AP: The European Union agreed Monday on the need to sharpen sanctions on Iran — possibly targeting the oil and gas sectors in what would mark Europe's strongest punishments yet to discourage Tehran's nuclear ambitions.
The Associated Press
By ROBERT WIELAARD
LUXEMBOURG (AP) — The European Union agreed Monday on the need to sharpen sanctions on Iran — possibly targeting the oil and gas sectors in what would mark Europe's strongest punishments yet to discourage Tehran's nuclear ambitions.
In line with such a move, British Prime Minister Gordon Brown said the EU will join Britain in freezing the assets of Iran's largest bank.
"We will take any necessary action so that Iran is aware of the choice it needs to make," said Brown at a London news conference with President Bush.
The EU's tougher stance follows Iran's latest refusal to accept an economic incentives in exchange for halting uranium enrichment, which Tehran insists is for energy-producing reactors but Western nations and others fear could be used to develop nuclear weapons.
Washington's European allies have been far more cautious on punishing Iran because of deep business and energy ties. But the oil and gas move — which is not yet final — would strike directly at Iran's economic base and its plans to expand petroleum exports to Europe at a time of record-high prices.
Brown warned that European nations will start the process of oil and gas sanctions if Iran continues to refuse to halt enriching uranium.
"Action will start today in a new phase of sanctions on oil and gas," he said.
Brown also said Britain will freeze the assets of Iran's Bank Melli — a separate and largely symbolic clampdown on the mideast nation. He said that the European Union would join in the freeze.
But aiming at Iran's vast oil and gas industries would be a much more significant blow than the banking sanctions.
Iran's stumbling economy — burdened by chronic inflation and unemployment — desperately needs the foreign currency from its fuel exports, which are still weighted toward Western markets despite efforts to cater to growing Asian demand.
At the same time, Iran relies on foreign investment and technology in its oil and gas fields. More than 80 percent of Iran's revenues come from oil exports, and the country has the world's No. 2 gas reserves.
"The sanctions are going to extract a lot of pressure and cost in Iran, but I'm not sure at this point that they will give up uranium enrichment," said Mehrzad Bouroujerdi, an Iranian affairs expert at Syracuse University.
The EU has not yet officially announced any new sanctions, but Brown said the EU "will agree." A senior British official, speaking on condition of anonymity in keeping with government policy, said the sanctions were expected to be formally adopted "in the next few days."
Cristina Gallach, spokeswoman for EU foreign affairs and security chief Javier Solana, said EU foreign ministers meeting in Luxembourg were prepared to take "a formal decision" on tighter sanctions.
"It is clear they are ready to move further," she said.
Solana failed last weekend to win Iran's support for a package of incentives to end uranium enrichment — which Iran's leaders have declared is a point of national pride and a sign of the country's technological advances.
Matthew Levitt, a regional affairs expert at the Washington Institute for Near East Policy, said an EU-wide tightening of sanctions would send "a very, very powerful message."
"It is another brick in the isolation wall around Iran," said Mustafa el-Labbad, editor-in-chief of Sharqnameh, a Cairo-based magazine that focuses on Turkey and Iran.
But the scope of the expected EU sanctions is still unclear. European diplomats, speaking on condition of anonymity because of the sensitivity of the deliberations, said some divisions remained among the 27-nation bloc about how strong to move against Iran's energy sectors.
One concern is pushing oil prices even higher.
Crude oil futures hit a record of $139.89 a barrel on the New York Mercantile Exchange before falling back to $134.61. Retail gas prices rose to a record $4.08 a gallon.
Phil Flynn, analyst at Alaron Trading Corp. in Chicago, said sanctions could definitely push prices higher on worries that Iran could retaliate by pulling oil off world markets or attempting to choke off the Strait of Hormuz, the narrow outlet for tankers leaving the Persian Gulf.
"The market gets nervous … they get worried about how Iran's going to respond," he said.
The sanctions — the strongest yet against Iran — would follow three sets of U.N. Security Council penalties Iran has shrugged off while continuing to enrich uranium.
But an analyst said targeting Bank Melli may do little to sway Tehran.
"The Iranians certainly have been expecting it, and likely have been preparing for ways to work around it. Unless the Europeans (are) willing to sign on to a far more dramatic sanctions package, these measures seem likely to fail," said Justin Logan, associate director of foreign policy studies at the Cato Institute in Washington.
A news magazine in Iran, Shahrvand Emrouz, reported that $75 billion had been withdrawn from European banks and returned to Iran in the past week. The report could not be independently confirmed.
The United States last year accused Bank Melli of providing services to Iran's nuclear and ballistic missile programs.
While Europe has moved to reduce its trade ties with Iran, Tehran remains a key trading partner with the Islamic republic.
Germany alone did business worth about $5 billion last year and more than 1,000 firms are selling their products or services to Iran, some through public government subsidies.
Additionally, Europe's dependence on outside energy makes any attempt to strike hard at Iran's energy sector problematic. Europe is one of Iran's main export markets for crude oil, with firms such as TotalFinaElf, ENI and Statoil competing for development rights in Iranian oil fields.
European nations are also trying to build a pipeline from the Caspian region to the EU as a way to reduce European dependence on Russian natural gas.
Dutch Foreign Minister Maxime Verhagen said launching any new package of sanctions hinges on "how positive — or not — Iran's response will be to the economic incentives package."
But Iran — which insists its program is exclusively focused on generating electricity — said it would not accept any package demanding the suspension of uranium enrichment, government spokesman Gholam Hossein Elham said in Tehran.
The U.S. and other Western nations accuse Iran of using its nuclear program as cover for potential weapons development and are pushing for tougher measures if Tehran turns down the latest package.
The proposal presented Saturday was accompanied by a letter signed by Solana and the foreign ministers of the U.S., Britain, France, Russia, China and Germany that said it is "possible to change the present state of affairs" — if Iran halts sensitive nuclear work.
Associated Press writers David Stringer in London, Deb Riechmann aboard Air Force One, and George Jahn in Vienna, Austria, Sarah El Deeb in Cairo, Egypt, and Business Writer John Wilen in New York contributed to this report.