Why the EU oil embargo on Iran matters
It’s all brinkmanship, and goes to prove how the volatile politics of the Middle East affects all of our lives, writes Channel 4 News International Editor Lindsey Hilsum.
As Iran goes down, Libya comes up. Last year, while revolution disrupted Libyan oil production, Iran was exporting 890,000 barrels per day to the European Union. Today, the EU imposed an embargo on Iranian oil. Maybe Libya will fill the gap. By the end of last year, production was back up to 840,000 bpd, and it’s expected to rise this year.
It’s an example of the complex politics around oil, as the world struggles with political turbulence in the Middle East. The EU has imposed the embargo on Iran because the Islamic Republic refuses to stop its nuclear programme, suspected of being less about diversifying energy supply and more about building a bomb (Iran, needless to say, denies the charge). It’s not an easy decision for the EU: Greece – already in the midst of economic crisis – imports a quarter of its oil from Iran, at concessionary rates. Italy, France and Spain also buy oil from Iran. Now they’re going to have to look elsewhere – Libya is one option, the traditional Gulf producers like Saudi Arabia are another.
How big a punishment is it for Iran? According to a new report from the British think-tank Chatham House, 80 per cent of Iran’s hard currency earnings and 50 per cent of government revenue come from oil. About one-fifth of its oil exports go to Europe, so although they will say they don’t care because they sell more to China, Japan and other Asian countries, it will have an impact.
That is, unless the move pushes up the price of oil. If that happens, then the Iranians will earn more from exporting less and the cost to the EU will increase – including the cost to citizens who will experience further inflation. Libyan oil is different from Iranian (light and sweet, rather than heavy and sour) so equipment would have to be adapted, meaning more costs for the Europeans.
Read more: The power of Iran
Will oil sanctions work? Iran says it won’t stop its nuclear programme come what may, and with the oil price already relatively high, it’s in a good position. But the Iranian economy is nonetheless in a bad way, partly because of mismanagement and partly because of other sanctions, including on banks.
Iran has been threatening to disrupt the entire world’s oil supply by closing the Straits of Hormuz, the narrow maritime passageway in the Persian Gulf, through which 20 per cent of the world’s oil supply travels. That would push the oil price right up, so the Americans have said they would never allow it – they sent an aircraft carrier through the Straits at the weekend to make the point, backed up by three other US warships and joined by a British Royal Navy frigate and a French vessel.
It’s all brinkmanship, and goes to prove how the volatile politics of the Middle East affects all of our lives.
Follow Lindsey Hilsum on Twitter: @lindseyhilsum