from Energy, Security, and Climate and Energy Security and Climate Change Program

The State Dept.’s Pascual on Iran Sanctions

July 6, 2012

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Energy Compass, an industry news source, published a wide-ranging interview today with Carlos Pascual, the State Department’s Special Envoy and Coordinator for International Energy Affairs, that’s worth a read. Pascual shares his thoughts of the state of the oil market as well as his work as head of the department’s new Bureau of Energy Resources.

Three points Pascual makes in the interview stood out to me.

First, the United States and its allies never envisioned these Iran-related sanctions as a stand-alone measure for effecting policy change in Tehran. Rather, their objective was to set the stage for international negotiations with Iran that can bear fruit. This is not news, but analysts sometimes overlook this distinction. As Pascual puts it, the most important effect of the sanctions is to the extent they have “had an impact on Iran’s willingness to come to the negotiating table.” Heightened economic pressure on Tehran “creates a much better environment to be able to support constructive negotiations and to underscore to Iran that the international community is serious.”

A second, related point is that the economic damage that this round of sanctions is putting on Tehran is real, but again, not the end in itself. Asked “what is different in the pressure on Iran today,” Pascual answers:  “I think there is a huge amount that is different. One is that ... Iran is exporting about 1 million barrels per day less oil. At $90 per barrel that’s $90 million a day, $900 million every 10 days and $8 billion every quarter in potentially denied revenue. Obviously, Iran is going to do everything it can to find other avenues to sell it. But that has placed a huge stress on the Iranian economy. We’ve seen it in the devaluation of the currency. We’ve seen it in domestic inflation. We’ve seen it in a slowdown in economic growth.” But Pascual takes pains to emphasize that these economic effects are only a means to a larger end. Though important, they should not be mistaken as the measuring stick by which to judge whether the sanctions have served their ultimate purpose.

Third, Pascual argues that sanctions are working because each country involved is acting out of self-interest, whether economic or political. In his words, “What gives me a sense that we can be successful as we go forward in the implementation is that countries are acting out of self-interest to diversify their sources of imports to promote their energy security, and, yes, for many of them to also send a signal to Iran that we are against Iran developing a nuclear weapons program. They are not acting because we imposed it. Obviously the law created the context for it. But simply the law existing without the self-interest of those countries would not have produced the results that we got.” This kind of dualistic strategy—one in which countries pursue self-interested policies that aggregate into a collectively beneficial outcome—is especially challenging in the oil market, where producer and consumer economic incentives are inherently at odds. Yet finding ways to work together is essential, given that the influence of the United States and other consumer countries on the global oil market is limited.

The interview is only available to subscribers, unfortunately. If anyone knows where it is publicly available, let me know and I’ll post the link.