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Tom Gjelten

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Let Iran off the hook or undermine the global economy? Slap sanctions on an Iranian energy company or provide Europe with an alternative to Russian gas? Washington policymaking is especially difficult when the aims conflict, and few cases illustrate that principle more clearly than the challenge of finding a way to punish Iran without hurting someone else.

The U.S. Congress has approved legislation that targets the Central Bank of Iran and is intended to make it more difficult for that country to sell its oil abroad.

But the latest sanctions could backfire. Reduced oil supplies on the world market could mean higher prices, and therefore Iran could actually make more money from its oil even if it sells fewer barrels.

Iran has been dealing with economic sanctions for years, but the country could soon face measures tougher than anything it has encountered before: Legislation moving through the U.S. Congress would target the central bank of Iran, with the likely effect of severely limiting Iran's oil exports.

Such sanctions would almost certainly damage Iran's economy. The challenge would be to make sure other countries are not hurt as well, given the fragile state of the global economy and the tight global oil market.

Barely two weeks ago, it appeared that European leaders had a package to contain their debt crisis. Greece's problems would be managed, with private bondholders taking a hit on their investments and a new bailout to help the government meet its obligations. A European rescue fund would protect Italy and Spain from any risk spreading from Greece.

Markets soared. And then, this week, they crashed.

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