Iran—Sanctions, Energy, Arms Control, and Regime Change Change and Regime Arms Control, Iran—Sanctions, Energy, Iran— Sanctions, Energy, Arms Control, and Regime CORDESMAN, GOLD, GOLD, CORDESMAN, 1616 Rhode Island Avenue NW| Washington DC 20036 t. (202) 887-0200 | f. (202) 775-3199 | www.csis.org Change AND ROWMAN & LITTLEFIELD COUGHLIN-SHULTE Lanham • Boulder • New York • Toronto • Plymouth, UK 4501 Forbes Boulevard, Lanham, MD 20706 t. (800) 462-6420 | f. (301) 429-5749 | www.rowman.com authors Cover photo: Photo by Kaveh Seyedahmadian. http://www.flickr.com/photos/samanvari/3388535986/. Anthony H. Cordesman ROWMAN & LITTLEFIELD Bryan Gold ISBN 978-1-4422-2777-4 Chloe Coughlin-Schulte Ë|xHSLEOCy227774z v*:+:!:+:! A Report of the CSIS Burke Chair in Strategy January 2014 Blank Iran—Sanctions, Energy, Arms Control, and Regime Change Authors Anthony H. Cordesman Bryan Gold Chloe Coughlin-Schulte A Report of the CSIS Burke Chair in Strategy January 2014 ROWMAN & LITTLEFIELD Lanham • Boulder • New York • Toronto • Plymouth, UK About CSIS For over 50 years, the Center for Strategic and International Studies (CSIS) has worked to develop solutions to the world’s greatest policy challenges. Today, CSIS scholars are providing strategic insights and bipartisan policy solutions to help decisionmakers chart a course toward a better world. CSIS is a nonprofit organization headquartered in Washington, D.C. The Center’s 220 full-time staff and large network of affiliated scholars conduct research and analysis and develop policy initiatives that look into the future and anticipate change. Founded at the height of the Cold War by David M. Abshire and Admiral Arleigh Burke, CSIS was dedicated to finding ways to sustain American prominence and prosperity as a force for good in the world. Since 1962, CSIS has become one of the world’s preeminent international institutions focused on defense and security; regional stability; and transnational challenges ranging from energy and climate to global health and economic integration. Former U.S. senator Sam Nunn has chaired the CSIS Board of Trustees since 1999. Former deputy secretary of defense John J. Hamre became the Center’s president and chief executive officer in April 2000. CSIS does not take specific policy positions; accordingly, all views expressed herein should be understood to be solely those of the author(s). © 2014 by the Center for Strategic and International Studies. All rights reserved. ISBN: 978-1-4422-2777-4 (pb); 978-1-4422-2778-1 (eBook) Center for Strategic & International Studies Rowman & Littlefield 1616 Rhode Island Avenue, NW 4501 Forbes Boulevard Washington, DC 20036 Lanham, MD 20706 202-887-0200 | www.csis.org 301-459-3366 | www.rowman.com Table of Contents Acknowledgments ................................................................................................. vii Executive Summary ............................................................................................. viii Introduction .............................................................................................................. 1 The Impact of New Rounds of US and EU Sanctions........................................... 1 Chronology of the Growing Impact of Sanctions ........................................................................3 Measures of Their Growing Impact .............................................................................................5 The Iranian Reaction ....................................................................................................................6 The Growing Impact of Sanctions on Iran ............................................................ 9 The Impact of Iran’s Dependence on Petroleum Exports and Iran’s Vulnerability ..................11 Sanctions and Oil Production Capacity .....................................................................................17 Sanctions and Natural Gas Production Capacity .......................................................................19 Sanctions and Iranian Oil Exports .............................................................................................20 Impact on Production and Exportation .............................................................................................. 21 Sanctions and the Impact of Domestic Iranian Consumption ............................................................ 28 Iran’s Changing Need for Product Imports ................................................................................................................. 28 Sanctions and Iranian Gas Exports ............................................................................................30 The Impact of Domestic Consumption ....................................................................................................................... 30 The Impact on Current and Future Gas Imports .......................................................................................................... 31 Iran, Sanctions, and Subsidies ..................................................................................................................................... 34 Iran’s Energy Targets ............................................................................................ 34 The Sanctions Game .............................................................................................. 35 US Unilateral Sanctions - Background ......................................................................................36 Sanctions: 1980-2009 ......................................................................................................................... 36 Sanctions After 2010 .......................................................................................................................... 37 International Sanctions - A Competition for Influence..............................................................44 The European Union and Other Western Nations .....................................................................45 The Role of Other Importers ......................................................................................................49 Japan and South Korea ...................................................................................................................... 57 South Korea ................................................................................................................................................................ 58 Japan ........................................................................................................................................................................... 58 India ................................................................................................................................................... 61 China and Russia ............................................................................................................................... 63 China .................................................................................................................................................. 63 Russia ................................................................................................................................................. 67 Turkey ................................................................................................................................................. 70 The BRICS .......................................................................................................................................... 72 How Deeply Can Sanctions Bite if the November Agreement Fails? ............... 73 Iran’s Problem Economy: Outside Causes versus Self-Inflicted Wound ..................................73 Measuring the Impact of Past and Future Sanctions ..................................................................79 Looking at a Range of Indicators ....................................................................................................... 79 The Petroleum Sector ......................................................................................................................... 81 Currency and Food Price Impacts ..................................................................................................... 84 iv | Anthony H. Cordesman, Chloe Coughlin-Schulte, and Bryan Gold Steady Increases in the Nature and Scope of Sanctions ..................................................................... 86 Iran’s View of the Impact of Sanctions .....................................................................................86 Shifting From Denial Towards Reality .............................................................................................. 87 Shifts in Iranian Statements: 2010-2013 ............................................................................................ 89 Impact on Popular Attitudes and Regime Security ............................................................................ 92 Iran’s Limited Oil Export Income and Export Vulnerability .....................................................93 Sanctions and Future Iran’s Energy Sector ................................................................................96 Other Foreign Companies Exiting the Iran Market ...................................................................99 Adding Banking Sanctions to Energy Sanctions .....................................................................103 Outside Views of the Economic