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.