Iran--Sanctions, Energy, Arms Control, and Regime Change

226 Pages·2014·4.25 MB·English

by  Anthony H. Cordesman

Iran—
I
r
a
n
—
S Sanctions,
a
n
c
t
i
o
n
s
, E
n
e
r Energy, Arms
g
y
, A
r
m
s
C
o
n
tr Control,
o
l
, a
n
d
R
e
g
i
m
e and Regime
C
h
a
n
g
e

Change
C
O
1616 Rhode Island Avenue NW| Washington DC 20036 R
D
E
t. [phone] | f. [phone] | www.csis.org SM
A
N
, G
O
L
D
, A
ROWMAN & LITTLEFIELD N
D
C
Lanham • Boulder • New York • Toronto • Plymouth, UK O
U
G
H
L
4501 Forbes Boulevard, Lanham, MD 20706 IN
-S
H
t. [phone] | f. [phone] | www.rowman.com
U
L
T
E
AUTHORS
Cover photo: Photo by Kaveh Seyedahmadian. http://www.flickr.com/photos/samanvari/3388535986/. Anthony H. Cordesman
Bryan Gold
R
O
ISBN 978-1-4422-2777-4 W Chloe Coughlin-Schulte
M
Ë|xHSLEOCy227774z v*:+:!:+:! A
N
&
L A Report of the CSIS Burke Chair in Strategy
I
T
T
L January 2014
E
F
I
E
L
D
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 Impact of Sanctions .............................................................105
Energy Competition ............................................................................................. 107
Gasoline and Product Imports - Iran’s Energy Import Problem ..............................................108
The Energy Risks in a “Long Game” ......................................................................................112
Sanctions and Arms Deals ................................................................................... 115
US and GCC Progress ..............................................................................................................115
The Severe Limits on Iran’s Imports .......................................................................................116
Sanctions and the GCC Arms Import Advance Over Iran .......................................................117
US and Gulf Missile Defenses .................................................................................................118
The Option of “Extended Deterrence” .....................................................................................119
Arms Control: Iran, Israel, and the WMD Free Zone ..................................... 124
Efforts to Negotiate with Iran ..................................................................................................124
Weapons of Mass Destruction (WMD) Free Zone ..................................................................131
Regime Change and Regime Modification ........................................................ 133
Rhetoric versus Reality ............................................................................................................134
The Impact of Iran’s March 2012 Parliamentary Elections .....................................................135
The Impact of Iran’s Presidential Elections in June 2013 .......................................................136
Nuclear Negotiations in 2013 ..................................................................................................138
The Details of November 2013 Agreement .............................................................................141
US Initiatives and Information Campaigns Over the Last Decade ..........................................143
The “Indirect Approach”..........................................................................................................145
Implications for US Policy ................................................................................... 146
No One Could Have Rolled Back the Reality that Iran Was Already Near the Break Out
Point and can Continue Some Weapons Related Activity .......................................................146
The Real Iranian Threat is a Nuclear Armed Force and the Interim and Full Agreement
Would Prevent This .................................................................................................................147
The Greater Risks Posed by an Open-Ended Regional Nuclear Arms Race ...........................148
Future Prospects for Controlling the Nuclear Dimension of Iran’s Military Efforts ...............149
Annex A: Overview of US Regulations Involving Sanctions against Iran as
of June 2013 .......................................................................................................... 153
Annex B: Joint Plan of Action ............................................................................ 160
Iran—Sanctions, Energy, Arms Control, and Regime Change | v
List of Figures
Figure 1: Iran’s Comparative Oil and Gas Reserves – Part One .................................................. 13
Figure 1: Iran’s Comparative Oil and Gas Reserves – Part Two .................................................. 14
Figure 2: Location of Iran’s Oil and Gas Reserve ........................................................................ 15
Figure 3: Location of Iran’s Pipelines, Refineries, and Export Facilities – Part One................... 16
Figure 3: Location of Iran’s Pipelines, Refineries, and Export Facilities – Part Two .................. 16
Figure 4: Comparative Estimates of Iran’s Oil and Gas Production - Part One ........................... 23
Figure 4: Comparative Estimates of Iran’s Oil and Gas Production - Part Two .......................... 24
Figure 4: Comparative Estimates of Iran’s Oil and Gas Production – Part Three ........................ 25
Figure 5: Comparative Estimates of Iran’s Oil and Gas Exports – Part One ............................... 26
Figure 5: Comparative Estimates of Iran’s Oil and Gas Exports – Part Two ............................... 27
Figure 6: Iran’s Gas Pipeline “Dreams”: The Iran-Pakistan-India Pipeline ................................. 33
Figure 7: Selected US Sanctions Against Iran .............................................................................. 40
Figure 8: UN Sanctions Against Iran ............................................................................................ 45
Figure 9: EU Sanctions Against Iran ............................................................................................ 48
Figure 10: Comparative Estimates of Major Importers of Iranian Crude Oil and Gas: 2010-2012:
Part One ................................................................................................................................ 51
Figure 10: Comparative Estimates of Major Importers of Iranian Crude Oil and Gas: 2010-2012:
Part Two ................................................................................................................................ 52
Figure 10: Comparative Estimates of Major Importers of Iranian Crude Oil and Gas: 2010-2012:
Part Three .............................................................................................................................. 53
Figure 10: Comparative Estimates of Major Importers of Iranian Crude Oil and Gas: 2010-2012:
Part Four................................................................................................................................ 54
Figure 11: Iran’s Major Trading Partners 2008-2012 – Part One ................................................. 55
Figure 11: Iran’s Major Trading Partners 2008-2012 – Part Two ................................................ 56
Figure 12: Chinese, Japanese, and Indian Iranian Oil Imports ..................................................... 60
Figure 13: Russian Trade with Iran 1995-2008 ............................................................................ 69
Figure 14: The Targeted Subsidies Reform and Energy Prices .................................................... 78
Figure 16: The Growing Pressure on Iran..................................................................................... 83
Figure 17: Inflation Data in Iran 2010-2012 from the Central Bank of Iran ................................ 83
Figure 18: Comparative Iranian and Other OPEC Oil Income ..................................................... 94
Figure 19: Iran’s Top Energy Importers and Current Reductions ................................................ 95
Figure 20: Energy Firms Ending Business with Iran 2009-2012 ................................................. 98
vi | Anthony H. Cordesman, Chloe Coughlin-Schulte, and Bryan Gold
Figure 21: Major Non-Petrol Related Foreign Companies Halting Business in Iran, 2010-2011
............................................................................................................................................. 101
Figure 22: Foreign Firms Selling Refined Petroleum Products to Iran between June 2011 and
September 2012- Insufficient Information Available ......................................................... 102
Figure 23: Foreign Firms Engaged in Iran’s Energy Sector between June 2011 and September
2012- Confirmed ................................................................................................................. 102
Figure 24: Foreign Firms Engaged in Iran’s Energy Sector between June 2011 and September
2012- Insufficient Information Available ........................................................................... 102
Figure 25: Trends in Oil Prices ................................................................................................... 114
Figure 26: New Arms Transfer Agreements in Millions of Current US Dollars........................ 120
Figure 27: New Arms Deliveries in Millions of Current US Dollars ......................................... 122
Figure 28: Arms Control Association History of Official Proposals on the Iranian Nuclear Issue
............................................................................................................................................. 125

List of Abbreviations
bpd- Barrels per Day (oil)
CBI- The Central Bank of Iran
CISADA- Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010
EIA- United States Energy Information Agency
IAEA- International Atomic Energy Agency
IEA- International Energy Agency
mbpd- Million Barrels per Day (oil)
NDAA- National Defense Authorization Act
NPT- Non-Proliferation Treaty
OPEC- Organization of Petroleum Exporting Countries
SWIFT- Society for Worldwide Interbank Financial Telecommunication
TcF- Trillion Cubic Feet (natural gas)
Iran—Sanctions, Energy, Arms Control, and Regime Change | vii
Acknowledgements

This analysis was written with the assistance of Sam Khazai and Bradley Bosserman.
viii | Anthony H. Cordesman, Chloe Coughlin-Schulte, and Bryan Gold
Executive Summary

US and Iranian strategic competition is heavily drive by four key factors – the success or failure
of sanctions, the im0pact of that competition on the flow of Gulf energy exports, the success or
failure of efforts to limit Iran’s nuclear options and the broader prospect for arms control, and the
prospects for accommodation of regime change. In recent years, the key variable has been ways
in which sanctions on Iran have changed US and Iranian competition since the fall of 2011, and
helped lead to a tentative set of Iranian agreements with the UN’s P5+1 -- the five permanent
members of the UN Security Council, namely United States, Russia, China, United Kingdom,
and France, plus Germany -- in November 2013.
It will take years to determine whether this agreement will really be successful in halting Iran’s
nuclear weapons efforts, and the US and Iran will move forward toward accommodation and a
stable and friendly relationship. There is no question, however, that much of Iran’s willingness
to negotiate any form of agreement spurred by the creation of far stronger US unilateral
sanctions and by the EU’s imposition of equally strong sanctions. Both put progressively greater
pressure on Iran’s ability to export, its financial system, and its overall economy during the
period from 2001 to November 2013.
Given the history of sanctions and negotiations laid out in this analysis, it is also all too possible
that Iran will not honor its interim agreement or a meaningful full agreement. Iran’s nuclear
programs have been driven by critical limitations in its conventionally armed missile and rocket
forces, the broader weaknesses in its air forces and air defense capabilities, and the limits to its
asymmetric forces.
These forces combine to create strong military incentives for Iran to pursue nuclear weapons that
go well beyond prestige and a limited force or breakout capability. They also helped lead Iran to
the edge of a nuclear break out capability before it suddenly shifted its position accept an
agreement. Iran will have to sacrifice these goals, and severely limit its ability ever deploy
meaningful nuclear forces, if it honors the interim agreement with the P5+1 and accepts and
abides by a meaningful full agreement. Moreover Iran can find a partial substitute for nuclear
weapons if it can covertly develop biological weapons and/or develop effective terminal
guidance systems for its missiles that would give their conventional warheads significant
lethality against high value point targets.
At the same time, the nuclear dimension is only one of the threats the US and its allies must deal
with. The other threats include Iran’s ongoing development and deployment of ballistic missiles
and ability to deploy other weapons of mass destruction, and how Iran’s actions steadily
increased tensions between Iraq, the Arab Gulf states, Israel, the US, and other members of the
international community. They include Iran’s build up of major asymmetric forces In the Gulf,
Iranian threats to “close” the Gulf to oil traffic; increased support of the Quds Force, pro-Shiite
governments, and non-state actors. They also include incidents like the Iranian-sponsored
assassination plot against the Saudi Ambassador to the US, an Iranian government instigated
mob attack on the British Embassy in Tehran on November 30, 2011, and the Iranian-linked
attacks against Israeli diplomats.
All of these factors affect the prospects for broader forms of regional arms control, as well as any
interaction between the sanctions effort and the prospects for any form of outside regime change.