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Ghassemi calls for Iran to preempt EU embargo, eliminate oil exports to vulnerable Eurozone countries

As the proverbial noose of increasingly comprehensive American and European Union sanctions begin to tighten around Iran’s neck, Tehran appears to be taking concrete steps toward making good on the threat to preemptively stop crude oil exports to the EU before an European embargo on Iranian oil can come into effect. Mehr News quoted Iranian oil minister Rostam Ghassemi as saying that:

“Less than 20% of Iran’s oil exports go to Europe…The decision of the European Union [to embargo Iranian oil] is an injustice against the European people, this issue does not create any problems for Iran’s oil exports…Iran has markets for the export of oil despite cutting exports to Europe and in this sense will not have any problems…With regard to future programs of the oil ministry, we shall soon cut off our exports to some countries.”

The oil minister’s comments were followed up by the Majlis Energy Committee spokesman Seyed Imad Hosseini, who stated that a preliminary draft of the plan for cutting off exports to Europe was ready and would be voted on by the Majlis next week. Majlis National Security Committee deputy chief Ismail Kowsari said that the preliminary draft of the oil export ban to the EU would be discussed by a joint session between the foreign, intelligence, and oil ministries and the National Security Committee before being voted on next week.

As explained in our previous post the Islamic Republic plans to cut off oil exports to the EU as a response to a European oil embargo which comes into effect on 01 July 2012. The delay in the implementation of the embargo was intended to give vulnerable Eurozone countries such as Greece, Italy, and Spain, time to find new oil supplies. Tehran hopes that a sooner then expected withdrawal of Iranian oil may deliver an economic shock to these countries already suffering from severe economic and financial problems. This strategy was outlined by ex-intelligence minister Ali Fallahian:

“The best thing to do is that, before the end of the six months and implementation of the [European] oil embargo, we ourselves stop oil exports [to Europe] so that oil prices rise and the Europeans’ plans come to nought…”

In an editorial in Kayhan newspaper, considered by many to be the mouthpiece of the regime’s senior leadership, editor Hossein Shariatmadari suggested that the Islamic Republic should begin to inspect all shipping passing through the Strait of Hormuz, a strategic waterway which sees the passage of 20% of oil traded worldwide, in order to slow down the flow of oil coming from the Persian Gulf. Shariatmadari stated that the Islamic Republic did this until the early 1990s when it voluntary ceased inspections and suggested that such actions were permissible under the Geneva Convention and  United Nations Convention on the Law of the Sea (UNCLOS).

The statements by high-ranking Majlis representatives Hosseini and Kowsari show that the Islamic Republic is quickly moving forward with its plans to cut oil exports to the EU, although it is unclear the actual negative economic impact this will have in the affected European countries. It is also unclear if the idea to slow down the flow of oil from the Gulf by inspecting all ships passing through the Strait of Hormuz will gain traction and become Iran’s actual policy in the region.

One of the main questions that arise is whether the Islamic Republic can afford to take such actions at this time, which in the short-term would reduce its exports and foreign-exchange reserves. Iran is currently facing the rapid decline of its currency, the rial, and suffers from other structural economic and financial woes such as high employment and rampant inflation.