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Daniel Ammann

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Why Sanctions Against Iran Will (Almost Surely) Fail

Posted: 05/24/10 04:47 PM ET

Iran is coming under even greater pressure to curb its nuclear program. The U.N. Security Council is expected to vote soon on a fresh round of sanctions against the country. U.S. Defense Secretary Robert Gates said that the draft resolution is even "somewhat stronger" than he expected. According to the New York Times, even the very lucrative energy sector is mentioned in the preamble, noting the "potential connection between Iran's revenues derived from its energy sector" and possible financing for its nuclear program.

Advocates of strong measures believe that economic sanctions are an effective tool to deal with Iran's nuclear ambitions, which the West fears is aimed at making an atomic bomb. They point to the fact that the mere threat of sanctions already convinced several foreign companies to stop trading with Iran.

Opponents, including Shirin Ebadi, the Iranian winner of the Nobel peace prize, fear that economic sanctions will hurt common Iranians and will have unintended consequences. They argue that the Iranian government had many ways to circumvent economic measures.

Anyone who wants to discuss the pros and cons of sanctions should know the story of a very particular man. A man, whom The Daily Beast recently called "one of the world's smoothest and greatest villains." Marc Rich is his name, the billionaire oil trader and former fugitive infamously pardoned by President Bill Clinton.

I tell his story in my book The King of Oil, which is based on series of exclusive interviews with the controversial trader. To put it in a nutshell: Marc Rich was the big profiteer of past Iranian sanctions, when the Islamic revolution exploded in 1979.

But more than that: His story goes to the core of the question whether sanctions can be effective.

After the November 1979 seizing of the U.S. Embassy in Tehran, President Jimmy Carter imposed tough economic measures against Iran. They were tougher then the ones discussed today: President Carter banned the import of all petroleum products from Iran, he blocked all Iranian government assets in the U.S., and he prohibited U.S. citizens from conducting financial transactions with Iran. The Iranians in turn canceled all contracts with American oil companies operating in Iran and forbade them from exporting crude oil out of the country.

The American embargo proved to be a boon for Marc Rich. Despite the sanctions, Iran became Marc Rich's most important supplier of crude oil for almost two decades. Rich acknowledges in my book that he maintained a much more intensive business relationship with Iran than was previously known. It extended far beyond the transactions he was indicted with in 1983 for trading with the enemy by then-prosecutor Rudolph W. Giuliani. Thanks to the trade with Iranian crude Marc Rich became "the undisputed King of Oil," as one of his longtime associates referred to him.

"We performed a service for them," Rich told me. "We bought the oil, we handled the transport, and we sold it. They couldn't do it themselves, so we were able to do it." His laconic statement helps to explain why traders such as Rich exist in the first place and why they are in such great demand -- regardless of sanctions.

His company, the Swiss based Marc Rich + Co, purchased 60 to 75 million barrels of Iranian oil every year up to 1994, when Rich sold the company to the management (which then renamed it "Glencore"). The contract continued throughout the hostage crisis of 1979/1980; even after the USA had broken off diplomatic relations.

Rich's most important clients in these years were two countries, which officially were not allowed to buy Iranian oil in the first place: Israel and South Africa. Both countries had been almost completely dependent on oil from the Shah's regime, but the new regime in Tehran added a clause to all contracts that explicitly prohibited the further sale of Iranian oil to them.

Rich would serve as Israel's and South Africa's vital supplier of oil. He remembers selling Israel 7 to 15 million barrels per year. He provided the Jewish State with at least one out of every five barrels that it needed. Even bigger was the business with South Africa -- which itself was under an international embargo. I calculated that Rich's companies delivered at least 400 million barrels of oil to South Africa, making a profit of two billion dollars over the course of fifteen years.

The new Iranian ruling class was well aware of Rich's business with Israel and South Africa. They knew exactly where their oil was flowing. "They didn't care," Rich told me. "The professionals in the oil business in Iran didn't care. They just wanted to sell oil." And Israel and South Africa just wanted to buy it.

"Business is neutral", Rich answered to my question how it is possible to remain neutral when doing business with racist, dictatorial, and corrupt countries like Iran, apartheid South Africa, or Cuba. "You can't run a trading company based on sympathies." When I replied that he was viewed as a crisis profiteer and sanctions buster he just said: "Whatever we did, we did legally. We were doing business with Iran, Cuba, and South Africa as a Swiss company. These businesses were completely legal according to Swiss law."

South Africa is probably the best example of the double moral standards in the discussions about economic sanctions. The list of countries from which the oil for the apartheid regime was obtained reads like a list of all oil-producing nations. The oil came from Iran and Saudi Arabia, from Dubai and Angola, from Nigeria and the Soviet Union. All of these countries were vocal opponents of the apartheid regime and had loudly proclaimed that they would maintain the boycott against South Africa.

In reality, however, when it came to money, profit triumphed over principles. When it came to oil needs, national interests triumphed over ideology. All these countries -- whether Islamic, Communist or Capitalist -- made, via Marc Rich, lucrative secret deals with the apartheid regime. Rich was used to conceal the contradictions between political rhetoric and economic deeds -- and to circumvent the sanctions.

These are the reasons why economic sanctions against Iran will almost surely fail once more. There will always be the need for hard currency. There will always be national interests. There will always be traders like Marc Rich.