As the Obama administration prepares to engage Iran diplomatically, sentiment in Congress is rising in support of applying greater pressure on Tehran. The current centerpiece of this strategy is legislation recently introduced by a bipartisan set of congressional leaders to sanction companies that sell gasoline to Iran or help upgrade Iran's gasoline refining capacity. Despite the appeal of leveraging Iran's apparent dependence on imports of refined petroleum, the legislation is unlikely to have much impact. Moreover, valuable time could be wasted while Iran continues its ever more rapid march toward nuclear capability. The only effective option for seriously limiting its gasoline imports is to impose a naval blockade on Iranian ports, which should only be undertaken, if needed, after proper and complete preparation.
Iran is certainly in a position to be pressured by economic levers. Obama's pursuit of diplomacy is occurring amid a collapse in oil prices, which has undermined the Iranian regime's economic standing and confidence. The 60-percent drop in oil prices since July has rapidly transformed Iranian budget surpluses into deficits (oil exports contribute almost two-thirds of all state revenue), undercutting the government's ability to buy political allegiance through subsidies and social spending and to fund its nuclear program. In the first three months of 2009, Iran earned $9 billion from oil exports, down from a quarterly average in 2008 of $21 billion. On an annualized per capita basis, that means a decline from $1,250 to $430.
Lower oil prices, combined with the rise in spare global oil production capacity, reduce Iran's ability to fund surrogates in the region, trim its diplomatic leverage among net energy consumers, and make a military strike on its nuclear facilities more conceivable by damping its consequences for the global economy.
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