Australia/Israel & Jewish Affairs Council

New US and EU sanctions on Iran/Islamists in Egypt and the Palestinian territories

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Update from AIJAC

January 25, 2012
Number 01/12 #05

This update looks at the latest sanctions imposed by the US and European Union on Iran’s oil industry and Central Bank; how an Islamist-controlled Egyptian Parliament will affect the country's ties with Israel; and the chances of Hamas winning Palestinian elections mooted to be held in May.

First up, Patrick Clawson, Director of research and head of the Iran Security Initiative at The Washington Institute, explains the practical implications of the latest tranche of sanctions on Iran. Clawson writes that Iran will be most affected by the “pressure on EU banks to limit or end dealings with Iran's Central Bank” and shows that European governments are serious in applying political pressure on Teheran's pursuit of nuclear weapons. To read this timely analysis  CLICK HERE.

Next up, top Middle East pundit Barry Rubin warns that much of the West and media are mistaking the Muslim Brotherhood’s patience for moderation. As the Brotherhood took its seats in the Egyptian Parliament this week after winning 47% of votes, there is little by way of evidence to suggest that the organisation is moderating its positions, he writes. With the next biggest party the even more radical Salafist al-Nour Party attracting 25% electoral support, the Brotherhood will be pulled “toward a more militant stance”, he predicts. Rubin also weighs up the possible implications the new regional alignment will have on the Israeli-Egyptian peace treaty. To read this article, CLICK HERE.

Finally, Jonathan Tobin, Commentary magazine’s senior online editor, discusses the effect Islamist electoral successes in the Arab world are having on Palestinian politics. The real possibility that Hamas would win control over the Palestinian Authority has seen senior Fatah officials talking of postponing elections scheduled for May. To read this article, CLICK HERE.

Readers may also be interested in:

  • Elliot Abrams on why the Arab Spring shows the neo-conservatives were correct in suggesting that the Middle East was craving democracy.
  • Daniel Pipes on allegations that electoral fraud in Egypt ensured the Islamist parties won most of the seats.
  • A scathing attack on a French report that compares Israel’s water policies in the West Bank to apartheid.
  • The price Hezbollah has paid for backing the Assad regime in Syria.
  • AIJAC’s Colin Rubenstein in the Jakarta Post on why and how responsible governments must work together to stop Iran gaining nuclear weapons. 

 


Analyzing the Impact of European Sanctions

By Patrick Clawson
Washington Institute for Near East Policy, January 24, 2012

WHAT DOES THE UNPRECEDENTED NEW EUROPEAN UNION OIL EMBARGO ON IRAN MEAN IN PRACTICAL TERMS?

The direct impact of the new EU oil embargo is relatively limited. Economists like to say that oil is "fungible," that is, oil not sold to the EU could be sold to other countries, and so the net impact is the small cost of redirecting ship traffic and adjusting refineries to use a different mix of oil.

But the indirect impact could be much greater. In part that is because the EU will also be applying pressure on EU banks to limit or end dealings with Iran's Central Bank. Furthermore, the EU action may lead businesses, both from the EU and elsewhere, to reevaluate their presence in the Iranian market, which may be seen as becoming more problematic, that is, politically controversial and potentially subject to more and more government restrictions.

Perhaps the most important impact of the new EU oil embargo is that it signals a considerable toughening in the EU's political stance towards Iran. That could suggest that the EU would consider other economic and political measures against Iran if the nuclear impasse drags on. It would appear that the EU and the United States now largely agree on Iran policy, including the desirability of pressing Iran harder. That is quite a change from a decade ago, which is not a good development from the perspective of Iran's leaders.

HOW FAST COULD IT HAVE AN IMPACT ON IRAN'S ECONOMY?

The direct impact of the EU oil embargo will take many months. Sales are permitted through June, and payment would continue for some months after that for oil shipped up through June.

But the EU oil embargo may be felt indirectly much more quickly. For one thing, many EU purchasers may scale back or end purchases well before the July 1 deadline. More importantly, Iranians may react to the EU oil embargo by anticipating that worse economic times are coming and that they should take measures to protect themselves. The Iranian currency, which is already under heavy pressure, is particularly vulnerable both because of concern about sanctions and because of Tehran's economic policies.

The EU actions come at a difficult moment for Iranian economic policy. The government has a large deficit because of the cost of the cash payments to individuals introduced when subsidies ended. Many businesses are having great difficulty paying the unsubsidized cost of fuel and electricity. To cover the government deficit and help business deal with higher costs, Tehran has apparently adopted an expansionary monetary policy, which is in turn feeding inflation. Inflation then contributes to worry that the rial is worth less, causing people to seek foreign currencies. This destructive cycle may get worse in the period before the March 21 Nowruz festival, a traditional time for major purchases.

Public perception that prices are spiraling upwards and the rial is spiraling downwards will not be welcomed by the government in the run-up to the March parliamentary elections. The risk for the authorities is that a significant part of the public blames government actions for incurring sanctions that hurt the economy. To date, the authorities try to simultaneously downplay the impact of the sanctions and to blame the foreign enemies of the Islamic Republic for the country's economic difficulties.

WHAT IMPACT IS IT LIKELY TO HAVE ON WORLD OIL MARKETS AND THE PRICE OF OIL IN THE UNITED STATES?

The price of oil depends in part on supply and demand, neither of which is likely to be much affected directly by the EU oil embargo. However, there may be indirect effects, for instance, if Iran reacts by closing the Strait of Hormuz or attacking shipping.

But perhaps at least as important will be the perceptions by market actors that the EU oil embargo may signal greater political tensions. Many analysts argue that world oil prices already include a "risk premium" due to concerns about potential conflict in the Gulf. That premium could rise. A contributory factor is that with world interest rates so low, the cost of holding oil stocks is not particularly high, which may make it more attractive to speculate that oil prices will go higher. Speculative or precautionary stock-building adds to demand, thereby driving prices higher in a way which confirms the speculators' expectations about future price increases. Some commentators have argued that such self-fulfilling prophecies contributed to sharp increases in oil prices in recent years.

HOW IS IRAN LIKELY TO REACT?

Iran will search for other markets to which to sell oil. But that effort could be complicated by U.S. and EU pressure on banks around the world not to deal with the Central Bank of Iran, especially on oil sales. Several Asian purchasers of Iranian oil have recently had difficulties arranging for payment. Presumably accelerated use of blocked accounts (the purchaser pays in local currency, which Iranian customers then use to buy goods in that country for shipment to Iran) will provide one alternative for sale of much if not all of Iran's oil. Another alternative is payment in currencies other than dollars or in gold. But these workarounds could impose additional costs on Iran, reducing the value of its oil exports. Furthermore, in recent weeks, Iran has not been particularly skillful at marketing its oil, insisting on tough terms with Chinese and Indian customers who had expected discounts.

Various Iranian officials have threatened that if Iran were not able to export its oil, then Iran would attack oil shipments from other countries as they pass through the Strait of Hormuz. The Islamic Republic of Iran has periodically made similar threats, notably after the April 1980 U.S. hostage rescue attempt. But Iran has never followed through on its threats.

On the other hand, Iran did attack shipping in the Strait and the Persian Gulf between 1984 and 1988 in the so-called "tanker war" during the Iran-Iraq war. When Iran attacked shipping, it denied responsibility for doing so until caught red-handed on video by U.S. forces. In short, when Iran threatened, it did not act; when Iran acted, it denied responsibility.

There are strong reasons for Iran not to attack shipping in the Strait. Many maritime powers would object strongly to such attacks, and some might react militarily, potentially against Iran's oil shipments. But Iran has at times acted in ways that do not seem to advance its own interests, such as in the recent ransacking of the British embassy or the alleged plot to kill the Saudi ambassador to the United States. So Iran may not calculate its interests in the same way as Western commentators do.

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Egypt’s Parliament Is 75% Islamist: Egypt-Israel Peace Agreement is Dead Even if Treaty Still Exists

Barry Rubin
Pajamasmedia.com
January 23, 2012

We’re starting to get a good picture of what the lower house of Egypt’s parliament will be like. Close to 50 percent of the seats will be held by the Muslim Brotherhood. Another 25 percent will be held by the al-Nour party of Salafists. With 75 percent, the two Islamist parties will be able to do as they please.

But, they — or at least the Brotherhood — are determined to be cautious. Note that there is a big difference between actually being moderate and simply being patient, advancing step by step toward radical goals. The Western media will report that the Brotherhood is indeed moderate. Actually, as I review coverage over the last year it is almost impossible to find even a single article in the mass media that reports any such evidence, much less analysis, despite the massive documentation available to the contrary .

The non-Islamist seats will be held by the Wafd, nine percent, and the Free Egyptians Party, another nine percent, with the rest spread among a dozen different parties, mainly liberal with a small number of leftists. The Wafd will be willing to make deals with the Islamists in order to obtain a share of power for itself. Only the Free Egyptians will oppose them with determination.

There is no reason to believe the “moderates” will be able to work together; the Islamist parties also won’t unite. There is, however, an important difference. While the Wafd’s cooperation with the Brotherhood will undermine the ability of anti-Islamist forces doing anything at all, the Salafists will pull the Brotherhood toward a more militant stance.

Both Islamist parties will support laws making Egypt more Islamist, and when the Brotherhood does less than the Salafists want it will be proclaimed as moderate. Yet the two parties have no substantive difference on foreign policy except about how openly anti-American they will be and how active to push on conflict with Israel.  Internationally, the Brotherhood will be portrayed as a wonderful bulwark against the Salafists, even as it moves Egypt step by step down the road toward radical Islamism.

Two key events will dominate Egyptian politics: writing the constitution and also the election of the president, currently expected in June. In order not to scare people, the Brotherhood continues its strategy of not directly sponsoring a presidential candidate. It is likely, however, that the Islamists will vote for Islamist candidates and in any run-off the likely two candidates will be an Islamist, probably Abdel Moneim Aboul Fotouh, and the radical nationalist Amr Moussa. But here’s a thought: what if the two candidates that receive the largest number of votes in the first round are both Islamists? That could mean an all-Islamist run-off between the Brotherhood’s favorite and a Salafist.

Finally, here are some thoughts about the Egypt-Israel peace treaty. This provides a wonderful case study of how the media and elite analysts have entirely missed the point. Generally, the discussion is over whether the Islamists will explicitly revoke the peace treaty.  It is said that they will be moderate because they won’t tear it up.

The problem is that for all practical purposes they have already done so. Consider what the treaty is all about. It was Egypt’s acceptance of Israel’s existence, agreement that there were no issues between the two countries that could lead to war, and pledge that there would be no more armed conflict.

Yet the Brotherhood and the Salafists do not accept Israel’s existence, they openly look forward to wiping it off the map. They see multiple issues between the two countries worth fighting wars about. They are the patrons of Hamas. And we can no longer assume that Egypt will not go to war with Israel.

Thus, whether or not the piece of paper remains, it is now meaningless. For example, there will still be an Israeli embassy in Cairo but no Egyptian government official will meet the ambassador and no Egyptian would dare talk to an Israeli diplomat. Israeli tourists will be able to visit Egypt but few will do so because of the security risk.  There will also be a natural gas pipeline but it will be out of operation most of the time due to terrorist attacks.

True, it is better to have the treaty in existence, for its dissolution would be a sign that war is closer. Yet the treaty no longer has any content. In other words, the treaty will probably exist until, if that ever happens, the day Egypt’s government goes to war with Israel. And if Egypt does not go to war with Israel it will not be because of the treaty, or the belief that disputes have been resolved, or a decision that war is no longer desirable.

It will only be because the Islamists calculate that they might not win the war, that the armed forces will oppose going into a losing battle, that the generals fear losing U.S. military aid, and that Egypt had a president who opposed war.

But none of those four points — which might be sufficient to prevent an open war — relate to the thinking of President Anwar al-Sadat and other Egyptian leaders that the two countries were now in a situation of “no more war, no  more bloodshed.”

Remember that due to realistic calculations, Syria has not attacked Israel directly for almost 40 years but there is no peace between those two countries and the Syrian government has constantly plotted attacks on Israel through Lebanon and by terrorist groups in various places. The Gaza Strip is now Egypt’s equivalent of Lebanon.

There should be no doubt that the Brotherhood and Salafists will promote war with Israel indirectly, through Hamas and other fronts. Egyptian volunteers might go into the Gaza Strip to fight; weapons, money, and terrorists will cross the Egypt-Gaza border without restriction. Hamas camps are already opening in the Sinai that will make weapons and organize supplies.

So the treaty is useless, except for limiting conventional Egyptian military forces in eastern Sinai. If Egypt’s army doesn’t advance, breaking the limits set by the treaty for that zone, that is a good thing, a sign that it is not about to attack Israel.

But there will be various terrorists and Hamas units operating in the area anyway, using it as a safe haven. Even if al-Qaeda, Islamic Jihad, or Hamas were to attack Israel from eastern Sinai, Israel could not retaliate there lest that bring war with Egypt. Israel will have to depend on Egypt’s army to police the area and block terrorists. But once a new constitution and president are in place, Egypt’s army cannot be depended on to do so.

What would happen to a general who was too vigorous in, to use the common Arabic expression, being “Israel’s defender”?

Do you think we will be seeing headlines reading: “Egyptian authorities arrest terrorists planning to attack Israel”? Are we going to be hearing news items like: “The Egyptian government has confiscated rockets, mortars, and weapons being shipped into the Gaza Strip for use against Israel”? And if not, then how is Egypt’s government observing the peace treaty?

>From Israel’s standpoint, of course, the treaty has no value.

Thus, while Western analysts cheer about the “continuation” of the Egypt-Israel treaty, it is now effectively a dead letter.

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The Islamist Winter and Middle East Peace

Jonathan S. Tobin
Commentary online, Jan. 22, 2012

Anyone inclined to be sanguine about the future of Palestinian politics need only read the latest report by the Jerusalem Post's Khaled Abu Toameh to understand that the threat of a Hamas takeover of the West Bank is real.

The Fatah-Hamas unity agreement concluded last year may not yet have been consummated but, as Abu Toameh writes, even Fatah officials are starting to understand that if they allow another election, the Islamists may take control of all of the territories just as their Muslim Brotherhood allies have done in Egypt. According to Abu Toameh, Fatah officials are now openly expressing worry about the outcome of these elections, assuming they are held in May as Palestinian Authority President Mahmoud Abbas has promised.

No one should be holding their breath waiting for Abbas to make good on that pledge. Given that he is in now about to start the 8th year of the four-year-term to which he was elected in 2005, Abbasʼs idea of democracy is limited to elections that he thinks heʼll win. Yet the pact he signed with Hamas last year is an indication he believes he cannot govern indefinitely without the protection of the radical terrorist group. Thatʼs a piece of intelligence that should inform not only Fatah, but those in the United States that are urging Israel to make further concessions to the Palestinians in the vain hope they will finally agree to make peace.

It is possible to disagree about the current extent of the PAʼs moderation but there should be no uncertainty about what a Palestinian government that included Hamas would mean. As reluctant as Abbas and Fatah have been to accept the legitimacy of a Jewish state, we know that Hamas will never make peace with Israel or give up its war to eradicate it for long.

The problem is not, as many Americans, including those who count themselves as Israelʼs friends, that the government of Prime Minister Benjamin Netanyahu has not been forthcoming enough to satisfy the Palestinians. It is that Palestinian public opinion is such that no PA government, whether run by Abbas or Hamas, can afford to accept the Palestinian state that Israel has been offering for more than a decade. What is needed is not more pressure to make Israel bow to Palestinian demands but pressure on the Palestinians — which can be exerted via the aid the West gives the PA — to make them understand that their only choice is between peace and utter ruin.

The Arab Spring that many hoped would bring democracy to the Muslim world has morphed into an Islamist Winter that promises nothing but sorrow and future conflict. If the Palestinians, like the voters of Egypt, ultimately choose to embrace radical Islamists, there is not much the West can do to stop them. But they can draw the proper conclusions from this turn of events and forebear from policies that are based on the assumption that the Palestinians still desire peace with Israel. This is especially true for an Obama administration that is still beguiled by the chimera of a peace accord that the Palestinians clearly have no intention of signing no matter where it might place Israelʼs borders.

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