Iran pledges to counter EU oil embargo

As embargo comes into force, Iranian officials say strategies in place to deal with effects; US applauds European ban.

Iranian crude oil supertanker "Delvar"_370 (photo credit: Tim Chong/Reuters)
Iranian crude oil supertanker "Delvar"_370
(photo credit: Tim Chong/Reuters)
As new EU sanctions against Iran’s oil sector came into full force on Sunday, the governor of the Islamic Republic’s central bank said his country had built up $150 billion of foreign currency reserves to combat the effects of the embargo.
Mahmoud Bahmani said that Iran had not sat idle in the face of Western sanctions, but had implemented programs to counter the impact of what he described as “spiteful policies,” according to Iran’s Mehr News Agency, which is owned by the Islamic Ideology Dissemination Organization.
Bahmani did not provide details about what Tehran’s plans may be but told Mehr that Iran’s oil sales have been over $100b. in addition to between $40b. and $50b. of exports, comprising a $150b. foreign reserve chest.
Meanwhile, Mehr listed what it said were four main scenarios that Iran could employ to counter sanctions. These included using foreign currencies other than the euro and US dollar, closing the Strait of Hormuz, increasing oil stores and reducing oil production from certain oil fields.
Also on Sunday, Iranian Petroleum Minister Rostam Ghasemi said Iran was “fully prepared to deal with sanctions.”
In a lengthy statement published on the Petroleum Ministry website, Ghasemi said that “the government has planned and prepared for all possible options in order to counter sanctions.”
He added that though sanctions prevented oil exports to US and EU markets, Iranian crude is still being sold on international markets.
The petroleum minister commented that the world’s oil market “ought not to be political” because “the most vulnerable citizens in oil-importing countries are suffering,” and added that only “a few” countries had imposed sanctions on Iran, “due to [those countries’] irrational demands.”
Noting that the US had allowed China and other countries to be exempt from oil sanctions, Ghasemi added: “America knows that if Iranian oil is removed completely from the market, prices increase.”
The EU passed sanctions against Iran’s crude oil sector in January to punish the Islamic Republic for its nuclear program. The sanctions prohibit the the 27-nation bloc’s members from importing Iranian crude oil and petrochemicals and from insuring vessels transporting them. All contracts for importing Iranian oil that were concluded before January 23 had to be terminated by Sunday.
Last year, the EU accounted for almost a quarter of Iran’s oil exports.
The White House praised the EU embargo on Sunday and said Tehran had an opportunity in talks this week to make progress on international concerns about its nuclear program.
“The United States welcomes the European Union’s prohibition of all Iranian crude oil imports and other sanctions on Iran’s oil industry, which go into full effect today,” White House spokesman Jay Carney said in a statement.
“This collective decision of the 27 countries of the European Union represents a substantial additional commitment on the part of our European allies and partners to seek a peaceful resolution that addresses the international community’s concerns about Iran’s nuclear program,” Carney said, adding the EU move was an “essential part” of diplomatic efforts in dealing with Iran.
“Iran has an opportunity to pursue substantive negotiations, beginning with expert level talks this week in Istanbul, and must take concrete steps toward a comprehensive resolution of the international community’s concerns with Iran’s nuclear activities,” he said.
The US, Israel and EU believe Iran is aiming to build nuclear weapons, while the Islamic Republic claims its nuclear program is peaceful.
In three rounds of negotiations, Western powers have demanded Tehran halt its highgrade uranium enrichment activities, ship all high-grade uranium out of the country and close down a key enrichment facility.
But the talks have lost steam. At a meeting of political leaders in Moscow last month, there was not enough common ground for negotiators to agree on whether to meet again.
Last Thursday, the US enforced sanctions on countries carrying out oil transactions with Iran’s Central Bank, although China and 19 other countries are exempted.
There are signs that sanctions are causing significant damage to Iran’s energy sector.
Last October, the US Treasury told the US Senate Banking Committee that Iran faced a projected loss of $14b. per year in oil revenues through 2016.
The Iranian rial has also plummeted while the country’s official inflation rate skyrocketed over the past year to 21.5 percent.
In April, Iran’s parliament speaker Ali Larijani admitted that Iranians were suffering from high youth unemployment.
On Sunday, with sanctions set to bite even harder, Iran’s media voiced doubts on the effectiveness of the oil ban.
Tabnak, the website of ex-Revolutionary Guards Commander and Expediency Discernment Council secretary Mohsen Rezae, said the sanctions were based on the “rational actor model,” according to which Iran will abandon its nuclear program after the embargoes squeeze the Iranian middle class, leading to civil unrest.
However, Tabnak said Iran believes the West’s dependence on oil and petrochemicals will result in a “feedback loop” that will ultimately force some Western countries to scale back the oil embargo.
Iran’s ISNA news agency translated a lengthy article that appeared on the oil and energy news site on Friday, which argues that oil sanctions against Iran have not worked because Tehran has implemented tactics – including a barter deal with Pakistan to exchange wheat for oil – to “give itself breathing room.”
Meanwhile, the Irdiplomacy website, which is headed by Seyed Mohammad Sadegh Kharazi – Iran’s former ambassador to the UN and France, who is close to reformist former prime minister Mohammad Khatami – said oil sanctions cannot be effective since in the absence of sales to Europe, Iran will sell oil to other countries.

Reuters contributed to this report.