With the EU embargo on Iranian oil passed and the prospect of sharp declines in deliveries looming, many fragile, export-heavy Southern European economies are struggling to find alternatives before the planned July 1 deadline. However, an angered Tehran has warned that Iran could force the EU’s hand and shut down exports immediately, making the search for new sources of crude all the more difficult.
Passed on Monday the 23rd, the EU embargo was supported by US officials who had long pushed for a stricter response to Iran’s nuclear program and what they suggest is an effort to weaponize their efforts. The move came after the US ratcheted up pressure on the Iranian government to abandon their nuclear program, introducing their own sanctions aimed at the country’s central bank, which handled oil revenue, according The Hill. After pressuring European allies to introduce similar efforts, the US welcomed the news of the passage of the sanctions in Brussels, though they were ultimately passed with an extension that would allow those countries with a heavy dependence on Iranian crude to secure alternatives.
Further, the extension to July 1st was meant to allow European firms, such as Italy’s Eni, to pursue and collect unpaid debts from Iranian companies or the government. In the case of Italy, newly appointed Prime Minister Mario Monti appealed for a special exclusion of a billion euro contract between Eni and Iran, arguing that the loss in revenue would hinder the country’s efforts to rebound from its current economic crisis. Representatives from the United Kingdom also issued appeals for exceptions, including a BP-led collaborative project with an Iranian firm to produce natural gas in the north Caspian Sea. The project is aimed at reducing dependence on Russian product.
However, just days after the Brussels announcement, the Iranian parliament announced that they would speed through a bill aimed at shutting down exports to EU member states immediately.
“We want to cut oil exports to Europe next week for which we are preparing a double-urgency bill,” said Hossein Ibrahimi, a member of the parliament’s national security committee in the Financial Times.
The legislative move follows Tehran’s warning that any future efforts to limit Iranian oil sales would result in the forced closure of the Strait of Hormuz, halting the passage of one-fifth of the world’s oil in tankers from reaching western markets, according to the AFP.
This new pressure has left some countries, including Spain, Italy and Greece, short on time when it comes to nailing down fuel options should Tehran follow through. So far, options have included increasing imports from Russia, Saudi Arabia and Iraq, though it is yet unclear whether these countries will be able increase production and delivery to meet the shortened deadline without impacting the market with a shortfall.
While representing just 5.8 percent of Europe’s total oil imports in 2010, Iranian crude provided 14.6 percent of Spain’s demand, 14.0 percent of Greece’s and 13.1 percent for Italy, making a sudden shutdown of imports all the more impactful across Southern Europe. Complicating the situation still further, those countries most affected by the embargo are the same EU member states struggling with dire economic outlooks for the New Year. Any additional increases in costs or energy deficits could serve to exacerbate already daunting financial pressures. While Saudi Arabia has suggested that they have ample reserves to address any Iranian reduction, cooperation from Russia may be a little more difficult for EU customers as the country’s leadership has expressed concerns about the actual embargo.
“It is obvious that what is happening here is open pressure and diktat, an attempt to ‘punish’ Iran for its intractable behaviour,” the foreign ministry said in a statement, according to New Europe. “This is a deeply mistaken line, as we have told our European partners more than once. Under such pressure Iran will not agree to any concessions or any changes in its policy.”
Further alternatives for Southern European customers exist with an increase in production in a post-conflict Libya, however significant obstacles still hinder the country’s ability to ensure adequate delivery. According to the country’s National Oil Corporation, production has reached 1.3 million barrels a day after the country’s civil war halted all production early last year. Although they have assured customers and foreign investors that they will soon reach and surpass pre-conflict levels of 1.6 million bpd, concerns about security, stability and infrastructure deficits remain. While Libyan exports could help ease the impact of an Iranian shutdown, it would not likely be enough to address all the needs of Spain, Italy and Greece
Could it Backfire?
While the pending deadline is causing additional stress across Europe, ultimately, analysts have suggested that any move on the part of Tehran to force the stoppage would mean worse news for Iran than any EU states, even those searching for other options. According to a Financial Times report, if enacted, the early ban would force the National Iranian Oil Corp to find new customers for up to 600,000 barrels of oil per day, inviting the possibility of heavy discounts to entice new clients in Asia. Dependent on oil revenue for up to 80 percent of government spending, Iran would likely find it difficult to lose customers for very long.
Image: Iran Review