Iranian sanctions process produces 1 big loser: Justice for Khashoggi

Iranian sanctions process produces 1 big loser: Justice for Khashoggi
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Tougher sanctions on Iran were enacted Monday by the Trump administration, but their impact was muted by waivers for eight countries to continue to buy and import Iranian crude oil.

The action restores U.S. sanctions that were lifted under the Obama administration and adds hundreds of new designations in Iran's oil, shipping, insurance and banking sectors. The Iranian economy has sustained great damage over the past year, notably in the collapsing exchange rate, and will continue to suffer.

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However, let me postulate that the restoration of the sanctions and their implications also spell a loss for murdered Saudi Arabian journalist Jamal Khashoggi and other past and future victims of authoritarian regimes.

Before the murder of Khashoggi, Monday was expected to be marked by a drastic reduction in Iranian crude exports, with all that portends for the oil-dependent Iranian economy.  

We also could have seen skyrocketing international oil and gasoline prices, but that didn’t happen. In fact, oil prices are down by more than 10 percent, ensuring gasoline prices played no factor on Election Day in the U.S.

In response to the Khashoggi murder, major nations chose an opportunistic path. The U.S. Congress has been in recess, giving the Trump administration great flexibility. There were no hearings on the subject.

The Saudi government's objectives and methods were clear: Save the system and Crown Prince Mohammed bin Salman by putting more oil in the market to compensate for losses from Iran. This drove prices down against expectations to the contrary.

The Saudis were also silent on the question of “temporary” exemptions for purchase of Iranian oil by China, India, Italy, Japan, Greece, South Korea, Taiwan and Turkey. 

In fact, waivers were convenient for the Organization of Petroleum Exporting Countries (OPEC) and Russia because the incremental amount they had to supply was reduced accordingly. Many analysts question their ability to ramp up strongly.

Turkey played an apparently strong hand well, leaking bits and pieces of what they knew about Khashoggi's death. This was rewarded with a waiver from the Trump administration, reluctance to criticize the Turkish government and, quietly, greater leverage over the Kurds.

The Iranians now have time to negotiate with the U.S. on nuclear and missile issues. The waivers give Tehran continuing leverage with the eight countries buying their crude and limited cash flow to support the economy.

Iran will continue to drive a wedge between the EU and the U.S. Enhanced sanctions also stir up anti-U.S. sentiment, which is political capital for the mullahs. A high-stakes poker game between the Iranian and U.S. governments will take place after the first of the year.

Russia is a silent winner. The Khashoggi affair and Iranian sanctions took attention away from Moscow. Media have seemed to shrug over the spate of apparent murders of dissidents. Claims of interference in U.S. elections and the Mueller investigation have left the front page.

The eight exempted countries — for which energy security is a strategic, daily affair — have not seen sudden disruption. Some, like India, quietly reduced imports from Iran in recent months but still import hundreds of thousands of barrels daily.

They have time to build new supply chains or bet on continued imports from Iran. It gives them more market power as they shop alternative sources.

Many countries played a Machiavellian commercial game and most came out winners — for the time being. The loser? Khashoggi and future victims of authoritarian regimes.

Bill Arnold is a professor in the practice of energy management at Rice University’s Jones Graduate School of Business. Previously, Arnold was Royal Dutch Shell's Washington director of international government relations and senior counsel for the Middle East, Latin America, and North Africa.