Iran and EU face off over sanctions

The EU’s 27 foreign ministers, meeting in Brussels, imposed the oil embargo against Iran and froze the assets of its central bank, ramping up sanctions designed to pressure Iranian officials into resuming talks on the country’s nuclear program.

EU officials say the tighter sanctions are part of a carrot-and-stick approach, an effort to increase pressure while emphasising their willingness to talk.

But the initial response out of Iran, was harsh. Two politicians threatened that their country would close the strait in retaliation.

Mohammad Ismail Kowsari, deputy head of Iran’s influential committee on national security, said the strait “would definitely be closed if the sale of Iranian oil is violated in any way.”

The strait – just 34 miles wide at its narrowest point – runs alongside Iran and is the only way to get from the Persian Gulf to the open sea. Tensions over the potential impact its closure would have on global oil supplies and the price of crude have weighed heavily on consumers and traders. The US and Britain both have warned Iran not to disrupt the world’s oil supply.

After news of the EU move, benchmark crude for March delivery rose 90 cents on the day to $99.23 a barrel. Brent crude was down 35 cents at $109.51.

Many analysts doubt that Iran would maintain a blockade for long, but any supply shortages would cause world oil supplies to tighten temporarily.

The American aircraft carrier, the USS Abraham Lincoln entered the Gulf on Sunday without incident to conduct scheduled maritime security operations, and US warships frequently operate there. But when the carrier USS John Stennis left the region in late December, Iranian officials warned the US not to return.

Each carrier has more strike capability than Iran’s entire airforce.

Russia’s Foreign Ministry said the sanctions were a severe mistake likely to worsen tensions. “It’s apparent that in this case there is open pressure and diktat, aimed at ’punishing’ Iran for uncooperative behaviour. This is a deeply mistaken policy, as we have told our European partners more than once,” it said.

The EU sanctions include an include an immediate embargo on new contracts for crude oil and petroleum products. Existing contracts with Iran will be allowed to run until July.

Last month, the US enacted new sanctions targeting Iran’s central bank and its ability to sell petroleum abroad, but it has delayed implementing the sanctions for at least six months, worried about sending the price of oil higher at a time when the global economy is struggling.

Other countries are steering clear of such measures altogether. China also does not support an embargo, and Japan’s finance minister, Jun Azumi, has expressed concern about the effectiveness of US sanctions on Iran – not to mention their potential impact on Japanese banks.

Around 80% of Iran’s foreign revenue comes from oil exports and any sanctions that affect its ability to export oil would hit its economy hard. With about four million barrels per day, Iran is the second largest producer in OPEC.

“It means that we will paralyse, bit by bit, Iran’s economic activity and keep the country from using a major part of its resources,” said French Foreign Minister Alain Juppe. “You can be sceptical, but it is better than making war.”

At the heart of the dispute is international unease about Iran’s nuclear programme. Iran says its nuclear program is peaceful, but the United States and other nations suspect it is trying to build nuclear weapons. Iran is now under several rounds of UN sanctions for not being more forthcoming about its nuclear program.