July 30, 2014

US foreign policy and responses: Sanctions on Iran

On December 31, President Obama imposed sanctions on Iran because of its nuclear weapons program, and since then, responses from other countries have been mixed. BRIC countries (Brazil, Russia, India and China) have mostly refused to follow the US in public, but meanwhile secretly heed the US calls. Whereas power balance in terms of oil production might change, it is yet to be seen how much of a change this will generate and who will benefit from it.

In January, Emily Burlinghaus argued that US sanctions would be influential in influencing Iran’s financial stability. The author argued that the EU would side with the US and that even though India and China would not align themselves with the US foreign policy, they would demand lower prices from Iran due to a decrease in demand for oil – and as a result, would multilaterally support the US. Consequently, Iran would be financially hurt.

Though demand for oil has decreased, oil prices remain high because of a decrease in supply. BRIC countries are hurt by high prices. Needed for development, oil is highly valued in industrializing countries: factories and farmers alike need it for production. Out of the three major buyers of oil from Iran – India, China and South Korea – the former two refused to impose strict sanctions on Iran. Though imports from Iran have decreased for China, India and South Africa, high prices still benefit Iran.

Some countries also express doubts over US authority. Chen Deming, minister in China stated that China is “not obliged to follow any domestic laws and rules of any particular countries.” This unwillingness to comply might increase as on March 21, ten EU countries and Japan were exempt from the sanctions imposed by the US on defectors. However, China, India, South Africa and South Korea were not exempted.

South African media, likewise, are skeptical of the true American incentives for these sanctions. The Congress of South African Trade Unions (COSATU) even called on the government to disobey the US demands. According to Geoffrey York, “The U.S. allegations about Iran’s nuclear program are ‘unproven,’ the union congress said.” Moreover, according to York:

‘COSATU demands that the South African government stop this kowtowing to the U.S. imperialists,’ the Congress said. It called for a ‘principled stand against U.S. imperialism’s attempt to impose its will on sovereign states (York 2012).’

Though sanctions aim to discourage Iran from obtaining nuclear weapons and thus inhibit it from becoming a threat to its neighbors in the Middle East, other countries do not think that the US sanctions pertain to the official goal.

It is also to be seen whether BRIC countries will prefer diplomacy to development. Higher oil prices elicit losses to businesses in BRIC. Employment might suffer, which could decrease aggregate consumption and savings levels. Biggest losers will be the poor, who work in the oil industry as manual labor. Yet, if South Africa moves away from the US ideology, its access to US financial support will be cutoff, as will be their good diplomatic relations. Time will show which interest group and ideology will win: poor and businesses, or investors and the government.

However, some countries will benefit economically from the sanctions. Saudi Arabia, Kuwait, Bahrain and Qatar have replaced Iranian oil with South African oil. The same may happen in case of China, India and other oil importing countries.

The US sanctions on Iran are beneficial to some, but not to all. Development is not taken into consideration through these sanctions. Highly developed countries might afford higher oil prices, but BRIC might not. Since BRIC countries plan to form a bank and use it to fund projects in BRIC and other developing countries, sanctions against Iran might prove to lack multilateral support after all. While the US administration is struggling to keep the world safer by eliminating a prospective nuclear threat, many will suffer in consequence.

Many thanks to Gunvant Govindjee, South Africa, for his insight into BRIC countries.

About Ana Ila

Ana Ila majored in Economics and Political Science from Wellesley College. She then obtained MSc in Economics from the Institute for Advanced Studies in Vienna, with a focus on Numerical MacroEconomics. Her academic interests include (but are not limited to) dynamics of interactions between interest groups and international security. She became interested in student activism because she believes young people should care about their communities and keep on improving them. Ana also, besides activism, enjoys practicing martial arts in her free time.

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