16 January 2012
An EU embargo would put the population solidly behind the current
regime and cannot succeed on its own, says a new Chatham House paper, An Embargo on Iranian Crude Oil Exports: How Likely and with What Impact?
The author Paul Stevens says:
'History is littered with failed oil embargoes ranging from Cuba,
Rhodesia and South Africa to the Arab oil embargo and the embargo
against Iraq after 1990. However, the lessons of history appear to have
passed by the decision-makers of the EU.
'An EU oil embargo could greatly strengthen the Ahmadinejad regime at
a time when it is under considerable pressure, especially with
parliamentary elections looming in March. Unemployment remains very
high, as does inflation.'
So far much of the analysis has assumed that Iran would accept the EU
embargo without retaliation. This is extremely unlikely. Recently there
has been much speculation that its response would be to inhibit the
flow of oil through the Straits of Hormuz.
There are two reasons why this is unlikely. First, any closure would
equally damage Iran’s ability to export the oil on which its economy is
so dependent. Second, serious and credible attempts to close the Strait
are in effect Iran’s ‘big guns’ on the issue of whether or not the
United States or Israel would launch a military attack on Iran.
However, Iran has other retaliation options. It could begin to
aggravate upward pressures on oil prices by contributing to the growing
instability in Iraq that has emerged since the US completed its troop
withdrawal and the Shi’a ruling clique has begun a de facto war of
attrition against the Sunnis. This could certainly cause problems with
Iraqi oil exports. It could also make serious trouble for NATO in
Afghanistan. It could also put huge pressure on the Gulf Cooperation
Council (GCC) exporters to be, at the very least, slow in offering
replacements to Europe. At worst it could even threaten GCC export
facilities.
Some form of retaliatory action against the EU countries of the sort
seen when the UK extended its sanctions to financing issues could also
be expected. There could even be a Lockerbie type response prompted by
elements from within Iran.
A more effective means of putting pressure on Iran would be for the
United States to persuade the EU to extend sanctions to financial
transactions. Just recently, the US passed legislation imposing
sanctions against any financial transactions undertaken with the Central
Bank of Iran. Over the last 18 months, access to finance for Iran in
the EU has also become more constrained as restrictions on such
financial transactions have been imposed here too.
While no route to restricting Iranian oil revenues is perfe ct, at
least financial sanctions will not provoke the same high level of
popular backlash from the Iranian public as an embargo, which would be
perceived as a direct threat to Iranian oil – although both measures
would be seen as an attack on Iran. Despite the problems with financial
sanctions, at least they offer some possibility of pressuring Iran in a
way that a simple oil embargo cannot. The international oil market is
too complex, with too many players and too many options, to disguise
transactions. An oil embargo alone cannot succeed.
Notes to Editors
Read An Embargo on Iranian Crude Oil Exports: How Likely and with What Impact?
About the Author
Professor Paul Stevens is senior research fellow on the Energy,
Environment and Development programme. He is available for interview.
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