US sanctions to pressure Sudan are ineffective – analysts

April 26, 2007 (CAIRO) — U.S. President George W. Bush is threatening to punish Sudan by cutting off its vital oil industry from the U.S. financial system, unless Khartoum takes steps to calm troubled Darfur.

But such sanctions are unlikely to hurt Sudan at all, oil analysts say: China, its biggest customer, already has adapted to similar U.S. pressure on Iran by buying oil in another powerful, rising currency – euros – and can do the same on Sudan.

The issue highlights the difficulty the U.S. faces in finding effective ways to sanction Sudan in order to ease the humanitarian suffering in Darfur, at a time when oil prices are high and the U.S. dollar is weak.

Both Bush and the U.S. envoy to Sudan, Andrew Natsios, have threatened in recent days to bar an additional 29 Sudanese companies, many of them involved in the oil trade, from the U.S. banking system if Khartoum does not agree to implement fully the U.N.’s peacekeeping plan for Darfur.

They also warned that the U.S. government would more aggressively block dollar transactions by Sudanese oil companies that are already on the U.S. sanctions list.

Washington hopes that preventing Sudan from selling oil for dollars – the currency used by global oil markets for pricing – would prove an economic burden, forcing Sudanese President Omar al-Bashir to succumb to international pressure.

More than 200,000 people have been killed in Darfur and 2.5 million driven from their homes since fighting began between ethnically African rebels and the Arab-dominated central government in 2003. Al-Bashir has blocked the implementation of a plan he agreed to in November to introduce a 20,000-strong “hybrid” U.N.-African Union peacekeeping force into Darfur.

But Iran has had little difficulty switching its oil sales from dollars to euros when needed under international sanctions pressure – and Sudan could do the same, many financial experts say.

China already has made the switch to buying oil in euros in some of its deals with Iran, said Victor Shum, a Singapore-based oil trading analyst at U.S. consultant Purvin & Gertz Inc.

“The Chinese today do buy some of their Iranian oil in euros instead of U.S. dollars,” he said. Chinese officials have not commented publicly on the issue.

China buys two-thirds of Sudan’s oil exports, and oil sales account for 70% of the African country’s export revenue.

The reason Sudan and Iran can adapt?

Oil is priced in dollars on the world’s exchanges, but buyers and sellers can easily use international exchange rates to convert any oil contract into euros, said Mikkal Herberg, a former oil executive now with the U.S.-based National Bureau for Asian Research.

Such a move could even be beneficial given the declining value of the U.S. dollar.

“I don’t see that it causes them any trouble,” he said of both Iran and Sudan.

“Crude is denominated in dollars, but someone could choose to pay them in euros at a dollar equivalent. … With the direction of dollars and euros, that’s not such a bad choice.”

The euro has appreciated more than 50% against the dollar in the past five years.

U.S. officials, however, have been strong in their assertions that they can impact Sudan with such moves.

Bush said last week that the U.S. would give the United Nations more time to strike a deal with Khartoum on peacekeepers, but said U.S. sanctions would quickly follow if al-Bashir failed to implement the full U.N. plan.

“We believe it will have an effect on the economy, a substantial effect,” Natsios told Congress this month. “And the reason we know is because it’s having an effect on the Iranian … economy.”

Natsios asserted that even though the U.S. does not buy oil from Sudan, such sanctions could have an impact because “the current practice is all international oil transactions, regardless of which country or which company, are in dollars.”

But Alex Vines, head of the Africa program at Chatham House, a think tank in London, called such statements “wishful thinking.”

“In this environment of high commodity prices, Sudan will be fairly resilient in finding alternatives,” Vines said.

Sudan has another advantage – experience in adapting to sanctions, notes John Prendergast of the International Crisis Group. Nearly 10 years ago, the U.S. cut off 130 Sudanese companies from the U.S. system over a different dispute.

“The Sudanese oil industry has thus grown up around the sanctions, and learned how to conduct transactions that easily avoid the sanctions framework,” Prendergast said.

Eric Reeves, a Sudan expert at Smith College in the U.S., contended the only way Washington would have real impact is to go to China and say Darfur is “a tier one issue in our bilateral relationship.” Reeves is dismissive of what the Bush administration has termed a Plan B of coercive measures like the moves against Sudan’s oil companies.

“The Bush administration, and most particularly Natsios, oversold Plan B,” Reeves said.

(AP)