Iran is preparing to pre-empt an EU embargo on its oil with its own ban on exporting oil to the bloc.
According to several reports over the weekend, the Iranian parliament is today convening in Tehran to vote on a ‘double-emergency’ bill which if passed will ban oil exports to the EU within days.
Iran currently sends 600,000 barrels of oil per day to Europe, around a quarter of total exports, with most of the rest going to Asian markets.
The move is interpreted as retribution for the EU’s decision to ban the import of Iranian crude and suspend transactions with the country’s central bank from 1 July, and would likely lead to a spike in oil prices as the EU will not have sourced stable alternative supply from Saudi Arabia.
Whether the vote signals yet more brinkmanship that – like the threat to close the Strait of Hormuz – Tehran is too pragmatic to make good on, or marks the start of self-destructive antagonism from Tehran is not yet clear.
By cutting off Iranian supply quickly, Tehran hopes to threaten the fragile economies of the southern Eurozone that form the bulk of EU imports, increasing its bargaining power over the central issue of inspections of its nuclear program.
Greece, with an economy battered by a sovereign debt crisis and austerity drive and reportedly within weeks of an exit from the Eurozone, imports around half its oil from Iran.
However, the International Energy Agency stands ready to put some of its members’ strategic reserves onto world markets in the event of a supply crisis, with Saudi Arabia reported to be able and willing to fill the supply gap to Europe once production has increased and suitable refining routes settled.
The IEA is able to release up to 14 million barrels per day for a month, several times more than the amount needed to offset Iranian imports. The resurgence of Libyan production also reduces the severity of Iran’s departure from the European oil supply mix.
UN nuclear inspectors are in Iran today, and progress in talks with the regime could relieve some of the international diplomatic ire against Tehran.
“We are looking forward to the start of a dialogue, a dialogue that is overdue since very long,” said International Atomic Energy Agency chief inspector Herman Nackaerts.
An early halt to EU imports would cost Tehran’s coffers in excess of $9 billion in cashflow, and while the country could store up to two months’ production in supertankers, eventually Iran would have to sell its oil cheaply to China or halt production while the EU sanctions are in place.
Tehran has also said that its ban on oil exports would include a provision to prevent the repayment of money owed under oil buyback arrangements to European oil firms such as Eni, which is reportedly owed $1.5 billion by Iran. Under buyback, firms investing in oilfields are repaid in the oil produced. Repayments under these contracts were exempted by the EU from its sanctions on Iran.
