Bank of Israel Governor Stanley Fischer expressed doubt on Monday that economic
sanctions against Iran would lead to the collapse of its economy.
In an
interview with CNBC, Fischer said that while the Iranian economy would “continue
to go down,” the regime likely would “find a way to continue to keep economic
life going.”
He did say that sanctions could have a political impact in
Iran and that “what happens next depends on how [Iranian] authorities deal with”
their worsening economic predicament.
Fischer predicted that “sanctions
will continue be tightened as long as the Iran program is seen to be proceeding
rapidly.”
He also said that the Bank of Israel was preparing for all
sorts of eventualities, including for a possible war with Iran.
“We do
plans, we do scenarios, we do exercises about how the central [bank] will work
in various situations,” he said.
Fischer’s comments came less than a
month after Finance Minister Yuval Steinitz told Israel Radio that Iran’s
economy was edging toward collapse due to international sanctions.
“The
sanctions on Iran in the past year jumped a level,” Steinitz said. “It is not
collapsing, but it is on the verge of collapse. The loss of income from oil
there is approaching $45 billion-$50b. by the year’s end.”
On Tuesday,
Iran said it would stop oil exports if pressure from Western sanctions got any
tighter and that it had a “Plan B” contingency strategy to survive without oil
revenues.
Western nations led by the United States have imposed tough
sanctions on the Islamic Republic this year in an attempt to curb its nuclear
program, which they say is designed to produce atomic weapons. Tehran says its
nuclear plans are peaceful.
“If sanctions intensify, we will stop
exporting oil,” Iranian Oil Minister Rostam Qasemi told reporters in
Dubai.
Qasemi’s statement is the latest in a series of retaliation
threats by Tehran in response to the sanctions, which have heightened political
tensions across the Middle East and, analysts say, led to a sharp drop in
Iranian oil exports.
“We have prepared a plan to run the country without
any oil revenues,” Qasemi said, adding, “So far to date we haven’t had any
serious problems, but if the sanctions were to be renewed, we would go for ‘Plan
B.’” He said Iran was “hopeful” there would be no need to cease exporting oil to
the world, “because citizens will suffer. We don’t want to see European and US
citizens suffer.”
He added that the loss of Iranian oil on the market
would drive up oil prices.
Analysts brushed off Qasemi’s
threat.
“It’s just making noise. It would be like cutting off their nose
to spite their face,” said Leo Drollas, chief economist at the Centre for Global
Energy Studies. “Iran needs to export its crude more than other countries need
to import it. They are desperate for cash.”
Sanctions have already
reduced Iran’s exports to around 1 million barrels per day (bpd.) compared to
2.2 million bpd. in 2011. China, India, Japan, South Korea and Turkey now count
as Tehran’s main buyers.
The US government has focused on blocking Iran’s
oil exports because it estimates that crude sales provide about half of Iranian
government revenues and that oil and oil products make up nearly 80 percent of
the country’s total exports.
The rial plunged by about a third against
the US dollar in the week of October 2, reflecting a slide in oil income wrought
by tightened sanctions over the summer.
How long the economy could
function without selling any oil is unclear, but Iran has large currency
reserves accumulated over decades as one of the world’s largest oil
suppliers.
“What else can they export to generate the necessary
revenues?” Carsten Fritsch of Commerzbank said in the Reuters Global Oil
Forum.
Because of the slide in the rial and oil export earnings, the
government is already moving onto an austerity footing, cutting imports of
non-essential goods and urging its citizens to buy fewer foreign
products.
Iran has said in the past that it could shut the vital shipping
lane of Hormuz at the head of the Middle East Gulf. However, a large Western
naval force sent to keep open the route – through which about a third of the
world’s seaborne oil exports pass – might be a large obstacle to such an
attempt.
Earlier on Tuesday, Qasemi said Iran was still producing 4
million bpd., rejecting reports that the country’s output had fallen to around
2.7 million bpd.
According to the latest secondary source estimates
published by the Organization of the Petroleum Exporting Countries, Iran pumped
just 2.72 million bpd. in September, and the data Iran itself submitted to OPEC
showed the country produced 3.75 million bpd. in August.
The
International Energy Agency (IEA) estimates that Iranian exports fell to a new
low of 860,000 bpd. in September, down from 2.2 million bpd. at the end of
2011.
Assuming a crude oil price of $110, such a sharp drop means Iran is
making just $95 million from daily crude sales last month, about $147m. less
every day than it was making late last year.
Nevertheless, Qasemi said
Iran was pumping oil at full capacity and refining more of its own oil to meet
domestic demand.
“It is currently 4 million barrels per day,” he said,
declining to give export figures.
“Iran has been facing US sanctions for
30 years while successfully managing its oil sector,” he added.
He said
Iran’s refining capacity was now 2 million bpd., with another 200,000 bpd. of
capacity to be added before the end of Iranian year next March.
The
increase in refining capacity had already ended Iran’s need to import vehicle
fuel and could soon drive a boom in fuel exports, the minister said.
“Our
daily consumption of [gasoline] is 90 million liters.... Earlier, a big portion
of that was being imported, but we no longer import products,” he
said.
Globes contributed to this report.