海角大神

The European Union is poised to ban Iranian oil imports, even as critics warn the move could bring deep economic pain to the continent while doing little to change the course of the Iranian nuclear program.

Iran聽is聽playing a game of political chicken聽with the EU and US. Iran loses if it聽can't sell its oil.聽 But its leaders are聽calculating that the tight oil market and a weak global economy will prevent the West from being able to persuade others to join their embargo, allowing Iran to simply find new customers.聽The outcome is completely uncertain, but it will have a substantial impact on the聽global聽economic recovery.

On Jan. 23, The EU's foreign ministers are expected to officially approve an embargo on Iranian oil after agreeing in principle to the move earlier this month. They'll likely agree to enforce the import ban from July, in order to give countries time to make alternate import arrangements 鈥� a middle聽ground between the three months delay that some want and the 12 months others prefer. The more Iranian oil each EU member relies on, the聽less enthusiastic they are about quick implementation, say EU and Spanish officials and the International Energy Agency, which advises OECD countries on energy issues.聽

EU leaders have gradually warmed to the idea of targeting Iran鈥檚 oil industry 鈥� which contributes about half of the Islamic Republic鈥檚 budget 鈥� in hopes of compelling its leaders to forgo uranium enrichment that could eventually be used to develop nuclear weapons. So far, Iranian leaders have only grown more defiant in response to more pressure.聽

The oil embargo is just one facet of a complex game and passionate tit-for-tat threats from Iran and the US, Europe, and Israel that will have a dramatic impact on global supply lines. Iran recently threatened to close the Strait of Hormuz, a critical waterway for oil shipments from the Persian Gulf. Blocking the Strait, through which about 20 percent of the world's oil passes, would trigger a supply crisis. The US has warned such a move would prompt a military response.聽

The oil industry sees little chance of war, but it does fear further escalation of the protracted diplomatic standoff between Iran and the West, which could聽prolong economic uncertainty, cause oil prices to rise, and lead to further instability in the Middle East and oil markets.聽

The economic costs stand to be significant at a time when Europe can least afford it 鈥� so why is Europe doing this?聽鈥淭he end game in this policy course is not to minimize the price of oil, but to prod Iran into a different policy,鈥澛爏ays Harry聽Tchilinguirian, the head oil market analyst of France's BNP Paribas, one of the world鈥檚 biggest banks.

It will 'backfire'

鈥淚 don鈥檛 know why Europe is going along with this. Europeans have been more balanced than the US, but somehow they have become more emotional. [Joining the embargo] will backfire,鈥� says Iraqi Manouchehr Takin, a senior oil markets analyst with the London-based Center for Global Energy Studies who spent almost a decade in the secretariat of the Organization of the Petroleum Exporting Countries (OPEC). The embargo could end up hurting the EU more than Iran.

鈥淭hose who will suffer are refiners in Europe, especially those in countries in financial problems like Italy, Spain, and Greece,鈥� says Dr. Takin. The three聽buy three quarters of the Iranian crude purchased by the EU and聽are the ones pushing for a delayed embargo so that they have time to find alternative sources for affordable oil.

The EU was Iran鈥檚 biggest client, buying聽nearly a quarter of聽its聽exports between January and October 2011, according to the聽figures released Wednesday by the聽IEA. China bought 22 percent and India 12 percent. [Editor's note: This sentence was edited to correctly reflect the date of the IEA figures.]

But oil is fungible, meaning it can be moved around easily and on short notice. In fact, the US and European pressure has already caused changes in oil import-export patterns in the last two quarters. OECD countries have been 鈥渁ggressively聽seeking alternative supplies, especially [from] Saudi Arabia,鈥� according to the IEA, and while they still buy more than half of Iran鈥檚 oil, Iranian oil shipments are increasingly heading toward non-OECD Asian buyers.

However, OPEC聽would be聽simply unable to聽offset聽Iranian crude supplies聽for a long time. Even with Libya鈥檚 production increasing and slowing growth in demand for oil as a result of the economic crisis, the realistic global spare oil production capacity is less than 2.9 million barrels per day 鈥撀�40 percent less than in 2010,聽聽a dangerously small cushion聽going forward as emerging economies continue to expand and the developed world returns to growth.聽

Embargo support losing steam

Outside the EU, support for the embargo is waning. Japan backtracked on its early support, with Prime Minister Yoshihiko Noda overruling the聽finance minister, who initially said Japan would cut imports.

鈥淲e do understand that we need to maintain sanctions, but they must be carried out effectively,鈥� said Foreign Minister Koichiro Gemba. 鈥淲hat's going to happen if oil prices surge is that sanctions will not be effective,鈥� Gemba said. The higher oil prices聽get, the more聽money聽Iran聽has, while having聽鈥渁n adverse effect not only on the Japanese economy but also the entire global economy.鈥�

India and China 鈥� which import 12 percent and 22 percent of Iranian oil respectively 鈥� have also balked at an embargo for聽unrelated contractual differences.

If the EU decision is not backed by other major importers of Iranian oil 鈥� Japan, China, India, and South Korea 鈥� it will cause only a temporary disturbance while Iran finds new buyers for the oil that previously went to Europe, says Mr. Tchilinguirian.

鈥淚f you add other major importers than the opportunity for alternative oil grows scarce, at which point available supply is not sufficient,鈥� he said.聽

Furthermore, a partial embargo also helps other US antagonists with oil supplies, such as Russia and Venezuela. Global prices have already climbed more than $10 a barrel since the EU first signaled its intentions late last year and the IEA and analysts concur that prices will continue climbing 聽because of the Iran standoff.

鈥淚ran might lose part of its customers for a few months until it adjusts, but higher prices will compensate,鈥� Dr. Takin聽said.

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