Turn off the Road to War

European Union foreign ministers agreed today a phased imposition of an oil embargo, committing to refrain from making any new contracts and phasing out existing contracts by July 1. It had been reported that efforts last Thursday to complete agreement before the meeting failed largely on disagreements over the grace period before the ban for countries particularly dependent on Iranian imports. And it’s not difficult to see why.

The stakes are high, because vulnerable European economies already experiencing another recession cannot withstand the impact of an oil spike. The impact of these sanctions could have an impact on global oil prices of the order of – a barrel. And that doesn’t account for the particularly preferential credit arrangements some European states enjoy from Tehran for their oil imports; they will suffer penalties by switching to other suppliers, at a time when doubts are growing over their ability to service existing debts. The EU accounts for around 20% of Iranian oil exports, half of this going to Italy. Greece and Spain are also particularly exposed, the most vulnerable economies in Europe in other ways too. Europe’s sovereigns and banks need to refinance around €1.9trillion of debt this year. Italy is particularly striking, requiring €113bn in the first quarter alone. Are southern Europeans really willing to go the course and put their livelihoods on the line in the name of sanctions, whose impact at best is ambiguous? Worse, the impact of such sanctions could simply be tolerated by the Iranian government, their impact borne by the already suffering Iranian people under a narrative that these hardships are externally imposed by states determined to break the Iranian spirit. Europeans and Iranian suffering together. So far they appear to be keeping the line.


Heightened talk of military strikes in recent weeks is certainly exaggerated, or part of the effort to maintain pressure on the Iranians, but we are witnessing a step change in confrontation, and the Iranians look set to continue along their path. The IAEA confirmed on 9th January that Iran had started enrichment at the heavily protected Fordow facility deep in a mountain near Qom and is steadily expanding the number of spinning centrifuges there. Iranian officials have already described this as an economic war. Iran appears equally trapped in the tramlines towards confrontation, and is digging in for a protracted political-economic trench warfare.

We can only hope that both sides are preparing their strength for a robust negotiation phase… but if this is the case, then talks had better start sooner rather than later. Whilst there have been some reports recently that talks could recommence, and the Obama administration has not denied that the US had informed the Iranian leadership formally that it would prefer a negotiated solution to the current tensions, there has so far been little sign that either side has any stomach for compromise.


The author’s opinions are his own.


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