Friday, February 26, 2016

Where Obama Fails on Iran Sanctions, the Gulf States Can Step In

In the desert oil fields of Sakhir, Bahrain. AP
Saudi Arabia and its allies have potent financial weapons to deploy. Some are already kicking in.
Meaningful new U.S. sanctions on Iran will have to wait for the next administration. President Obama continues to oppose congressional efforts to inflict financial pain on Tehran for its malign activities. In January the Treasury Department finally did react to Iran’s unlawful ballistic-missile tests, but those sanctions will cause no economic damage. Instead they targeted individuals and companies—procurement networks that Tehran can easily reconstitute.
The Gulf States might not be so timid: Saudi Arabia and its allies have potent financial weapons they can deploy against Iran. The sectarian war between the Sunni and Shiite states is intensifying militarily, with proxies fighting from Syria to Yemen, and economically. On Jan. 4 Riyadh announced an end to all commercial relations with Iran and said it would cut off travel, with an exception for pilgrims visiting holy sites. In response Tehran banned imports of all Saudi products.
Last week the Saudis teamed up with Russia to propose capping oil production at January levels, putting pressure on Tehran to do the same as it tries to rescue its battered economy. Riyadh has deployed oil as a weapon before. In 2012 and 2013, after sanctions halved Iranian oil exports, Saudi Arabia raised production to prevent global price shocks. As the Iran nuclear deal was being negotiated in 2014-15, the Saudis increased oil production again. That helped to push prices below $35 a barrel. Now as Iran re-enters energy markets, desperate for economic relief, it will get only about half the price for its oil on which it based its budget last year.
Low oil prices hurt the Saudis too. Riyadh has had to sell $100 billion in assets to cover recent deficits, and Standard & Poor’s has downgraded its credit rating to A-minus. Still, the kingdom is an economic powerhouse. Apart from Turkey, it has the Middle East’s largest economy, with a GDP of about $750 billion—almost twice that of Iran.
Riyadh holds sovereign-wealth funds valued at almost $700 billion, and its pension funds have foreign investments of about $70 billion. Those sums alone give the kingdom enormous leverage over anyone considering investing in Iran. Saudi Arabia could make the financial players choose a side: They can have Riyadh’s business or Tehran’s, but not both.
Read the rest of this WSJ op-ed HERE.

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