By Uzoma Ekenna, Transatlantic Economy Analyst
Iran’s nuclear program is without doubt one of the most controversial issues amongst many key global players. While Iran claims that their nuclear program in Tehran is for peaceful purposes only, American and European officials believe Tehran is secretly developing weapons, much to the consternation of the West and Israel. Although oil and financial embargoes have been imposed by the international community, Iran remains persistent in continuing its nuclear program.
Iran’s efforts to develop a nuclear facility began in 1957, stimulated by the U.S. President Dwight D. Eisenhower’s Atoms for Peace program. On March 5, 1957, the US and Iran announced a “proposed agreement for cooperation in research in the peaceful uses of atomic energy”, intending to allow the US to invest in civilian nuclear industries in Iran, such as health care and medicine. Although Iran has the right to enrich Uranium under the Non Proliferation Treaty (NPT), skepticism about Iran’s true intentions has risen in the West. Since 2006, the UNSC has imposed four rounds of sanctions against Iran, including a prohibition of certain items that would contribute to Iran’s uranium enrichment related activities.
As a means to force Tehran to suspend its uranium enrichment activities, the European Council banned imports of Iranian crude oil and petroleum products, a decision made on January 23. This prohibition is set to begin on July 1, 2012. The delayed implementation will allow European markets enough time to arrange alternative resources, hopefully preventing a spike in oil prices. The Council also outlawed imports of petrochemical products from Iran, and froze the assets of the Iranian Central Bank within the EU.
Sanctions have also been tightened in the US. On February 5, President Obama signed an executive order that allows US institutions to freeze all property and interests of the Iranian government. The US Treasury Department also warned that companies continuing to do business with Iran “remain at risk” of US punishments. After urges from Washington for the UN to inspect Iran’s facilities, the International Atomic Energy Agency (IAEA) held meetings in Tehran from January 29-31 to discuss matters pertaining to Iran’s nuclear program. Although little information has been released, Fars News Agency in Tehran noted that “the atmosphere of the talks was constructive and positive,” and that both sides had “reached agreement on the continuation of these talks.” When the IAEA revisited Tehran on February 20 and 21, they were refused entry to inspect certain facilities, including the Parchin military site– believed to be used for explosive testing. The US State Department expressed its disappointment of the failure of the IAEA-Iran talks that has ended without progress.
Iran accuses the West of waging an “an economic war” through its sanctions, and threatens to retaliate. “The enemies of the Islamic republic’s regime…have not been able to chain the nation and now they want to chain the economy,” claims Shamseddin Hosseini, Iran’s finance minister. “These sanctions are an economic war against us,” he said. Iran claims not to be concerned with the EU ban on oil and the US’s financial sanctions, and would be able to endure them. Moreover, only 18% of Iranian oil exports go to the EU, and more oil can be sold to other nations to make up for those exports. India has recently increased oil purchases in Iran, and became the country’s largest customer within the last month. In January Iran threatened to shut the Strait of Hormuz, the passageway of 20% of the world crude oil supply. As a reply to the EU’s “irrational decision”, the Iranian parliament is also currently debating a bill that would stop oil sales to European Union nations, an act that would be in effect almost immediately, before the EU’s oil ban that begins this summer. On February 19 Iran announced cut-offs to France and Britain, and threaten to extend the embargo to Italy, Spain, Greece, Portugal, and the Netherlands.
If the EU sanctions on Iranian oil come into effect this summer, many European nations will have to scramble to find new suppliers. Greece, Italy and Spain, the nations hurting the most from the euro crisis, are also the nations that will largely be affected by these sanctions. Greece receives a third of its oil imports from Iran, Spain receives about a fifth, Italy 13%. “The European countries can use their fuel reserves to compensate for the halt on Iranian oil deliveries in the short term, but this will not resolve the issue,” reports Vitaly Kryukov, an analyst with the investment financial group Kapital. Talks are underway with Saudi Arabia, which can supply short-term oil deliveries to the European countries in need. The only other immediate alternative may be Libya, but they would be able to sell only small amounts of crude oil. As of right now there are no other alternatives.
The IMF warns of the sudden increase of oil prices that may occur due to the embargo, which could range from 23 to 30%. Due to fear of threats from Iran, Crude oil recently traded at the highest price in nine months, up $2.20 from the February 17 close. Although the alleged cut-offs to France and Britain were slightly insignificant (France receives 3% of its oil from Iran, Britain <1%), it is certain that other EU nations will be affected drastically. Greece may have to offer to pay more for oil bought elsewhere, which would cause greater spending cuts, leading to more riots and maybe another default on loans. Stronger European nations would then have to decide either to assist Greece in its debts again or just allow it to country to leave the Eurozone.
Even with all the sanctions that have been imposed on Iran in the last decade by UNSC, and the new embargoes drafted this year by the US and EU, Tehran remains relentless on continuing its nuclear program. These sanctions have started to take a toll on the Iranian economy and finances, but Iran insists that their nuclear program is peaceful and has vowed to “never relinquish what it considers its legal nuclear autonomy”. In a region where many countries are facing harsh austerity measures and massive debt bailouts, the oil sanctions could end up hurting the members of the EU more than it does Iran. At this rate, only crippling sanctions, affecting both parties, will deter Iran from continuing its efforts.