Remember, "It's the Economy, Stupid?" So how come Democrats in Congress - over the objections of the Obama Administration - are helping Republicans press sanctions on Europeans who buy oil from Iran - sanctions that would increase unemployment in the U.S. during the 2012 campaign?

The National Defense Authorization Act now contains a Senate amendment by Republican Senator Mark Kirk - supported by many Democrats in Congress - that would sanction European banks and companies that do business with Iran's Central Bank, in order to stop Europeans from buying Iranian oil. This is a big deal, because Iran is the world's fifth-largest oil exporter, and blocking Iranian oil exports to Europe would raise the price of oil, in Europe and in the United States.

Kirk's amendment would hurt the U.S. economy, at a time when economic contraction in Europe could push the U.S. back into recession.

Is fear of the economic blowback of the sanctions on Europe that Kirk wants to impose justified? Many Europeans seem to think so.

On Tuesday, Reuters reported:

The European Union is becoming skeptical about slapping sanctions on imports of Iranian oil, diplomats and traders say, as awareness grows that the embargo could damage its own economy without doing much to undercut to Iran's oil revenues.

[...]
"Maybe the aim of sanctions is to help Italy, Spain and Greece to collapse and make the EU a smaller club," one trader joked.

 

The remark reflects the growing unease that EU sanctions would hit hardest some of the continent's weakest economies, because Iranian oil provides the highest share of their needs, not to mention the rest of the bloc.

 

Senator McCain, President Bush, and some of their oil industry friends are urging Americans to support overturning a 26-year ban on offshore drilling as a way to bring down gas prices. Of course, it’s snake oil designed for what the Joe Lieberman campaign affectionately called “low information voters.”

As Dean Baker and Nichole Szembrot of the Center for Economic and Policy Research noted in a June 2008 paper,

the Energy Information Agency (EIA) projects that Senator McCain’s proposal would have no impact in the near-term since it will be close to a decade before the first oil can be extracted from the currently protected offshore areas. The EIA projects that production will reach 200,000 barrels a day (0.2 percent of projected world production) at peak production in close to twenty years. It describes this amount as too small to have any significant effect on oil prices.

In contrast, if the United States had continued raising auto fuel efficiency standards annually between 1985-2005 by a quarter of the amount it raised them annually from 1980-1985 — instead of leaving them virtually unchanged — the result would have roughly been the equivalent of 3.3 million barrels of oil per day in new production in 2008 — 16 times the impact of McCain’s Offshore Drilling [MOD], CEPR reports.

What about the impact of lifting sanctions on Iran?