A few BP links

Just got back from two weeks of vacation, including some time in South Africa for the World Cup (which was fantastic, by the way, except for the elimination of a promising U.S. side by Ghana, and the subsequent elimination of Ghana - the last African team - by the hand of God Luis Suarez).

Anyway, back to the real world... I've spent the morning reading through my RSS feeds and here are a few BP-related links that I don't feel the mental energy to write full posts on.

1. "And if we aren’t careful, we will encourage companies that have enough money for collection to leave the drilling to those that don’t." (Richard Thaler, via Tyler Cowen)


2. Don't forget, BP also gave the world Ayatollah Khomeini (via Chris Blattman)


3. Container cap no longer on?


4. BP now more evil than Goldman Sachs


5. BP spills coffee

Addendum: Here's the Economist (subscription required) on the Obama deepwater drilling ban:

The people it presumably intends to protect—the residents of south Louisiana, whose fisheries and shorelines are being fouled by BP’s still-gushing Macondo well, and the oilfield workers who could be at risk from another disaster—are probably its loudest critics. Nearly two out of three Americans support the ban, according to one recent poll, but gulf coast residents are split down the middle.

China and Iranian refining, cont.

Remember Iran’s shortage of refining capacity? At least one rumored and unsurprising agreement of mutual benefit appears to have been struck.

The Sinopec Group has signed an agreement with the National Iranian Oil Refining & Distribution Company (NIORDC) to provide 6.5 billion US dollars in capital to the latter for building and upgrading refineries in Iran, reported the semi-official Iranian media MEHR.

Market-watchers believe that it will develop into another loan-for-oil deal in which Iran would export crude oil to China in exchange for loans.

Well short of the rumored $40 billion, but still no doubt most welcome for the Iranian government.

Would a refined products embargo let Iran reduce fuel subsidies?

A few weeks ago I posted a few times on the proposed embargo on refined product imports on Iran (here, here, here) with the help of a knowledgeable friend; that friend now passes on an interesting rebuttal from NIAC on "Why petroleum sanctions only make things worse." The highlight:

A gasoline embargo actually benefits the government of Iran.

- A gasoline embargo would enable the government to eliminate burdensome subsidies and place all the blame on the United States.
- Iran has to import roughly 40 percent of its domestic gasoline consumption at market prices and then resell it at a subsidized price of about 40 cents per gallon.
- These subsidies cost the government of Iran between 10 and 20 percent of GDP, annually.[i] The Iranian government has tried several times to eliminate the subsidies, but has been stymied by popular opposition. An embargo would provide the excuse they need, and free up the government to spend the money elsewhere.

Eliminating subsidies with perfect timing would be a tricky thing to pull off - the removal of 40% of supply alone will send prices skyrocketing, which removing subsidies would only make worse. Furthermore, if sanctions were removed, the government would be hard-pressed to not reinstate the subsidies. But the opportunity is undeniably there. Yet another reason why this particular lever on Iran is probably not the best.

China to invest in Iranian refining sector?

A friend passes on an interesting tidbit in light of recent discussion on Iran refined product sanctions, Iran's underdeveloped refining sector and China's escalating quest for resources.

On July 13, Iran’s Ministry of Oil announced that China had agreed to invest up to $40 billion in Iran’s oil refining industry (the announcement is yet to be confirmed by China).

According to the announcement, China will construct the new Hormoz refinery in southern Iran, which will be able to produce 300,000 bbl/day of gasoline. China is also supposed to modernize Iran’s old Abadan refinery on the shores of Persian Gulf in order to increase it capacity, which at some point was the world’s largest refinery. Given China’s large investment in Iran’s energy sector, it is likely that it will veto any United Nations Security Council (UNSC) Resolution against Iran calling for tough sanctions, particularly in the oil and natural gas sector.

A little fishy if the announcement still hasn't been confirmed by China (I wasn't able to find evidence one way or the other), but still an interesting possibility.

Informed thoughts on Iran refined products embargo

On the topic of a refined products embargo on Iran, an anonymous and knowledgeable source writes:

A petroleum product embargo on Iran would be devilishly difficult to achieve -- too many porous land borders, especially with Turkmenistan, Afghanistan and Pakistan -- and very liable to escalate to full-scale conflict. That said, I support the effort by Congress to add that particular card to the President's hand because Iran's petroleum product imports is one area in which the United States has considerable leverage. The very threat of such action could effect change in Tehran's strategic calculus.

The idea makes sense from an economic perspective in that Iran spends quite a bit to subsidize petrol consumption (these price controls are the reason the Iranian refining sector endures chronic underinvestment). A petroleum product embargo would raise the price of petroleum products such that the Iranian treasury would be drained of funds at a greater rate. Tehran could enact stricter rationing of petrol, as is already the case, but this could provoke substantial domestic unrest (as it has in the past). Alternatively, Tehran could slacken its petrol subsidies, causing higher prices at the pump for Iranian motorists, but this is also unlikely to make people happy.

I pushed this person on the feasibility of smuggling:

Granted the land borders you mentioned are porous, but Turkmenistan and Afghanistan are themselves effectively landlocked, and I can't imagine they're long refined products... and if I remember correctly Pakistan is also a net importer of gasoline and diesel. So it seems that, until the new port at Gwadar is online (not sure when that is), the most likely sanction-breaking smuggling path is via Karachi and across Baluchistan, which doesn't strike me as a particularly easy route (particularly with recent unrest in Baluchistan)... and if we are talking about anywhere near 40% of Iran's refined products (which is what I heard they import), that is a huge volume to push through a long, unstable and illicit supply line.

... and they pushed right back:

Your thinking is on the mark. But I wouldn't underestimate human ingenuity. Iraq also subsidizes petroleum products, which has been the source of a great deal of smuggling -- purchase petrol or diesel in Iraq at a low price, re-sell in Turkey, Syria or elsewhere for a large profit. If Iran were under some kind of onerous petroleum product sanctions, there are probably large networks of Shia in Iraq sympathetic to Iran which would smuggle petroleum products across the border for an even larger profit.

As for the Baluchis, they need money to fund their insurgency as well. Getting in on the smuggling business could be very lucrative for them. To a certain extent, I am making the assumption that large shortages of petroleum products in Iran plus long porous borders plus a ton of opportunistic (and economically self-interested) actors in the region will lead to large-scale smuggling. The refined petroleum products will be able to find their way.

So not only difficult to implement, but the military threat to the Strait of Hormuz is substantial:

Think small motorized skiffs, something like the Somali pirates in the Gulf of Aden, with rocket launchers or rocket-propelled grenades swarming more cumbersome US naval vessels and/or oil tankers. (There was a war game to this effect and the virtual Iranian forces handed a serious defeat to the US Navy.)

Finally, one more subtle option would be to put pressure on the banks that finance petroleum product importers - apparently "this is what the US has been doing with regards to North Korea for years."

Iran imports refined petroleum products

In the NYTimes today:

The Obama administration is talking with allies and Congress about the possibility of imposing an extreme economic sanction against Iran if it fails to respond to President Obama’s offer to negotiate on its nuclear program: cutting off the country’s imports of gasoline and other refined oil products.

The option of acting against companies around the world that supply Iran with 40 percent of its gasoline has been broached with European allies and Israel, officials from those countries said. Legislation that would give Mr. Obama that authority already has 71 sponsors in the Senate and similar legislation is expected to sail through the House.

The fact that Iran imports refined products like diesel and gasoline may come as a surprise to the general public, which sees Iran as an "oil producer" (in the Persian Gulf region which of course supplies "all of our oil") under "economic sanctions." Turns out refined products are exempt from the sanctions - at least until now.

However, given Iran's likely retaliation - they've threatened "cutting off oil exports and closing shipping traffic through the Strait of Hormuz, at a moment that the world economy is highly vulnerable" - these extreme sanctions seem too risky for the U.S. to actually push, which reduces their credibility as a threat and negotiating tool.

Update: FP Passport ponders whether the threat of nuclear Iran might convince China to join.

... Beijing surely sees the unacceptable danger in risking its existing Saudi oil supply for an as-yet nonexistent Iranian oil supply.

Right, but in light of the Strait of Hormuz chokehold, would Beijing be willing to risk short-term Saudi oil supply to "assure" long-term Saudi oil supply through sanctions which may or may not dissuade Iran from becoming a nuclear power?

Engage Iran by paying attention to Cuba instead

Like Andrew Sullivan, I loved this suggestion from one of his readers, in response to long-time engagement proponent's Roger Cohen's assertion that now is not the time:

The point is, what we hoped to have achieved by engaging with Iran has already occurred (partly by walking very softly during their election). Thus the aim of any talks now can achieve nothing but strengthening the legitimacy of the regime while before talks weakened it.

In fact, the best move I believe the president can make is talking, loudly, to Cuba. If you can disregard the legitimacy of the stolen election in Iran and push directly for more openness and economic prosperity in an equally adversarial country, there's your carrot and stick, without directly meddling in Iranian affairs.

Oops

FBI says Saddam's WMD bluff aimed at Iran.

CFR on Iran

I attended a CFR discussion on Iran this morning which was pretty good. General consensus was that Obama has played it right (with the exception of his comment that Mousavi=Ahmadinejad), but the regime has cracked down very effectively since last weekend and the opposition has lost considerable momentum. To comparisons to 1979, it was pointed out that, unlike the Shah's regime, the hard-liners have both the will and the skill to asphyxiate their opponents, brutally if necessary. Two panelists argued that Mousavi should have moved earlier from street protests to strikes, but they acknowledged the difficulty he has with communication stifled and nearly his entire support system arrested.

Overall, the mood was that Ahmadinejad would probably prevail this time around. Maybe Sullivan et al have been too colored by optimism and the main stream media wasn't so far off after all?

Resource ripples from Iran

I was worried that the amount of space on this blog dedicated to Iran was beyond its original intended scope, but never fear, resource implications are seldom far away... might Uganda's recent energy deal with Iran be put in jeopardy?

I think world crude markets have noticed too but I try not to pay too much attention to their day-to-day fluctuations.

P.S. For anyone interested in a serious exploration of the resource curse, I highly recommend "Escaping the Resource Curse" - Stiglitz and Sachs edit a collection of strong essays on a variety of relevant topics from a variety of perspectives (academia, business, law, government, etc.).

Protesters vs. the police

Check out this stunning footage from Iran.

(via Andrew Sullivan)

LaraABCNews called out by Andrew Sullivan

She's big-time!! Recognition well-deserved.

Is Google supporting Iran protesters?

They haven't gone green, but they have added a Farsi translator.

Iran-I-am

Very clever.

The enduring power of Gandhi

He embodied powerful ideas and expressed them with simplicity and wit.

Learned from Lectures: First Palestinian intifada deliberately limited types of violence

I recently began watching lectures by The Teaching Company and can't get enough. (Since January I've ordered 20+ courses and, perhaps more tellingly, already completed 8.) Today I learned from "United States and the Middle East: 1914 to 9/11" that in the first Palestinian intifada, the Palestinians explicitly limited violence to stone-throwing, in hopes of provoking a disproportionate Israeli response and an international reaction. (It worked.) Maybe not quite as noble as the non-violent protests that appear to be going on in Iran, but it was eye-opening to me that the principle of non limited violence is no stranger to the Middle East.

Mesmerized by Iran

I am mesmerized by what's going on in Iran - it has the feeling of history in the making. I'm trying not to be carried away by optimism - we don't actually know what the real vote count was, or even if the increasingly evident fraud will be addressed - but it is easy to be inspired by the (thousands? millions?) of people who are courageously protesting for their political rights and sticking to non-violence, despite the lack of guarantees.

Andrew Sullivan has impressively comprehensive coverage. LaraABCNews is a personal acquaintance who's twittering from Tehran - very exciting. The mainstream media didn't get off to a great start.