EU Iran Oil Embargo Over Nuclear Work Said Likely to Be Delayed Six Months

A European Union embargo on imports of Iranian (OPCRIRAN) oil will probably be delayed for six months to let countries such as Greece, Italy and Spain find alternative supplies, two EU officials with knowledge of the talks said.

The embargo, which would need to be accepted by the 27- nation bloc’s foreign ministers on Jan. 23, is also likely to include an exemption for Italy, so crude can be sold to pay off debts to Rome-based Eni SpA (ENI), Italy’s largest oil company, according to the officials, who declined to be identified because the talks are private.

A ban on petrochemical products would start sooner, about three months after EU ministers agree to the measure, one official said yesterday. Once a decision is made, member states would be barred from concluding new oil contracts with Iran or renewing those that are due to expire, while existing deals will be terminated within six months, according to a second diplomat today. Long-term contracts constitute the bulk of Europe’s purchases of Iranian oil.

“Work by experts from the 27 member states is in a very intensive phase,” Maja Kocijancic, a spokeswoman for the European Commission, said by phone yesterday from Brussels. “They are looking into different options for restrictive measures with a view to adoption on Jan. 23.” She declined to comment on possible phase-in periods or exemptions.

Crude prices dropped on the news, falling 1.8 percent to $99.10 a barrel yesterday on the New York Mercantile Exchange, the lowest settlement since Dec. 30. Oil was at $98.22 today.

Italy, Greece Concern

Phasing in the European embargo would satisfy the concern of nations most dependent on Iranian crude, including Italy, Greece and Spain, the first EU official said. Those three nations accounted for 68.5 percent of EU imports from Iran in 2010, according to European Commission data.

The U.K., France and Germany pressed for a three-month delay, Nigel Kushner, a London-based international-trade lawyer specializing in Iran sanctions, said in an interview.

“It’s my understanding that the Greeks were looking for a 12-month delay” and a six-month compromise appears likely, Kushner said. “No doubt the Greeks are saying to rest of EU, ‘If we play ball, what are you giving us in return?”

Greece, facing a debt crisis, is buying oil from the Persian Gulf state on credit.

Nuclear Pressure

Germany, France and the U.K. have been pushing for the embargo to increase pressure on Iran over its nuclear program, and it has the support in principle of all member states, the EU official said yesterday. While Western countries say the Gulf state may be seeking the capability to build nuclear weapons, Iran says its program is for civilian electricity and medical research.

International Atomic Energy Agency inspectors will go to Tehran at the end of the month to discuss Iran’s nuclear program, two diplomats with knowledge of the talks said today.

Iran’s willingness to resume talks doesn’t mean it’s ready to negotiate restrictions on its nuclear program, said Michael Singh, a former official on the U.S. National Security Council.

The nation’s ability to manufacture nuclear fuel rods and its decision to move some of its nuclear-enrichment activities to a well-protected facility near the Shiite holy city of Qom suggest the opposite, he said.

Negotiating Delay

“All the signals from the Iranians are not that they’re now willing to negotiate an end to their nuclear program, but that they’re not,” said Singh, who is now at the Washington Institute for Near East Policy. “They’re probably hoping to use talks as a delaying tactic, and to raise the hopes of those in the international community who think that negotiations can resolve the issue.”

As Europe weighs its embargo, President Barack Obama’s administration has sent teams worldwide to consult with countries on managing the supply and demand of oil, according to an administration official who briefed reporters in Washington.

The teams are part of the administration’s efforts to implement Iran sanctions mandated in a law Obama signed on Dec. 31. The law would cut off foreign financial institutions that knowingly facilitate significant transactions with the Central Bank of Iran. The U.S. intends to close down the bank, said the U.S. official, who wasn’t authorized to speak on the record.

Obama’s Goal

The U.S. goal is to convince countries that the Iran is no longer a reliable source of oil, a strategy that already is paying off as countries that deal with the Gulf state have difficulty getting their financing guaranteed and as nations such as China and India seek to diversify their sources, according to the official.

Iran, the second largest producer in the Organization of Petroleum Exporting Countries, pumped 3.58 million barrels of crude a day last month, according to Bloomberg estimates.

Under the emerging European agreement, every three months the EU would assess its impact on member economies, check whether countries are finding alternate supplies and monitor the effect on oil prices, the EU official said yesterday.

There are no plans to compensate affected European nations, and the current emphasis is on finding oil from alternative sources at similar prices, the official said.

The Iranian government said in a letter to United Nations Secretary General Ban Ki-Moon that a civilian nuclear scientist, Mostafa Ahamdi Roshan, who was killed by a bomb Jan. 11 was the fourth victim of a foreign terror campaign. Iran has accused the U.S. and Israel of targeting Iranian nuclear scientists.

Scientists Targeted

“We are very active in this branch of science,” Iranian Parliament Speaker Ali Larijani told journalists in Ankara yesterday, referring to his country’s nuclear program. “If Israel thinks it can stop us with four acts of terror, their logic is flawed.”

Tensions over the ratcheting up of sanctions led Iranian Vice President Mohammad Reza Rahimi to threaten on Dec. 27 that Iran may block the Strait of Hormuz, the transit for about a fifth of the world’s oil, if the EU bans exports from the Islamic Republic.

U.S. Joint Chiefs of Staff Chairman General Martin Dempsey said on Jan. 9 that Iran can temporarily choke off the waterway, through which 17 million barrels of oil pass each day, the Energy Department estimates.

OPEC’s other members would be able to make up for a drop in Iranian oil supply if the EU agrees to an embargo, said Chakib Khelil, the group’s former president. Even so, prices may temporarily rally to as high as $200 a barrel on news of any such blockade, he said today in London.

“It should be possible to replace, at least, the European consumption of Iranian oil,” Khelil said in an interview with Mark Barton on Bloomberg Television’s “On the Move.”

OPEC’s members, responsible for about 40 percent of the world’s oil production, are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Khelil was Algeria’s oil minister from 1999 until last year.

To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.