Iran angry over EU unity on oil embargo

Iran's currency nosedived today as the EU approved an oil embargo to take effect in July. The rial has lost half its value since October.

By , Staff writer

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    A money changer holds Iranian rial banknotes as he waits for customers in Tehran's business district January 7.
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Iran reacted angrily today to a new European Union ban on oil imports and other sanctions that are the latest measures aimed at forcing Iran to curb its nuclear program.

While Iranian generals and politicians alike have put a brave face on the impact of the long-expected sanctions – with some renewing vows today that Iran would cut off strategic oil shipping channels through the Strait of Hormuz – Iran's currency continued its nosedive against the dollar on expectations of deepening crisis.

"The most telling sign is panic at the gold and foreign exchange markets," says an Iranian analyst in Tehran who closely follows the economy and asked not to be named.

Recommended: Getting the Strait of Hormuz straight: an FAQ

The rial reached an all-time low today at 21,000 rials to the dollar; it has lost half its value in just under three months. Many Iranians are hoarding gold.

A US aircraft carrier group, joined by British and French warships, entered the Persian Gulf through the Strait of Hormuz on Sunday, defying a recent Iranian warning to keep out of the narrow waterway through which one-third of the global seaborne oil supply is shipped.

Iran shocked by EU unity

Iranian officials have been shocked by the display of European unity, considering that Iran accounts for 20 percent of oil imports to Europe. The oil measure will only fully take effect on July 1, to give key buyers – especially Greece and Italy, which are facing debt crises – time to find alternative sources.

The unprecedented EU measures are the latest to be imposed upon Iran, in addition to four rounds of sanctions from the United Nations Security Council and a raft of American measures.

Iran says it will not slow or suspend any part of its nuclear program when under pressure. Few expect sanctions alone to prompt Iran to capitulate on its nuclear program, which Tehran says is for producing nuclear energy, not bombs.

"There is a genuine fear here that once the West senses weakness, it won't stop at the nuclear dossier," says the Iranian analyst. "The threat of regime change is also increasing.... I think the Iranians think: 'Well, if I was in their [Western] shoes, why stop here?'"

Iranian official: Stop oil exports immediately

American and Israeli intelligence, along with inspectors of the UN's International Atomic Energy Agency, conclude that Iran has conducted weapons-related work in the past, but say they have no evidence that Iran has decided to make a nuclear device.

Iran and world powers are considering resuming nuclear talks that broke off a year ago in Istanbul, but neither an agenda nor dates have been agreed.

"I want the pressure of these sanctions to result in negotiations," EU foreign policy chief Catherine Ashton said. "I want to see Iran come back to the table and either pick up all the ideas that we left on the table ... last year ... or to come forward with its own ideas."

A senior Iranian politician said today that Iran should fight EU pressure by immediately closing off its oil taps to Europe, to disrupt European efforts to find alternatives.

"The best way is to stop exporting oil ourselves before the end of this six months and before the implementation of the plan," Ali Fallahian, a member of Iran's Assembly of Experts and former intelligence minister, was quoted as saying by Fars news.

"If they increase pressure on our country, we can use the Strait of Hormuz as a tool to decrease the pressures and closing the strait is one of the options," Mr. Fallahian said today. Most analysts doubt Iran could keep the Strait closed for long, given the overwhelming military superiority of the US and allies who would view closing the sea lane as an act of war.

In recent weeks, other senior Iranian officials have warned that they would close the strait – through which much of Iran's own oil exports flow – if the EU embargoed Iranian oil.

First Vice President Mohammad Reza Rahimi, a loyalist of President Mahmoud Ahmadinejad who has been embroiled in financial scandals, warned last month that Iran would not allow "even one drop of oil" to pass through Hormuz if oil sanctions were imposed.

The Revolutionary Guard backed away from that threat over the weekend. But Mohammad Kassari, deputy head of Iran's parliamentary foreign affairs committee, said today the Strait of Hormuz "will definitely be closed" if there is "any disruption" to the sale of Iranian oil.

Upcoming election

US and European officials have long said sanctions only target regime officials and entities linked to Iran's nuclear, missile, and other programs. But the most recent measures against Iran's central bank and oil deals are unprecedented in their scope, and will further complicate the lives of countless ordinary Iranians.

From freezing bank accounts abroad – thereby making it more difficult to pay for foreign schooling for Iranian kids, for example – to blocking refueling for Iran's national airline at some European airports, Iranians have been affected. 

The potentially crippling sanctions for Iran come as conservative factions are locked in political battle ahead of a March 2 parliamentary vote – the first nationwide election since June 2009, when Ahmadinejad's official reelection was challenged by millions of Iranians taking to the streets.

The president has made no comment on the fall of the currency, prompting media connected to the powerful Revolutionary Guard to say the divisive president was "hibernating."

"People are starting to blame Ahmadinejad, but they are also attributing part of the pressure on the sanctions," says the Iranian analyst, adding that his own efforts to buy a new laptop computer and refrigerator have been thwarted by daily price rises.

The president forced down interest rates at the end of last year. And liquidity in the economy – due in part to reforms that have replaced some key subsidies with government payments into personal bank accounts – is double what it was in before Ahmadinejad came to office in 2005, says the analyst.

"Mismanagement started the downward spiral; the sanctions are now fueling it ... even though they are trying to present a brave face," says the analyst.

Less maneuverability

As Iran's economic maneuverability has been curtailed, with US officials leading the charge to cut off banking, credit, and insurance lines worldwide, its defiant statements have become increasingly threadbare.

One measure of Iran's difficulties is evident in the request Iran made to India to use Japanese yen to pay for part of its $9.5 billion annual crude trade, according to a report today by Bloomberg.

India last week proposed to Iran, its second-biggest oil supplier, to pay in rupees. A Turkish bank which handled transactions until now has "told Indian refiners it may no longer be able to act as an intermediary," Bloomberg reported.

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