EU Iran Oil Embargo Over Nuclear Work Said Likely to Be Delayed Six Months

By Thomas Penny and Nicole Gaouette - Jan 13, 2012 7:10 AM GMT+0700

A European Union embargo on imports of Iranian (OPCRIRAN) oil will probably be delayed for six months to let countries such as Greece, Italy and Spain find alternative supplies, an EU official with knowledge of the talks said.

The embargo, which would need to be accepted by the 27- nation bloc’s foreign ministers on Jan. 23, also is likely to include an exemption for Italy, so crude can be sold to pay off debts to Rome-based Eni SpA (ENI), Italy’s largest oil company, according to the official, who declined to be identified because the talks are private.

A ban on petrochemical products would start sooner, about three months after EU ministers agree to the measure, the official said. Crude oil prices dropped on the news, falling $1.77, or 1.8 percent, to $99.10 a barrel yesterday on the New York Mercantile Exchange, the lowest settlement since Dec. 30.

“Work by experts from the 27 member states is in a very intensive phase,” Maja Kocijancic, a spokeswoman for the European Commission, said by phone yesterday from Brussels. “They are looking into different options for restrictive measures with a view to adoption on Jan. 23.” She declined to comment on possible phase-in periods or exemptions.

Phasing in the European embargo would satisfy the concerns of nations most dependent on Iranian oil, including Italy, Greece and Spain, the EU official said. Those three nations accounted for 68.5 percent of EU imports from Iran in 2010, according to European Commission data.

The U.K., France and Germany are said to have pressed for a three-month delay, Nigel Kushner, a London-based international- trade lawyer specializing in Iran sanctions, said in an interview.

Greek Goal

“It’s my understanding that the Greeks were looking for a 12-month delay” and a six-month compromise appears likely, Kushner said. “No doubt the Greeks are saying to rest of EU, ‘If we play ball, what are you giving us in return?’”

Greece, facing a debt crisis, is buying Iranian oil on credit.

France, Germany and the U.K. have been pushing for the embargo to increase pressure on Iran over its nuclear program, and it has the support in principle of all 27 member states, the EU official said. While Western countries say Iran may be seeking the capability to build nuclear weapons, Iran says its program is for civilian electricity and medical research.

A team from the International Atomic Energy Agency will go to Tehran on Jan. 28 to talk with Iran, which has indicated that it is willing to discuss questions about its nuclear research, the Associated Press said today, citing diplomats it didn’t identify.

Mixed Signals

Iran’s willingness to resume talks doesn’t mean it’s ready to negotiate restrictions on its nuclear program, said Michael Singh, a former official on the U.S. National Security Council.

Iran’s new ability to manufacture nuclear fuel rods and its decision to move some of its nuclear-enrichment activities to a well-protected facility near the Shiite holy city of Qom suggest the opposite, he said.

“All the signals from the Iranians are not that they’re now willing to negotiate an end to their nuclear program, but that they’re not,” said Singh, who is now at the Washington Institute for Near East Policy. “They’re probably hoping to use talks as a delaying tactic, and to raise the hopes of those in the international community who think that negotiations can resolve the issue.”

Obama’s Goals

As Europe weighs its embargo, President Barack Obama’s administration has sent teams worldwide to consult with countries on managing the supply and demand of oil, according to an administration official who briefed reporters today in Washington.

The teams are part of the administration’s efforts to implement Iran sanctions mandated in a law Obama signed on Dec. 31. The law would cut off foreign financial institutions that knowingly facilitate significant transactions with the Central Bank of Iran. The U.S. intends to close down the bank, the U.S. official said.

The U.S. goal is to convince countries that Iran is no longer a reliable source of oil, a strategy that already is paying off as countries that deal with Iran have difficulty getting their financing guaranteed and as nations such as China and India seek to diversify their sources, according to the official, who wasn’t authorized to speak on the record.

Three-Month Review

Iran, the second largest producer in the Organization of Petroleum Exporting Countries, pumped 3.58 million barrels of crude a day last month, according to Bloomberg estimates.

Under the emerging European agreement, every three months the EU would assess its impact on member economies, check whether countries are finding alternate supplies and monitor the effect on oil prices, the EU official said.

There currently are no plans to compensate the affected European countries, and the current emphasis is on finding oil from alternative sources at similar prices, the EU official said.

The Iranian government said in a letter to United Nations Secretary General Ban Ki-Moon that a civilian nuclear scientist, Mostafa Ahamdi Roshan, who was killed by a bomb yesterday was the fourth victim of a foreign terror campaign. Iran has accused the U.S. and Israel of targeting Iranian nuclear scientists.

“We are very active in this branch of science,” Iranian Parliament Speaker Ali Larijani told journalists in Ankara yesterday, referring to his country’s nuclear program. “If Israel thinks it can stop us with four acts of terror, their logic is flawed.”

Tensions over the ratcheting up of sanctions led Iranian Vice President Mohammad Reza Rahimi to threaten on Dec. 27 that Iran may block the Strait of Hormuz, the transit for about a fifth of the world’s oil, if the EU bans exports from the Islamic Republic.

U.S. Joint Chiefs of Staff Chairman General Martin Dempsey said on Jan. 9 that Iran can temporarily choke off the waterway, through which 17 million barrels of oil pass each day, the Energy Department estimates.

To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net