EU businesses are forbidden to sign any new oil contracts with Iran and must phase out all existing contracts within five months so that all purchases have ceased as of July 1. The EU countries currently buy about one-sixth of Iran’s crude exports.
The EU leadership tried to assure the Iranian public that Europe was not targeting the people of Iran, just the government of Iran. But the sanctions are clearly intended to hurt Iran’s economy, which will, inevitably hurt the Iranian people. A statement issued by the leaders of Britain, France and Germany said: “We have no quarrel with the Iranian people. But the Iranian leadership has failed to restore international confidence in the exclusively peaceful nature of the nuclear program. We will not accept Iran acquiring a nuclear weapon.”
It is isn’t yet known how significant these sanctions will be in reality. They may not have any real impact at all, but that will not be known for weeks or even months.
It is possible that Iran will just change customers, shifting the one-sixth of its exports that now go to EU countries to China and other buyers, with no impact on the bottom line. That is what happened when the United States stopped buying Iranian oil years ago. The US bought no oil from Iran and more from Nigeria. Other countries bought less from Nigeria and more from Iran.
There is a fear that sanctions may succeed in significantly reducing Iranian oil sales, but at the same time drive up prices. Iran would sell less but make just as much profit—while the rest of the world would be paying more for its oil. That seems to be the Islamic Republic’s best hope.
The price of an OPEC barrel rose the day the EU announced its sanctions—but only by 41 cents or 37/100ths of one percent. Many market analysts said the sanctions were known to be coming and the market had already taken them into account.
Very few analysts, however, have addressed the fact that oil prices are already so high that Iran could suffer a huge cut in income and still be better off financially than for most of its history. If the sanctions cut Iran’s revenues by one-third, the Islamic Republic will still have more oil income than in all but three years—2011, 2010 and 2008. Its income in such a case would be about 15 percent higher than it was as recently as 2009.
So, the impact of these new sanctions remains very much a question mark.
The hope in Washington is that Iran’s oil sales will be reduced—but not enough to drive up prices—and that the remaining buyers of Iranian oil will demand discounts before buying.
And India is trying to do just that. Indian Oil Minister S. Jaipal Reddy announced Monday—the same day the EU sanctions were announced—that India wants to buy as much Iranian oil as it can get because it was offered such “favorable” terms by Iran in talks last week. Reddy, however, did not give any numbers or specific prices.
“It will be our endeavor in future to tap the Iran source fully because the terms are fairly favorable,” he said.
Other Indian sources said Iran had also agreed to accept part of India’s oil payments in rupees, a non-convertible currency. All last year India pressed for rupee payments and Iran refused over and over again. The shift, if confirmed, would indicate that Iran is feeling the need to make concessions.
“Iran was very accommodative,” Reddy said of last week’s talks.
China has publicly denounced the very idea of the US and EU sanctions on Iran and said it will not go along with them. But China has reduced its Iranian oil purchases for January and February because Iran refused to give China better terms. China, however, has only demanded that Iran give it better credit, allowing Chinese buyers to have 90 days rather than 60 days in which to pay. Such a concession by Iran would not break the bank.
The Islamic Republic is clearly fearful of the new sanctions, however. Just a few months ago, President Ahmadi-nejad admitted in the Majlis that the last round of sanctions was having a real impact on Iran and its economy. But officials have been falling all over each other this past week to assure the Iranian public that the new round of even tougher sanctions will have no impact whatsoever and are just “psychological warfare.”
The Fars news agency even carried a story Monday claiming that “demand is growing for Iranian crude” without providing any evidence in support of that contention.
Deutsche Presse Agentur conducted some man-on-the-street interviews and did not hear the public echoing the official fearlessness. Asam, a housewife, said, “All I know is I suddenly have to pay a lot more for the same amount of shopping.”
A textile importer said, “I have no idea how I’m going to control prices.”
A supermarket owner said, “Instead of moaning, you should pray for things not to get worse.”
In the Iranian debate over how to respond, Ali Fallahian, a former intelligence minister who is now a member of the Assembly of Experts, the body of clerics that chooses the Supreme Leader when that post falls vacant, said Tehran should punish Europe by halting all sales to the 27 EU countries immediately and not allowing the EU to have five months in which to adjust and find alternative suppliers.
Most crude buyers in the EU are already shifting suppliers. The only real complaints from within the EU have come from Greece. The Iran Times has been reporting that Greece gets only about 14 percent of its oil from Iran. But that is an old figure. Since the Greek economy ran off a cliff last year, most oil sellers have been leery of Greece. Greece has instead turned to Iran for 34 percent of its supply last year and Iran has given it very good terms. The Greek government is fearful not that it will be unable to find other suppliers, but that it will have to pay more than it is now paying Iran.
The EU sanctions allow some Iranian crude oil to continue flowing into Europe after July 1. The text of the sanctions statute says that firms holding old buyback contracts with Iran can continue to take Iranian oil. But that is not a loophole. Those companies are not paying Iran for that oil; Iran is paying those companies with the oil for past services; so, there is no gain for the Islamic Republic. Both ENI of Italy and Statoil of Norway are receiving such payments-in-crude from Iran. Some other firms may also receive such payments.
The EU sanctions legislation ran to nine pages of small print in its Official Journal. Other elements include:
• A ban not just on the import of Iranian oil but on the purchase or transport of Iranian oil. In other words, European firms cannot buy Iranian oil for sale elsewhere and European tankers cannot even move Iranian oil for other buyers.
• Any financial dealings relating to oil, such as insurance and reinsurance for non-European buyers of Iranian oil, are forbidden.
• No European equipment, technology, training or financing may be provided for Iran’s petrochemical industry.
• No transactions with Iran state bodies may be conducted involving gold, diamonds or precious metals.
• European firms are barred from printing banknotes or minting coins for Iran.
• The list of dual-use goods that cannot be sold to Iran was further expanded.
• The Central Bank of Iran and Bank Tejarat are both sanctioned with any assets left in Europe to be frozen and no European citizen allowed to do business with them.
• In addition to those two banks, another nine Iranian entities are also sanctioned. Most of them are front companies created to get around earlier sanctions. The number of sanctioned entities now totals 433, of which 75 are also under UN sanctions.
• Another three persons are sanctioned, meaning any assets they have in Europe are frozen and no visas may be issued to them. Two are Pasdar generals and the third is a clergyman, Hojatoleslam Ali Saeedi, who serves as the Supreme Leader’s representative to the Pasdaran. The EU now imposes visa bans on 174 people, 61 for human rights violations and 113 for involvement in nuclear and missile work.
The United States Monday also placed Bank Tejarat on its sanctions list. That was the final bank that had gone unsanctioned in the US until now.
