President Biden’s aides are considering economic sanctions against Iran in response to Tehran’s attack on Israel. However, experts believe that they face limited options that could avoid antagonizing China and prevent a rise in oil prices.
Iran retaliated against a strike on its consulate by launching over 300 drones and missiles towards Israel. Fortunately, most of the projectiles were intercepted by U.S.-led forces, resulting in minimal damage and injuries.
Despite the limited impact, U.S. officials and European allies are discussing potential economic responses to Iran. However, Iran is already heavily sanctioned, making it challenging to implement further measures. The country faces penalties on its banking, manufacturing, and energy sectors due to existing U.S. sanctions.
One possible option is to expand sanctions on Chinese firms that have been purchasing significant amounts of Iranian crude oil. These purchases have provided Tehran with a financial lifeline while it remains isolated from the West. The U.S. has already imposed sanctions on some commercial links between China and Iran’s oil trade, but experts suggest that the administration could target more Chinese refineries and banks.
However, taking such actions could strain U.S.-China relations, which Treasury Secretary Janet L. Yellen and other officials have been trying to stabilize in recent months. Additionally, cutting off Iranian crude oil sales could result in a global spike in oil prices due to tighter supply. This, in turn, could lead to higher gas prices, potentially impacting the 2024 presidential election.
Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, highlights the limited game-changing options available. She emphasizes that cutting off oil revenue for Iran would require working through China and Chinese institutions.
If Chinese banks facilitating the purchase of Iranian oil were sanctioned, it could remove up to 1.5 million barrels per day from global markets, pushing oil prices above $100 per barrel. This outcome would be undesirable for the Biden administration, especially concerning rising gas prices.
Bob McNally, president of the Rapidan Energy Group, states that President Biden wants Iran to sell its oil to China and avoid any disruptions. Taking a strong stance towards Iranian oil sales would contradict this objective. McNally suggests that the administration may only be able to take symbolic measures or target smaller traders.
President Biden has called for calm following the attack by Iran, clarifying that the United States will not participate in any military action against Iran. Senior officials have expressed the aim to de-escalate tensions and prevent a broader conflict.
While a military response from the West is ruled out, an economic response to Iran’s actions appears increasingly likely. European Commission President Ursula von der Leyen indicates discussions on tougher sanctions against Iran in Brussels. The potential for imposing additional sanctions on Iranian officials and businesses is also being considered.
However, targeting frozen funds earmarked for humanitarian relief or imposing sanctions on international suppliers of parts for Iranian drones may have limited impact. Iran already faces severe economic restrictions as a result of the Trump administration’s abandonment of the nuclear deal reached under President Barack Obama.
There are divergent perspectives on the matter, with some experts believing that Washington has already adopted an overly aggressive posture towards Tehran. The sustained maximum pressure on Iran since November 2018 limits the options available to policymakers in responding to new emergencies.
Esfandyar Batmanghelidj, founder and CEO of the Bourse & Bazaar Foundation, highlights the problem inherent in maximum pressure strategies. What initially appears to be an Iran-specific issue becomes broader, impacting overall Iran policy.
In conclusion, the implications of potential economic responses to Iran’s actions pose significant challenges for President Biden’s administration. Balancing the need to exert pressure on Iran without antagonizing China or causing a rise in oil prices is a delicate task. The existing sanctions on Iran and its heavily sanctioned status further limit the options available. As events unfold, it will be crucial to closely monitor developments and evaluate the effectiveness of different approaches.