Wednesday, January 25, 2012

Oil embargo on Iran a conundrum for Europe... All that glitters is ... oil

Oil embargo on Iran a conundrum for Europe... All that glitters is ... oil

By Emanuele Scimia

The approved oil sanctions against Iran signal an unusual assertiveness of the European Union. For Europe, however, it will not be an easy ride to find alternatives sources to the Iranian crude, while the embargo's impact on the Islamic Republic could be soften by demand from Asia-Pacific countries. The Strait of Hormuz is narrowing day by day: unless Washington and Tehran reach a sort of strategic accommodation.

The European Union (EU) finally reached on January 23 a deal among its 27 state members to cut back oil and petrochemical imports from Iran. A hard-won decision lining up with the United States' efforts to prevent Tehran from developing its (supposed) military nuclear program. EU high representative for foreign affairs Catherine Ashton stressed that the sanctions were a way of bringing Iran back into negotiations with the 5+1 (the five permanent United Nations Security Council members plus Germany).

The EU will immediately ban the signing of any new oil contracts with Iran, while the existing ones will be fulfilled up to July 1. The latter provision was thought to give the Union's members time to secure oil from other sources. According to EU governments, this gradual approach has been devised so that the world market can absorb the embargo's impact, not least of all the European economies afflicted by the current sovereign debt crisis.

In addition, the EU will also impose sanctions on Iran's central bank, freezing its assets and banning all trade in gold and other precious metals with the bank and other national public bodies. Ahead of next May 1, Brussels will review the measures adopted to verify whether they are effective and whether EU states are failing in finding alternatives to Iranian crude.

Maybe for the first time in its history, the EU is playing a tough geopolitical game, but it must weigh up the sustainability of its bid. Some Iranian officials have already threatened to stop exporting crude to Europe promptly in order to provoke a surge in prices and prevent European countries from finding other supplies at similar costs in the short term.

In 2010, the EU's oil imports from Iran accounted for 5,8% of its total, about 450 thousand barrels of crude per day (18% of Teheran's oil exports). The new round of European sanctions on Iran, for instance, puts a great deal of pressure on debt-laden EU countries such as Greece, Spain and Italy. Athens buys 14% of its oil from Iran, while both Madrid and Rome import 13% of their crude procurements from the Islamic Republic.

European operators in the energy sector are showing moderate optimism about the prospects of the ban on Iranian oil. Officials of ENI Trading and Shipping (ETS - a subsidiary of Italian energy group ENI) underlined as early as January 17 that "the market is liquid enough and it will be able to compensate for loss of Iranian crude just as it had with Libyan oil".

Before the embargo was agreed on, Villy Soevndal, the Danish minister of foreign affairs (in the first half of 2012, Denmark will be holding the EU's rotating presidency), confirmed that the EU aimed at replacing Iranian oil with imports from other Persian Gulf countries: Saudi Arabia, the United Arab Emirates (UAE) and Kuwait.

Saudi Arabia recently stated it could quickly raise oil output for key customers if needed. However, some observers express skepticism about this perspective, observing that the Saudi Kingdom cannot cover all of the EU import requirements. Indeed, Riyadh has to take into account even oil demand from China, South Korea, India, Japan and Turkey, which are very dependent on Iranian crude and are trying to diversify their sources.

All these countries are reluctant or absolutely against complying with the US and EU sanctions on Iranian crude, but may reduce their heavy dependence on Iran's oil to make provision for Iranian-reiterated threats to shut down the Strait of Hormuz, the world's most important oil export route.

Arguments about Saudi Arabia go for the UAE as well. The UAE currently produces around 2.5 million barrels per day that sends predominantly to Asian markets. The UAE's oil has become more attractive in strategic projection as Abu Dhabi is set to complete a pipeline to export crude from its east coast terminals, avoiding the Strait of Hormuz: from next June on, the Habshan-Fujairah pipeline will have the capacity to pump 1.5 million barrels per day of oil from fields on the Persian Gulf to Fujairah on the Gulf of Oman.

Moreover, the EU points to Libya, which is restoring its oil network and could boost crude export to Europe. In this regards, Paolo Scaroni, the chief executive of ENI, claimed its group had restored oil production in Libya at prewar levels (270-280 thousand barrels per day - ENI is the first international operator of oil and gas in Libya) and that "there are no substantial problems of security around the Libyan oil field".

However, recent clashes between armed militias from the cities of Assabia and Gharyan (about 80 kilometers south of Libyan capital Tripoli), as well as a resurgent activism of groups loyal to the late Libyan leader Muammar Gaddafi (pro-Gaddafi fighters retook control in Bani Walid, one of their former stronghold, on January 23), seem to contradict European confident views on Libya's oil export.

The struggling Libyan transitional government does not rule out the country could slide into civil war if the militias were not disarmed and admits that public officials are often unable to control the former anti-Gaddafi rebel brigades. To complicate matters, then, there is the flow of mercenaries coming from the African region of Sahel, especially nomadic Tuaregs that once fought on Gaddafi's field and now sell their guns to the highest bidder.

In the short run, Europe could profit from Iraq's intentions to raise its crude oil exports by up to 400 thousand barrels per day over the next two months. Other solutions to replace the Iranian oil, like Norway and Nigeria, instead do not appear to be viable in the foreseeable future.

Oslo is the second crude exporter to EU countries. In 2011 the Norwegian upstream sector recorded several oil discoveries in the North Sea, among which one of the world's largest one, the Avaldsnes and Aldous giant field, whose reserves are estimated between 1.7 and 3.3 billion of barrels of recoverable crude. Yet, it will take time to have these new oil fields fully operational.

As to Nigeria, there are doubts that the oil-rich West African country will be able to increase its output. Indeed, Lagos is grappling with two simultaneous breeding grounds for political instability: the rebellion of Boko Haram, the militant Islamist group which is carrying out a series of bloody attacks in the nation's predominantly Muslim northern regions; and the long-standing insurgence of the Movement for the Emancipation of the Niger Delta (MEND), which claims for revenues from the oil produced in the Niger Delta region are to be used in the interests of local inhabitants.

For Iranian officials, the EU's oil embargo is doomed to fail. They rely on the demand from Asia-Pacific countries, which are the major customers of Iran's crude. And the facts speak for themselves: altogether, China, India, Japan and South Korea buy about 62% of Tehran's oil shipment. Without an effective commitment by this four energy-hungry purchasers to scale back their import of Iranian oil, the impact on the Islamic Republic's economy - and, accordingly, on its uranium enrichment program - of the EU's oil ban will inevitably be softened.

Such a perspective, coupled with the EU's decision to phase the embargo, will strengthen Israel's mistrust towards the utility of such a (limited) intervention, when Tehran would be set to realize its own nuclear weapon.

At first glance, however, the EU should hope its "dual track strategy" on Iran (harming the Iranian economy through sanctions so as to force the ayatollahs' regime to come to an agreement) does not turn into a "dual track backlash": escalating the tension in the Persian Gulf so as to plunge the region into a wider conflict.
On the other hand, risks of miscalculation are around the corner in the increasingly crowded and militarized Strait of Hormuz. And such a scenario could frustrate the fresh attempts of strategic accommodation that seem to be underway between Washington and Tehran....
All that glitters is ... oil
By Pepe Escobar

In his State of the Union address, United States President Barack Obama said, "Let there be no doubt: America is determined to prevent Iran from getting a nuclear weapon, and I will take no options off the table to achieve that goal."

In the real world, this means Washington is willing to go to war - the economic war is already on - against a country that subscribes to the nuclear Non-Proliferation Treaty and is not seeking nuclear weapons, according to the International Atomic Energy Agency and the latest US National Intelligence Estimate.

Obama also said, "The [Tehran] regime is more isolated than ever before; its leaders are faced with crippling sanctions, and as long as they shirk their responsibilities, this pressure will not relent."

"Isolated"? Not really; see
The myth of 'isolated' Iran(Asia Times
Online, January 18). And it's not the Iranian leadership that is subjected to crippling sanctions; it's the absolute majority of 78 million impoverished Iranians who will pay the price.

In an earlier statement, Obama had "applauded" the European Union's decision to slap its own Iranian oil embargo, adding, "These sanctions demonstrate once more the unity of the international community."

So, let's talk about the "unity of the international community" - which comprises the US, North Atlantic Treaty Organization (NATO) countries, Israel and the GCC (Gulf Cooperation Council, also known as Gulf Counter-revolution Club); the rest of the world is just a mirage.

Join the oil-for-gold program
BRICS members India and China, together, buy at least 40% of Iran's oil exports, roughly 1 million barrels a day. That's 12% of India's oil needs. As for China, last year it bought 30% more oil from Iran than in 2010, an average of 557,000 barrels a day.

The real "international community" is now very much aware that India will start paying Iranian oil with gold - and not only rupees, via Indian state bank UCO and Turkish state bank Halk Bankasi. Beijing - which already trades with Iran in yuan - may also turn to gold. Needless to say, both Delhi and Beijing are major gold producers and holders of gold assets.

Talk about the Year of the Dragon starting with a bang. And talk about the new Year of the Dragon gold standard.

Everyone remembers the doomed United Nations oil-for-food program that starved Iraqis to death for years prior to the 2003 US invasion/occupation. Average Iraqis paid the terrible price for UN/US sanctions, and oil-for-food only benefited the Saddam Hussein system.

Now it's a much more serious business; the oil-for-gold program, a BRICS + Iran initiative that will benefit the Islamic Republic leadership and perhaps alleviate the effects of sanctions over the Iranian population. Global consequences: gold shooting up, petrodollar going down, oil traders opening bottles of Moet in droves.

Another BRICS member, Russia, is already trading with Iran in rials and roubles. And an aspiring BRICS member, Turkey - also a NATO member - will not follow the US/EU sanctions unless they are imposed by the UN Security Council (a no-no, because permanent members Russia and China would veto it).

In two months, Prime Minister Vladimir Putin - who angers/terrifies Washington and Brussels to Vlad the Impaler levels - is certain to be back as president of Russia. That's when the Atlanticist poodles will see real hardball at play.

Meanwhile, Tehran will never bow down to Western sanctions - much less with multiple lateral/underground mechanisms to sell its oil involving three BRICS members plus US allies Japan and South Korea, which eventually will get exemptions from the Obama administration.

As this never was about a non-existent nuclear weapon, the Tehran leadership only has to follow a supreme strategic parameter; don't fall for any provocation or false flag black ops that would provide the casus belli for a US/British/Israel axis of war attack.

And all this while trends in the - overcast - horizon point to what could be dubbed an Asian Dollar Exclusion Zone, which for many sharp minds in the developing world might pave the way for an energy-backed currency used by the BRICS and the Group of 77 (G-77) to counter the increasingly desperate - and clueless - Atlanticist West.

Back to the European poodle parade, one just has to examine the joint statement issued by these mediocrity monstrosities - British Prime Minister David Cameron, German Chancellor Angela Merkel and neo-Napoleonic "liberator of Libya", French President Nicolas Sarkozy.

The trio said, "We have no quarrel with the Iranian people." Iraqis heard exactly the same thing from another set of mediocrities in 2002 and 2003. Then their country was invaded, occupied and destroyed....

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