Jan 4, 2012

US Sanctions on Iran May Backfire

On Saturday Obama signed the most recent and toughest US sanctions on Iran, effectively shutting out Iran's central bank from transactions denominated in USD (see Reuters article). Their aim is to provide Iran with an incentive to end its nuclear program but has so far only prompted Iran's navy to threaten closing the Strait of Hormuz (through which 40% of world's crude oil is transported). So far nothing out of the ordinary - politics does get boring without a little brinkmanship. What the US probably miscalculated is the internal economic collapse this has caused - Iran's currency has dropped around 30% since the sanctions were announced. This will certainly punish the regime but will also drastically affect the lives of ordinary people and provide further domestic support for the government to play tough with the US. North Korea is a good example against driving an opponent into a condition where he has nothing left to lose. The last thing anyone wants is an Iranian submarine sinking a US warship and potentially taking the conflict to the brink of an all-out war.

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