WINEP: 'The US should dissuade countries & companies from paying for purchased Iranian oil..."

"...According to an August 3 IMF report on Iran's economy, the regime will earn $103 billion in oil and gas export revenue during the 2011-2012 fiscal year. If so, the checks will take up 35 percent of these earnings. Tehran is not leaving itself much room for maneuver. The IMF forecast assumes an oil export price of $102 per barrel. Yet the price was $66 just two years ago; if it fell to that rate again, Iran's revenue would drop to $66 billion, and the compensation checks would eat up 60 percent of that amount.

Even apart from price fluctuations, however, sanctions seem to be impeding Iran from receiving payment for oil exports. According to a July 25 Financial Times report, "Some Iranian officials are growing increasingly angry about the inability of the country's largest oil customers to pay cash." That includes China (which reportedly owes as much as $30 billion), India($5 billion), and South Korea ($5 billion). These reports should be kept in mind when evaluating Iran's claim that its extensive foreign exchange reserves will let it ride out a drop in oil prices or pressure from sanctions. The IMF report shows $78.9 billion in foreign exchange reserves in March 2011, but much of that may not be readily available - frozen by sanctions or court action.  To be sure, Tehran does not have to rely on hydrocarbon income alone to fund the checks. In its first year, the reform is supposed to raise $20 billion in additional revenue due to higher prices for domestic consumers. Yet it is by no means clear that will happen. And as explained below, the regime will have to devote some revenue to compensating industry in addition to funding the household checks... 

Implications for U.S. Policy

By devoting much of its oil and gas earnings to public cash payments, Tehran is locking itself into a situation where it has little margin for error if its hydrocarbon revenues decrease. If oil prices decline - or, more important, if the United States and its allies can dissuade countries and companies from paying for Iranian oil (Washington has no objections if they receive said oil, only if they pay for it) - then the Islamic Republic could face serious problems paying for the checks to which the Iranian people are rapidly becoming accustomed. In short, the regime had made itself more vulnerable to outside pressure - a fact worth bearing in mind when considering what leverage the West can wield against Iran's nuclear program."