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There are other loopholes in the sanctions. For example, Genesis Assets Managers, which invests in a company with a portfolio entirely based on business with Iran, has escaped punishment. The Iranian Bonyads pose a bigger problem, as the Money Jihad blog explains. These are tax-exempt charities partially owned by the regime that are under the direct supervision of Supreme Leader Ayatollah Ali Khamenei. They control 20-40% of Iran’s entire GDP but are off-limits from sanctions because of their charitable work. There is no transparency and donations made to them, either in the form of goods or in cash, sustain the regime and could be easily diverted to paying its security services, sponsoring terrorism or its WMD programs.
Iran is trying to display strength. It boasts that it has $150 billion in foreign reserves and is earning revenue from increased exports of electricity to Turkey and Iraq. The Tehran Times reports that the price of oil rose 9% because of the embargo, but the India Times says oil prices actually dropped on July 2.
One concern is how Iran will react to the embargo. The regime needs major oil revenue. If it must sell less, then it needs to get a higher price per barrel. Iran must also hope that higher oil prices will pressure countries to reverse course and increase their imports again. One way to do this is through conflict. A terrorist strike on Saudi oil fields, for example, would accomplish this. The Saudis and the United Arab Emirates paved the way for the sanctions by increasing their output and Iran clearly threatened them in return.
The Iranians should be expected to strike at the Arab countries and perhaps even in the West. The Iranian parliament is now discussing legislation authorizing the regime to intercept any oil tanker transiting the Strait of Hormuz from a country taking part in the sanctions. The Saudis have prepared for this scenario by reviving an old pipeline so they can sell oil through the Red Sea if necessary.
Confrontation is on the way, not only because it is in the regime’s nature, but because it needs it.
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