The EU's oil embargo on Iran that came into effect on 1 July is likely to do as much damage to the European Union as it is to Iran and the imposition of these suicidal sanctions is more about Israel than Iran.
Had Israel taken a break from its saber-rattling, the EU sanctions would likely have been postponed during the third and latest round of nuclear talks that took place in Moscow in late June. This would have (and should have) been on the table. But Western leaders are still concerned about Israel and the last thing President Barack Obama wants right now is for the loose Israeli cannon to go off before the November elections.
The 1 July EU oil embargo on Iran coincides with a new set of US sanctions punishing those cutting oil deals through Iran's central bank, as well as a European ban on shipping insurance for tankers carrying Iranian oil.
Iranian oil exports have dropped around 20%. Europe is Iran's fifth largest customer and new sanctions will, on paper, amount to a loss of around a million barrels a day. However, the sanctions have been more successful largely because of the economic crisis that has seen the price of oil fall even in the face of reduced supply from Iran.
At the same time, Iran is not desperate. Even once the EU oil embargo begins to show its teeth and if that results in a 50% reduction in Iranian oil exports, as predicted, Iran still has serious oil revenues to fall back on.
The sanctions are also less hard-hitting than they would have been had China played along. In fact, this is a perfect opportunity for China to step in and score itself a few lucrative Iranian energy projects that no one else is "allowed" to take.
As Peter Lee notes in the Asia Times, "the bottom line is that, by necessity, two way Sino-Iranian trade and integration between the two economies has exploded with the cut-off of Iran from the West and forcing Iran to denominate its trade in yuan will simply accelerate this trend."
On the domestic front, there are grumblings that the Iranian Revolutionary Guards Corps (IRGC) is behind on payments to its personnel, for which they blame the government (via the media). There is a great deal of politics behind statements like this. Supreme Leader Ayatollah Khamenei controls the Guards, while President Mahmoud Ahmadinejad is the head of the government. Situations like these are often best viewed as part of the on-going power struggle between Khamenei and Ahmadinejad-a struggle the latter is losing.
What effect will the sanctions have on Europe? Certainly Italy, Greece and Spain-the latter two in particularly dire straits-are bemoaning the sanctions as they rely heavily on Iranian imports, though some of the pain was already being offset by low oil prices.
Greece will feel the oil embargo the most. In an interview with Deutsche Welle, oil expert Volker Blandow noted that Greece "had contracts with Iran which had decoupled delivery and payment. This meant that Greece received oil on credit, and could pay for it later." Now Greece will have to make advance payments that it can't afford.
It is a disastrous decision in the middle of a massive debt crisis that is threatening to rip the eurozone apart, but anything to keep Israel from launching a war.
That the price of oil has surged to a one-month high this week is only indirectly a result of the new sanctions on Iran and specifically on speculation that European central banks and the Chinese central bank will ease monetary policy by cutting interest rates to offset reduced supply from Iran.
Directly, however, the EU oil embargo is not expected to result in any immediate jump in oil prices because the plan has been in the works for nearly six months and the frenzy to secure alternative supplies (and the resultant speculation) is already pretty much over.
Of course, Tehran will enjoy a small victory in this rise in oil prices.
By. Charles Kennedy
Charles is a writer for Oilprice.com More
Comments
However this report is quite excellent!
Jen Alic manages to combine the Israeli angle with the European angle in the sanctions question and Iran's China option all in one very intelligent analysis.
As Robert Baer has pointed out on numerous occasions it is Khamenei not Ahmadinejad who is the real power in Iran, contrary to many Western perceptions.
It is also true that Europe only accounts for about 20% of Iranian oil sales. Nevertheless the EU cannot afford to play games with its oil supply and Greece especially is exceptionally vulnerable to oil stoppages due to lack of payment possibilities. The Iranians were giving the Greeks some very convenient credit facilities with regards to oil supply and payment.
Therefore, however much the Germans tinker with banking and financial systems in order to try to postpone the inevitable demise of the EU, it would seem obvious to anyone but the Germans that creating difficulties for Greece with Iranians sanctions is counter-productive to this.
At the same time it is quite perceptive of the author to emphasise how the sanctions are designed not so much to prevent Iran from trading, which they are singularly failing to do, but are more designed to postpone the perceived inevitability of an Israeli strike against Iran.
Stratfor has produced some interesting analyses of the possibilities and limitations of an Israeli strike on Iran. Their conclusions generally point to the insufficiency of Israeli resources to carry out even a partially effective strike against Iran without US support. Therefore Israeli threats are aimed far more at twisting Washington's arm than at directly threatening Iran with an effective airstrike.
Whatever happens with Iran, and whatever the West tries to do against Iran, it seems that China and other nations in East Asia together with Russia will work together to ensure that the Iranians always have a minimum area in which to trade their oil. Furthermore China and Russia have been speaking for some time about replacing the dollar with the ruble and/or yuan as alternative global trading currencies.
It seems therefore that we are seeing the beginning of a split between the Western Hemisphere and its perceived interests and agenda and the rising Eastern hemisphere with its altogether different interests and agenda. Furthermore the Western hemisphere is showing itself to be in practical terms powerless to effect Eastern hemisphere decisions that go counter to Western Hemisphere interests as perceived by Washington, London and Jerusalem especially.
This is a development that the West should take notice of and learn to adjust to as it would appear to be a fairly permanent change in the power balance between East and West. The Iranian situation is merely one arena in which this change in the power balance is becoming very evident.
Having seen an elegant sufficiency of video evidence showing the atrocious way Israel treats the Palestinians, perhaps the sooner Iran gets its nuclear weapons, the better, and safer, we all will be. I certainly don't believe the hype about Iran being an evil nation. And anyway, just look at how America tip-toes around nuclear North Korea. Can't blame Iran for wanting some of the same 'magic'.
The sooner Israel is reined in and made to behave like a responsible nation, instead of the spoilt child it now behaves as, the sooner we might achieve peace in the Middle East, or what can pass for peace in that benighted region.
If Israel really wants peace, it should disarm its nuclear arsenal. Until that happens, I for one won't feel the least sympathetic. Or am I supposed to believe that Irael dosen't have such weapons?!