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With Iran, How Hard Do Sanctions Really Bite?

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Sanctions on the Iranian financial sector appear to be taking their toll. Planned oil embargoes by the European Union could be seen as largely symbolic moves by opponents of the Islamic republic, though it's the pressure on Tehran's finances that appear to be striking the biggest blow. With Friday elections pushing the country closer to the ultra-conservative clerical regime, Tehran may find itself more isolated than ever. On the other hand, savvy political maneuvering could save the day and the country will continue to move its oil to market by opening a few backdoors.

The U.S. and European governments have tightened the financial screws on Iran in an effort to convince Tehran that moving too close to a nuclear weapon isn't in its best interest. Western opponents believe Iran is pursuing the technology needed to manufacture a bomb, though Tehran insists its intentions are peaceful. In reality, Iran probably wants to get to the same point as Japan -- not quite weaponized, but nuclear nonetheless. Tehran recently lashed again at its European adversaries by announcing it refrained from loading a Greek tanker with about 500,000 barrels of crude. At this point in the European debt saga, however, that's akin to kicking a dead horse.

But sanctions might finally be working, if only on Iran's pocketbooks. An Indian shipping company in February had to cancel a crude oil delivery because of problems related to its European counterpart. New Delhi was already buying most of its crude oil from Iran on credit because conventional options were blocked by sanctions. Now, it seems, India can't even get the cargo loaded, much less pay for it.

That might not mean much, however, as reports have emerged that Royal Dutch Shell expected to get some 1.5 million barrels of Iranian crude oil from a port near Singapore. Shell officials had said there were complying with sanctions against Iran. Sanctions, however, are a lot like rules in some ways -- they're meant to be broken. Iran is one of the biggest producers of crude oil so it's unlikely its consumers will completely vanish, no matter how hard the West presses.

Iran plays the geopolitical game very well, however, keeping nuclear inspectors at bay long enough to continue its enrichment activity. Oil is no different for the Iranian regime. Tehran has turned to non-monetary means like bartering to keep the oil flowing out of its ports. Sanctions against Iran are certainly working and, by many aspects, better than ever before. But unless Western allies can somehow figure out a way to push Iran out OPEC's top five, it will likely always have a trading partner. It's just a matter of figuring out how.

Cross posted with Oilprice.com

Daniel Graeber is a senior journalist at the energy news site Oilprice.com. He is a writer and political analyst based in Michigan. More of his articles can be found on his Authors page at Oilprice.com

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