Amid Pressure For New Iran Sanctions, Obama Administration Weighs Efficacy

Mark Dubowitz, executive director of the Washington-based think tank Foundation for Defense of Democracies, said based on the targeted sanctions the U.S. and the United Nations has already established, “I think we’ve seen the evidence…that there won’t be a rally around the flag.”

The timing isn’t just based on political expediency. The construction of new refinery capacity that could make the country a net exporter of petroleum products by 2012 builds a deadline for petro sanctions.

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But some analysts say multilateral efforts – while certainly helping to enforce any embargo – aren’t absolutely necessary.

Dubowitz says the concern is largely founded on a misunderstanding of the petroleum trade. While many firms from around the world ship petroleum products, there’s a limited number of companies that underwrite both the ships carrying the petroleum and the cargo itself.

By targeting shipping underwriting, not only would the risk premium paid by Iran to ship their fuel become prohibitive, Dubowitz said it could be possible to persuade the insurance companies to exit the market.

The Chinese and the Russians have a very limited ability to provide such service, he said, and since Iranian insurance companies have already been sanctioned, petroleum traders would have to do business with designated entities.

Furthermore, with the Iranian Revolutionary Guard Corps and other designated entities integrated so intimately into the Iranian economy, Dubowtiz said many Western companies doing business there are likely unknowingly working with sanctioned groups or their proxies. If the U.S. or an organization were to publish a report the business links that show such activities, the reputational risk for Western companies would also likely curb petroleum imports.

“It’s not that difficult to map the supply chain,” Dubowitz said.