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Last year Europe imported nearly 600,000 barrels of Iranian crude per day, accounting for 24% of Iran’s total oil exports. The majority of this crude was bought by Greece, Italy, and Spain. However, due a conflict over the Iranian nuclear program the EU announced sanctions against Iranian crude oil, due to take effect on 1st July. The date gave those countries reliant on Iranian oil several months to source other suppliers, but Iran has now thrown a spanner in the works with their declaration that they are going to voluntarily halt all sales of oil to their six biggest EU customers before the 1st July.
This act, which was publicised on state television, has reduced the time that those countries have to find alternative sources, and has therefore severely weakened their negotiating position. They will now find it almost impossible to buy oil from another supplier at a similarly low price to that of Iran. This could cause major problems for some countries, especially Greece whose economy is already struggling with huge levels of debt. Although to be honest Greece might not have to worry too much because although the statement was made on the Iranian state television network, the Iranian Oil Minister denies it all and said that any decision would be announced by Iran's Supreme National Security Council. However, the word “decision” does suggest that serious talks about the issue are in progress.
The move would also deprive Iran of a huge amount of their revenue, and putting almost its entire oil sector, upon which its economy heavily relies, at the mercy of a few large Asian buyers. Their only hope to keep a healthy economy and cover the fall in exports would be to increase the price of its oil, but this is unlikely as China have already started to use Iran’s disadvantageous position to negotiate new, lower oil price terms.
On Wednesday the Iranian regime also stuck its metaphorical finger up at the West by broadcasting the latest advancements in its nuclear programme. President Mahmoud Ahmadinejad was shown on state television making a visit to the Tehran Research Centre, where new, domestically created, fuel rods were being installed into a civilian research reactor. He also said that Iran will soon unveil a new variety of centrifuge for the rapid enrichment of uranium, although many experts believe that this is merely a symbolic gesture of defiance.
By. Joao Piexe of Oilprice.com
Joao is a writer for Oilprice.com