How to Ensure That Iran Isn't Insured

(MoneyWatch)  How refreshing when the U.S. comes up with an idea that will actually work! The Financial Times is reporting that the U.S. and its allies may place sanctions on companies, such as Munich Re and consortiums like Lloyds of London, that provide insurance for Iran's oil supply. Such a move might actually bring this rogue nation and its unpopular leader, Mahmoud Ahmadinejad, to the bargaining table.

Sanctions like the kind of handcuffs that President Obama proposed to the United Nations Security Council have been ineffective at curbing bad behavior as far back as the reign of Italian dictator Mussolini, who laughed when the League of Nations tried to stop his invasion of Ethiopia.

But canceling insurance policies is a novel idea that just might work.

Iran is a one-trick pony. It desperately needs to export oil. During the Iran-Iraq war of the 1980's, Iran took more than half a million casualties without blinking, because it could still finance its war with oil sales. When Iraq fired its missiles at Iran's production facilities and pirates in speedboats fired machine guns at the supertankers, millions of barrels and billions of dollars were lost. But even though the price of oil seesawed each day, the flow of oil never stopped.

The reason: insurance was available. The price went up, but the Iranians still paid to get their oil out and buyers everywhere still paid to get their oil.

But what happens if the U.S. and Europe, where most big insurers are located, refuse to insure Iran's oil? Could Ahmadinejad get insurance elsewhere? Doubtful. While Russia and China are wary of sanctions, they don't have the kind of robust insurance markets needed to continue to support Iran.

Ahmadinejad would be forced to "go bare" without insurance, suggests the FT, or insure himself, which might require a bit more legerdemain than even he can muster.

The beauty of the insurance ploy is that it bypasses the lethargic UN. However, one problem might be Great Britain. Prime Minister Gordon Brown has softened his stance on terrorism lately, sending the convicted mass murderer of Pan Am Flight 103 home to Libya. Let's hope he has better sense with Iran.