16 January 2012


An EU embargo would put the population solidly behind the current regime and cannot succeed on its own, says a new Chatham House paper, An Embargo on Iranian Crude Oil Exports: How Likely and with What Impact? 

The author Paul Stevens says:

'History is littered with failed oil embargoes ranging from Cuba, Rhodesia and South Africa to the Arab oil embargo and the embargo against Iraq after 1990. However, the lessons of history appear to have passed by the decision-makers of the EU.

'An EU oil embargo could greatly strengthen the Ahmadinejad regime at a time when it is under considerable pressure, especially with parliamentary elections looming in March. Unemployment remains very high, as does inflation.'

So far much of the analysis has assumed that Iran would accept the EU embargo without retaliation. This is extremely unlikely. Recently there has been much speculation that its response would be to inhibit the flow of oil through the Straits of Hormuz.  

There are two reasons why this is unlikely. First, any closure would equally damage Iran’s ability to export the oil on which its economy is so dependent. Second, serious and credible attempts to close the Strait are in effect Iran’s ‘big guns’ on the issue of whether or not the United States or Israel would launch a military attack on Iran. 

However, Iran has other retaliation options. It could begin to aggravate upward pressures on oil prices by contributing to the growing instability in Iraq that has emerged since the US completed its troop withdrawal and the Shi’a ruling clique has begun a de facto war of attrition against the Sunnis. This could certainly cause problems with Iraqi oil exports. It could also make serious trouble for NATO in Afghanistan. It could also put huge pressure on the Gulf Cooperation Council (GCC) exporters to be, at the very least, slow in offering replacements to Europe. At worst it could even threaten GCC export facilities.

Some form of retaliatory action against the EU countries of the sort seen when the UK extended its sanctions to financing issues could also be expected. There could even be a Lockerbie type response prompted by elements from within Iran.

A more effective means of putting pressure on Iran would be for the United States to persuade the EU to extend sanctions to financial transactions. Just recently, the US passed legislation imposing sanctions against any financial transactions undertaken with the Central Bank of Iran. Over the last 18 months, access to finance for Iran in the EU has also become more constrained as restrictions on such financial transactions have been imposed here too. 

While no route to restricting Iranian oil revenues is perfe ct, at least financial sanctions will not provoke the same high level of popular backlash from the Iranian public as an embargo, which would be perceived as a direct threat to Iranian oil – although both measures would be seen as an attack on Iran. Despite the problems with financial sanctions, at least they offer some possibility of pressuring Iran in a way that a simple oil embargo cannot. The international oil market is too complex, with too many players and too many options, to disguise transactions. An oil embargo alone cannot succeed.

Notes to Editors  

Read An Embargo on Iranian Crude Oil Exports: How Likely and with What Impact?

About the Author

Professor Paul Stevens is senior research fellow on the Energy, Environment and Development programme. He is available for interview. 

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