Yves here. Media reports in the US stress how tightening sanctions against Iran, particularly on banks, are increasingly isolating Iran, leading its currency to fall sharply. This article describes a key break in the cordon, that of electricity exports. But Iran’s major source of foreign exchange, its official dollar oil-related payments, via Standard Chartered, were roughly $500 million a day. The electricity trade is small relative to this total, but it is also an interesting act of defiance among American “allies”.
By John Daly, chief analyst for OilPrice. Cross posted from OilPrice.
Few people are aware that Iran is currently subjected to not one, but three sets of sanctions imposed by U.S., the United Nations and the European Union, the latter two over concerns about Iran’s civilian nuclear energy program, which both Washington and Israel allege masks a covert nuclear weapons program, a charge Iran steadfastly denies.
The first U.S. economic sanctions against Iran were instituted in 1979 following the overthrow of the Pahlavi monarchy and its replacement by an Islamic Republic, while the first United Nations Security Council sanctions again Iran were implemented by Resolution 1737, voted in 23 December 2006. Earlier this year, European Union foreign ministers agreed to place sanctions on Iranian oil and oil products because of Iran’s purported non-compliance with its obligations of the Treaty on the Non-Proliferation of Nuclear Weapons (NPT), and the EU sanctions entered into force on 1 July.
The collective effect of the trio of legislative restrictions is to impede Iranian oil and natural gas exports, the source of the majority of its foreign currency earnings until Tehran suspends its uranium enrichment activities. Iran maintains that by signing and ratifying the NPT, its Article IV permits its current nuclear activities.
But while the legislation has increasingly shut off Iranian hydrocarbon exports, there is one sector of Iran’s energy industry that is flourishing – electricity exports.
And this trade, lucrative as it is, stymies Washington’s efforts to squeeze Iran’s economy because, in four out of five instances, the trade is with U.S. allies.
According to the U.S. government’s Energy Information Administration, “Iran is a net exporter of electric power and currently exports electricity to neighboring states including Armenia, Pakistan, Turkey, Iraq, and Afghanistan.”
And exactly who are these miscreant states aiding and abetting the Iranian economy?
Related Article: Iran Finally Blinks in Terms of Sanctions Pressure
Turkey, like the U.S., is a member of North Atlantic Treaty Organization, while former Soviet republic Armenia has been a member of NATO’s Partnership for Peace affiliate program since 1994.
Iraq?
The U.S.–Iraq Status of Forces Agreement (SOFA, official name: “Agreement Between the United States of America and the Republic of Iraq On the Withdrawal of United States Forces from Iraq and the Organization of Their Activities during Their Temporary Presence in Iraq”) was signed in 2008, and the U.S. signed a similar SOFA agreement with Afghanistan earlier this year.
As for Pakistan, the military cooperation between Washington and Islamabad is self evident.
So then, five U.S. “allies” are purchasing Iranian electricity.
To give but one instance, Turkey and Iran agreed in August 2007 to jointly pursue an electricity designed to produce 6,000 megawatts, of which a percentage would be exported to Turkey’s relatively isolated eastern provinces adjacent to its 312-mile long frontier with Iran.
And how valuable are these power exports?
From 20 March 2012, the beginning of the current Iranian calendar year to 23 October,Iran exported 6,624 gigawatts of electricity to the quintet of neighboring countries, a 44 percent rise compared to the same period in 2011. On 27 October Deputy Energy Minister Mohammad Behzad announced in Tehran that Iran’s electricity exports were worth $5 billion since the beginning of the current Iranian calendar year.
Behzad disclosed the data on the sidelines of 12th International Electricity Exhibition (IEE) currently underway in Tehran. And among those nations attending are Italy, France, Germany and Turkey, all NATO members, along with representatives from China and South Korea.
Expect to see more growth in Iran’s electrical sector. According to Iranian Energy Ministry officials, Iran will become self-sufficient in manufacturing equipment and goods, which are used in the electrical power industry by the end of the current Iranian year, which finishes in March 2013.
Iran’s rising electrical exports to its neighbors presents Washington policymakers hawkish on Iran with the unpleasant reality that the nations importing Iranian electricity are all involved to a lesser or greater degree with regional U.S. military policies, whose cooperation could be endangered if the American administration pressured them too far to downgrade their energy relations with Tehran.
So, for the foreseeable future, Turkish lira, Armenian drams, Pakistani rupees, Iraqi dinars and Afghan afghanis will continue to flow into Iran’s treasury in return for reliable supplies of electricity.
And more deals are on the way, as on 27 October Iran and India signed a Memorandum of Understanding that Iran would provide 4,000 megawatts of electricity exports to India via Pakistan, which as part of the agreement receive 2,000 additional megawatts for its role in facilitating the transfer.
Apparently Iran’s neighbors have concluded that their value to Washington transcends the American administration’s ability to punish them for interacting with Iran.
At least electricity, unlike uranium, is not “dual use.”
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So the Global Imperium is forcing Iran to burn oil for elec. power export…………
What a epic waste of a resourse.
I agree with D of C, but then, isn’t this just typical of those dim-bulbs in Washington who run the show? It sure make one wonder if those same dim-bulbs have a finger in the pie? Wouldn’t that be interesting now, to discover just who in the so called elite here, have been making profits along with the Mulla’s.
Freinds;
Let us conclude that this is an extension of the old ‘Realpolitik” strategy. Didn’t an earlier Administration promote just this kind of behaviour as ‘engagement?’
The following is from 1997.
THE TOLL IN IRAN
The American-driven sanctions against Iran were meant to transform the “backlash state” into a law-abiding, cooperative, and constructive member of the world community. Washington expected trade and investment restrictions to cripple the productive base of the economy and curtail Iran’s ability to support international terrorism or acquire sophisticated military hardware. Economic hardship and fiscal austerity would demoralize the population and turn it against the regime. And domestic popular discontent and external political isolation, Washington hoped, would bring the clerical leadership to its senses.
Inadequate hard data make an objective assessment of the sanctions difficult. Supporters of the policy claim that the cost to Iran has been immense, even greater than expected; critics dismiss the policy as self-defeating and divisive. What is certain, however, is that the economic, psychological, and political impact of the American sanctions has not produced the anticipated results or transformed the regime. Although the comparison may seem invidious, the Iranian economy under sanctions is in certain respects healthier and more stable than many developing economies the United States has assisted. Militarily, Iran appears to be stronger now than in 1989, and is certainly less vulnerable than some U.S. allies in the region. The embargo has isolated Washington rather than Tehran…
http://www.foreignaffairs.com/articles/53043/jahangir-amuzegar/adjusting-to-sanctions
It’s been 15 years, still no WMD, still no fall of Iran. Yves, your analysis that there is more than a little daylight between the US and its Allies in regards to Iran does not take in the whole picture. That would require understanding that the previous, longstanding position of the European Union was much more diplomatic, weighted more towards discourse and engagement than the punishing execution of policy just short of armed warfare. American Hegemony, and it is that, does not mean absolute control and immediate obedience by our allies to inflict an iron handed death grip around the throat of the people of Iran and its government.
I. Wallerstein, in explaining the extent of American hegemonic power says that a hegemon gets 95% of what it wants, 95% of the time. Furthermore, it is not brute force that is employed, certainly that threat is there. But if we have to actually use it, every time we hit an international roadblock to our critical national security interests, we are no longer a hegemon, but a heavily armed menace that could presumably turn its weaponry against anyone for any reason at anytime. Unilateralism is not as powerful as co-ordinated joint militart commands, as in NATO or the fabled coalition of the willing in Desert Storm.
Some hard currency may be had by the Iranians in exchange for electricity. This does not reveal a critical or even minor breach, some daylight, between Washington and its allies. Our friends, allies and trading partners have needs and interests that we can not ignore, just because we want to inflict the most draconian economic sanctions possible. We may get to that point, but, it takes time to get an alliance up and running. Furthermore, it may well be in our interest to have Turkey get electricity into its remote regions to prevent them from falling prey to political discontent or worse. The same is true for Pakistan, India, Armenia et al.
The fact is, getting a diplomatic united front is time consuming, much less easy than unilateral American Century policies. And it is just such an alliance building that is the hallmark of a global hegemon: getting other nations to see that it is cheaper, easier, and in truth in their best interests to follow with the lead of the US in foreign affairs, as long as they get something of value and little of toxic, damaging domestic consequences. This is not an easy formula, and it may leave some areas, such as electricity, off of the table as a coercive ploy. It also gives Iran some breathing room, to see that perhaps we just want them to follow our lead, NOT wipe them off the face of the earth. They are a major holdout in the hegemonic scenario of global American power. We can let them have the 5% of time.
Not certain if you’re claiming the hegemonic designs against Iran are working, or by pursuing such a course, the hegemon has wound up appearing as an unpredictable heavily armed menace. The sage advice has to be: choose your opponents carefully.
Here’s an excerpt from a comment from another site:
Quote:
Iran’s food security index is very high, meaning they are pretty much self sufficient in that regard. They are also not reliant on fuel and energy imports. The country also has a pretty large industrial base and a lot of their imports only harm domestic industries and fuel wasteful consumption patterns. Its primary export, oil, is the most desired commodity on Earth. People need it, market demands it and it will get out. Period.
Iran also borders a lot of countries; many of whom have every reason to refuse to cooperate on sanctions. The Russians don’t want the US to succeed. The Turks are reliant on Iranian gas. The Iraqis need Iranian electricity. Same with Afghanistan, Armenia and Azerbaijan. Iran also has long established smuggling routes with some of these countries and decades of experience of dealing with sanctions.
Second, Iran has been preparing for an actual war for a long time. They have stocked up on large currency reserves, gold reserves and food reserves. They are prepared for far far worse.
Third, there has been a lot of dissolution of global economic power. I think the Western countries didn’t get the memo that they alone no longer decide what happens in the world of commerce. Their political class is very stubborn and are in denial of fundamental realities. The Iranians can buy whatever they need from the Russians and the Chinese. Their primary challenge is in finding new banking and financial mechanisms and readjusting business ties away from Western countries. This is a painful time for Iran but I think they are up to the challenge.
The West already did their worst when they sanctioned Iran’s Central Bank. That was their trump card and they played it. They have run out of bullets.
End Quote
The proof of a sanction-proof Iran, is the number of non-Iranian entities/countries which have to be threatened with penalties in order to sanction Iran. And it will get worse. Along the same route that electricity flows, so can petrochemical products, pharmaceuticals, automobiles, etc. etc. Iran is being ‘forced’ to diversify her economy, a good outcome … for Iran.
Iran graduated decades ago, and is no longer a student. If this whole saga was to teach everybody else a lesson, it would be a shame if all that was learned was the opposite of what was intended, curtsey of Iran’s successful resistance.
Sometimes the hegemonic ambitions are better served by picking on those that cannot resist, otherwise the hegemon winds up looking ineffectual, forced into hot warfare, and looking like a menace.
The U.S. position vis a vis Iran is nuts. It is based on a bad memory – events of over 30 years ago when the nation was emerging from the U.S.’ shadow. Iran sits in a very strategic location. While I have not studied the issue, it would surely be shorter to route Caspian oil to the global market through Iran to the Persian Gulf than through Turkey to the Mediterranean. I admit that my own view of Iran is strongly colored by the friendship I struck with an Iranian student in 76-77. He was a Marxist revolutionary and his greatest fear, Islamism and the growing popularity of a cleric in Paris, Khomeini. Again, it is my view that our support for the Shah and fear of communism forced the Iranian people into the radical Islamic camp. So, today, U.S. foreign policy adventurism, far from discouraging a nuclear Iran, is damned near forcing Iran to develop nukes. The situation is tragic, reminiscent of an overbearing parent trying to control a rebellious teenager – the U.S. is driving Iran further and further away. Beyond stupid.
The Dork of Cork,
Wrong. Most of Iran’s electricity is produced by natural gas and hydroelectric stations with official support for more renewable and nuclear power. Oil probably does not make up even one percent of their electric production. Iranian electricity is among the cheapest in the world and even US is nowadays moving to more electricity generation by natural gas.
You see, Iran’s electricity is in high demand among its neighbors from Turkey to Iraq. Already Pakistan is experiencing 20 hour black outs in 120 F heat. The industries in Pakistan are shutting down and every year dozens of people are killed in big demonstrations demanding an end to electricity black outs and natural gas shortages. Iran is only next door. So the Pakistani leaders will have to decide fast whether they want stability and sovereignty or they want instability and being a puppet of US. Something tells me they will choose the first one, specially since an unstable nuclear armed state is in no one’s benefit.
Well as recently as 2009 much more was produced using oil rather the Hydro.
The growth in generation was mainly Nat gas but oil is a far bigger component of the mix then in a typical western country.
http://www.iea.org/stats/pdf_graphs/IRELEC.pdf
I imagine they are burning more surplus oil so that they can export more oil indirectly.
The UK has a typical western fuel mix
http://www.iea.org/stats/pdf_graphs/GBELEC.pdf
Notice how little oil is burned for electricity generation
Electricity? We have all sorts of reasons for controlling oil – from keeping prices propped up to preventing other countries from obtaining enough oil to run a large military operation. If this (production of electricity) were an efficient use of natgas and oil it would be a good thing. But those are some long distances (India?) to be transmitting it and so much of it will simply be dissipated. Forget Europe’ that’s just too far. In view of the article from Science Daily (Links today) about building small for cost savings, which addressed power plants, the old oil pipelines sound like a better idea.
Iran just declared it will halt its nuclear enrichment to weaponization level.
Is this because sanctions are working, or could it be that the Iranians are interested in giving Obama some points toward the elections?
The smartest source to understand the US – Middle East relationship is the Asia Times.
Particularly about the efforts of the US elite to purport Iran as a threat: Pentagon nixed Iran nuclear visit in 1998 By Gareth Porter
… Plus well written, enjoyable articles about disastrous US foreign policy.