EU oil ban prompts new Hormuz threat from Iran

Tehran’s game of brinkmanship with the west over its nuclear activities took another turn today as EU governments finalised terms for a ban on all new contracts to buy oil from Tehran.

The ban could come into force as early as this week, although existing contracts will be honoured for the next five months, until 1 July 2012.

A senior member of Iran’s parliament responded by repeating his country’s threat to close the Strait of Hormuz, through which 35 per cent of the world’s sea-borne oil passes. The US has already said it would intervene to end such an action.

UK Foreign Secretary William Hague said today that any move to block the strait would be “illegal”. He believed the EU move move demonstrates its “growing concern about Iran’s nuclear programme and our determination to increase peaceful, legitimate pressure on Iran to return to negotiations”.

No easy ride

On the face of it, the EU embargo will hit Iran’s economy where it hurts. Iran is the world’s fourth largest oil producer, and oil provides 80 per cent of its hard currency earnings. The EU is second only to China as an importer of Iranian oil, accounting for 18 per cent of crude exports. In the first six months of 2011, European Union countries were buying 450,000 barrels a day from Iran.

Equally, today’s move will be no easy ride for some of the EU countries which import large quantities of Iranian oil. Less than 1 per cent of UK oil imports come from Iran, but Italy, for example, accounts for 10 per cent of Iran’s exports.

And Greece, at the heart of the EU debt crisis, enjoys favourable oil purchase terms from Tehran and gets nearly a quarter of its oil from Iran. It will now have to seek alternative sources.

Read Lindsey Hilsum: Why the EU oil embargo on Iran matters

Lack of clarity

The election in June 2005 of Mahmoud Ahmadinejad as Iranian president coincided with an apparently inexorable increase in tension with the west, led by the United States, over Iran’s nuclear ambitions. In the same year, President Ahmadeinejad lifted his country’s agreement to suspend uranium enrichment.

Iran, though, has consistently maintained its nuclear programme is peaceful and that its uranium enrichment activities are consistent with those required to produce nuclear fuel for civilian purposes.

The UN’s atomic watchdog, the International Atomic Energy Authority (IAEA), said as recently as 2009 that it has no evidence that Iran is trying to develop nuclear weapons.

But the IAEA’s efforts to achieve clarity in regard to Iran’s nuclear activities have consistently been thwarted. In September 2011 it expressed concern over the extent of enriched uranium production at Iran’s Natanz site, suggesting it might have a military dimension.

Concentrating the mind

The concern now is that the opacity of Iran’s nuclear arrangements, set against the increasingly draconian sanctions imposed on Iran by the US and other western countries, is propelling the two sides towards some sort of military engagement.

The United States, which broke off diplomatic relations with Iran in 1980, has since 2007 imposed sanctions on Iranian banks, prevented Iranian petroleum companies from trading with US businesses, and penalised foreign institutions that have business relations with Iran.

EU countries have pursued a similar course. The UK responded to a critical UN report about Iran nuclear weapons production in November 2011 by ordering all British credit and financial institutions to stop trading with Iranian banks.

Diplomatic opportunity

Persian Gulf specialist Professor Anoush Ehteshami, from Durham University, believes the five-month gap before the latest round of EU sanctions kicks in will allow an opportunity for diplomacy to mature.

“Such an act will concentrate the minds of both parties,” he told Channel 4 News. “It is a significant step in terms of jolting both parties into a more realistic appraisal of Iran’s nuclear programme.”

Nyresa Cama, an intelligence analyst with the Risk Advisory Group, agreed.

She told Channel 4 News: “It’s pretty significant. It puts tremendous economic pressure on Tehran, coming on the back of US sanctions on Iran’s central bank.”

But she doubts that today’s development will lead directly to a confrontation.

“It’s fair to say that I don’t think anyone right now is looking for a military escalation – it’s not in Iran’s interests and it’s not in the interests of the west,” she said.

Professor Ehteshami is less optimistic.

“The way these forces are lining up, it’s likely to make some sort of attack more likely than less. But it’s not inevitable.

“Any attack on international shipping through the Strait of Hormuz by Iran, a mining of the straits, boarding traffic which is clearly innocent, or threatening the US naval presence – those are the likely triggers for a ‘self-defence’ retaliation on the part of the US,” he said.

Sticking-plaster approach

Prospects for definitive resolution of the stand-off are further clouded by the fact that 2012 is an election year in both the United States and Iran.

March sees a parliamentary poll in Iran that is unlikely to be as diverse as in recent elections. Mainstream politicians will be keen to prove that they are not yielding to the external diplomatic pressure and that sanctions are not hurting.

November’s US presidential election, meanwhile, virtually forecloses the opportunity of a negotiated settlement with Iran on nuclear issues. Moreover, the remaining Republican candidates are hawkish on Iran to a man.

Professor Ehteshami told Channel 4 News: “If you look at all the debates so far, the one issue that is repeated over and again is Iran, and on that issue they all agree that the US needs a much harder line.”

It may be, therefore, that the US and its allies will have to pursue a sticking-plaster approach to the mounting crisis in the course of 2012 in the hope that it will stop it from further escalating and spinning out of control.