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Act of Desperation: Iran Halts Oil Shipments to U.K., France

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Unread 02.24.12, 10:08 AM
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Act of Desperation: Iran Halts Oil Shipments to U.K., France

On 02.24.12 09:00 AM posted by Morgan Roach

Iran’s decision to halt oil shipments to the U.K. and France last weekend is a weak retaliatory measure against European actors for tougher sanctions. Despite this largely symbolic measure, Iran did manage to surprise world markets and drive up the price of oil.

The U.K. imposed its hardest-hitting sanctions to date on Iran last November, but its crude oil imports amount to less that 1 percent of Iranian sales. France accounts for only 2 percent of Iranian sales. Both countries are parties to last month’s European Union sanctions on Iran. Despite this largely symbolic measure, Iran did manage to surprise world markets and drive up the price of oil.

In Monday’s oral debates in the House of Commons, U.K. Foreign Secretary William Hague acknowledged that Britain is “already imposing an oil embargo that will have no impact on Britain’s energy security or supplies. Britain has also adopted stringent sanctions against Iran’s financial sector, severing all links between British banks and Iran, alongside similar measures taken by the U.S. and Canada.”

Likewise, French Foreign Minister Alain Juppé brushed off Tehran’s taunts, stating, “Undoubtedly, Iran is very imaginative with regards to provocation. It is not Iran that decided to cut off its deliveries, we are the ones who decided to terminate our orders.”

While Europe will be able to reallocate oil resources, Spain, Greece, and Italy, already suffering from economic turmoil, are most affected. Greece imports up to 35 percent of its oil from Iran, whereas Italy and Spain each import approximately 13 percent. It was because of their pre-existing contracts with Iran that the EU oil embargo will not take full effect until July 1.

Strict financial sanctions, though belated, by the Obama Administration last year have left Tehran scrambling to maintain oil production levels. Finding a more friendly market in Asia, Iran relies on China, India, and Japan as its most valuable customers, comprising 45 percent of Iranian oil sales. However, western sanctions are making it more difficult to buy imports and receive payment for oil exports. As such, China, India, and Japan have announced that they are scaling back crude oil purchases by 10 percent.

Iran’s economy is starting to feel the heat, and it will only get worse. Despite possessing the world’s third-largest proven oil reserves, Iran produced only 3.5 million barrels of oil per day in 2011—well below its potential capacity of 6 million. This is largely due to economic mismanagement, skewed priorities, and technical incompetence. In addition to Iran’s already shaky business practices, international sanctions have driven foreign investors from the country. Unemployment stands at 15 percent, and the government has had to cut gasoline, wheat, and bread subsidies. As a result of this and more, economic growth is only half the average rate of other oil-producing countries in the region.

Economic difficulties alone will not jeopardize the Iranian regime. Sanctions require widespread international cooperation and time. Symbolically, U.S. sanctions followed by EU sanctions sent a clear message to Iran, but this is only a small step toward taking Iranian barrels completely off the market.

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