Syria, what is really at stake?

Recent events draw me into writing an opinion about Syria. It has mostly been the abundance of misinformation on the topic that motivated me to start the writing.

As we all know, in spite of the rhetoric of the media, the whole point is not about protecting neither the lives of the innocents nor US national security.

Since the beginning of time the super powers at play, although changing over time: from the Persians to the Roman Empire, through to Great Britain and now the USA, have given proof over and over that what counts is not justice but POWER: its acquisition or its protection. 

We therefore need to look at history, even recent past to be able to use the “right” yardstick to measure the reach of the events, and to look at them behind the right “lenses”.

Therefore, lets wear the “power” glasses and start analyzing some of the interests revolving around Syria. I believe that this approach is going to get us quite a bit more perspective than the usual “freedom” arguments.

The government of Syria is one of the last allies of Iran, supported by Hezbollah, and an official ally of Russia. The latter has a military base in the country that gives access to the Mediterranean, and still the latter is providing military supplies.

The country is small with negligible oil supplies. The population numbers unappreciable as its overall size economy.

It happens to be sitting on the path of a potential gas line connecting Qatar to Turkey which would be a game changer both for Turkey and eventually for Europe (news among others: http://www.thenational.ae/business/energy/qatar-seeks-gas-pipeline-to-turkey). Please don’t forget that Turkey’s cost of petrol is some of the highest in the industrialized world (#4 highest prices as of the latest available stats: http://www.fuel-prices-europe.info/index.php?sort=4).

There are current many attempts to carry gas and oil into Europe bypassing Russia, but so far the ability to turn those into reality have met significant challenges. Please refer also to the Nabucco pipeline that is supposed to connect Azeri oil with Turkey via Georgia. 

Let’s also identify some of the key factors defining who is supporting who in the conflict:

1. Gas & Oil: Qatar & Saudi Arabia on the supply side and Turkey and France/UK on the demand side against the Syrian government;
2. Access to the Mediterranean: Russia is supporting the Syrian government to preserve key assets in an important geography;
3. Containment of Iran and protection/appeasement of Arabian Gulf States (Qatar, Saudi Arabia & UAE mainly): USA in contraposition to the Syrian government.

Let’s analyze point 3 in a little bit greater detail because I believe that some of the current discourse is failing to point out the true geopolitical reach of the shale gas development in the USA and its implications for the Middle East. 

We all know that the discovery and exploitation of shale gas in the USA is accelerating by the month. This is a significant variable that is bound to change the geopolitical strategy of the USA moving forward.

News are telling us that the USA is bound to be energetically independent by 2020, just 6 years away.

At that point the USA will no longer need oil resources coming from the Middle East changing radically some of the key relationships with the Gulf States that are currently supplying the US with their oil (although not as much as thought by mainstream people).
The players that will require most of Middle Eastern oil will remain China, India, few countries in South East Asia. 

The US involvement in the region is not bound to lessen though as it will be necessary for the superpower to exercise its political and military influence to control the oil supply into third countries like China and India, the former perceived as a country to contain. Price and access will be defined by many factors, and political stability in the region will be a key factor. The ability to influence the stability (or instability) of the region is going to act as a price gauge and therefore an economic control over the countries that are bound to import energy resources.

Therefore, instability in the region might be considered an advantage for the US on two counts: manage the cost of economic resources for the countries to contain: China as well as continue selling all necessary military hardware to the players in the region: see Saudi Arabia, UAE, Qatar, Bahrain.

Russia and China are completely aware of the stakes and can’t let go of Syria. Too much at stake after having let the Libyan affair take place.

To our readers: please go behind the surface. 

Sirya is just a symbol of a new geopolitical order in the making. Energy resources and control is the name of the game. 

Russia's involvement and diplomatic leadership shown recently is bound to bring stability to a very volatile situation. The red line after all seems to have been drawn by Mr. Putin more than by Mr. Obama in this case. A resolution of the latest tension is bound to benefit the stability in the region.

We reassert our opinion that while the Middle East remains a complicated region it is also one of the regions that mostly favor foreign direct investment and that has been successfully shaken off the 2008 crisis showing proper growth over the past few years.

Update: sanctions to Iran, EU Council Regulation 267/2012 and varies

I take the long overdue oppounity to post again on this blog after new EU regulations have amended existing sanctions against the Islamic Republic of Iran.

This post may be of interest for the business people that follow this matter or businesses that used to have trade with Iran.

On March 23, new regulations have been enacted to close off existing loopholes in previous regulations and therefore additional verbiage has been included to define:

• transfer of funds;
• brokerage services;
• new rules to authorize payments to and from an Iranian entity or individual.

As of the new regulations (EU 267/2012):

1. Transfer of funds: the definition now includes "non-electronic transfers" to avoid any attempt of circumvention by using cash based systems. The definition stands as follows: "any transaction carried out on behalf of a payer through a payment service provider by electronic means, with the view to making funds available to a payee at a payment service provider, irrespective of whether the payer and the payee are the same person. The term payer, payee and payment service provider have the same meaning as in Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market; any transaction by non-electronic means such as in cash, cheques or accountancy orders, with the view of making funds available to a payee irrespective of whether the payer and the payee are the same person.

2. Brokerage services: the definition stands as, "the negotiation or arrangement of transactions for the purchase, sale or supply of goods and technology or of financial and technical services including from a third country to any other third country. The selling or buying of goods and technology or of financial and technical services, including where they are located in third countries for their transfer to another third country".

3. Payment authorizations: payments involving foodstuff, medical equipment or for humanitarian purposes don't require previous authorization if below 40,000 euros in value, although transfers above or equivalent to 10,000 euros require written previous notification to the competent authorities. Transfers above 40,000 euros require previous authorization from competent authorities. Transfers related to all other types of goods require previous authorization from competent authorities. Please note that multiple transfers by similar parties linked to the same legal contract are bound to be cumulative in value and therefore subject to previously outlined parameters.

Additional pertinent information about these amendments:

• oil contracts: any permitted dealings in crude oil contracts prior of July 2, 2012 must be notified in writing to the authorities of the competent Member state 20 working days in advance;
• additional restrictions have been imposed with regards to: gold, diamonds, precious metals and specific petrochemical equipment and materials;
• some derogations included in the amendments: freezing of the assets of the Central Bank of Iran, some adjustments on insurance provisions and derogations concerning transfers to diplomatic, consular and international organizations.

Further information related to the Iran sanctions but unrelated to the EU provisions:

• SWIFT: the Society for World Interbank Financial Transaction has disconnected last week 30 Iranian banks, including the Iranian Central Bank, from the system making it de facto almost impossible to carry out large financial transactions. We are bound to see a large increase in barter transactions or compensation based transactions.
• The USA has exempted the EU and Japan from sanctions since both parties have substantially reduced their dependence on Iranian oil. Although pressure is mounting on India and China to follow suit or face issues.
• Oil revenue for Iran: sources estimates that Iran is currently selling its oil at a 10-15% discount. If targeted countries are going to follow up with their purchases reduction of Iranian oil the economy is currently facing approximately $24B in lost revenue.
• Oil repercussions: any further tension in the Gulf is bound to raise crude prices to above $150USD per barrel. Such increases for prolonged periods is bound to create a recession worth 1% in the EU this year; further IATA warned that high cost of fuel can send few airline operators into bankruptcy if sustained over a few months.
• Trading: in the face of mounting sanctions the Iran government is trying to accumulate as much food commodities as possible. Sources have mentioned that Iran have bought 2M tons of wheat from Geermany, Canada and Russia over the last few months and paid in currencies other than Euros and USD.

Iran sanctions - update, unilateral sanctions from the USA

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”).

Cisada is amending the Iran Sactions Act ("ISA") to create additional activities that could subject non-US firms to sanctions.

The additional activities that are now subject to sanctions include those that support the production of refined petroleum products and the one that involve the importation of refined petroleum product into Iran.

Further, in line with the most recent UN sanctions, the new law targets all financial institutions that support Iran's development of its nuclear program and the activities of the Revolutionary Guard Corps.

The implication of this legislation can be far reaching as it now involves the operations of non-US subsidiaries or affiliates  and non US business partners. 

The new amendments targeted investments of US $1M or more or an aggregate market value of US $5M or more in a 12-month period. Prior of this latest amendment the targeted investment were US $20M or more.

Specifically, the Amendments sanction the sale, lease or provision to Iran of:

"goods, services, technology, information, or support that could directly and significantly facilitate the maintenance or expansion of Iran's domestic production of refined petroleum products, including any direct and significant assistance with respect to the construction, modernization, or repair of petroleum refineries"; and

refined petroleum products or "goods, services, technology, information, or support that could directly and significantly contribute to the enhancement of Iran's ability to import refined petroleum products," including activities such as underwriting, insuring, reinsuring, financing, brokering, or providing ships or shipping services.

According to the "ISA" investigations into this matter are initiated by the President upon receipt of credible information.

If the President determines that sanctions must be enacted according to the previous "ISA" directive the President had to impose 2 out of 6 sanctions:

• Denial of Export-Import Bank loans, credits or guarantees; 
• Denial of licenses to export military or militarily useful technology;
• Prohibition on U.S. financial institutions making loans or providing credit of more than US$10 million in any twelve-month period (with minor exceptions);
• Prohibition on obtaining U.S. Government procurement contracts;
• Restrictions on imports into the United States; and
• If the violator is a financial institution, prohibition on being designated as a primary dealer in U.S. Government debit and/or prohibition on acting as an agent for U.S. Government funds.

With the new Amendments the ISA now requires the President to apply 3 out of the 9 sanctions available. 3 additional sanctions have been added and would prohibit:

• Foreign exchange transactions in the United States; 
• Transfer of credits or payments by financial institutions in the United States; and 
• Dealings in property in the United States.

The Amendments also expand the definition of "person" and "petroleum resources":

The definition of "person" now includes: financial institutions, insurers, underwriters, guarantors, and other business organizations. 

The definition of "Petroleum resources" is now defined to include "petroleum, refined petroleum products, oil or liquefied natural gas, natural gas resources, oil or liquefied natural gas tankers, and products used to construct or maintain pipelines used to transport oil or liquefied natural gas."

EFFECTIVE DATE: 

The Amendments take effect immediately. The Amendments provide a one-year grace period for the launching of investigations of persons engaging in activities related to the production or importation of refined petroleum products, however. Such persons are subject to investigation only for sanctionable activities that commence on the one-year anniversary date of the Amendment's enactment, or thereafter.

Tariff increase by EU for petrochemicals good from UAE, Pakistan & Iran

As reported by "The National" the EU bloc has applied significant tariffs on to petrochemicals product of UAE, Pakistani and Iranian origin.

The duties imposed are for four to six months and may be extended to five years. They are as high as €142.97 (Dh640.89) a tonne.

Petrochemical subsidies have been a central sticking point in negotiations over a free trade agreement between the EU and GCC. European policymakers argue petrochemical companies in the GCC have an unfair advantage over EU producers because of the lower price of oil, which is the result of government subsidies. They claim this helps to make GCC goods artificially competitive against EU products.

These protectionists moves are just an effect of the worsening economic situation in Europe and doesn't spell good news for some of the manufacturing companies that rely on European demand and will force the latter to find new ways to increase their competitiveness, or perhaps cry for additional oil subsidies.

Full article on The National here.

Iran sanctions - a perspective

Over the past few weeks I have started to become more and more familiar with a topic that has started to receive quite a lot of attention recently: the Iranian sanctions.


Living in the United Arab Emirates makes this topic a hot one. The UAE is in fact a key trade partner of Iran and the relationship between the two countries go well beyond trading since much of the local population in the country is of Persian descent. It makes matter politically more complicated since the two countries are great trading partners but they share a territorial dispute over a group of island located in the Gulf. Now even the way the Gulf is called is cause of controversy since one side calls it the Arabian Gulf and the other call it the Persian Gulf.


I will not pass a judgement on the value of the sanctions per se but I would rather focus my attention on the practical matter behind them.
I have had several conversations with business men in the west that I am afraid have develop knowledge about the sanctions from the media (CNN, Sky News, BBC, etc) and that is cause of concern as sometimes the necessity to create bold news goes beyond its substance.


I recommend all the people interested to download and read the latest sanctions (June 9, 2010 - Resolution 1929) at the following link: http://www.un.org/News/Press/docs/2010/sc9948.doc.htm

Contrary to what many people think: the sanctions don't preclude commerce of trade with Iran. They regulate trade of specific items listed in the various UN resolutions started with the one of 2006.

My statement doesn't want to minimize the importance and implications of the sanctions but rather put them under the right perspectives.

Other countries or other specific supernational bodies establish unilateral sanctions beyond the one passed by the UN resolutions: specifically, the United States, United Kingdom and the European Union. 

These set of regulations tend to establish more restrictive guidelines than the one established by the UN.

Companies take it upon themselves to develop the range of their action in line with the sanctions. 

It goes without saying that certain companies or financial institutions have taken it upon themselves to go beyond the sanctions and stopped providing services to Iranian companies and/or Iranian nationals.

More specifically with regards to the existing UN sanctions:

• The Resolution expands existing sanctions on Iran by:
• identifying additional persons (individuals and entities) subject to an asset freeze; 
• identifying additional persons subject to a travel ban; 
• banning the provision of financial services (including insurance and reinsurance) to Iran in certain cases;
• banning the sale or transfer of specified equipment and related services and technical data; 
• calling for inspections of cargo to and from Iran where there is a reason to believe the cargo contains prohibited material; 
• banning bunkering services to vessels owned by or contracted to, Iranian persons, where the vessels are transporting prohibited cargo; and 
• prohibiting Iran from acquiring any commercial interest in uranium “mining, production or use of nuclear materials” and specified technology.

To monitor UN members’ compliance with this Resolution, the Security Council has also established a panel of up to eight experts. The panel will collect and review reports, due by August 8, from members detailing how they have implemented their obligations under UNSCR 1929.

Meanwhile, the European Union is considering further tightening sanctions against Iran, and the U.S. Congress continues to negotiate with the Obama administration about the scope of additional sanctions against third- country companies in the Iran Sanctions, Accountability and Divestment bill, currently in a House-Senate conference committee.

Asset Freeze

UNSCR 1929 calls on States to freeze the funds, financial assets and economic resources of:

• Persons designated in Annex I (see below) to the Resolution because of their involvement in Iran’s nuclear or ballistic missile activities;
• The Islamic Revolutionary Guard Corps; 
• Persons acting for, or at the direction of, persons identified in Annex I (see below) to the Resolution or the Islamic Revolutionary Guard Corps; 
• Any persons the Council identifies as having assisted designated persons in evading or violating Resolutions 1737 (2006), 1747 (2007), 1803 (2008) or 1929 (2010); and • First East Export Bank, P.L.C., (designated a subsidiary of Bank Mellat) Irano Hind Shipping Company, IRISL Benelux NV and South Shipping Line Iran (SSL) (designated subsidiaries of IRISL).

Travel Ban

UNSCR 1929 also imposes a travel ban on persons identified in Annexes I and II (see below) of the Resolution and in Resolutions 1737 (2006), 1747 (2007) and 1803 (2008), given concern over participation by these persons in Iran’s nuclear or ballistic missile programs.

Financial Services Ban

UNSCR 1929 restricts Iran’s use of the international financial system to fund proliferation and nuclear activities. Specifically, it calls upon States to:

• Prevent the provision of financial services (including insurance or re-insurance) or the transfer to, through, or from their territory, or to or by their nationals or entities organized under their laws (including branches abroad) of any financial or other assets or resources, including by freezing any financial or other assets or resources in their territories or that come within their territories;
• Prohibit Iranian banks from establishing new joint ventures, taking an ownership interest in or establishing or maintaining correspondent relationships with banks in their jurisdiction; and
• Prohibit financial institutions within their territories from opening representative offices or subsidiaries or banking accounts in Iran.
• All these prohibitions, however, are conditioned upon reasonable grounds for believing that the targeted activity could contribute to Iran’s proliferation-sensitive nuclear activities.

Export ban: equipment and related services and technical data

As an expansion of the export ban established in Resolution 1737 (2006) (which called on States to prevent the supply, sale or transfer to Iran of goods and technology that would contribute to enrichment-related, reprocessing or heavy water-related activities and the development of nuclear weapon delivery systems) the new Resolution calls on Member States to prevent:

• The sale or transfer to Iran of battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems;
• The sale or transfer to Iran of material related to the above, including spare parts; 
• The transfer to Iran of technical training, financial resources or services, advice, other services or assistance related to the supply, sale, transfer, provision, manufacture, maintenance or use of such arms or related materiel; and 
• The transfer to Iran of technology or technical assistance related to ballistic missiles capable of delivering nuclear weapons.

Inspections of Cargo

To enforce the export restrictions listed above, UNSCR 1929 calls for the inspection of cargo to and from Iran where States have information that provides reasonable grounds to believe the cargo contains items prohibited by Resolutions 1737, 1747 or 1803.Such items include those which relate to Iran’s enrichment-related reprocessing or heavy water-related activities, and the development of nuclear weapon delivery systems, arms and related material, or nuclear related dual-use material.

The Resolution also authorizes States to seize and dispose of prohibited cargo identified during authorized inspections.

Bunkering

To further enforce the export ban, UNSCR 1929 calls on States to prohibit the provision of bunkering services by their nationals or from their territory, including the provision of fuel or supplies, or other servicing of vessels, to Iranian-owned or Iranian–contracted vessels, including chartered vessels, where there is reason to believe that the cargo is prohibited by specified sections of Resolutions 1737, 1747 or 1803.

Interests in Uranium Mining or Production or Use of Nuclear Materials

UNSCR 1929 also calls on States to prohibit any Iranian investment (Iranian investment includes investment by Iran, Iranian nationals, entities incorporated in Iran or subject to its jurisdiction, persons or entities acting on their behalf or at their direction, or entities owned or controlled by any of the above) within their jurisdictions relating to uranium mining, production or use of nuclear materials and technology, including uranium-enrichment and reprocessing activities, all heavy-water activities or technology related to ballistic missiles capable of delivering nuclear weapons.

Annex I to UNSCR 1929 - Individuals and entities involved in nuclear or ballistic missile activities

Amin Industrial Complex

Armament Industries Group

Defense Technology and Science Research Center

Doostan International Company

Farasakht Industries

First East Export Bank

P.L.C Kaveh Cutting Tools Company

M. Babaie Industries

Malek Ashtar University

Ministry of Defense Logistics Export

Mizan Machinery Manufacturing

Modern Industries Technique Company

Nuclear Research Center for Agriculture and Medicine

Pejman Industrial Services Corporation 

Sabalan Company

Sahand Aluminum Parts Industrial Company (SAPICO)

Shahid Karrazi Industries

Shahid Satarri Industries

Shahid Sayyade Shirazi Industries

Special Industries Group

Tiz Pars

Yazd Metallurgy Industries

Javad Rahiqi

Annex II to UNSCR 1929 - Entities owned, controlled, or acting on behalf of the Islamic Revolutionary Guard Corps

Fater (or Faater) Institute

Gharagahe Sazandegi Ghaem 

Ghorb Karbala

Ghorb Nooh

Hara Company

Imensazan Consultant Engineers Institute

Khatam al-Anbiya Construction

Headquarters

Makin

Omran Sahel

Oriental Oil Kish

Rah Sahel

Rahab Engineering Institute

Sahel Consultant Engineers

Sepanir

Sepasad Engineering Company

Further US sanctions

Despite the passage of additional UN sanctions, the U.S. Congress appears committed to passing additional Iran- related sanctions legislation later this month. The Obama administration continues to negotiate with the House- Senate conference committee on the pending bill to amend the Iran Sanctions Act.

The legislation under consideration may:

• 
  
  Require sanctions on any entity worldwide that provides Iran with refined petroleum resources or engages in an activity that could contribute to Iran's ability to import such resources.
• 
  
  Require sanctions on entities worldwide that invest more than a specified amount of money in businesses involved in Iran's petroleum industry.
• 
  
  Prohibit efforts to expand or improve Iran's oil production or refinery capacity and any related shipments.

If enacted, certain provisions will be extra territorial in their potential impact. It could catch a London based trader, shipowner, ship broker, financial institution, P & I Club or other insurer/reinsurer. The targeting of ships and related services may also cover ship managers, class societies, ship registries, bunker suppliers and chandlers.

As such, any company or individual worldwide found to have violated these provisions would be unable to lawfully conduct foreign exchange, banking or property transactions with any person required to comply with U.S. law – effectively ending that person’s ability to do business in U.S. dollars.

The European Union

The European Union will discuss imposing sanctions going beyond Resolution 1929 at meetings scheduled to take place earlier this week in Luxembourg and on June 17-18 in Brussels. No binding EU action is expected before July.

Summary of sanctions for Resolution 1929 kindly provided by Nigel Kushner.