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Wednesday, March 7, 2012

Iran sanctions America

As of today, Americans are experiencing blowback with high gasoline prices. Europe and Asia have it a bit worse.

The price hike is due in large part to threats of coercion by the US against Iran, which speculators exacerbate in the futures markets. Perception matters too. US sanctions, while not actual bullets, have been interpreted publicly by Tehran as aggressive acts. 

Arms dealers, bankers and hedge are the winners; average citizens of both countries, the losers. 

What is interesting however is the difference in sanctions technique and expenditure. For the US to sanction Iran is expensive The US must maintain a flotilla nearby (in order to make their threats plausible). It must strive mightily diplomatically to convince others to join and to stick with it. The effects on markets and investments are incalculable.  

For Iran to sanction America it merely says a few things about Hormuz, floats a few boats in its gulf.

Everyone focuses mainly on the sanctions' costs for victims.

But what is forgotten is the differential costs of sanction promotion. The long term metrics do not look good for the US. Oil and gas prices will continue to rise (dont expect Saudi to be able to compensate). And America's raggedy coalition will fray soon enough.

Good news: right now is a great time for a diplomatic deal.

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