As Iran continues its bellicose rhetoric against the West, the EU has stepped in to move towards an embargo against Iranian oil imports. Meanwhile, China has criticised the new US sanctions targeting the Iranian central bank, just as US Treasury Secretary Timothy Geithner is preparing to travel to China and Japan to discuss, among other issues, increasing pressure on Iran. As tensions continue to mount, oil prices are pushing higher, with analysts warning that an actual Iranian blockade will cause oil prices to skyrocket by US$50 within a mere few days.
EU moves towards Iranian oil embargo
The EU has agreed in principle to ban Iranian oil imports in what some see as their boldest step so far, adding to an already tense standoff with the Islamic republic.
The move is expected to be officially announced at an EU meeting of foreign ministers at the end of January, and would be carried in in phases to avoid massive disruptions in global oil supplies. However, such a move by Iran’s major oil customers seems to highlight the resolve of the West to punish Iran and pressure its leaders to halt its nuclear programme, which is believed to be a cover for the development of nuclear weapons.
Iran has dismissed the threat of fresh sanctions and denies it is attempting to develop nuclear weapons, and denied that its weakening currency was linked to new US measures against its central bank.
French Foreign Minister Alain Juppe said, “We have an [EU] foreign ministers' meeting on January 30, and on this occasion I hope we will be able to take the decision on the embargo of oil and petrol from Iran… We have to reassure some of our European partners who purchase Iranian oil. We have to provide them with alternative solutions.” France had urged for more stringent measures against Iran on Tuesday.
US State Department spokeswoman Victoria Nuland praised these moves as something the US would like “to see not just from our close allies and partners in places like Europe but from countries around the world.”
The increasingly strident rhetoric from Iran suggest that newly imposed economic sanctions are beginning to affect its economy and threaten to hinder Iranian oil exports. Oil represent about 60 per cent of Iran’s economy and are a major source of foreign revenue which Iran needs to import other goods. European nations purchased around 18 per cent of Iranian oil exports in 2010, with most of the rest headed for Asia. A European oil sanction would have a limited but major impact on Iran.
Report: Iran nuclear crisis: EU moves towards crude oil ban (BBC, 4 Jan 2012)
Report: Europe Takes Bold Step Toward a Ban on Iranian Oil (NY Times, 4 Jan 2012)
China opposes fresh US sanctions as Geithner prepares Asia trip
On Wednesday, China, which is Iran’s top oil customer, has voiced opposition against the new US economic sanctions targeting Iran’s central bank. Foreign Ministry spokesman Hong Lei reiterated that China prefers dialogue with Iran as opposed to sanctions against the Islamic republic. Mr. Hong said China does not approve of one country “placing its domestic law above international law and imposing unilateral sanctions on other countries.” China
The Chinese spokesman defended Sino-Iranian oil and trade ties as normal, acknowledging that China and Iran have “normal and transparent energy and economic cooperation.” He argues that China-Iran interactions do not violate United Nations Security Council resolutions, nor harm the interests of other countries and so should not be affected.
As one of the five permanent members of the UN Security Council, China has not vetoed any resolutions calling for sanctions against Iran. Nonetheless, China has lashed out against the US and EU for imposing their own unilateral sanctions. As major allies with Iran, both Russia and China have often taken a softer stance on the Islamic republic than other members of the UN Security Council.
Meanwhile, the Treasury Department said Treasury Secretary Timothy Geithner will travel to Beijing and Tokyo next week for talks including rising tensions with Iran.
On his trip, which will take place from 10 to 12 January, Mr. Geithner will discuss the “state of the global economy, policies to strengthen global growth and other economic issues of mutual importance” with government officials in China and Japan, according to a Treasury statement.
The Treasury Department added that Mr. Geithner would “discuss our continued coordination with international partners in the region to increase pressure on the government of Iran, including financial measures targeting the central bank of Iran.”
Report: China Criticizes US Sanctions Against Iran (Voice of America, 4 Jan 2012)
Report: China opposes 'unilateral' US sanctions on Iran (AFP, 4 Jan 2012)
Report: Treasury Secretary Geithner Will Discuss Iran on China Trip (Bloomberg, 4 Jan 2012)
Report: Geithner to discuss Iran in China, Japan visit (Reuters, 4 Jan 2012)
Oil prices up on Iran tensions; analysts warn of a massive spike if Iran blocks Hormuz
Oil prices have risen close to eight-month highs on Wednesday as the EU moved closer to an Iran oil embargo and Tehran warned the US to remove its naval forces from the Gulf. Increasingly belligerent rhetoric has sent alarms ringing through oil markets fearing an Iranian blockade of oil through the Strait of Hormuz, as Iran repeated its warning to the US against maintaining a US naval presence in Gulf, adding to its on-going warning to block Hormuz in retaliation against Western sanctions.
New York's main contract, West Texas Intermediate for delivery in February, rose to $103.74, a level last touched on 11 May 2011. The contract fell back to $103.22, down 26 cents from Tuesday's closing level.
In London Brent North Sea crude for February rose to $113.97 per barrel, its highest level since 14 November 2011. It later stood at $113.70, up $1.57 from Tuesday.
Jason Schenker of Prestige Economics said, “I don't think Iran is going to do anything. But... the potential impact would be so large that people have to price it in to the market.”
Analysts have warned that if Iran does close the Strait of Hormuz, the price of oil will skyrocket by 50 per cent or more within days. That would rapidly push the price of regular petrol to over $4 a gallon.
The major oil producing states of Iraq, Kuwait, Saudi Arabia, Qatar and the United Arab Emirates depend on the Strait as a passageway for their oil and natural gas exports, so an Iranian blockade could potentially destabilise some of those government amid a backdrop of political turmoil in the region.
Analysts also say that a crisis over the Strait of Hormuz would most likely result in China and the US partnering to restore oil shipments.
Europe and the US would probably feel the least direct impact because of their strategic oil reserves and could obtain a certain amount of Persian Gulf oil through Red Sea pipelines. However, the transportation costs would still be higher if Iran blockades the Strait, leaving several million barrels of oil stranded and pushing energy prices at astronomical levels on global markets.
Report: Oil prices soar on Iran tensions (AFP, 5 Jan 2012)
Report: Oil Price Would Skyrocket if Iran Closed the Strait of Hormuz (NY Times, 4 Jan 2012)