrest for daring to criticize the religious dictatorship. Even those closely related to reform-minded senior clerics are being prosecuted, in closed trials, for daring to criticize the government. New national elections this year will be just as rigged as the last ones in 2009.

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