Iran General NewsU.S., allies step up Iran embargo talks

U.S., allies step up Iran embargo talks


Wall Street Journal: The Obama administration, its European allies and key Arab states are intensifying discussions on how to maintain stability in the global energy markets in a possible precursor to a formal embargo on Iran’s oil exports and its central bank.

The Wall Street Journal


WASHINGTON—The Obama administration, its European allies and key Arab states are intensifying discussions on how to maintain stability in the global energy markets in a possible precursor to a formal embargo on Iran’s oil exports and its central bank.

Such an embargo would constitute the most direct economic confrontation yet between Iran and the West and would amplify tensions as Iran repeatedly threatens to close the Strait of Hormuz, through which passes about one-fifth of the world’s oil supply.

U.S. and European officials indicated in interviews they are taking steps that could lay the groundwork for such financial penalties as part of the effort to counter Iran’s nuclear program.

In particular, the officials said they are seeking assurances from major oil producers, such as Saudi Arabia, Kuwait and the United Arab Emirates, to increase exports to the European Union and Asian nations if tighter sanctions on Tehran’s energy exports and central bank are enforced in the coming months.

These officials said there is also a growing discussion with emerging oil exporters—such as Libya, Iraq, Ghana and Angola—to increase their production capacities to guard against any shortages caused by the West’s economic campaign against Iran.

“If properly implemented, countries will trend away from Iranian supply,” said a European official involved in the discussions. “There are lots of conversations going on with Saudis at various levels on this.”

Representatives from 11 countries involved in the financial war against Tehran will meet on Tuesday in Rome as part of a group that has been informally dubbed the “coalition of like-minded countries.”

U.S., European and Arab diplomats said Iran’s oil exports and global energy prices will be key issues discussed at that session, which Western diplomats said will include foreign ministry and finance officials from all the Group of Seven leading industrial nations, along with South Korea, Australia, Saudi Arabia and the U.A.E. A European Union representative will also attend the meeting.

In addition to energy policy, the conference will focus on sanctions on Iran’s finance and transportation sectors, and ensuring the free flow of information into Iran, these officials said.

The U.S. and its European allies have sanctioned most of Iran’s financial sector, key transportation firms and businesses linked to Tehran’s military since 2006. The United Nations Security Council has also passed four rounds of sanctions against Tehran.

But Washington and Brussels have been wary about hitting Iran’s oil exports and the central bank, due to concerns about global energy prices and Tehran’s threats to retaliate.

Iran last year was the second-largest exporter among the Organization of Petroleum Exporting Countries, selling around 2.6 million barrels of crude oil each day. The Obama administration has been reluctant since taking office to directly sanction Iran’s oil exports or its central bank, which facilitates most Iranian energy sales, due to fears this could drive up global energy prices and imperil the U.S. economic recovery.

Still, a determination in the West to take these steps has intensified in recent weeks due to growing fears about Iran’s nuclear program and Tehran’s alleged support for international terrorism.

Iran says its nuclear work is for peaceful purposes and denies any role in terrorism. But the U.N.’s nuclear agency last month said it had uncovered significant evidence that Tehran has been developing the technologies used to develop nuclear weapons.

France and Britain this month formally presented a plan to the EU to enact a total embargo on both Iran’s oil exports and its central bank. The U.S. Congress, meanwhile, approved legislation last week obligating the White House to also blacklist Bank Markazi, the Iranian central bank.

“There’s been a palpable hardening of sentiment toward Iran that wasn’t there before,” said a second European official involved in the negotiations.

U.S., European and Arab officials involved in the discussions on targeting Iran’s oil exports said there is a growing recognition that China, India and other major developing countries will continue to buy Iranian oil irrespective of any unilateral steps taken by the U.S. or EU. As a result, a major focus of the Obama administration and Europeans is to find unanimity among the EU states and the West’s closest Asian allies, particularly Japan and South Korea, to end all Iranian oil purchases.

This would cut off around half of Tehran’s total oil exports and force Iran to sell its supplies at discounted rates to the Chinese and others, said these officials. European countries most dependent on Iranian oil are Greece, Spain and Italy, said European officials.

“The key here is to be doing this in a way where you can phase it in and it doesn’t produce that kind of a spike,” said Dennis Ross, who oversaw Iran policy at the White House before departing earlier this month. “There may well be a way to expand the overall pie of production.”

Arab diplomats share the West’s concerns about the pace of Iran’s nuclear program. But so far, at least publicly, they have been cautious about using oil as a weapon against Tehran.

At a meeting of OPEC’s members in Vienna this week, Iran’s oil minister, Rostam Ghasemi, said he had gained assurances from Saudi Arabia that the world’s largest exporter of crude oil—currently around 10 million barrels per day— wouldn’t try to replace Tehran’s crude in case of a Western oil ban.

Still, in private, Saudi officials said last week that they have been conveying to the U.S. and Europe their willingness to step in and increase sales if the sanctions on Iran’s oil sector and central bank go into effect.

“It is very logical. It is not political; it is a marketing policy,” said a senior Saudi official. “I told this to the Americans, tell your companies if they need more oil they should ask for it and we will give it to them.”

The effects of any embargo on European markets should be less daunting than during the Libyan war, because spare oil, mainly from Saudi Arabia, is of a very similar quality to Iranian crude. That means European refineries can just substitute it.

However, oil exporters will need to find a way to help Greece finance its purchases of Gulf oil if it forswears Iranian crude; Athens has been getting Iranian crude on credit.

Other Arab oil officials said they are skeptical that Saudi Arabia, the U.A.E., Kuwait and other major oil exporters can fully make up for Iranian supply. They said OPEC and other countries would have to export at levels dangerously close to full capacity to make up the difference.

“If global sanctions ended up making it impossible for Iran to sell its oil, Gulf countries couldn’t make up for the loss,” said a Kuwaiti energy official. “You don’t replace Iran’s 3.6 million barrels” a day, he added, referring to Iran’s total production.

While the punitive measures may not disrupt the global supply of oil, many analysts worry about a price spike all the same. While action by Iran to close the Strait of Hormuz would be difficult to pull off in the teeth of the U.S. Fifth Fleet, “just the rhetoric could absolutely spook the oil market,” said Amrita Sen, an energy analyst with Barclays Capital in London.

—Keith Johnson, Summer Said and Benoit Fauçon contributed to this article.

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