Jan. 23 (Bloomberg) -- European Union foreign ministers agreed to ban oil imports from Iran starting July 1 as part of measures to ratchet up the pressure on the Persian Gulf nation’s nuclear program, the 27-nation bloc said in a statement.
The EU will freeze assets of the Iranian central bank in Europe as well as of eight other entities and ban the trade in gold, precious metals, diamonds and petrochemical products from Iran, the EU said. The names of the entities will be published by the EU tomorrow.
“Today’s decisions target the sources of the finance for the nuclear program, complementing already existing sanctions,” the EU said today in Brussels, adding that it has “banned imports of Iranian crude oil and petroleum products.”
An Iranian member of parliament warned the country will “certainly close the Strait of Hormuz,” the Persian Gulf passageway for about 20 percent of globally traded oil, if sanctions “interrupt” its oil exports, the state-run Fars news agency reported, citing Mohammad Kowsari, deputy head of the chamber’s National Security and Foreign Policy commission. EU foreign policy chief Catherine Ashton declined to comment on the remarks when questioned by reporters.
Saudi Arabia, Iran, Iraq, the United Arab Emirates, Qatar and Kuwait ship crude and liquefied natural gas through the strait.
New contracts on oil imports from Iran and extensions of existing deals will be banned under the embargo, the EU said. Shipments under agreements already in place can continue until July 1. The EU measures against Iran also include a ban on the export of equipment and technology for the Iranian petrochemical industry.
Oil for March delivery gained 68 cents, or 0.7 percent, to $99.01 a barrel at 12:05 p.m. on the New York Mercantile Exchange. Prices have increased 11 percent in the past year. Brent oil for March settlement advanced 59 cents, or 0.5 percent, to $110.45 a barrel on the London-based ICE Futures Europe exchange.
“We can keep the Strait of Hormuz open and we will do what is necessary to achieve that,” Ivo Daalder, the U.S. ambassador to NATO, said in a BBC Radio 4 interview today.
The U.K. and France have joined the U.S. in sending warships to the Strait of Hormuz, the U.K. Ministry of Defense said in an e-mailed statement from London.
“HMS Argyll and a French vessel joined a U.S. carrier group transiting through the Strait of Hormuz, to underline the unwavering international commitment to maintaining rights of passage under international law,” the statement said.
“The Iranian leadership has failed to restore international confidence in the exclusively peaceful nature of its nuclear program,” said U.K. Prime Minister David Cameron, French President Nicolas Sarkozy and German Chancellor Angela Merkel in a joint statement. “We will not accept Iran acquiring a nuclear weapon. Iran has so far had no regard for its international obligations and is already exporting and threatening violence around its region.”
In Washington, U.S. Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Clinton welcomed the EU move and said it “will sharpen the choice for Iran’s leaders and increase their cost of defiance of international obligations.”
Jan Techau, director of the Brussels-based European Center of the Carnegie Endowment for International Peace, called the EU moves against Iran “an impressive show of force.”
“Iran is visibly nervous,” he said in an interview.
The U.S. and Europe have raised pressure on Iran this month after the International Atomic Energy Agency, the United Nations atomic watchdog, said Iran had started enriching uranium up to 20 percent at a fortified site. President Barack Obama signed a bill on Dec. 31 that tightens sanctions on Iran by denying access to the U.S. financial system to any foreign bank that conducts business with the Central Bank of Iran. The IAEA said today said it will send inspectors to Iran Jan. 29-31.
“These EU sanctions will hurt Iran very deeply,” Shada Islam, Middle East and Asia analyst at the Friends of Europe policy group in Brussels, said in an interview. “To be really effective, however, the EU and the U.S. must also try and get key Asian countries, including China, on board.”
While the EU decision today will be binding on member states, a separate regulation is needed for it to become binding on companies. The European Commission, the EU regulatory arm, is expected to come forward with a draft rule on that matter within days, according to an EU diplomat.
The U.S. and EU say Iran’s nuclear-development plans are aimed at building atomic weapons. The Islamic republic, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, is already under four rounds of UN sanctions and says its nuclear program is for energy and medical purposes, not weaponry.
Sarkozy had wanted the embargo to start in three months. Mediterranean countries that import much of their crude from Iran, such as Greece, Spain and Italy, had argued for sanctions to be phased in over as much as a year. The three countries accounted for about 68 percent of EU imports from Iran in 2010, European Commission data show.
Both Spain and Italy get 13 percent of their crude imports from Iran, according to the U.S.’s Energy Information Administration. The U.K. and Germany, which have also sought swifter sanctions, source only 1 percent of their oil imports from the Islamic republic, while France gets 4 percent.
Saudis Pump More Oil
Spanish Foreign Minister Jose Manuel Garcia-Margallo said he expects Saudi Arabia to offset the impact of the EU’s import ban on Iranian oil.
“I had a meeting with the authorities in Saudi Arabia and they have assured us that they will take care of” supply, to “keep the prices the way they are,” he told reporters in Brussels today. “Spain shouldn’t be harmed,” he said.
As well as the four sets of UN sanctions, Iran is under additional U.S. and EU restrictions. The EU already embargoes equipment for and investment in Iran’s oil and natural gas industries. The bloc has also imposed restrictions on transfers of funds to and from Iran, a ban on cargo flights operated by Iranian carriers or coming from Iran and visa bans on 113 people linked to the nuclear program and Revolutionary Guards Corps.
Oil sales earned Iran $73 billion in 2010 and supplied more than 50 percent of the national budget and 80 percent of exports, according to the U.S. Energy Department and the International Monetary Fund. Iran produced 3.58 million barrels of crude a day in December, according to data compiled by Bloomberg. That’s about 4 percent of global oil consumption.
OPEC’s Spare Capacity
OPEC producers have an “effective” spare crude-production capacity of 2.85 million barrels a day, the International Energy Agency said in a Jan. 18 report. Saudi Arabia’s spare capacity of 2.15 million barrels a day accounts for about 75 percent of the OPEC total, according to International Energy Agency estimates.
The IEA’s effective spare-capacity tally for OPEC excludes Iraq, Nigeria, Venezuela and Libya. With those nations included, the figure rises to 3.8 million barrels a day.
The EU imported 14.5 billion euros ($18.9 billion) of goods from Iran, 90 percent of which was oil and related products, in 2010 and exported goods to the country worth 11.3 billion euros, the EU said in a Jan. 20 statement