The Oil Embargo Research Paper Example



by Susan

17 May 2018

The oil embargo is an effective weapon for pressuring Iran regarding its nuclear weapons program. In reality, for sanction against Iran to be effective, the targets must be the most significant export product, that is, oil and gas. Addressing oil matters is like touching the heart of the economy, especially considering that Iran is the second largest producer of oil after Saudi Arabia. It ranks the fourth largest pool of confirmed oil reserves in the whole world, which accounts approximately 126 billion barrels or 10 percent of the globe’s totals (Cordesman & Al-Rodhan, 2006). Using oil as a weapon will help to stop Iran from accessing nuclear weapons. Secondly, international negotiation and crippling sanctions are working; hence, they need more time to be fully effective. Furthermore, failing to take action soon could make it difficult to stop Iran in the future. The significance of understanding why, when, and how nations choose to use oil as a tool of political pressure unilaterally or cooperatively is evident. However, the literature on the subject has been somehow missing or limited (Ramel, 2012). In order to expound on the effectiveness of the oil embargo in Iran, there is a need to examine the efficiency of the oil weapon based on its historical record of accomplishment, specifically exploring the 1973 to 1974 events. In essence, an oil embargo is an effective tool for pressuring Iranians to destroy their nuclear infrastructures because they pose a great threat to Israel, Arab nations, and the world at large, although they claim it will not use it for military purposes.

Historic Track Record of the Oil Weapon Effectiveness

On January 23, 2013, the European Union officials introduced a bloc-wide embargo on oil import in Iran. They cited that their action was aimed at pressuring Iran to reduce their production of nuclear weapons. All bilateral trades with Iran were given up to July 2013, and the EU requested its members not to strike more oil deals with Iran (Ramel, 2012). The risk of using the oil weapon by reducing the export of oil supplies to consumer nations is extensively believed to give producers a powerful bargaining tool in times of political wrangles. The most famous use of oil embargo was the case of 1973. Here, OAPEC partners without Iraq against particular consumer countries were involved in the first threat. Afterward, real cutbacks in oil supplies were used to break down associated support for Israel during the Arab-Israel war in 1973. Nonetheless, the use of oil weapon by then did not achieve its aims and was later dismantled. However, it shaped the producer-consumer relationship and energy regulation in the west countries henceforth (Katiri & Fattouh, 2012). On the other hand, the strength of the 1973’s trade embargo memories clearly shows that it was a success. For instance, individuals living in the U.S today remember the dramatic effects of the embargo, which include long queues in the petrol stations, high prices of oil products, and the economy worldwide was rolled into a recession (Ramel, 2012).

Almost forty years later, some Israel expert says that there is no other effective way to force Iran to drop their nuclear weapon programs than to impose a trade embargo. The proposer argues, “No nation is dependent upon Iran on its energy request and its energy demands. However, the Iranian oil firms, for example, they require to export oil not only for money compensation but as well to get back refined oil product such as gasoline and other products because they do not have sufficient refinery abilities” (Cordesman & Al-Rodhan, 2006).

The effectiveness of the oil embargo against Iran hinges on the level at which the United States and EU ensure multi-lateralization of their respective embargoes. This is in consideration of the state of the oil in the global market both physical balance and price. The three key questions that drive the effectiveness of the oil embargo in Iran include will Iran’s largest consumers especially China, India and South Korea stand by the embargo? Will global oil prices go up such that they will hinder the Western nations from further enforcing their sanctions? Or will other producing nation increase their production to counterbalance the potential loss of Iranian grades? (Graaf, 2013). The questions were answered before the sanction, and the lesson learned in 1973 was applied to Iran. One clear observation is that, unlike the 1973 embargo, in this case, only Iran will suffer; therefore, the oil embargo will be effective. An EU- supported embargo will not force Iran to comply. A reduction in oil export from Iran will not force other nations to yield to Iranian demands. Nevertheless, the Iranian hardships and shrink of the economy will force them to comply, and hence, the embargo will yield the positive outcome. This is because Iran cannot impose any counterattack to the US and its allies through stopping its production because their rival producers like Saudi Arabia and UAE have lately increased their production capacity (Looney, 2014). Moreover, the U.S does not import oil from Iran; the only way it can suffer is through global oil price increases. Nevertheless, the US and its allies could even release oil from SPR to mitigate the impacts of Iran oil export cutoff. In fact, they have sufficient oil to mitigate the effect of Iranian oil for several months, whereas Iran suffers economic instability. For instance, North America has started exporting oil, which is largely achieved by the extraction of blue shade deposit. There are also expanded crude oil deposits from other non-OPEC nation. This clearly shows that Iran dependence on oil exports is higher than the U. S dependence on oil imports from all oil-producing nations excluding Iran. Today, even developing nations are moving towards renewable energy sources due to cases of global warming; thus, their reliance on oil importing is still is decreasing. Therefore, a trade embargo on Iran oil will prove an effective tool. On the other hand, several economic and political factors will hinder Iran from using the oil weapon. Bending towards the sanction requirements such as the current Iran government stability relies on the population subsidies and it is just a stable stream of oil revenue can give the money to afford these subsidies. Additionally, Iran requires foreign investments and the US and its allies technologies to advance its massive oil and gas resources. Using oil weapon loosen up because their decisions are only affecting their economy growth (Looney, 2014).

Are International Diplomacy and Crippling Sanctions Effective?

Currently, the oil embargo is the only effective tool because, since the 1979 Islamic revolutions, the U.S has been imposing sanctions on Iran with no progress. Every administration has been trying to negotiate with Iran with precondition while sometimes with no pre-conditions. Different sanctions imposed earlier failed in forcing Iran to abandon nuclear program or change their foreign policies. Several administrations have even tried to make a direct appeal to better their relationships and in some cases, even offering apologies and unilateral concessions. Nevertheless, this direct appeal not only failed but also humiliated the U.S. The inability of the U.S to deal amicably with the Iranian nuclear threats through diplomacy has led to different political leaders, scholars, and analysts concluding that negotiations will not be effective unless they use the trade embargo on oil (Sofaer, 2013). Iran has demonstrated a tremendous level of resilience in response to past round of sanctions. For instance, in July 2010, the USA executed sanctions against foreign industries providing or selling refined petroleum to Iran. Iran in its response adopted multiple measures to minimize it reliance on imported refined products. These included rationing the intake of gasoline, removing energy subsidies altering petrochemical plants to produce gasoline, using compressed natural gas in the transport industry, and developing refineries capabilities. Consequently, Iran reduced its share of imports in gasoline supplies from forty percent to 5 percent in two years, thereby neutralizing the impacts of fuel sanction. Nevertheless, the oil embargo will prove successful since they will come to realize that their resilience will not assist the nation in minimizing it political isolation, safeguard the economy from further deterioration, nor protect their energy industry from long-term adverse effects.

Has the Oil Embargo Shown Any Effectiveness since July 2012?

The oil embargo has harmed the major energy and financial sectors of Iran’s economy and with no doubts contributed the nation’s acceptance of at least transitory restrictions on increasing its nuclear program in exchange for new sanction relief. The temporary nuclear standstill agreement or joint plan of action (JPA), which was extended for seven month from November 24, 2014, to permit enough time for all-inclusive agreement on Iran’s weapon program, was a clear indication despite critics that the oil embargo has an impact on Iran. The reason why Iran agreed about JPA is because about fifty percent of the government expenditure depends on oil export. Its oil exports were reduced to about one million barrel per day, which is below by 1.5 barrels per day exported in 2011. This resulted from the 2013 oil embargo. Moreover, in 2012-2014, Iran currency dropped due to loss on revenues from oil and cut-off from the international banking system. Consequently, the rate of inflation was more than fifty percent, and it economy dropped by about five percent, and especially in 2013, many firms minimized operations and loans became delinquent (Katzman, 2014). In the last few decades, the U.S has a long history of using oil embargoes increasingly more than any other country. These include oil embargoes on Japan before the World War II and on the Soviet Union, South Africa, Burma, Serbia, Haiti, Libya, and Iraq. In most cases, the oil embargos proved effective; for instance, in Iraq, it was remarkably successful because it hindered the then regime from accessing advanced military technology (Katzman, 2014). Therefore, in Iran, oil embargo is still an effective weapon to pressure the regime to stop developing nuclear weapons.

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For sanctions against Iran to be effective, the targets must be the most significant export product, i.e., oil and gas since Iran is the second largest producer of oil after Saudi Arabia. Furthermore, its economy largely depends on oil export. Since international diplomacy seems to require more time to be effective and as time passes, it will be hard to stop Iran from their nuclear program, then, using oil weapon is the only way that appears workable. Oil embargoes will be effective because the EU and U.S have learnt from different historical records of accomplishment involving embargoes. This time will not resemble the 1973 case; Iran will suffer alone because it cannot impose any counterattack to the U. S and its allies through stopping its production because their rival producers like Saudi Arabia and UAE have excessively increased their production capacity. Moreover, other non-OPEC nations have started exporting oil. Indeed, the oil embargo has shown it effectiveness since it has harmed the main energy and financial sectors of Iran’s economy. Undoubtedly, it has contributed to Iran’s acceptance of at least transitory restrictions on increasing its nuclear program in exchange for new sanction relief, which is a clear indication that the embargo will be effective despite the delays.

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    2. Cordesman, A. H., & Al-Rodhan, K. R. (2006). Iran’s weapons of mass destruction: The real and potential threat. Washington, DC: Center for Strategic and International Studies.
    3. El-Katiri, L., & Fattouh, B. (2012). On Oil Embargos and the Myth of the Iranian Oil WeaponOxford Energy Comment, 8.
    4. Graaf, T. (2013). The “Oil Weapon” Reversed? Sanctions Against Iran and U.S.-EU Structural Power. Journal Essay, XX(3), 1.
    5. Katzman, K. (2014). Iran Sanctions. Retrieved from Congress Research Services website.
    6. Looney, R. (2014). Handbook of US-Middle East Relations. Routledge.
    7. Ramel, C. (2012). Reconsidering the roots of crude coercion: A policymaking analysis of the oil weapon.
    8. Sofaer, A. D., & Shultz, G. P. (2013). Taking on Iran: Strength, diplomacy and the Iranian threat. Stanford, CA: Hoover Institution Press.