Early Effects of NDAA Iran Sanctions Being Felt: EU Agrees on Oil Embargo, China Cuts Oil Contracts by Half
Among the many controversial provisions in the NDAA which President Obama signed into law on New Years Eve are provisions aimed at disrupting Iran’s ability to export oil by punishing countries that do business with Iran’s central bank. Although the harshest sanctions on Iran’s bank don’t take full effect for another six months (and Obama says in his signing statement that he will regard the measures as nonbinding if they affect his “constitutional authority to conduct foreign relations”), Iran’s largest oil customers are planning to cut back dramatically on Iranian imports. The European Union has agreed in principal to a complete embargo on Iranian oil and China has already cut their imports from Iran for January and February to half their previous amount.
The moves by the EU and China will hit Iran very hard. As seen in the table above, China is Iran’s largest oil importer, buying 22% of Iran’s exports (but this only accounts for 11% of China’s overall imports), so cutting their order for the next two months in half will have a major impact on Iran’s overall oil revenues if replacement orders are not found quickly. The EU follows closely behind China, buying 18% of Iran’s oil exports. Note that these purchases are not spread evenly among EU nations, as Italy and Spain combine to account for over 75% of total EU imports of Iranian oil. Should the EU embargo actually take place, and even if China does not further reduce its purchasing, Iran is looking at a loss of about 30% of its oil export volume.
The Wall Street Journal describes some of the details of how the Iran oil sanctions are designed to take effect:
The bill specifically targets anyone doing business with Iran’s central bank, an attempt to force other countries to choose between buying oil from Iran or being blocked from any dealings with the U.S. economy.
Certain sanctions would begin to take effect in 60 days, including purchases not related to petroleum and the sale of petroleum products to Iran through private banks. The toughest measures won’t take effect for at least six months, including transactions from governments purchasing Iranian oil and selling petroleum products.
Reuters provides details on the status of the EU embargo:
European governments have agreed in principle to ban imports of Iranian oil, EU diplomats said on Wednesday, dealing a blow to Tehran that crowns new Western sanctions months before an Iranian election.
Diplomats said EU envoys held talks on Iran in the last days of December, and that any objections to an oil embargo had been dropped – notably from crisis-hit Greece which gets a third of its oil from Iran, relying on Tehran’s lenient financing. Spain and Italy are also big buyers.
“A lot of progress has been made,” one EU diplomat said, speaking on condition of anonymity. “The principle of an oil embargo is agreed. It is not being debated any more.”
China is cutting its orders and is driving hard bargains on payments for the oil it is purchasing:
China, which buys around 10 percent of Iran’s crude exports, cut its January purchases by about 285,000 barrels per day, just over half of the total average daily amount it imported in 2011.
“February would be the same as January, with the same cut,” said a Beijing-based senior crude trader who deals with Iranian oil.
The sticking point in talks is over the credit period. Top Chinese refiner Sinopec Corp, which processes around nine-tenths of China’s Iranian oil imports, is insisting on 90 days to pay for imports, while Iran wants payment in 60 days.
And, of course, no matter how “surgically” the sanctions are designed to affect only the Iranian government, the effects already are beginning to hit Iranian citizens very hard. Going back to the Reuters article about the EU embargo:
Tougher sanctions appear to be having an impact already on Iran’s streets, where prices for foodstuffs are soaring. The rial currency has lost 40 percent of its value against the dollar over the past month.
Currency exchanges have shut in Tehran and Iranians have queued to withdraw their savings from banks and buy dollars.
That economic hardship is being felt by the public two months before a parliamentary election, Iran’s first since a disputed 2009 presidential vote that led to massive street demonstrations, put down violently by Iran’s rulers.
The timing of the announcement of the sanctions in relation to the upcoming parliamentary elections in Iran can’t be a coincidence. It would appear that the US government has decided that inflicting damage on Iranian voters is a desirable route to getting them to vote against the current government. That is a very dangerous gamble to make, since the government should now be in a position to make the argument that the current hardships are not the fault of Iran’s government but are instead due to US meddling.
And meddling it is. The US can’t harm Iran by stopping its own importation of Iranian oil because it has been more than 20 years since the US imported any Iranian oil. In fact, 1987 is the only year since the 1979 hostage crisis in which the US imported more than 50,000 barrels of Iranian oil a day and no Iranian oil at all has been imported since 1991. So, just as Iran’s threat to close the Strait of Hormuz was taking the attitude that if Iran couldn’t export oil, no Persian Gulf countries could export oil, the US, in implementing these sanctions, is saying that since the US uses no Iranian oil, no country should use Iranian oil.
Brent crude is, as of a few moments ago, $113.42bbl and way too expensive to allow a quick economic recovery anywhere. The new sanctions idiocy will no doubt increase the price (unless of course the oil brethren forego windfall profits) and will slow the world wide economic recovery even more. Idiocy.
And what will be gained? More excuses to destroy Alaskan lands, more excuses to drive the Keystone pipe line, more excuses to stay in Afghanistan to protect the proposed pipeline, more money for the oil cartels to spread around the WH and Congress?
What does the USACorp hope to make Iran do, stop their nuke power program, stop calling out Israel for being war mongering bigoted apartheid pigs, throw out their duly elected government? What?
Of course USACorp’s big daddy, Saudi Arabia, will be the prime beneficiary. Quelle Surprise.
I would note how the conservative leaders of Britain and France can also trumpet “Let’s
bombembargo Iran” because they too import little Iranian oil.
@MadDog: Indeed. And conversely, not much noise from Italy and Spain, who do rely on it heavily.
@Jim White: And while Germany, like Britain and France, does not import much Iranian oil, their anti-war psychology since WW II means that they can’t personally be involved in bombing Iran, but quiet government cheerleading from the sidelines is likely underway.
You don’t get that apparent EU unanimity for an Iran oil embargo without the top dog in EU barking its approval.
@MadDog: Funny you should mention Germany. I spent some time this morning trying to understand what Mehr News is saying in this article about Germany being more “logical” than other countries in the negotiations about the sanctions, but finally gave up. I suppose I should go read some of the German press to see if it can shed some light on what’s going on, but haven’t gotten around to that yet.
@Jim White: Though I’m obviously not in the German government decision loop, my reading of the entrails is that the EU’s position on an Iranian oil embargo could not have reached the strength we see today without Germany backing it foursquare.
This Der Spiegel piece today references an earlier Der Spiegel piece from December 2011 that seems to confirm that Germany is now a strong backer of the Iranian oil embargo but prefers to remain mostly in the shadows.
@Jim White: I get the sense that the piece in Mehr News is the official Iranian government view and an attempt by the Iranian government to try to play on German anti-war sensitivities and at the very least, get the German government to be Iran’s interlocutor to the EU, if not Iran’s proxy.
From what I see from the outside, this attempt by Iran is not succeeding.
Well, we’re now in a position analogous to that FDR forced upon the Japanese in embargoing our exports of oil to them in 1939-40 (I forget the exact date, but it doesn’t matter anyway). They had none of their own and, to fuel their country, felt compelled to move on the Dutch East Indies (now Indonesia) for the oil there. All those Pearl Harbor Survivors can tell us how that worked out.
Iran will, because its people will be suffering, almost certainly be forced into some level of violence, lashing out at those who put them in this predicament. There has hardly been a better casus belli than a government pointing at another country and saying to its people: “those other guys over there have caused this”. Hungry bellies translate easily to rage, and rage, to violence. This is a month’s worth of neo-con wet dreams of war compressed into one night.
And you thought that because we were negotiating a way out of Afghanistan, the wars would end (For a while)….
I see the usual unintended consequences on the horizon.
The G20 powers think they can implement this embargo on their own terms. But, what if Iran decides; screw you, no oil for you? What if they stop shipments immediately and demand full payment for previous shipments and cash in advance for future shipments? Will this action drive Iran and Iraq closer together? What if Iran slashes the price of oil to $55 / bbl and sells on the black market, to anyone willing to come and get it?
All this risk to punish a country for something no one has proven it has done.
That’s the problem in a nutshell. I wrote several posts as the IAEA report on Iran came out. The claims in the report that Iran is pursuing a nuclear weapon are at best not very well supported.
The Chinese are playing hardball for lower prices. As soon as they get their price they will resume buying and nix any attack by U.S. in the Security Council. We can’t offer China anything except holding more U.S. debt that they don’t want.
It’s interesting how the free market works.
Ironically, as you mention how it’s a gamble on the part of the US and EU on Iran’s upcoming parliamantary elections… What about the subsequent ‘bite’ the EU/US will experience with $200+ barrel of oil…! I’m sure the Greeks, Italians, Spaniards, and even American’s will just adore their respective Politcos enabling this self-imposed Austerity lunacy…! *gah*
Where’s the ‘Adults’…?
Simon Jenkins wrote a sobering Op-Ed in the Guardian…
Why is Britain ramping up sanctions against Iran?
Sabre-rattling at Washington’s behest is an idiocy, and likely to do little other than escalate the steps to open conflict…
*heh* You really have to ponder the titling of their ‘Exercises’ and others…
Thousands of US troops deploying to Israel…
Without much media attention, thousands of American troops are being deployed to Israel, and Iranian officials believe that this is the latest and most blatant warning that the US will soon be attacking Tehran…
…Under the Austere Challenge 12 drill scheduled for an undisclosed time during the next few weeks, the Israeli military will together with America host the largest-ever joint missile drill by the two countries. Following the installation of American troops near Iran’s neighboring Strait of Hormuz and the reinforcing of nearby nations with US weapons, Tehran authorities are considering this not a test but the start of something much bigger.
In the testing, America’s Theater High Altitude Area Defense, or THAAD, missile system will be operating alongside its ship-based Aegis system and Israel’s own program to work with Arrow, Patriot and Iron Drone missiles.
Israeli military officials say that the testing was planned before recent episodes involving the US and Iran. Of concern, however, is how the drill will require the deployment of thousands of American troops into Israel. The Jerusalem Post quotes US Commander Lt.-Gen Frank Gorenc as saying the drill is not just an “exercise” but also a “deployment” that will involve “several thousand American soldiers” heading to Israel. Additionally, new command posts will be established by American forces in Israel and that country’s own IDF army will begin working from a base in Germany.
In September, the US European Command established a radar system in Israel…
2012…? No sh*t, Sherlock…! 8-(
So how does this effect the Koch Bros. and their dealings with Iran?
@TheMomCat: It’s a win-win, all the way around for the Kochsuckers…! They’ll still rake in their obscene amounts of profit, just from the price increase, with the added bonus of having the US public clamoring for the ‘domestic’ Oil Security of the Alberta Tarsands, utilizing the Keystone pipeline which delivers it to their refineries in Texas…!
Hungry bellies translate easily to rage, and rage, to violence…scribe
“Revolutions are fought by those whose ribs are easily counted.”
I’ll agree that it’s bargaining rather than politics driving the PRC. I will also observe that there are several so-called civilian operations not tied directly to Sinopec [which has had its own management problems according to Xinhua] will probably buy oil on the side.