On eve of Iran nuclear talks, sanctions bite

Iran is struggling with the financial and economic sanctions imposed by the West in efforts to convince the regime to restrict its nuclear program. More sanctions are in the works.

Iranian officials sit down Saturday with negotiators from six nations to try to iron out the ongoing international dispute over Iran's nuclear activities.

That Iran is at the negotiating table at all after more than a year of stalemate is testament to the increasing pressure that the West has brought to bear on the regime. Exactly how much the economic sanctions figured in Tehran's decisionmaking is unknown. But it's clear that the increasingly tight financial straitjacket crafted by the United States, the European Union, and their allies is squeezing Iran's already suffering economy.

Iranian banks, for example, are having trouble making international transactions. Last month, the Society for Worldwide International Financial Transfers – a worldwide electronic payment system known as SWIFT – disconnected blacklisted Iranian financial firms from its network. Even non-blacklisted banks are finding it hard to make agreements or transfer money, as the US threatens to blacklist them as well.

Car sales are falling as joint US/European sanctions push prices up, the Detroit Free Press reports.  

Some companies have closed down. "Factories cannot find raw materials and spare parts, and have stopped operating," Karim Pakravan, a DePaul University finance professor, told Voice of America.  "The Iranian market also has been invaded by much cheaper Chinese goods and those will continue to undercut Iranian industry."  

Then there’s the embargo of Iranian oil by European and other nations. As OPEC’s second-largest oil producer with the third-largest oil reserves globally, Iran has a lot to lose if oil sales or production goes down.  A report by the US Energy Information Administration (EIA) released Tuesday said that the present unfavorable investment climate in Iran could curtail the country’s oil output by 15 percent, a decrease of 500,000 barrels per day from 3.55 million last year..

"A number of foreign companies that were investing in Iran's upstream have halted their activities as a result of previous sanctions against Iran," it said.

China and India have not joined the embargo, but are capitalizing on Iran’s financial vulnerability to gain commercial advantage.

“India has used the payments difficulties to force concessions from Iran, including an Iranian acceptance of payment for about 45 percent of the oil sales in rupees, India's local currency, but which is not convertible,” according to a recently released Congressional Research Service (CRS) statement. “The remainder might be settled through barter trade or Indian investment in Iran, and some might be settled in gold.“ 

Although China reduced its imports of crude from Iran about 50 percent for January 2012, analysts saw this move as a play for receiving discounted oil sales, CRS reports. China’s oil imports were valued in 2011 at $16 billion while Iran’s imports of Chinese goods were roughly $12 billion. This suggests that China will only have to somehow offset the $4 billion it owes to Iran.

Faced with mounting domestic criticism over the handling of the economy, a high unemployment rate, and a rift in his relations with Iran’s Supreme Leader and former political backer, Ayatollah Ali Khamenei, Iran President Mahmoud Ahmadinejad has struck a defiant tone. "We have enough foreign currency so that, even if one barrel of oil is not sold for two or even three years, the country will be managed well and the enemies will not see their wishes [come true]," he said Tuesday.

Iran’s oil minister, Rostam Qassemi, delivered a similar message Tuesday. "Despite sanctions and threats, we have no problems in upstream oil industries, including production, and therefore we can say today: goodbye sanctions," the semi-official Fars News Agency quoted him as saying.

Crude oil and its derivatives make up about 80 percent of Iran’s total exports and fund roughly half of the government's budget. Economists noted that Iran’s economy would quickly crater if it could not sell its oil for any appreciable time.