Sanctions as Trade War prelude: Iran tankers heading home after selling stored oil?

By Cyrus Safdari | Iran Affairs | July 04, 2012

Remember the reports that Iran was storing oil in its tanker fleet because it couldn’t sell the oil?

Now that oil prices have shot up according to Reuters:

Commodity markets shot higher for the second time in three days on Tuesday, with oil prices leading the way as they posted one of their biggest, broadest rallies ever as bellicose rhetoric from Iran stoked Mideast supply worries.

Bloomberg reports that those tankers where Iran was previously reportedly storing oil, have sold their cargo and are on the way back:

Thirty-three ships in the 40-strong fleet of crude carriers controlled by Tehran-based NITC, a tanker company owned by Iranian pension funds, provided signals within the past month, IHS Inc. (IHS) data compiled by Bloomberg showed today. That compared with 21 in the corresponding period to June 11.

China, the biggest buyer of Iranian crude, was exempted June 28 from U.S. sanctions that took effect that day. Japan, Singapore and India are among 20 nations that also received waivers. Iran, which faces an EU embargo begun July 1, raised storage on tankers to as much as 42 million barrels by the end of May, the International Energy Agency said June 13. It also stored in the second quarters of 2008 and 2010.

You know, I’m no energy economist, but this sounds like a coup for Iran.

In any case now is a good time to bring up something — I brought this up before on the Gulf2000 list, and the Leveretts have recently briefly mentioned it too — but the US sanctions on Iran are actually illegal, and may lead to trade wars. And ironically, it was the US’s effort at protecting Israel that has made them illegal.

See, after their wars with Israel in the late 1960′s and more specifically after the 1973 war, the Arabs imposed sanctions on Israel through the Arab Oil Embargo. These included “secondary sanctions”.  What does “secondary” here mean? The sanctions not only prohibited their own countries from having commercial relations with Israel, but also banned doing business with with any foreign business anywhere that did business with Israel. In other words, they all agreed to not do business with any company — whether French, German or whatever — that was also doing business with Israel. If these companies wanted to do business with the Arabs, they had to pull out of Israel.

The US was naturally quite opposed to this and made a big fuss about the “freedom of trade” etc. It also complained a lot about how the Arabs were trying to force the world to live by their laws and so were “imposing sovereignty” on others through the “extra-territoria” applications of their laws. The US passed laws domestically — called countering laws or blocking laws — that responded to the Arab secondary sanctions by making it illegal for any American firm to respect the Arab’s demand of not doing business with Israel. Laws were passed at the international level too, and trade rules established that prohibited secondary sanctions. In the end the Arabs essentially lost this attempt at isolating Israel through secondary sanctions.

[Is anyone reading this reminded of similar games children play is school playgrounds? I'd hate to sound sexist but it was mostly the girls who imposed these sorts of sanctions on each other. We guys sorta shrugged about it and went back to eating dirt and staring at the sun.]

Now, thanks to AIPAC influence-peddling, it is the US that is playing the role of the Arabs, and Iran is playing the role of the Israelis. The US is imposing secondary sanctions on Iran. According to the US sanctions, no American company can do business with Iran, and no foreign company can do business with Iran and do business with the US. If a foreign company does business with Iran, it is banned from doing business with the US. And since the US is a major source of business, lots of foreign companies have decided to pull out of Iran.

So we have here three actors: The Americans, the Iranians, as well as the authorities of those foreign countries. The foreign countries fall into two broad categories: the Europeans on one side, and the combination of Russians, Chinese, Brazilians, Indians (collectively known as the BRIC nations — the “up and coming” powers.)

Well, here’s the irony. The Americans and the Europeans don’t generally import a lot of oil from Iran. India and China certainly do, and in general the removal of Iran’s oil from the markets means a significant rise in oil prices, somethign that up-and-coming powers do not favor. Brazil has a nuclear power program that includes enrichment, and has been trying to prove it “is able to defend its interests in the context of economic globalization.” Russia is itself trying to stay assertive in the face of a US that won the Cold War.

They take one look at what’s being dealt out to Iran, and they wonder: could we be next?

And if they decide to oppose these sanctions using existing international trade mechanisms, which would include them passing their own countering or blocking laws, then we have a heated trade-war on our hands.

This would not necessarily be limited to the BRICs either. In the past when the US has tried to impose secondary sanctions on British companies, the Brits have responded using their blocking laws, forcing the US to back down. An example was in 1982, in a dispute over the  shipments by non-U.S. companies of goods for use in the Soviet Trans-Siberian pipeline, which resulted in the UK’s enforcement of its Protction of Trading Interests Act:

The U.S. Administration at the time attempted to ban such shipments from anywhere in the world if the goods originated from the U.S., used U.S. technology, or were to be exported by subsidiaries of U.S. corporations. A PTIA Order was made and a number of directions were given to prevent certain corporations from complying. Although most of the corporations were British, at least one company was American, and was prohibited from complying in respect of its exports from the U.K. The U.S. ultimately rescinded the relevant regulations controls to shipments by non-U.S. companies of goods for use in the Trans-Siberian pipeline. The U.S. Administration at the time attempted to ban such shipments from anywhere in the world if the goods originated from the U.S., used U.S. technology, or were to be exported by subsidiaries of U.S. corporations. A PTIA Order was made and a number of directions were given to prevent certain corporations from complying. Although most of the corporations were British, at least one company was American, and was prohibited from complying in respect of its exports from the U.K. The U.S. ultimately rescinded the relevant regulations.

And apart from domestic blocking laws, there are international trade laws and rules that prohibit secondary sanctions too. The World Trade Organization for example has a set of specific rules and procedures which the Europeans invoked against the US back in late 1996 when the US Helms-Burton law attempted to black-ball European firms doing business in Iran or Cuba. It appears that today the Eurpeans and US have reached a sort of political deal with each other which involves Europe not invoking the same provisions and challenging the legality of US secondary sanctions on Iran… but how long will that last, and when will various countries decide to stop cooperating?

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