Dealing with Despots: Sanctions Make Things Worse, Case in point Iran

By: Andrew_Butter

The stupidest OP-ED I’ve read all year was a recent column in the New York Times:

The sale of oil — about 2.3 million barrels are exported every day — accounts for more than 50 percent of Iran’s national budget. Under current American law, the importation of Iranian oil is prohibited, but gasoline refined from Iranian petroleum is not. Sanctions obviously need to hit this industry harder.

http://www.nytimes.com/2011/11/19/opinion/dont-give-up-on-sanctions-against-iran.html?_r=1

That’s some of the great new-thinking of a “former C.I.A. officer, and a senior fellow at the Foundation for Defense of Democracies”.

Ok genius, I don’t know what you were doing at the C.I.A. but I can easily believe you were on the team that gave us WMD in Iraq and decided that the Taliban were key to Osama bin Laden’s terrorist network (in point of fact they had less of a clue of what he was up to than the C.I.A.)

1: Iran is a huge net importer of gasoline, mainly from Pakistan (America’s ally) and India.

2: America imports hardly any gasoline and since in any case it is very expensive to transport (tends to catch fire), any that it does import comes from Mexico and Canada. I can say, with absolute confidence that the amount of gasoline refined from Iranian crude that is imported by USA is exactly equal to the number of WMD that Saddam Hussein had aimed at Washington D.C.

Oh, and democracy…

Sanctions are a coward’s way of doing nothing but seeming to do something, that destroy any semblance of democracy. They bolster the hand of dictators because when there are sanctions in place, the only way ordinary people can get to do business, is to go via the government, so the sanctions kill any semblance of free-market enterprise.

The result is that the local populations are reduced to struggling daily to find a way to accommodate all-powerful, corrupt government officials.

It was sanctions that kept Gaddafi in power for so long, same story for Saddam Hussein after the first Gulf War, same for Mugabe and that little lunatic in North Korea.

The private sector in Iran is limited to tiny businesses; everything else is controlled by the state, whether that’s directly, or via (mainly) the Widows and Orphans Fund which is controlled by the state, (The Revolutionary Guard only control military businesses).

The few medium-sized businesses that exist, service almost exclusively, the government; many are just an angle for some government official or another to gouge the system better.

Meanwhile the ordinary population scrapes by figuring how to eat, even though staples are heavily subsidized it’s tough, you don’t see fat people walking around the streets of Tehran, and you certainly don’t see any in the countryside.

Sure, the retail price of cooking oil is about one tenth of what it costs in UAE or Pakistan, but you can only buy it with one of the FOUR currencies in circulation. The way that works is that the refiners get given base-oil by the government; then they charge the consumers their refining costs plus a margin; similar deal for bread, and gasoline. One of the best scams going is to smuggle those goods, particularly gasoline, into Pakistan, where OK I guess some gets sold to American troops in Afghanistan…nice of the Iranians to support the US Campaign there eh!

Although the common currency to pay for the gasoline (that the US Military buys), is heroin (much easier to transport than dollar bills), which is then smuggled into Russia via the Caspian. Hey Mr. C.I.A. spook, perhaps you can explain to me how that is promoting democracy and World Peace?

No I wasn’t joking there are FOUR currencies in Iran, depending on what you can buy with the currency, although I suppose if you count heroin, there are five. If you want to buy real estate, the price you get quoted is US Dollars. But you can buy whatever you want; it all depends on how connected you are, and that is what dictates which currency you got in your pocket.

I spent ten days there eighteen months ago, trying to figure out how the economy works, I was working for some crazy guy who has some crazy idea that sounded nuts in the beginning and never went anywhere, but I thought, “what the heck, that should be interesting”…cash up-front of course!!

It surprises me to hear that the C.I.A. worked out that 50% of the Iranian state budget is financed by the sale of oil, as in where did they get that information? Me, I hunted high and low to find any useful statistics on what’s happening in Iran, my conclusion was that basically worthwhile statistics don’t exist. And I had connections, but perhaps the C.I.A. has better connections that I have? Somehow I doubt it. If you want my opinion, 95% of the Iranian state budget is financed directly or indirectly from selling oil.

So that’s easy then, just blow up their oil exporting capability, and magically democracy will emerge!!

Sounds like a plan eh!!

Of course I’m not a trained C.I.A genius, but just a little suggestion on that, perhaps the “unintended consequence” might be that if the Iranians couldn’t export any oil, they might decide, well why should anyone else export oil?

As in 25% of the world’s oil supplies go through the Straights of Hormoz plus the new UAE terminal in Fujeirah which is sadly still in range from the upgraded Sunburn missiles they bought from the Chinese. I suppose the answer to that is just to nuke the whole place…that would work!!

Ever wondered why the Iranians doggedly keep playing around with nuclear technology, even though they know that really ticks off America and particularly Israel?

It’s not that they need the technology, I have information that I believe is as reliable as any “intelligence” that the C.I.A. has, that someone has a stash of nuclear weapons they bought when Russia was imploding, and that they have the codes too. Think about it, if you can smuggle a whole ship full of heroin into Russia, you can smuggle stuff the other way too.

But that’s not the point, the point is the status quo that is protected by the sanctions know that so long as they keep doing that, and leaking information now and then, accidentally on purpose, and standing up and insulting America and Israel, and sure smuggling weapons to Gaza (making sure they get found out, it’s not as if any sophisticated weapons ever arrived), the sanctions will continue, and their ability to gouge their share of the oil wealth will be secure.

The best way to stop Iran from posing a threat to the West and to Israel; is to lift ALL sanctions.

Then you might see an Iranian version of the Arab Spring emerge, and in any case, whether they have the weapons or the capability is academic, what matters is what sort of lunatic can get his hands on the codes, democracy has a way of keeping those guys out.

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

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