EU to Impose Sanctions on Iran in Bid to Halt Nuclear Drive

European Union governments imposed their toughest sanctions yet on Iran, backing U.S. efforts to force the clerical regime to halt uranium enrichment and stop any pursuit of a nuclear weapons capability.

The package includes a ban on new investment in or equipment sales to Iran’s oil and natural-gas industries, restrictions on export-credit guarantees and insurance, and closer monitoring of banks doing business with Iran.

“We’ve sent quite a powerful message to Iran,” EU foreign-policy chief Catherine Ashton told reporters after an EU meeting in Brussels today. “That message is that their nuclear program is a cause of serious and growing concern to us.”

European curbs went beyond what was spelled out in a United Nations Security Council resolution in June, in a boost to U.S. President Barack Obama’s bid to deepen Iran’s international isolation.

Obama on July 1 signed legislation that punishes foreign suppliers of Iran’s gasoline and blocks access to the American financial system for banks that do business with the country.

Iran has shrugged off three previous sets of UN sanctions and denies Western suspicions that it is building bombs, saying the nuclear program is designed to generate electricity for a growing population.

Trade Relations

The new sanctions may have a bigger impact because the EU is Iran’s top trading partner and provides equipment for the liquid natural gas industry and services such as reinsurance that Iran is unlikely to get elsewhere, said Mark Fitzpatrick, a former U.S. State Department official.

“It’s the first time that Iran has really felt sharp sanctions from countries that have been doing business with it,” said Fitzpatrick, who runs the non-proliferation program at the International Institute for Strategic Studies in London. “It’s conceivable that these sanctions will make Iran willing to make a deal.”

Machinery and transport equipment made up more than half of EU exports to Iran of 14.1 billion euros ($18 billion) in 2008, the year of the latest figures. Oil and energy products accounted for 90 percent of the EU’s imports from Iran of 11.3 billion euros.

Iranian President Mahmoud Ahmadinejad yesterday threatened retaliation against countries that back the U.S.-led drive for sanctions.

‘Considered Our Enemy’

“Any country that sides with the U.S. in its plot against Iran will be considered our enemy and will be provided with an answer,” Ahmadinejad was quoted as saying by the official Islamic Republic News Agency. Foreign Ministry Spokesman Ramin Mehmanparast today said the sanctions will have “no effect” and will only “make the situation more complicated,” the agency reported.

While Iran is the second-largest oil producer in the Middle East after Saudi Arabia, it imports as much as 40 percent of its gasoline since it lacks refining capacity for domestic consumption.

Oil Minister Masoud Mir-Kazemi said international sanctions won’t trigger shortages of motor fuel, telling the official news agency on July 21 that “we have no problems regarding our gasoline needs.”

Gasoline sanctions weren’t mandated by the UN or imposed by the EU, permitting further deliveries from Russia, which backed the Security Council resolution. Russia may continue shipping gasoline, Energy Minister Sergei Shmatko said July 14.

Bank Restrictions

Iranian banks were prohibited from setting up new branches or joint ventures in Europe, and ordered to seek approval to process money transfers of more than 40,000 euros.

In line with the UN resolution, the EU mandated the inspection of ship cargoes suspected of carrying equipment for the nuclear program and banned Iranian air freight from European airports.

The sale to Iran of mainstream technologies with potential “dual use” in conventional, chemical or biological weapons was also banned.

EU foreign ministers paired the sanctions with a renewed offer of economic incentives that Iran could tap if it stops enriching uranium, a key ingredient in nuclear weapons.

“The goal is to bring Iran back to the negotiating table,” German Deputy Foreign Minister Werner Hoyer said. “We don’t believe in the inevitability of escalation. We have always extended our hand for negotiations, but it has to finally be accepted.”

Parallel Track

Ashton, who would conduct the talks on behalf of the five permanent UN Security Council powers plus Germany, again pressed Iran to take up the invitation.

On a parallel track, Iran today sent a letter to the International Atomic Energy Agency that expresses its readiness to start talks on a nuclear fuel swap initiative brokered by Turkey and Brazil, state-run Press TV reported.

Passed on June 9 in a 12-2 vote with one abstention, the UN resolution also widens the array of Iranian officials and companies subject to asset freezes. The EU’s blacklist will be published as soon as tomorrow.

Canada today said it’s also imposing new sanctions that go beyond what the UN called for, such as preventing Iranian banks from starting operations in Canada and barring domestic banks from doing business in Iran.

“I have yet to meet anyone who thinks this issue is going to be sorted out by sanctions alone,” Swedish Foreign Minister Carl Bildt said. “There’s also a downside to sanctions. They tend to reinforce and strengthen and enrich the wrong people.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Jonathan Stearns in Brussels at jstearns2@bloomberg.net

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