Some analysts said the EU was having second thoughts about imposing tough sanctions for fear such action would drive up the price of oil, further hurting the European economy while providing Iran with even more revenue.
But the EU isn’t just talking about boycotting Iranian oil. The EU foreign ministers last week issued a statement saying they were devising measures “affecting the Iranian financial system, in the transport sector, in the energy sector, measures against the Iranian Revolutionary Guard Corps, as well as in other areas.” It said its staff had been tasked to “elaborate these measures for adoption no later than the next Foreign Affairs Council” meeting, which will be held early in January.
The sanctions the EU adopted last week were minor. They cited 180 people and entities involved in nuclear or missile work, the Pasdaran or Iran’s national shipping line. The sanctions froze the assets of and barred visas to the 37 people and froze the assets of the 143 entities. This brought to 300 the total numbers of individuals and entities sanctioned by the EU. The EU has not announced that any assets have actually been frozen as a result.
Eighty percent of the entities sanctioned last week were linked to the Islamic Republic of Iran Shipping Lines (IRISL). Like the United States, the EU is constantly pursuing new front companies that IRISL sets up to try to evade sanctions and the new names given the company’s ships.
Of the 22 new people sanctioned for missile or nuclear work, one was Mohammad-Reza Khavari, identified as the chairman of the board and managing director of Bank Melli. Khavari resigned those posts September 27 and immediately flew to Canada where he has been holed up in a $3 million mansion he bought some years back in Toronto.
The EU had originally planned to impose harsher sanctions December 1 when its foreign ministers had their monthly meeting. But it did not do so. French Foreign Minister Alain Juppe said Greece had expressed concern it would be hurt. Because of Greece’s financial crisis, it has trouble buying oil on credit now, and only Iran is willing to sell to it on easy credit. (See Iran Times of November 25, page five.)
EU officials had said Europe was thinking of boycotting Iranian oil as a dramatic statement of its anger with Iran. But even that would be little more than cosmetic.
First, Iranian oil comprises a mere 5.7 percent of Europe’s oil imports today as Europe has already moved largely away from Iran over the last two years.
Second, oil in fungible, so if Europe buys less from Iran and more from, say, Nigeria, then Iran will simply sell elsewhere—probably to the customers Nigeria gave up to sell more to the EU.
But the market is emotional. The mere announcement that the EU was being “tough” on Iran could be expected to drive up oil prices, although probably only briefly. To prevent an oil spike, EU officials would likely have to explain that their “tough” sanctions weren’t really so tough after all, which would make them look weak on Iran.
French Foreign Minister Juppe said Greece did not veto the idea of an Iran boycott. “Greece has put forward a number of reservations,” Juppe said. “We have to take that into account. We have to see with our partners that the cuts can be compensated by an increase of production in other countries. It is very possible.”
The EU desire to tighten the screws on Iran is largely the result of three factors: the recent IAEA report outlining suspicions about Iran’s nuclear program; the attack last month on the British embassy in Tehran; and the absence of any talks on Iran’s nuclear program. EU foreign affairs chief Catherine Ashton made a point of telling the ministers that she has received no response to her letter sent in October calling for talks to resume.
Agence France Presse reported that Britain, France, Germany and Sweden were the loudest voices within the 27-member EU calling for tougher sanctions, while Spain and Italy, with troubled economies, joined Greece in raising questions. More than 40 percent of the EU’s oil imports from Iran go to Spain, Italy and Greece.
The Islamic Republic, meanwhile, was trying to scare the EU out of further action. Deputy Arsalan Fathipur, chairman of the Majlis Economy Committee, said oil would surge to $250 a barrel if the US and EU actually applied the sanctions being talked about. But that was just a number pulled out of a hat. There is no way to know what level might be reached.
The United States stopped buying Iranian oil in 1995. It had no impact on the market price.
The only real pain for Iran would come if the entire world stopped buying Iranian oil. Oil provides more than half the revenues of the Iranian government.
If most countries halted buying Iranian oil, it is widely expected that the few remaining buyers would demand heavy discounts to keep buying. That would reduce Iran’s revenue, but not to strangulation levels. So far this year, an OPEC barrel has averaged $107.50. The highest before this year was $94.45 in 2008. Oil never even topped $70 a barrel until that year. Even if Iran were forced to sell at a whopping 20 percent discount, it would still earn more than in any year except 2008 and 2011, given current price levels.
Fitch Ratings last week said a total European ban on buying Iranian oil would have less impact on European oil companies than the loss of Libyan oil earlier this year. That is because European oil firms were producing oil in Libya and lost their operations, while they produce no oil in Iran.
The United States isn’t asking countries to stop buying Iranian oil. Its tactic has been to throttle financial transactions with Iran, making it harder and harder for people to do business with it. Then traders make the decision to shift away from Iranian oil. The slow shift has a minimal impact on the market. It also puts pressure on Iran to sell at a discount.
Most Iranian oil now goes to Asia. According to US Energy Department data, four buyers now account for two-thirds of Iran’s crude exports: China with 22 percent, the EU with 18 percent, Japan with 14 percent and India with 13 percent. Those statistics are for the first half of 2011.
