Columbia International Affairs Online: Working Papers

CIAO DATE: 01/2013

Oil sanctions on Iran: Cracking under pressure?

December 2012

Economist Intelligence Unit


In 2012 Western sanctions on the Islamic Republic of Iran’s oil and gas industry, aimed at putting economic pressure on it to change its nuclear policy, have reached an unprecedented level. Since the Iranian revolution in 1979, Iran has been in a state of hostility with the US, and has had cool relations, at best, with most European states. Sanctions against official Iranian financial institutions, individuals associated with the Islamic Republic and organisations suspected of being involved in nuclear proliferation activities have been mounting for some time. However, it is only recently that Iran’s oil and gas sector has been specifically targeted by both the US and the EU in such a co-ordinated manner. Importantly, this marks the first time since the foundation of the Islamic Republic of Iran that the EU member states have collectively put in place sanctions on the export of Iranian crude oil—until now an action that, with a few exceptions, had only been taken by the US. The stakes have therefore been raised in Iran’s confrontation with Western powers over the nuclear issue. Iran has begun to feel the impact of sanctions on its energy and financial sectors. As economic difficulties build, Iran’s rulers are likely to come under increased domestic political pressure. So far, however, despite tighter measures restricting Iran’s ability to export oil, the Islamic Republic has not backed down. Indeed, the ongoing dispute over Iran’s nuclear programme appears no closer to resolution. Iran’s nuclear activities are likely to remain a major foreign policy challenge for the administration of US President Barack Obama in its second term, just as they were in its first. The longer the standoff between Iran and the Western powers drags on, the more likely it is to impact global oil supply and crude oil prices—not just because of the partial loss of oil supply from a major OPEC oil exporter, but also because of the lurking threat that the dispute will flare up into a hot conflict in the Persian Gulf.