European Union foreign ministers announced today a ban on Iranian oil imports, to begin on July 1 as part of coordinated measures with the United States to put pressure on the country’s nuclear program.
The 27-nation bloc said it would also freeze Iranian central bank assets in Europe as well as of other state entities and ban the trade in gold, precious metals, diamonds and petrochemical products from Iran.
“Today’s decisions target the sources of the finance for the nuclear program, complementing already existing sanctions,” the EU announced today in Brussels, adding that it has “banned imports of Iranian crude oil and petroleum products.”
Iran’s currency, the rial, fell by 10% to a new record low on Monday following the EU ban, a major problem for President Mahmoud Ahmadinejad who has said sanctions will not hurt the economy.
The EU action lends weight to similar actions by the United States in a joint bid to dissuade Iran from creating nuclear weapons, which Iran has denied it is doing.
The EU decision is mandatory for all its members and additional regulation will be forthcoming in the next few days to impose the same restrictions on companies.
The dispute with the West is becoming increasingly damaging for Iran as oil represents 50% of the national budget and 80% of exports.
Iran produced 3.58 million barrels of crude a day in December, according to data compiled by Bloomberg, about 4% of global oil consumption.
Regarding the slide of the Iranian currency, Reuters states;
The rial’s slide is likely to exacerbate inflation which is already at 20 percent and rising, as Iran is heavily reliant on imported consumer and intermediate goods whose prices have surged as the rial has depreciated.
Monday’s black market dollar price was 80 percent more than the central bank’s official “reference rate” of 11,300 rials – a rate not available to normal Iranians or most importers.
British warships – led by HMS Argyll, have also joined a U.S carrier fleet on patrol in the Straits of Hormuz, in response to threats by Iran to block shipping.
The threats continued today, according to Bloomberg;
An Iranian member of parliament warned the country will “certainly close the Strait of Hormuz,” the Persian Gulf passageway for about 20 percent of globally traded oil, if sanctions “interrupt” its oil exports, the state-run Fars news agency reported, citing Mohammad Kowsari, deputy head of the chamber’s National Security and Foreign Policy commission. EU foreign policy chief Catherine Ashton declined to comment on the remarks when questioned by reporters.
However, the moves by the EU and United States, while calculated to ratchet up pressure on Iran, do not give it a clear enough rationale to attempt to block shipping through the Straits. At least, that is the calculation of the West.
The next few weeks will reveal whether the pressure on Iran is likely to make them rethink their nuclear weapon ambitions.