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Over a Barrel: Why Iran Sanctions Won't Work

This story was filed by CBS News foreign affairs analyst Pamela Falk, based at the United Nations, who was in Beijing last month speaking with economists about China's energy security.

(AP Photo/Guang Niu, Pool)
Going into Thursday's high-stakes negotiations with Iran, President Obama will soon see for himself the corner into which the Islamic Republic has thrust his predecessors.

Iran has the world over a barrel, literally. The country's vast oil reserves will undermine Obama administration efforts to increase U.N. sanctions, and Iran knows it.

U.N. sanctions only work when they are airtight. Despite the White House's message that the veto-wielding permanent members of the Security Council (the P5 as they are called: the U.S., Russia, France, China, and the U.K.) and Germany are unified in their response and that the Iranian missile tests of last week were a game changer, they are dodging the harsh reality that China is not even close to being "on board" for tough sanctions.

The U.N. is, overall, trying to do something about Iran. This week, Secretary-General Ban Ki-moon supported the International Atomic Energy Agency's efforts to force Iranian transparency over its nuclear facilities. But without the ability to convince Russia and China to send a unified message, there is little the Security Council can do short of another round of not-so-tough sanctions.

China's booming population and insatiable thirst for oil to fuel development is driving Beijing directly into Tehran's arms.

A net oil exporter until the early 1990s, China's government estimates that crude oil imports will rise to meet 60 percent of its demand by 2020. That led Beijing, in the midst of nuclear brinksmanship with Iran, to seal a deal with the otherwise isolated nation worth about $2.5 billion.

Just this week, the China National Petroleum Corporation inked an agreement with the state-run National Iranian Oil Company to develop an oilfield, in southwestern Iran.

The South Azadegan oilfield is home to the largest reserves found since the 1970's — slated to produce a quarter of a million barrels of oil a day — and the deal struck with Beijing gives China a 70 percent share of the proceeds.

Combine that with the fact that Iran already provides about 14 percent of China's oil needs, and the White House can pretty much scratch off the list of possible U.N. sanctions it has been discussing:

1) A ban on international investment in Iran's energy sector.

2) The new idea of banning insurance for Iran's oil tankers.

3) A ban on Iranian oil imports.

Imposing sanctions is made all the more difficult by the need to target them in a way that won't hurt Iran's embattled but resilient pro-democracy movement.

Russia, for its part, is preparing for a sale of anti-aircraft technology to Iran and is less than enthusiastic about tough sanctions, despite President Dmitry Medvedev's initial jubilation over Mr. Obama's scrapping of the Eastern European missile shield program.

Even as the fourth largest producer of oil and OPEC's second largest exporter, Iran does rely on oil imports — so sanctions on exports of refined petroleum to Iran would have an impact, but even that is weakened by the development by China of Iranian reserves.

Iran may very well find a face-saving way out of the current stand-off and stave off the ire of the group of six meeting with Iran in Geneva by allowing inspectors into the heretofore undisclosed nuclear facility in Qom.

But that doesn't solve the problem. The corner that Iran has the world in, going into the sought-after direct talks with the U.S. (along with the other nations), is that the world has to find a way to:

1) Stop Iran from developing nuclear weapons with its uranium enrichment know-how.

2) Slow the development of its surface to air missiles.

3) Protect Israel and U.S. military bases in the Middle East.

4) Try to prevent the worst case scenario — a preemptive air strike against Iran's nuclear facilities by Israel.

Iran is expert at buying time and running out the clock, while it continues to move closer to having the capacity to build nuclear weapons.

Some analysts have speculated that Israel (and perhaps the U.S.) would not mind an air strike like Israel's against Syria in 2007 or against Iraq back in 1981.

But no one doubts how high that toll would be on Israel, on the price of oil, on the possibility of a drawn-out war in the Middle East, on NATO or U.S. troops — not to mention how difficult it would be to actually slow the Iranians down with so many underground facilities and their location underground.

Iranian President Mahmoud Ahmadinejad answered many questions during the press conferences and interviews in New York this past week, and it was downright scary.

Ahmadinejad represents a hard-line Revolutionary Guard that wants Iran to return to the days of leadership the Persian Empire once enjoyed. His defense minister's comment that Israel's "days are numbered" if it attacks Iran, was ominous.

The only question that has not been answered, is what Iran actually wants. Ahmadinejad – reading from North Korea's playbook – said it was direct talks. But, then he said the nuclear issue was not on the table as soon as President Obama offered them.

In 2004, Iran actually froze the entire nuclear program in exchange for all sorts of promises from the U.S. — from spare parts for its aging air fleet to oil refining infrastructure.

Why didn't that work? One Iranian diplomat told me last year that they, "got nothing" in return. However, that was also before Ahmadinejad was elected.

So, maybe there are some leaders in Iran who are interested in an upside to negotiations, but that appears to be a remote possibility until Ahmadinejad and his hard-line support weakens.

For now, Iran goes into the Geneva meetings with the world over an oil barrel, at least in terms of any really tough sanctions, and an evident plan to buy time with the revenue.

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