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European Union Agrees on Oil Embargo on Iran

Countries of the European Union agreed yesterday to ban imports of Iranian oil thus further tightening existing measures by the Western world against Iran, as Reuters and other media also reported. Just a few days earlier, on December 31, President Obama signed harsh financial sanctions against Teheran which resulted in Iran's threats this week against the navy of the United States.

The latest actions by the European Union and the United States represent concerted Western efforts to halt the nuclear program of Iran.

Although Iran has been claiming for years that its nuclear program is for peaceful purposes, the latest damning United Nations report on the country's nuclear program revealed that Iran engaged in clandestine activities to build nuclear weapons prompted the latest actions by the European Union and the United States.

According to Reuters, the spokeswoman for the State Department praised the European Union oil embargo underscoring that the United States would like these "kinds of steps" from other countries around the world as well.

The latest European move, combined with the U.S. financial measures, will no doubt hurt Iran and force it to look for new buyers for its oil. The European Union is the second largest buyer of Iranian oil, with some 450,000 barrels per day.

During his next week's trip to China, Timothy Geithner will discuss with Chinese authorities the U.S. measures. Namely, China, the largest buyer of Iranian oil, has already reduced orders of Iranian oil by more than 50% this month, as reported by Reuters.

Iran has threatened already in December to close the Hormuz Strait through which some 40% of crude flows.

Although for years the Western countries and the Security Council have imposed several sanctions, they were not able to force Iran to stop its nuclear program. According to diplomats, these latest sanctions are much more difficult for Iran because they are targeting the oil industry of Iran which represents some 60% of the country's economy.

In spite of the fact that Iran might still find buyers for its oil, most probably in Asia, the embargo will have a huge impact on Iranians. The prices for food have already started to climb. Also, Iran's currency the rial has in the last few weeks lost some 40% in its value against the U.S. dollar.

In addition, President Obama's latest legislation imposes sanctions also on international companies that are doing business with Iran, which considerably reduces the ability of Iran to sell its oil.

Can the latest measures and embargo cause oil supply disturbances or even shock? Iran so far has warned that these latest sanctions could cause mayhem in oil markets. However, since the European Union oil embargo will come only at the end of the month and it will also be carried out in various stages, this should prevent significant disruptions in international oil markets and supplies.

According to New York Times, Brent crude increased almost $2 from yesterday reaching $114 a barrel today.

Although Iran has said that it is open to new talks with the Western world, the country has also recently announced the manufacture of the nuclear-fuel rod and also test-fired some missiles, as different media reported. 

Source: Reuters, New York Times, EU, UN