April 20, 2010 | Quote

Conflicting Signals on Iran Gasoline Shipments, Sanctions

Conflicting reports continue to circulate regarding the recent decisions of two of Iran's largest's gasoline suppliers to stop sending shipments to Iran as part of broad efforts to pressure Tehran into halting its uranium enrichment activities.

One report from the Financial Times on Monday contended that Swiss-Dutch trading companies Vitol and Trafigura have agreed to stop supplying Iran, and Vitol later confirmed the company's position to several major news wires.

However, Mideast Gulf-region traders and shippers have indicated recently that the two companies have continued to supply Iran as of late — though that may be on the decline since gasoline exports from Vitol to Iran have declined to around 100,000 tons in February, from 170,000 tons in January (IOD Mar.9,p1).

US observers said Vitol and Trafigura's actions, if accurate, indicate that sanctions legislation in the US Congress and pressure from President Barack Obama are already influencing the decision making of Iran's suppliers — ahead of any sanctions going into force.

The new approach taken by Vitol and Trafigura “demonstrates that the mere threat of gasoline sanctions can change the calculus of Iran's major partners,” said Mark Dubowitz, executive director of the Washington-based Foundation for Defense of Democracies.

“We have already seen that just the threat of sanctions has had a measurable cost on Iran's ability to import gasoline,” he said, “causing some of Iran's gasoline suppliers to withdraw from the Iranian market, banks to stop providing financing for these gasoline trades and forcing the regime to cut popular gasoline subsidies.”

Dubowitz, however, speculated that Iran's traditional suppliers are likely to resume their trading if they no longer feel that the threat of sanctions is imminent.

The departure of Vitol and Trafigura from the Iranian gasoline market — if followed through — would mirror the recent exits of Kuwaiti trader IPG, India's Reliance Industries and Swiss trader Glencore.

The exits also come as the US Congress prepares to reconcile two Iran gasoline sanctions bills passed by the House and Senate in recent months.

The Comprehensive Iran Sanctions, Accountability and Divestment Act passed by the Senate in late January would authorize the president to impose sanctions on any supplier of refined products to Iran, as well as any insurance and shipping companies facilitating such trade. Presidential sanctions could also apply to those who assist Iran in expanding its refining capabilities (IOD Feb.1,p1).

The House passed a similar suite of measures in December. If signed into law, the bills would expand upon an existing US law that currently punishes foreign companies that invest more than $20 million annually Iran's energy sector.

Despite his overall support for sanctions, President Obama may hold off to some extent on their enforcement to appease some countries that are broadly cooperative with US efforts to pressure Tehran.

President Obama has been pressuring the United Nations Security Council for multilateral steps to halt gasoline sales to Iran.

Iran is one of the world's largest producers of crude oil, but it must import significant quantities of gasoline due to a lack of refining capacity and generous fuel subsidies that have artificially increased demand in the country.

The idea of imposing trade sanctions on Iran — for refined products or other goods — has not come without criticism.

Opponents have said limiting Iran's gasoline options will simply impose economic burdens on the country's citizens and only impact the government indirectly.

Many have also cautioned that sanctions could backfire if the Iranian government draws attention to any such steps to regain the trust of its citizens or build anti-Western sentiment.

Revealing the details of US-India talks on Tuesday, Indian petroleum and natural gas minister Jatin Prasada said the Indian government “has conveyed to the US government that sanctions on Iran have proved to be counterproductive.”