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The Real Impact of Sanctions Against Iran
Interview with Chris Cook, inventor of the Iran Oil Bourse
Angelique van Engelen (clixy123)     Print Article 
Published 2007-09-19 09:52 (KST)   
This article was only lightly edited.  <Editor's Note>
The next few days, the world will be holding its breath as the U.S. is drumming up support for highly controversial sanctions against Iran. The implications of such a move could be potentially disastrous and it's likely we'll see a showdown of who holds what kind of power and where on the planet. In a bizarre twist of fate, a UK consortium that is involved in developing the Iran Oil Bourse (IOB), might stand to benefit from sanctions.

Chris Cook, 52, the former director of the International Petroleum Exchange, is the originator of the idea behind the IOB. He's planning to go back to Iran, from his native England, after Ramadan, and set to work again on the launch of this bourse which cuts out the dollar as a currency in which to trade oil.

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He believes that if sanctions are imposed, he'll be able to live with one less worry; a bigger company won't come along and snatch his business from him."[Sanctions are not going to harm us] in the slightest. In fact it's brilliant for us, because we know that the big consultants aren't going to come in and then sub-contract us at [low] rates."

He is part of the Wimpole Consortium that's commissioned by the Iranian government with creating the IOB. Cook's been plodding on in Iran for the last three years. Without success. He wasn't even paid for his work for over two years. The platform's launch, much hyped in the media, has been delayed time and again. Iranian oil ministry officials have been hampering his work. In utter desperation, he decided a while ago to write to President Ahmedinejad. Who soon afterwards finally managed to brush off some of his own enemies in the Majlis and ordered a drastic shake up of the Oil Ministry.

Three oil ministers he'd appointed since he first took office in 2005 had all virtually no backing from hardline politicians. That's public knowledge, yet Cook's letter to the President wasn't pointless. As a matter of fact, he might have inadvertently been instrumental in providing President Ahmadinejad the backing he needed.

To date, he hasn't received a reply "[...] but we know (through top level contacts) he read it. We know he put the Oil Minister on the spot with it, and we know it was a major reason why he was able to sack the Oil Minister recently, who is busily sacking some of the oil mafia, while he can."

Cook has been an oil/energy insider for way longer than the past three years. The Iranian connection was established in 2001, when he "blew the whistle" about investment banks' greedy immoral market manipulation and pointed out the nasty effects on producers and consumers. A well-connected Iranian introduced him to the Iranian Central Bank Governor, who was convinced of the necessity for a Middle Eastern oil exchange which was not susceptible to speculator driven volatility and manipulation by middlemen. "A couple of years later [the Wimpole Consortium was] invited to draw up blueprints for the "IOB" project," says Cook.

So what is the Iranian Oil Bourse about, if it's not a deliberate attempt to kick the U.S. dollar in the goolies, as is so often suggested? "The currency of the IOB contracts was never a consideration," says Cook. Nevertheless, the exchange completely takes the dollar out of the equation. The bourse will be trading on a concept that is new in the oil markets but which is already operating in other fields. It's bafflingly simple. Buyers and sellers connect via the internet on a peer to peer market place. A clearing function ensures the actual delivery of contracts. There won't be any trading intermediaries such as investment banks as middlemen that are making hefty profits.

While the global oil price is determined by supply and demand, Cook believes that the proposed IOB structure will remove much of the current price volatility caused by a toxic combination of speculation by hedge funds and market manipulation by intermediary traders.

It's most likely that the pool the IOB starts out with is going to be an uncontroversial item like Bitumen (thick stuff that's a main ingredient in tarmac). "You can't run before you can walk, and there is huge resistance in Iran to transparency in the existing market in crude oil. That's why [...] we got nowhere with crude oil", Cook says.

The IOB's scrapping the dollar, if not practically then psychologically is going to significantly embody a counterweight to dollar domination of the oil markets. The U.S. economy's weakness is that it is deficit based. It is beginning to make all Americans loath their own consumption addiction. Cook hates this type of hyped up speculation but he admits that the U.S. has got a problem. A dollar currency is traded on oil markets globally, but it's without an equivalent asset base in the U.S.

The result is, Cook says, that oil is not priced in dollars but dollars are priced in oil. Both from an investor point of view and from a U.S. government point of view, this is eerie. "If proceeds from oil sales are not being invested in U.S. Treasury Bonds or other U.S. assets (or liabilities), then it makes it that much more difficult for the $ to avoid further declines", he says.

Asked what he believes the impact of sanctions is on Iran, he says there's not a great deal more damage the U.S. can do in excess of what it has already done. "They caused a bit of inconvenience to the elite. [They've] had to stop banking with the Swiss and the Germans, but there are plenty of Far Eastern banks only too keen for the business.''

Some analysts say the global community's decision whether or not to endorse a third phase in the sanctions regime as a potentially risky move. The Iranians threaten to botch their Aug. 23 deal with the International Atomic Energy Agency. Under the terms of this agreement, the Iranians volunteer information that exceeds the Additional Protocol, which the country has rejected hitherto.

It's not only the U.S. political lobby machine which is functioning at top speed right now. Behind the scenes, the U.S. treasury also is pressuring international businesses to leave Iran. This became apparent with the closure of the German Deutsche Bank's Tehran office last month. The bank told its clients it had until Sept. 14 to transfer to other institutions. Both the Wall Street Journal and the FT say that the U.S. Treasury is intensely lobbying the U.S. Treasury. Apparently, it has warned more than 40 banks that it would "follow a strict interpretation of U.S. and United Nations restrictions on doing business with Tehran."

There are conflicting reports about Germany's official stance on tightening sanctions. Sunday, the Tehran Times reported Germany won't lend support to the U.S. whilst an Iranian television station said the opposite. Deutsche Bank told reporters its move was largely due to the German government's "restricted credit guarantees." Germany is invited to the Sept. 21 meeting the U.S. is holding with the other permanent members of the Security Council; Russia, France, the UK and China.

According to the FT article, the U.S. Treasury campaign began with bullying two Iranian banks, Sepah and Saderat. They were barred "access to the U.S. financial system for dollar transactions through third-party banks," the paper writes. It cites unnamed diplomats and analysts saying the Treasury will issue more "executive orders, on terrorism or proliferation grounds, against Iran's Bank Melli and against Bank Markazi, the Iranian central bank." The central bank of Iran is being accused of sending money through Bank Saderat to Hizbollah.

Compared to two years ago, the Europeans are a lot tougher on Iran than many analysts deemed it was then. The French foreign minister Bernard Kouchner said Sunday that Europe is thinking of sanctions of its own. What's more, Kouchner, speaking on RTL radio, said the world should be prepared for the possibility of war "in the event that Iran obtains atomic weapons."

The Belgian Foreign Minister who was visiting his Iranian counterpart in Tehran Sunday, said the IAEA Board of Governors "is considering a plan under which we will have time until November to find a solution."

Russia appears to be making its own political gain from the situation. It botched urgent talks with the U.S. on a Russian proposal for missile defense cooperation. U.S. technical experts will visit a Russian-operated radar station in Azerbaijan. U.S. officials say they hope they will come up with new ideas for cooperation. Russia's president, Vladimir Putin, hopes to collaborate with the U.S. on a second radar station under construction in southern Russia for the potential threat from Iranian missiles. The Russians however have strong reservations about the U.S. plans to install 10 missile interceptors in Poland and a radar station in the Czech Republic. Russia has tied the European missile shield to its willingness to back the U.S. in the Iranian nuclear issue. It says it won't support the U.S. unless it cancels the European plans.

However, last March, Russia pulled out of its contract to develop the Bushir nuclear plant last March stopping short of delivering enriched uranium, which it had promised Iran. Russian officials cited payment problems and the Iranians, furious, denied it. European officials speaking anonymously to the International Herald Tribune, said that Russia's move signaled support for UN sanctions. Russian officials reportedly told the Iranians at the time they wouldn't deliver nuclear material if Iran did not give in to UN demands.

The Chinese are said to be against the proposal to vote for the third phase of sanctions against Iran. The Iranian interior minister Mostafa Pourmohammadi told Reuters news agency in an interview last Thursday that Iran is "confident China is not going to support stricter sanctions over Tehran's nuclear programme."

The Chinese reportedly a key ally to Iran because of oil exploration agreements. When the second round of sanctions was voted on last March, China's deputy ambassador Liu Zhenmin said the draft went to the council with "some differences." He informed reporters that the 10 non-permanent members, who are elected for two-year terms, also had additional concerns.

"It is Neo-con pipedream that the Chinese would participate in any action to embargo oil from Iran. China's state-owned Sinopec signs a deal to develop oil blocks in Iran. China and Iran also signed a memorandum of understanding under which Sinopec would develop Iran's Yadavaran oil field in exchange for buying 10 million tons of Iranian liquefied natural gas annually for 25 years," said Dave Chiang on Rge monitor.

The Americans could face other tough challenges in their international campaign to get countries to gang up on Iran. During a recent meeting at the IAEA, the agency's head Mohamed ElBaradei walked out in protest to the call for sanctions. "We are not yet in a position to declare Iran's programs are exclusively for peaceful purpose ... but we are moving forward," he was quoted as saying on Xinhua, the Chinese news agency. During the IAEA meeting, the block of 15 Non Alignment Movement (NAM) countries voiced protests against the sanctions, on grounds of Iran's new willingness to cooperate with the IAEA. Some European countries "view the existing law as an improper bid to extend the reach of American law and aren't likely to back any expansion," CQ Weekly reported last July.

The U.S. administration is risking five year-long efforts to warm alliances with other powers elsewhere in the world. Analysts have long analysed these risks. "The administration is trying hard to build a multilateral consensus, and these types of sanctions could cause a backlash," Michael Jacobson, was quoted as saying in CQ Weekly. He's a fellow at the Washington Institute for Near East Policy who was previously in the Treasury's Office of Terrorism and Financial Intelligence.

Washington is driving a hard bargain, especially in light of the Iran-IAEA deal in which Tehran pledges to answer five years worth of questions about the nuclear program. Given Iran's track record, it is by no means excluded that it is playing the public opinion by making generous concessions to the IAEA at the last minute, yet a rational assessment of the situation would be that it's in the entire world's interest that it is taken up on its offer. The U.S. says Iran is going to use enriched uranium to develop a nuclear weapon rather than for energy and it and Israel claim Iran has dug a 400-meter tunnel to test weapons underground. Iran denies these claims.

The sanctions that Washington is proposing are part of the Iran sanctions bill approved recently by the House Foreign Affairs Committee. It calls for freezing the assets of any executive of a U.S. company that invests more than $40 million in Iran's oil and gas industry. It's a clause that has never been enforced by the U.S. itself, because U.S. and European investments would be hurt.

The move to tighten up on companies entering Iran from off shore locations is linked to a Halliburton centered controversy that first broke in 2005, when this company, was reported to have been instrumental in the sale of nuclear equipment to Iran. Jason Leopold, a journalist who has been following this story, says that a Halliburton spokeswoman told him the company was committed to continuing its business in Iran. He also states that Halliburton "is the reason Iran has the capability to enrich weapons-grade uranium."

The U.S. Bush administration's enforcement of sanctions against Iran and also Lybia, has been erratic, to say the very least. It appears that when the government came into power in 2001, one of the first things they did was to exempt companies from the sanctions bill that was signed by former President Bill Clinton in 1995. These prohibit "new investments (in Iran) by U.S. persons, including commitment of funds or other assets." U.S. companies are also banned from performing services "that would benefit the Iranian oil industry [...]"

Dick Cheney, then boss of the Halliburton company, in 1996 uttered some words that will sound extremely bizarre today; "Let me make a generalized statement about a trend I see in the U.S. Congress that I find disturbing, that applies not only with respect to the Iranian situation but a number of others as well. I think we Americans sometimes make mistakes ... There seems to be an assumption that somehow we know what's best for everybody else and that we are going to use our economic clout to get everybody else to live the way we would like."

Apart from the French, not many other Europeans have gone on the record indicating their stance. They have traditionally been hesitant about subjecting Iran to more sanctions. It remains to be seen what they will make of the U.S. assertion that a deal with the IAEA delays the U.S. bid for stronger sanctions. It seems logical to ask what sanctions are for other than to get a country to abide by the law? Domestically, Bush is also not assured of support. When the Senate approved the 2005 amendment sponsored by Senator Susan Collins R-Maine, trade groups warned it could incite terrorist attacks on the U.S. and "greatly strain relations with the United States primary trading partners." The letter stated that "Foreign governments view U.S. efforts to dictate their foreign and commercial policy as violations of sovereignty often leading them to adopt retaliatory measures more at odds with U.S. goals."

Ironically, the amendment aims to penalize companies like Halliburton who were suspected of setting up offshore subsidiaries.

It is doubtful that the U.S. is sincere when it says it wants to punish Iranian businesses and prevent money flows to Hezbollah. The vigorous lobbying for international support signals the sanctions are more politically motivated. At an economic level, there's little to destroy, apart from prospects in oil exploration. When Deutsche Bank closed up shop, it said the move at virtually zero impact on its business.

Cook comments that there's going to be slow progress in the Iranian oil sector not least because it is still corruption riddled. The current Iranian 'buy-back' contracts to most international oil companies also has has held up Iranian energy investment generally. An excerpt from his letter to President Ahmadinejad highlights what resistance the Wimpole Consortium been up against; "[...] it appears to be the case that the Oil Ministry took the view that the best way to prevent the Project from progressing was to refrain from paying those responsible for carrying it out, and we therefore remain unpaid after two years and three months in respect of work done in good faith for the Ministry. While we might not be surprised at such business conduct in a bazaar, we did not expect it from one of Your Excellency's Ministers."

Perhaps one significant blow that the Americans managed to administer to the Iranian oil sector was the 2006 pull out of the largest Japanese oil company Inpex. Reports suggest that U.S. lobbyists discouraged the oil giant from proceding with its 2004 signed landmark $2 billion deal to explore the Azadegan field, which is one of the world's largest untapped oil reserves. Two years later, nothing had been effected because the company could not get a financial structure in place that the Iranian officials could live with.

Global Insight, an analysis firm wrote this assessment; "The factors at play in the Inpex withdrawal have still to become fully apparent, with behind-the-scenes lobbying by the United States and the hardline position of Iran's parliament both thought to be instrumental in the pull-out."

Inpex withdrawal was said to have been instrumental in Iran's significant adjustment of its oil production targets for 2010. But again, not all the blame for the faltering of the entire sector can be put on sanctions related developments. Aside from the setback in Azadegan, the BBC pointed out, Iran also suffers from huge problems with older field maturity.
Angelique van Engelen is a freelance journalist involved with www.reporTwitters.com, a community of journalists using Twitter.
©2007 OhmyNews
Other articles by reporter Angelique van Engelen

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