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EU Agrees To Boycott Iranian Oil, Aligning With Long-Standing U.S. Ban (1/24)     Print E-mail

A decision to halt EU oil imports from Iran, taken Monday by a meeting of the EU’s foreign ministers, marks the strongest step taken so far by Europe to counter Iran’s suspected nuclear ambitions.

It coincided with an expansion of U.S. sanctions (which have long barred Iranian oil) to include Iran’s third-largest bank. A steeper financial escalation is under active consideration by the Obama administration in the form of action to cut U.S. dealings with Iran’s central bank and press allied capitals to join in isolating Iran financially. Such a move would make it harder for Tehran to use oil revenues for international purchases aimed at strengthening the country’s nuclear program.

 The EU move – which was welcomed by Washington – was described by European officials as pressure to bring Iran to negotiate concessions on its nuclear program. The sanctions mean that EU countries will not sign new oil contracts with Iran and will end existing ones by July 1.

European diplomats said they believed that tougher sanctions were their best hope of reducing the risk of a military strike against Iran, probably by Israel. Israel has publicly agreed that sufficiently tough sanctions could force an economically shaky Iran to comply with international demands to curtail its nuclear program.

The decision will do nothing to stop the continued flow of oil to Asia, a far larger market for Iran.  The U.S. and its allies have had no measurable success so far in their attempts to get Asian governments to join the effort to squeeze Iran by expanding the sanctions.

But the EU embargo will bite, with estimates of the cost to Iran ranging from $5 billion to $10 billion in oil revenue for 2012, and more in subsequent years. Europe accounts for about 20% of oil revenue in Iran, as shown in this break-down supplied by Wall Street Journal.

wsjchart20120124

Iran is the world’s fourth-largest oil producer so the prospect of turmoil affecting Iranian exports drove the global oil price up slightly. The biggest threat to world oil supply does not come from any potential shortfall in Iranian exports: Saudi Arabia and other exporters have pledged to make up for any such cuts. A potentially more explosive danger arises from Tehran’s threat to disrupt tanker shipping from the Gulf via the Straits of Hormuz in retaliation for any fresh restrictions on its own oil exports.

The initial Iranian reaction this week did not reiterate that threat, perhaps because there is a strong likelihood that international negotiations with Iran will resume before the EU sanctions take full effect. British and French warships accompanied a U.S. aircraft carrier as it moved into the Gulf this week as a protective measure – despite Iranian warnings for Western navies to avoid the region.

Russia immediately announced its opposition to new sanctions, but the EU seems determined to maintain the ramped-up pressure. There has been a steady trend in recent years for European nations – notably Britain and France, but also Germany and the rest of the EU -- to match the U.S. in efforts to mobilize international pressure on Tehran over the nuclear issue, even though some EU states are particularly dependant on Iranian oil. Greece, for example, will need to make adjustments in its suppliers, a shift that comes at a time when its economy is already on the rocks.

By European Affairs

 
 

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