Transcript U.S. Sanctions On Iran: Economic and Social Assessment

The Impact of U.S. Sanctions On Iran:
Economic and Social Assessment
Mohammad Hafezi •Ali Mostashari • Roham Alvandi
Iranian Studies Group at MIT
June 2004
Impact on Iranian Macro-economic
Indicators
Source: World Bank (2003)
Impact on General Economic Structure
•Despite increasing privatization, the inability of foreign
investors to invest in the Iranian private sector due to sanctions
has undermined its growth, resulting in the continued dominance
of the state owned industries in the economy.
•A significant percentage of public-sector economic activities are
controlled by semi-public "revolutionary organizations" such as
the Mostazafan Foundation, which are controlled by
conservative elements Current market value of the Foundation's
assets is about $4.4 billion. Funds for Hezbollah and Hamas are
said to come from these sources.
Source: Law of Unintended Consequences: US Sanctions and Iran’s Hardliners, Mehrdad Valibeigi, January 2004
Impact on Iranian Oil Industry
 The U.S. Iran Libya Sanctions Act (ILSA), first imposed in
1996, seeks to penalize any non-U.S. oil firm that invest
more than $20 million in Iran.
 Iran's oil production, which was 3.6 million barrels per
day in 1997-98, fell to 3.4 million b/d in 2001-02 despite
the tremendous importance the Iranian government put on
increasing output, indicating the difficulties Iran has faced
in updating its oil production facilities.
 Iranian oil facilities are at least 30 years old, and
production capacity had fallen by 1.5 million barrels a day
in the past five years because of ageing facilities. Still, Iran
had drawn $22 billion in buy-back ventures since 1997.
Output Statistics from Iranian Oil
Fields 2002-2003
Iranian oil statistics
2002
2003
Crude oil production (mbpd)
3.49
3.63
Crude oil prices (Brent; $/b)
24.50
27.6
Iranian Light-33 ($/b)
18.90
23.43
Iranian Heavy-30 ($/b)
22.9
22.99
OPEC quota history (mbpd)
3.18
3.59
Source: EIU; Petroleum Economist
Impact on Natural Gas Industries
 The sanctions prevent Iran from partnering with U.S.
LNG plant manufacturers such as Bechtel Group Inc. of
San Francisco, which has built 31 percent of the world's
gas liquefaction capacity or Halliburton Co.'s Kellogg
Brown & Root, which is constructing similar plants in
Nigeria and Mexico.
 ``There has never been an LNG plant built without any
U.S. component. With the sanctions, not even a 5-cent
washer or bolt could come from the U.S.,'' said Ball of
Gas Strategies. ``This is uncharted territory. It can be
done, but nobody has had to do it before.''
 This means higher end-prices for Natural Gas for Iran
Impact on Petrochemical Industries
 Generally the impact of the sanctions on Iran’s stateowned petrochemical industries have been seen as
negligible.
 Iran's petrochemical sector is predicted to attract $12b of
investment under the fourth five-year national plan which
starts March 2005.
 In the past five years, Iran has invested $11b in its
petrochemical sector in a bid to diversify its industry.
According to the figures released by the National
Petrochemical Company, international financing in the
sector totaled $7.2b between 1997 and 2002.
Impact on Aviation
 There is a consensus that U.S. sanctions have damaged
Iran's aviation industry.
 Iran has failed to get four Airbus 330 planes because of
U.S. opposition because some of the aircraft parts are
U.S.-made.
 Iran Air has announced that If the sanctions are lifted,
Iran would immediately order Boeing airplanes.
 Iran still has 15 operating U.S.-made Boeings in its fleet
of about 80 passenger planes. Iran has also 28 Airbus
(ABI.YY) planes, 11 Fokkers and about 25 leased
Russian-made Topolov planes.

Impact on U.S. Trade
 The burden of lost exports to Iran has fallen mainly on
the wheat producers of midwestern states, aircraft
manufacturers such as Boeing and McDonnell-Douglas,
power generation companies such as General Electric and
Westinghouse, and banks and insurance companies.
 Before the 1979 revolution, the US was Iran's largest
supplier of wheat to Iran, sending more than 1.8 million
tons a year. In 2001, a year of drought, Iran became the
largest wheat importer in the world by bringing in 7
million tons of wheat valued at over $1.5 billion.
Impact on U.S. Trade
Year
2003
2002
2001
2000
1999
1995
1994
1993
1992
1991
1990
1989
1988
1987
US
US
Balance
Exports Imports
to Iran from Iran
93.8
31.9
8
16.8
47.9
277.4
328.8
616.2
747.5
527.6
162.5
55.2
80.5
54
145
156.3
143.5
168.7
2.4
0.2
0.8
0.1
0.7
230.7
6.8
8.6
9
1,667.50
-51.2
-124.4
-135.5
-151.9
45.5
277.2
328
616.1
746.8
296.9
155.7
46.6
71.5
1,613.50
Source: US Census Bureau, 2003
Impact on U.S. Energy Companies
 According to Bloomberg analysts, Conoco is missing out
on Azadegan's projected $100 billion in revenues.
 The sanctions seem to be harming the investments of U.S.
firms beyond Iran. ExxonMobil was unable to obtain the
massive Kashagan oil project in the Caspian Sea because
the sanctions prevented an Iranian export route, the most
economically viable option.
 Despite a renewal of the 1995 sanctions by President
bush in March of 2003, several US oil firms have voiced
their interest in bidding for new oil contracts in Iran
Impact on Iranian Military
 Iran’s low-level conventional military purchases do not
seem to have been affected by sanctions.
 Iran’s WMD efforts seem to have been slowed by the
sanctions, but currently it seems that Russia, India, China
and North Korea have supplied Iran with its needs, both
in terms of missiles and chemical, biological and nuclear
materials that can be used for WMD purposes.
 Control of Iranian dual-use imports is difficult to achieve
through sanctions, and high profit margins have resulted
in non-cooperation by China and Russia on deterring
access to WMD by Iran.
Source: Cordesman, 2000, CSIS
Iranian Military Purchases (1992-1997)
1600
USD Million
1400
1200
1000
800
600
400
200
0
1992
1993
1994
1995
1996
1997
•The ILSA Sanctions went into effect in 1996, after
which Iranian Arms purchases actually increased.
Source: Anthony Cordesman, CSIS, 2000