Iran oil embargo: How tough are the EU sanctions?

Europe's Iran oil embargo is unprecedented. But the EU may have left the door open for adjustments that could ease pressure on Tehran.

By , Staff writer

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    Fishing boats are seen in front of oil tankers on the Persian Gulf waters, south of the Strait of Hormuz, offshore the town of Ras Al Khaimah in United Arab Emirates, last week. Two Iranian lawmakers yesterday said that European union sanctions on Iranian oil exports would lead Tehran to forcibly close the Strait of Hormuz, through which roughly one-fifth of the world’s oil supply is shipped.
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The European Union's unprecedented sanctions on Iranian oil exports are aimed at seriously punishing Iran over questions about the nature of its nuclear program, delaying military action, and, however likely or unlikely, spurring talks.

The sanctions, agreed upon yesterday in Brussels but not to be implemented until July, comes with possible unintended consequences ranging from oil market disarray at a time of economic crisis to further brinkmanship by the Islamic Republic. Yet some experts feel that the EU's advertised toughness is less than meets the eye, and that the EU may have quietly kicked the can down the road, or at least left open the door for changes that could decrease pressure on Tehran.

“With delays of six months [to implement the sanctions] it seems a bit of a fudge,” says Paul Stevens of Chatham House, a London think tank, who argues that financial sanctions on Iran’s central bank, part of the EU approach, will have a greater effect. “I’m not sure that we’ve thought sanctions through. EU policymakers advocate sanctions, but oil people are not as convinced. The variables on sanctions are hard to gauge, and it is unclear if Saudi Arabia or Libya can supply the shortfall.

Recommended: Getting the Strait of Hormuz straight: an FAQ

"Over decades," he argues, "oil sanctions have proven too complicated and they’ve never actually worked.”

Iran internally sells its nuclear program as part of its rise as a great nation, and claims that its “right for uranium enrichment is nonnegotiable,” as one lawmaker, Ali Aghazadeh, said this week. “There is no reason for Iran to compromise over its rights. But Iran is open to discussions over concerns about its nuclear program.”

Iran is allowed to enrich uranium as a signatory to the Nuclear Non-Proliferation Treaty (NPT). But the United Nations Security Council has forbid that enrichment until Iran clears up remaining concerns raised by the UN nuclear watchdog, the International Atomic Energy Agency (IAEA).

French Foreign Minister Alain Juppé said EU nations no longer believe Iran’s assertion that its program is for civilian use, and said that sanctions are an alternative to military action.

According to OPEC figures, the EU took 890,000 barrels per day from Iran in 2010. Making up for this shortfall will be a challenge. Currently, Saudi Arabia produces roughly 10 million barrels per day, but says its maximum capacity is 12.5 million barrels.

“Whether they can reach this figure is unclear,” says Mr. Stevens, author of a recent Chatham House study, “An Embargo on Iranian Crude Oil Exports: How Likely and with What Impact?”

The sanctions mean no new contracts will be signed with Iran, and that existing contracts must cease by July 1. Yet with a May 1 review to examine the effect of sanctions on EU economies, particularly beleaguered Greece, which takes 30 percent of its oil from Iran, there is what Stevens terms “wiggle room.”

Slow buildup to sanctions

The EU buildup to sanctions took place over several months. In October, EU External Affairs Minister Catherine Ashton called on Iran in a letter to join negotiations that would restore “international confidence in the exclusively peaceful nature of Iran's nuclear program," but got no reply.

A November report by the International Atomic Energy Agency (IAEA) report on Tehran’s nuclear program seized EU attention, because it spelled out weapons related work that Iran conducted "systematically" until 2003, with sporadic development as recently as 2009. Iran in February 2010 began enriching uranium to 20 percent – which is technically much closer to the 90 percent necessary for a bomb – to make its own fuel plates for a Tehran reactor that makes medical isotopes. Iran and world powers have so far been unable to strike a deal on supplying Iran with the fuel for that reactor. 

Still, British Foreign Secretary William Hague argued yesterday there is “no possible civilian explanation” for Iran to be enriching to 20 percent.

Skepticism over effect

One problem with sanctions, says Rouzbeh Parsi of the EU Institute of Strategic Studies in Paris, is that while “everyone agrees it will hurt the Iranian economy, whether they will hurt enough to bring negotiation is a more open question that I’m skeptical about.

“Ms. Ashton says the sanctions are to bring pressure for Iran to negotiate,” Mr. Parsi continues. “If your red line is to stop enrichment, well, Iran is enriching every day. They’ve been doing it for years. So there’s nothing to negotiate about. So sanctions are a substitute for finding what would bring Iran to the table.”

Two Iranian lawmakers yesterday said that sanctions would lead Tehran to forcibly close of the Strait of Hormuz, through which roughly one-fifth of the world’s oil supply is shipped.

Stevens doubts that Iran will go through with the threat, arguing that the impact on Iran’s economy would be catastrophic, and that closing the strait is Iran’s ultimate card to play, and “why would they play it at this point in the game?"

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