SPEAKING
FREELY Oil embargo on Iran a conundrum for
Europe By Emanuele Scimia
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The approved oil
sanctions against Iran signal an unusual
assertiveness of the European Union. For Europe,
however, it will not be an easy ride to find
alternatives sources to the Iranian crude, while
the embargo's impact on the Islamic Republic could
be soften by demand from Asia-Pacific countries.
The Strait of Hormuz is narrowing day by day:
unless Washington and Tehran reach a sort of
strategic accommodation.
The European
Union (EU) finally reached on January 23 a deal
among its 27 state members to cut back oil and
petrochemical
imports from Iran. A hard-won
decision lining up with the United States' efforts
to prevent Tehran from developing its (supposed)
military nuclear program. EU high representative
for foreign affairs Catherine Ashton stressed that
the sanctions were a way of bringing Iran back
into negotiations with the 5+1 (the five permanent
United Nations Security Council members plus
Germany).
The EU will immediately ban the
signing of any new oil contracts with Iran, while
the existing ones will be fulfilled up to July 1.
The latter provision was thought to give the
Union's members time to secure oil from other
sources. According to EU governments, this gradual
approach has been devised so that the world market
can absorb the embargo's impact, not least of all
the European economies afflicted by the current
sovereign debt crisis.
In addition, the EU
will also impose sanctions on Iran's central bank,
freezing its assets and banning all trade in gold
and other precious metals with the bank and other
national public bodies. Ahead of next May 1,
Brussels will review the measures adopted to
verify whether they are effective and whether EU
states are failing in finding alternatives to
Iranian crude.
Maybe for the first time in
its history, the EU is playing a tough
geopolitical game, but it must weigh up the
sustainability of its bid. Some Iranian officials
have already threatened to stop exporting crude to
Europe promptly in order to provoke a surge in
prices and prevent European countries from finding
other supplies at similar costs in the short term.
In 2010, the EU's oil imports from Iran
accounted for 5,8% of its total, about 450
thousand barrels of crude per day (18% of
Teheran's oil exports). The new round of European
sanctions on Iran, for instance, puts a great deal
of pressure on debt-laden EU countries such as
Greece, Spain and Italy. Athens buys 14% of its
oil from Iran, while both Madrid and Rome import
13% of their crude procurements from the Islamic
Republic.
European operators in the energy
sector are showing moderate optimism about the
prospects of the ban on Iranian oil. Officials of
ENI Trading and Shipping (ETS - a subsidiary of
Italian energy group ENI) underlined as early as
January 17 that "the market is liquid enough and
it will be able to compensate for loss of Iranian
crude just as it had with Libyan oil".
Before the embargo was agreed on, Villy
Soevndal, the Danish minister of foreign affairs
(in the first half of 2012, Denmark will be
holding the EU's rotating presidency), confirmed
that the EU aimed at replacing Iranian oil with
imports from other Persian Gulf countries: Saudi
Arabia, the United Arab Emirates (UAE) and Kuwait.
Saudi Arabia recently stated it could
quickly raise oil output for key customers if
needed. However, some observers express skepticism
about this perspective, observing that the Saudi
Kingdom cannot cover all of the EU import
requirements. Indeed, Riyadh has to take into
account even oil demand from China, South Korea,
India, Japan and Turkey, which are very dependent
on Iranian crude and are trying to diversify their
sources.
All these countries are reluctant
or absolutely against complying with the US and EU
sanctions on Iranian crude, but may reduce their
heavy dependence on Iran's oil to make provision
for Iranian-reiterated threats to shut down the
Strait of Hormuz, the world's most important oil
export route.
Arguments about Saudi Arabia
go for the UAE as well. The UAE currently produces
around 2.5 million barrels per day that sends
predominantly to Asian markets. The UAE's oil has
become more attractive in strategic projection as
Abu Dhabi is set to complete a pipeline to export
crude from its east coast terminals, avoiding the
Strait of Hormuz: from next June on, the
Habshan-Fujairah pipeline will have the capacity
to pump 1.5 million barrels per day of oil from
fields on the Persian Gulf to Fujairah on the Gulf
of Oman.
Moreover, the EU points to Libya,
which is restoring its oil network and could boost
crude export to Europe. In this regards, Paolo
Scaroni, the chief executive of ENI, claimed its
group had restored oil production in Libya at
prewar levels (270-280 thousand barrels per day -
ENI is the first international operator of oil and
gas in Libya) and that "there are no substantial
problems of security around the Libyan oil field".
However, recent clashes between armed
militias from the cities of Assabia and Gharyan
(about 80 kilometers south of Libyan capital
Tripoli), as well as a resurgent activism of
groups loyal to the late Libyan leader Muammar
Gaddafi (pro-Gaddafi fighters retook control in
Bani Walid, one of their former stronghold, on
January 23), seem to contradict European confident
views on Libya's oil export.
The
struggling Libyan transitional government does not
rule out the country could slide into civil war if
the militias were not disarmed and admits that
public officials are often unable to control the
former anti-Gaddafi rebel brigades. To complicate
matters, then, there is the flow of mercenaries
coming from the African region of Sahel,
especially nomadic Tuaregs that once fought on
Gaddafi's field and now sell their guns to the
highest bidder.
In the short run, Europe
could profit from Iraq's intentions to raise its
crude oil exports by up to 400 thousand barrels
per day over the next two months. Other solutions
to replace the Iranian oil, like Norway and
Nigeria, instead do not appear to be viable in the
foreseeable future.
Oslo is the second
crude exporter to EU countries. In 2011 the
Norwegian upstream sector recorded several oil
discoveries in the North Sea, among which one of
the world's largest one, the Avaldsnes and Aldous
giant field, whose reserves are estimated between
1.7 and 3.3 billion of barrels of recoverable
crude. Yet, it will take time to have these new
oil fields fully operational.
As to
Nigeria, there are doubts that the oil-rich West
African country will be able to increase its
output. Indeed, Lagos is grappling with two
simultaneous breeding grounds for political
instability: the rebellion of Boko Haram, the
militant Islamist group which is carrying out a
series of bloody attacks in the nation's
predominantly Muslim northern regions; and the
long-standing insurgence of the Movement for the
Emancipation of the Niger Delta (MEND), which
claims for revenues from the oil produced in the
Niger Delta region are to be used in the interests
of local inhabitants.
For Iranian
officials, the EU's oil embargo is doomed to fail.
They rely on the demand from Asia-Pacific
countries, which are the major customers of Iran's
crude. And the facts speak for themselves:
altogether, China, India, Japan and South Korea
buy about 62% of Tehran's oil shipment. Without an
effective commitment by this four energy-hungry
purchasers to scale back their import of Iranian
oil, the impact on the Islamic Republic's economy
- and, accordingly, on its uranium enrichment
program - of the EU's oil ban will inevitably be
softened.
Such a perspective, coupled with
the EU's decision to phase the embargo, will
strengthen Israel's mistrust towards the utility
of such a (limited) intervention, when Tehran
would be set to realize its own nuclear weapon.
At first glance, however, the EU should
hope its "dual track strategy" on Iran (harming
the Iranian economy through sanctions so as to
force the ayatollahs' regime to come to an
agreement) does not turn into a "dual track
backlash": escalating the tension in the Persian
Gulf so as to plunge the region into a wider
conflict. On the other hand, risks of
miscalculation are around the corner in the
increasingly crowded and militarized Strait of
Hormuz. And such a scenario could frustrate the
fresh attempts of strategic accommodation that
seem to be underway between Washington and Tehran.
Emanuele Scimia is a journalist
and geopolitical analyst based in Rome.
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Speaking Freely is an
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