Loyola University Chicago School of Law, JD 2024
On February 9, 2023, the United States imposed sanctions on companies accused of producing, selling, and shipping hundreds of millions of dollars’ worth of Iranian petrochemicals and petroleum. Iran, a major producer of hydrocarbons, holds some of the world’s largest deposits of oil and natural gas. The sanctions have been imposed on six Iran-based manufacturers or their subsidiaries and three firms in Malaysia and Singapore.
Why and how?
The United States has pledged to target Tehran’s sources of illicit revenue and sanction those who partake in this trade. Specifically, the Treasury Department’s Office of Foreign Assets Control (OFAC), which administers financial sanctions, sanctioned thirteen companies last fall for facilitating Iranian petrochemical and petroleum sales to East Asia. OFAC also blacklisted an alleged oil smuggling network accused of generating revenue for Hezbollah and the foreign arm of Iran’s Islamic Revolutionary Guard Corps.
Further, Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, stated that Iran has increasingly been turning to buyers in East Asia to sell its petrochemical and petroleum products, which is in violation of U.S. sanctions and has resulted in approximately over twenty sanctions just in the past eight months. In Asia, the oil shipments are mixed with other blends and relabeled to conceal its original source and escape detection from customs authorities. This mixed oil is not used for domestic consumption. Rather, it travels to Asia, specifically Malaysia, and gets mixed with other oil, from places like Venezuela, and is then shipped off again.
The latest action of sanctioning companies is occurring as the effort to revive Iran’s 2015 nuclear deal has stalled and Western ties with Iran have been strained, because of Iranian anti-government protests. However,, even if Iran got a new nuclear deal, it would have trouble raising production because of resource nationalism.
The sanctions result in freezing any U.S. assets of companies sanctioned and generally bars Americans from doing business with them. If companies were to engage in business with sanctioned companies, they also risk being sanctioned.
Do the sanctions work?
Despite the sanctions, Iran’s crude oil exports have been surging on the back of higher shipments to Asian countries. Energy market analysts have speculated that Washington is not enforcing the restrictions strictly, attempting to keep global crude prices in check. Americans may be turning a
“blind eye” because they are content having more barrels on the market to displace Russian oil. U.S. officials have unilaterally rejected such claims.
Additionally, “turning up the heat” on Tehran could have a diplomatic cost, according to Henry Rome, a senior fellow at the Washington Institute for Near East Policy. Rome explains that these sanctions could provoke an Iranian asymmetric response and there may be skepticism in the Biden administration that the added pressure would be productive.
On the other hand, Rome also stated that cracking down on oil exports and access to revenue is the most important step the U.S. can take to increase economic pressure on Tehran. Even if the U.S. fails to bring down overall export numbers, the illicit trade should become more costly for Tehran, since the companies must use more circuitous shipping and banking routes.
The issue with sanctions is that they only work if actions are detected. Many transactions can be disguised and hidden, creating a veil protecting companies from sanctions or from further sanctions. It may cost more money to continue operating the same way but sanctions themselves will never completely prevent acts from occurring. Sanctions are a mechanism utilized in international law which merely act as a suggestion because there are often no true bans or bars on actions, since the sanctions are often coming from a foreign government. In this case, the consequences are to freeze U.S. assets and bar American companies from transacting with sanctioned companies. Therefore, companies will have to use more burdensome techniques and means to the same end, which again, is not a full bar or ban on any action. Barring American companies from doing business with those sanctioned does not fully prevent companies from partaking in these transactions, but merely suggests that it would be best for them to resist.
It is argued that imposing successful sanctions where the costs of continuing to export oil will become too much to bear will take more time than the current sanctions have been in place. These types of sanctions proved successful once before, in response to the 1979 seizure of the U.S. embassy in Tehran, and they will prove successful again with time, multilateral support, ingenuity, education, and strict enforcement.