How hard are sanctions hitting Iran?

The new year started with the United States tightening its economic sanctions against Iran over its nuclear programme.

Additional financial curbs signed into law by US President Barack Obama on New Year’s Eve are aimed at making it much more difficult for most countries to buy Iran’s oil.

The European Union, which agreed in principle to a ban on Iranian oil purchases last week, is expected to announce its own tough measures later this month.

The latest moves caused Iran’s currency, the rial, to slide 20 percent against the dollar in one week despite efforts by the country’s central bank to counter that.

Tehran has responded with threats to international shipping specifically saying it could block the Strait of Hormuz through which 40 percent of the world’s tanker shipments of oil pass.

Those Gulf shipping lanes are the world’s most important oil export route vital to the global economy.

The threat has spooked oil markets pushing up prices, though analysts say they would be even higher but for the economic weakness in Europe which is reducing demand.

Oil is central to Iran’s economy with 60 percent of its government revue comes from the sale of crude and European Union countries buy around 18 percent of Iranian oil exports.

The 27 EU governments are still debating how quickly some of their ailing and oil-dependent economies can afford to do without such a key supplier.

Forty percent of Iran’s oil exports go to Italy and Greece meets half of its needs with Iranian crude. Spain and Belgium are also major buyers.

The proposed EU import ban means Iran’s exports could fall significantly in the coming months.

Saudi Arabia and Libya are most likely to make up the short fall, but even so some experts fear prices could hit $200 dollars per barrel.

At that level the more vulnerable European economies would suffer.

Iran too would be badly effected unable to raise the revenue it needs to feed its 74 million people.

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