The EU ban on Iranian oil imports marks a major increase in the international pressure on Tehran to halt its nuclear activities.
But what impact will it have, and could it in fact, hurt Europe, more than Iran? The EU consumes about 20 percent of Iran’s oil exports, so it has been decided to phase in the restrictions to give Europe’s most dependent economies the chance to find alternative suppliers.
Iran’s biggest European customers are also the bloc’s most indebted. Italy and Spain are big buyers, as is Greece, which imports around 100,000 barrels of crude a day.
One of the major concerns is that without Iran’s preferential terms, prices at fuel pumps could soar, making an already bad economic situation worse. The hope is other OPEC members like Saudi Arabia will step into the breach.
The other key question which remains unanswered is whether it will have the desired effect on curbing Iran’s nuclear ambitions. Much will depend on Tehran’s other international customers, especially in Asia. China buys about a fifth of Iran’s crude.
Along with the oil embargo, foreign ministers also agreed to freeze the assets of the Iranian central bank, bringing the EU more closely into line with US policy.
euronews spoke to Dr. Mehdi Varzi, international consultant in oil and politics.
euronews: Dr. Varzi, what will be the economic impact of the Iranian oil embargo on the already ailing economy of Europe and how is it going to change the life of the ordinary man on the street?
Mehdi Varzi: “There has already been so much discussion about this economic and oil embargo that quite frankly I think it has already discounted in a large extend in the oil price. In practical terms, I don’t think it it will have much impact on the man in the street unless, of course, it leads to some possible conflagration”.
euronews: “What about Greece? There has been a great deal of concern over Greece’s worries that the oil that this country is importing from Iran on very preferential terms would stop and then Greece would not be able to afford oil at the current price.”
MV: “Greece has the right to be concerned, but the Saudis, in practical terms, have actually been increasing their production in recent months and currently they are producing over 10 million barrels per day which is the highest I can recall for the past thirty years. So, actually, more oil is coming into the market. Kuwait and the UAE are also raising production.”
euronews: “These are all members of the OPEC. Would it be in compliance with the regulations of OPEC that a member or a number of members produce more against the unanimity of OPEC, against the regulations of the organisation, and particularly against another member?”
MV: “Legally speaking, OPEC have got what they call “allocations”. In other words, certain shares within a kind of an overall production ceiling. But in practical terms, these allocations have not been looked at for a long long time. The more time passes by, the more there is a OPEC variance, a difference between the actual ‘official’ allocation and what each OPEC member country producing. Besides, I have always said that they will produce what the market wants and they would not allow an oil disruption in terms of supply/demand to take place.
euronews: “Let’s go back to the embargo: it looks that the European union is trying to find various ways in order to waiver the embargo as a whole and it looks to me that they’re acting politically in order to satisfy America that put various countries of the world undue pressure to apply an embargo on Iran. so, is it fair to say that the Europeans are trying to keep it as political as possible and as symbolic as possible?”
MV: Well, I don’t think so because there are certain very key European member countries – particularly Germany and France, who really are the two leading members – who are actually in favour of tightening the squeeze on Iran. so, some members are really concerned about how far this squeeze could go. but certainly the leading members are actually keen to tighten the squeeze to put further pressure on Iran on the issue of its nuclear policy
euronews: Iran is not unfamiliar with sanctions in particular now with china and India and Russia NOT joining Europe and the US, it is hard to see how Iran would face a checkmate situation now?
MV: No, I don t think any European economic or oil sanctions are going to a checkmate situation. I think that the global economy and particularly the oil market is too flexible for that. There are ways of selling Iranian crude, be it at a discount. The market is what they call fungible. in other words: it moves to where the demand situation calls for additional crude oil. But I would say this: that the pressure on the Iranian economy is rising as we can see by raising unemployment and rising inflation and pressure on the local currency, the Iranian rial.