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Sanctions on Iran - Good or bad?

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What are sanctions? One way to describe them is as economic arm-twisting to reach a certain goal. While most can agree on its purpose what has been debated over the years are its effects and it impacts. Are they able to change minds and directions? Cases of western sanctions being used include Cuba, Iraq, North Korea, Sudan, Syria, and of course Iran.

There have been claims that they are "torn pieces of paper" as president Ahmadinejad often says. Other officials have been more pragmatic and said that while sanctions will have a negative effect in the beginning, in the long run Iran will come out ahead. Lets analyze that a little further. Could there be truth to this statement.

We know that sanctions have definitely had an impact. Reports from varies news agencies have claimed Iranian businesses having difficulties sourcing parts or equipment but in the end they purchase their wish lists but with a higher price. Iranians have millennia of experience as traders and today practically anything can be bought whether American, European or even Israeli if needed. You just need the right front companies and delivery ports in place. Iran famously received many spare parts and equipment uVfpgrades during its war with Iraq in the 80s from Israel, showing to be quite pragmatic in its economics when needed.

What makes the impact of sanctions vary amongst target countries is the size of the targeted market and its industrial base of course. Iranian officials have said their plan is to reduce imports and increase home production to meet demand aiming for as much self-sufficiency as possible. Now if Cuba or any other sanctioned country were to claim this, one might have reason to have doubts. But Iran is truly in a unique situation with having a population nearing 80 million (above 70 million is considered economical for a home industry) and an industrial base that is able to produce a wide variety of products, no other current targeted sanctioned regime approaches this.

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During the Iran-Iraq war of 1980-1988, due to funds being targeted for the war front and hard currency needed for military imports, Iran started a massive "do it at home program". Necessity is truly the mother of all inventions and by the 90s Iran was practically producing most of its needs albeit with a lower quality and higher costs than international products. On many of my trips in the late 90s I was amazed how much of the product offerings were "made in Iran". Surprisingly, new consumer items that would showcase in the US market would be instantly copied and sold to a receptive home market hungry for a piece of the outside world. This was all of course supported by low oil prices at the time and heavily restricted imports and high tariffs on foreign products by president Khatami. What changed was the beginning of the oil price surge. And with the entry of president Ahmadinejad, ironically a populist president, further reduced tariffs that had partially begun under the later years of Khatimi's presidency. Local production was reduced and we have a situation today where many Iranian brands are even outsource their manufacturing to China. These include many home appliance brands.

Today, faced with having to pay two to three times the normal price for any standard product like auto parts, home electronics, mechanical machines and other vital items why would any sane importer go through front companies, higher interest rates, lack of obtaining letters of credit, lost time and simply being treated like a terrorist for wanting to import a car alternator. Local manufactures that were pushed out of the market in the early 2000s due to lower import tariffs will be happy to again sell their products and maybe even now for a higher price than what they would normally have been charging for. In the long run prices will come down as more domestic suppliers aim for a piece of the pie. Not to forget that Iran has a powerful dragon patron as well. There have been numerous reports lately of massive multi-billion Chinese investments. Apart from subway expansions, steel factories, railroad projects, and shipping there have been billions invested in those areas where sanctions have been targeted, gasoline imports. Iran today, no longer  imports  gasoline or marginally does so, where as just a year ago up to 40% of the gasoline needs were imported. In a years time one of Iran's largest gasoline refineries will be commissioned after 3.5 billion euros invested allowing for large amounts of exports. 

Iranians are notorious for avoiding hard decisions or making big changes structurally. We need a push to at times to progress. The sanctions have ironically served a purpose. The more industries that come into its focus the more radical and willing Iran becomes to making hard decisions. The latest sanctions on Iran's oil exports might finally be the push Iran needs to completely diversify away from oil after 100 years of the "black curse". Economist around the world will testify that oil proceeds have been the anchor of development for most of the Middle East. A region that is notorious for being one of the least efficient and unproductive economies, and where the majority of countries have foreigners doing their heavy and un-wanted work. From the space industry to refineries, to the auto industry, to underground boring and digging devices, to the military, Iran has been able after years of struggle and perseverance, due to no other alternative, overcome sanctions and build its own domestic home industries. All thanks to a push from the West. This Iranian calendar year, was proclaimed the year of buying local products and services by Iran's supreme religious leader. With all of this no wonder Ahmadinejad is not having trouble sleeping at night and can claim sanctions as torn pieces of paper.
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I am a business consultant by day working to bring Iranian businesses into the international market and in the evenings a journalist. My hope is to show the real Iran to the western world.

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I am a young Iranian who has been literally on the... by Amir Taheri on Sunday, Aug 5, 2012 at 11:37:24 AM
"Let's start sledgehammer style. Iran won't crack.... by Rehmat Khawaja on Sunday, Aug 5, 2012 at 1:52:39 PM
I will admit that I was suspicious about what argu... by Rick Staggenborg, MD on Monday, Aug 6, 2012 at 5:55:55 PM