Well, its official – on 23 January European Union foreign ministers agreed to ban the import of Iranian oil as part of sanctions designed to pressure Iran to end its alleged covert pursuit of nuclear weapons under the guise of its civilian nuclear uranium enrichment program.
Measures approved by Brussels Eurocrats include an immediate ban on the signing of new supply contracts for Iranian crude oil and petroleum products for EU refineries, with existing contracts being scheduled for phasing out by 1 July. The EU currently buys around 20 percent of Iran's oil exports. The International Energy Agency estimate that the European embargo will lead to roughly 600,000 barrels of oil being removed from the European market daily.
Oh, and the EU also froze assets of Iran's central bank.
U.S. Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner tripped over themselves lauding the wisdom of the EU's decision, labeling it "another strong step in the international effort to dramatically increase the pressure" on Iran.
British Foreign Secretary William Hague was in a similarly smug mood, telling reporters that the measures were part of "an unprecedented set of sanctions. I think this shows the resolve of the European Union on this issue and of the international community. It is absolutely right to do this in view of Iran's continued breach of UN Security Council resolutions and its refusal to come to meaningful negotiations on the nuclear program."
But the decision was hardly a done deal, as Greece’s representatives lobbied fiercely behind the scenes again the measures. The view on the sanctions looks very different from Athens, because Tehran currently supplies its "black gold" to Greece on credit terms of approximately 35 percent, a real lifeline amid Greece’s ongoing fiscal turmoil. An added benefit for Greece, according to EU officials, is that Greek refiners do not have to make payment until 60 days after receiving shipments.
Accordingly, the Iranian oil supply issue was discussed at a number of highly classified meetings in Athens ahead of the EU vote in a frantic effort to find alternative supply sources, with the prime question being – who would cover the quantities that Greece receives from Iran, and on what terms?
As a result, Greece lobbied hard behind the scenes in Brussels for the proposed EU ban to be gradually phased in over eight months, allowing it extra time to find alternative sources of supply.
But EU politicians called Greece’s bluff; as one EU diplomat said, speaking off the record, “It is inconceivable that Greece would scupper the ban altogether. What we’re seeing here is classic EU brinkmanship but we need to make sure the outcome does not water down the EU ban so far that Iran emerges unscathed.”
In the end, the sanctions passed with the required unanimity.
Greek officials close to the discussions state that currently Persian Gulf oil producing countries and Libya seem to be the most likely sources for alternative oil supplies. Preparing for the worst, Greece’s Energy and Climate Change Ministry has already instructed the majority government-owned Ellenika Petrelaia Α.Ε. (Hellenic Petroleum S.A., or ELLPE), Greece’s largest oil refining company, to prepare a six-month forecast in order to ensure the smooth supply of the market until June
Other southern European EU members caught in the “collateral damage” of the EU’s ban on Iranian oil include Italy and Spain, along with non-EU member Turkey, which, along with Greece, according to the International Energy Agency, account for around 80 percent of the European demand for Iranian oil. According to the latest EU statistics, during the period January-September 2011, Iranian oil accounted for 34.2 percent of Greece's total oil imports, 14.9 percent of Spain's and 12.4 percent of Italy's, and it is hardly news to Brussels Eurocrats that all three nations are facing financial distress.
So, the oil embargo discussions became increasingly intertwined with Athens’ broader dealings with the EU over the euro crisis, and the reform package it has agreed in exchange for a $170 billion bailout.
So, while Brussels wants Tehran to feel some pain, so will Greek, Spanish and Italian motorists and eventually, all EU taxpayers, as the sanctions will eventually add to the ‘bottom line” of the EU loans to prop up the Greek, Spanish and Italian economies.
Such a deal.
By. John C.K. Daly of Oilprice.com