BLBG:European Union Seen Targeting Iran on Nuclear Program With Oil-Import Ban
The European Union is due to ban imports of Iranian oil, a move the Islamic Republic has warned might lead it to block a major shipping corridor.
EU foreign ministers must decide today in Brussels when the embargo should start, balancing their wish to act fast to pressure Iran to stop its nuclear program against the need to give some member states time to find alternative oil sources. They may also target Iran’s central bank.
“Europe is now preparing to sanction those parts of the Iranian economy where it will hurt: oil and finance,” Jan Techau, director of the Brussels-based European Center of the Carnegie Endowment for International Peace, said in an interview. “Europeans are united on this and it is this unity that seems to impress Iran.”
Iran’s Vice President Mohammad Reza Rahimi said on Dec. 27 that his nation may close the Strait of Hormuz, the Persian Gulf passageway for about 20 percent of globally traded oil, if the EU and the U.S. impose stricter sanctions. Saudi Arabia, Iran, Iraq, the United Arab Emirates, Qatar and Kuwait ship crude and liquefied natural gas through the strait.
“We can keep the Straits of Hormuz open and we will do what is necessary to achieve that,” Ivo Daalder, the U.S. ambassador to NATO, said in a BBC Radio 4 interview today.
The U.S. and Europe have raised pressure on Iran this month after the International Atomic Energy Agency, the United Nations atomic watchdog, said Iran had started enriching uranium up to 20 percent at a fortified site. President Barack Obama signed a bill on Dec. 31 that tightens sanctions on Iran by denying access to the U.S. financial system to any foreign bank that conducts business with the Central Bank of Iran.
‘Not the Answer’
Swedish Foreign Minister Carl Bildt said that sanctions alone are “not the answer.” Bildt, speaking to reporters before the meeting in Brussels today, said the EU needs to seek “diplomatic engagement” with the Iranian leadership.
The U.S. and EU say Iran’s nuclear-development plans are aimed at building atomic weapons. The Islamic republic, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, is already under four rounds of UN sanctions and says its nuclear program is for energy and medical purposes, not weaponry.
An EU ban would apply to imports of Iranian oil, purchases out of Iran by EU companies to non-EU countries, transport of oil from Iran, as well as finance and insurance of oil contracts, according to an EU diplomat who declined to be identified, because the talks are confidential. The embargo requires unanimity among the bloc’s 27 states.
Target Iran’s Oil
French President Nicolas Sarkozy said the EU must target both Iran’s oil and its central bank.
“A military intervention would not solve the problem but unleash war and chaos,” Sarkozy said in a speech to foreign diplomats in Paris on Jan. 20. “There is only one solution: it’s a series of much harsher sanctions, much more decisive, that include an oil import ban by all and the freeze of central bank assets.”
EU governments reached a preliminary accord last week for measures against Iran’s central bank, offering to allow opt-outs on a case-by-case basis to protect European trade with entities not covered by sanctions, according to an EU diplomat. Ministers are likely to approve the agreement, the diplomat said.
The oil embargo will probably take effect in about six months, other EU diplomats with knowledge of the talks said. Sarkozy had wanted the embargo to start in three months. Mediterranean countries that import much of their crude from Iran, such as Greece, Spain and Italy, had argued for sanctions to be phased in over as much as a year. The three countries accounted for about 68 percent of EU imports from Iran in 2010, European Commission data show.
Grace Period
Both Spain and Italy get 13 percent of their crude imports from Iran, according to the U.S.’s Energy Information Administration. The U.K. and Germany, which have also sought swifter sanctions, source only 1 percent of their oil imports from the Islamic republic, while France gets 4 percent.
Spanish Foreign Affairs Minister Jose Manuel Garcia- Margallo told reporters in Strasbourg on Jan. 18 that his country wants at least a six-month grace period. Italian Prime Minister Mario Monti said he wants gradual sanctions.
The ban may include an exemption for Eni SpA (ENI), Italy’s biggest oil company, which says it is owed “under $2 billion” by Iran, diplomats said.
UN Sanctions
Once an EU decision is made, member states would be barred from concluding new oil contracts with Iran or renewing those that are due to expire. As well as the four sets of UN sanctions, Iran is under additional U.S. and EU restrictions. The EU already embargoes equipment for and investment in Iran’s oil and natural gas industries. The bloc has also imposed restrictions on transfers of funds to and from Iran, a ban on cargo flights operated by Iranian carriers or coming from Iran and visa bans on 113 people linked to the nuclear program and Revolutionary Guards Corps.
Iran’s Foreign Ministry spokesman, Ramin Mehmanparast, said Jan. 21 that negotiations and not sanctions can resolve the standoff over the Islamic Republic’s nuclear program.
German Foreign Minister Guido Westerwelle said in an interview at Bloomberg’s Washington office Jan. 20 that Iran must agree to “serious dialogue” to give up its ability to produce nuclear weapons. “Just meetings for propaganda and show is not what we are seeking,” he said.
Global Oil Consumption
Oil sales earned Iran $73 billion in 2010 and supplied more than 50 percent of the national budget and 80 percent of exports, according to the U.S. Energy Department and the International Monetary Fund. Iran produced 3.58 million barrels of crude a day in December, according to data compiled by Bloomberg. That’s about 4 percent of global oil consumption.
OPEC producers have an “effective” spare crude-production capacity of 2.85 million barrels a day, the International Energy Agency said in a Jan. 18 report. Saudi Arabia’s spare capacity of 2.15 million barrels a day accounts for about 75 percent of the OPEC total, according to IEA estimates.
The IEA’s effective spare-capacity tally for OPEC excludes Iraq, Nigeria, Venezuela and Libya. With those nations included, the figure rises to 3.8 million barrels a day.
EU Imports from Iran
Europe’s leverage over Iran has declined as the country has diversified its exports, selling more to emerging economies such as India, South Korea, and Turkey. The amount of Iran’s exports headed to the EU has declined to 18 percent from 29 percent in 2004, according to the U.S. Energy Department’s Energy Information Administration.
The coalition of countries undertaking action against Iran should be as large as possible, Belgium’s Foreign Minister Didier Reynders said in an interview with La Libre on Jan. 21, adding that without willingness of other oil-producing countries to increase output it’ll be difficult to convince nations such as Japan to endorse the sanctions.
The EU imported 14.5 billion euros ($18.7 billion) of goods from Iran, 90 percent of which was oil and related products, in 2010 and exported goods to the country worth 11.3 billion euros, the EU said in a Jan. 20 statement.
To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net.
To contact the editors responsible for this story: Stephen Voss at sev@bloomberg.net; James Hertling at jhertling@bloomberg.net.
