According to BusinessWeek:
Sanctions could achieve their purpose given the right circumstances. If the price of oil slid to about $65 a barrel, Iran’s oil dependence could leave it struggling to meet government budgets. Dubowitz’s idea is to pressure law-abiding companies to sever business ties with Iran, allowing the remaining players to negotiate for deep discounts. So if Europe, Japan, and South Korea abandoned Iranian oil, customers such as China could push for discounts as big as 40 percent, Dubowitz’s group estimates, starving the regime of funds needed for its nuclear and missile programs.
But Iran sanctions underpriced, says JP Morgan :
Oil rose above $109 a barrel on Friday in part due to supported rising tension over Iran... Recently, South Korea indicated that it could ban Iranian oil, but most analysts do not think it is likely, given the impact it would have on Korean economy. Even the EU, which imposed tough sanctions on 180 Iranian companies and individuals stopped short of imposing oil sanctions on the country for fear of harming its weakest members who are all already sinking under debt and poor economic growth.
Nothing like shooting yourself in the foot.
PS: Similar predictions about Iran's regime falling due to low oil prices have been with us for a long, long time. In fact Iran's regime has survived $15/barrel prices.
The big, do-not-pass-go problem with Dubowitz's idea is that it ignores the awkward reality that whilst oil is fungible, prices are not, especially when energy markets are tight.
Posted by: dan | December 03, 2011 at 07:18 AM