Iran: The Oil, Embargo And War – OpEd

By Vladimir Sazhin

Experts are unanimous in believing that the European Union will most likely introduce the oil ebargo against Iran.The official decision will be announced on January 23 in Brussels during the meeting ofg EU representatives. All concerns voiced by several members of the European Union regarding the embargo, mainly by Italy and Greece that are most dependent on Iranian oil have been resolved.

In this case such unanimous opinion of the EU countries demonstrates that the Western world as a whole has arrived at a consensus point regarding the Iranian problem. Here is the opinion of Tatiana Illarionova, professor at the Russian Academy of National Economy:

«Ban on the import of Iranian oil is a very serious measure that the European countries do not use very often. Here the economics is mixed with politics. In the West practically all countries have arrived at the conclusion that Iran’s activity in the region as well as its nuclear program create serious risks».

Such unity of the European countries in the cause of opposing Iran comes as a surprise of a sort. However the position of Tokio and Beijing is even more surprising. On January 8, Japan that about 10% of its oil buys from Iran anounced that it is looking for alternative sources including in Saudi Arabia. Although it oficially opposess the embargo. Similar steps are being taken by Beijing that recieves from 11 to 14% of all its imported oil from Iran. Politically opposing the embargo, in January it cut its oil supply from Iran in half. South Korea is also planning to cut its purchase of Iranian oil to the level of 2010 when it received 8.3% of its oil import from Iran. All these signals are very worrisome for Iran.

Iran produces about 4 million barrels of oil on a daily basis, of which 2 million barrels are being exported. Europe’s share of these exports is estimated to be approximately 500 thousand barrels, or 20-25% of all exported oil. For the year 2011 Iran planned to reach USD 100 billion in oil exports. Rouyghly estimated, Iran stands to loose on annual basis from 15 to 20 billion USD from the oil embargo.

For the Iranian ecnomy that is in a difficult situation without the oil embargo such loss of revenue would be quiet noticeable if not catastrophic. The Iranian currency – the rial – is falling. A few years ago one USD equalled 9700 rials. In November 2011 one USD was worth 11000 rials. And after the announcement of the potential introduction of the oil embargo by the EU the rial’s exchange rate plummeted by another 70% and one USD was worth 17000 rials. Over the last few months prices of staple food products have increased by 40%.

It is not hard to imagine what awaits the economy of the IRI when the oil embargo is introduced by the EU and Japan, South Korea and China partially join in. As a consequence the population’s standard of living will inevitably fall, which might lead to the rise of dissatisfaction of people and increase in protest activity. That would be especially sensitive in the tense political atmosphere on the verge of the presidential elections of 2013. With no doubt the Iranian opponents of Ahmadinejad’s team will remind the current president what burden the new sanctions impose on to the people.

But taking into account the Iranian reality, one should not assume that the new hardships for the country’s population would lead to power politicians who would be easier partners for the dialogue with the West than Ahmadinejad.

Troika-Dialogue’s analytic Valery Nestrov underlines:

«The introduction of the oil embargo by the EU is a doubtful measure. This measure in my mind would make the whole situation more complicated. Such measure is unlikely to accomplish the tasks the European Union has in mind by introducing the embargo against Iran».

Many experts believe that the future loss of billiuons of dollars together with the intense political struggle inside the country can only drive the leadership of the IRI into the corner, which in turn will lead to the escalation of the development of nuclear weapons as well as radicalization of its external policy. As we see it completely contradicts those goals that the EU countries proclaim regarding Iran.