The European Union’s ministers and diplomats are meeting in Brussels today to agree further sanctions against Iran, which look set to include an embargo of the country’s oil exports to the bloc.
Their job is to settle on a means of punishing Iran economically for its refusal to co-operate with inspections of its nuclear facilities under the Non-Proliferation Treaty, while mitigating the impact of removing Iran’s exports from European oil markets as far as possible.
Sanctions will aim to deprive Iran of a key crude customer, forcing down the prices it can fetch from Asian importers. China, India and Japan have all show signs of seeking alternate sources for part of their imports, suggesting an oil embargo will be effective in lowering the price of Iranian crude and forcing production shut-ins, starving Tehran of cash.
France in particular remains convinced that the Islamic Republic wishes to obtain a nuclear weapon as soon as possible, and together with the UK and Germany is pushing for any sanctions to take effect on 1 May. Other member states wish to settle on 1 July.
“Those who do not want to reinforce sanctions against a regime which is leading its country into disaster by seeking a nuclear weapon will bear responsibility for the risk of a military breakdown,” French President Nicolas Sarkozy warned Friday, according to AFP.
Tehran’s foreign ministry has dismissed the nuclear claims, with spokesman Ramin Mehmanparast dubbing them “baseless and far from reality,” according to AFP.
Ministers of the 27 member states are expected to agree to phase in any new sanctions over several months, according to several reports citing unnamed ministerial sources. The EU is currently importing 600,000 barrels per day of Iranian crude, with countries at the bloc’s troubled periphery more proportionately reliant on Iran than countries at the core. 90% of Iran’s exports to the EU are hydrocarbons.
The US has already put comprehensive sanctions against Iran’s oil sector into effect, which has had minimal impact on oil markets as a negligible amount of Iranian crude reached US shores.
Greece is expected to push to an extended period between when sanctions will be agreed and enforced, seeking an eight-month window instead of the six months provisionally agreed by diplomats from core member states.
A veteran at supplying under constraint, Iran has extended extremely generous supply terms to Greece, giving 60 days’ credit for it oil exports to the country. Greece sources just under 35% of its imported oil from Iran, and there are concerns a supply shock will tip its economy into even more precipitous decline.
Italy and Spain, also plagued by market pessimism about their public debt burdens, are also key customers.
European finance ministers are also hoping to strike on an agreement as to how Greece can restructure its debt – much of which is held by financial institutions in core Eurozone countries Germany and France – to avoid a disorderly default. Without financial assistance or a partial default Greece will be unable to pay EUR 14.5 billion of debt interest and repayments due in March.
In addition to a prohibition on member states importing Iranian oil, the meeting is likely to result in sanctions against Iran’s central bank, and the country’s ability to purchase gold and other tradeable stores of value such as diamonds from European sellers, and activity which has increased in the country as the Iranian Rial continues its vertiginous decline against other currencies. A combination of inflated import prices and sanctions is already hitting Iranians hard.
European politicians are meanwhile entreating gulf producers, and Saudi Arabia in particular, to secure greater oil supplies as Iranian oil is embargoed. Gulf producers have also been courted by Asian customers, with Chinese Premier Wen Jiaobo making an extensive tour of the region last week. Libya is also a potential source.
Brent remains steady this morning at $110 a barrel ahead of the meetings after rising late yesterday from $97, as the persistent pessimism over demand in the Eurozone and other ailing advanced economies continues to keep a lid on a perceived risk increase to oil traffic navigating the Strait of Hormuz.
The USS Abraham Lincoln, a naval carrier, passed through the Strait at the weekend without incident, reported Reuters, calming fears that Iran would make good on earlier bellicose rhetoric taken as a threat from Tehran.
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