Washington: The Obama administration and European governments are seeking help from Arab and Asian allies to reduce Iran's oil revenues in the dispute over its nuclear programme, while trying to avoid causing a surge in prices.
The most wide-ranging effort to date to target Iranian income, the strategy includes a push by France and Britain for an embargo as soon as January on imports of Iranian oil by the 27 European Union countries. EU nations, the US and Asia-Pacific allies discussed possible measures in Rome yesterday, and vowed to increase pressure on Iran, the world's No. 2 crude exporter in 2010, to abandon a suspected nuclear weapons programme, according to an Italian foreign ministry statement.
Levy of tariffs
The Obama administration sent high-ranking officials to Saudi Arabia and Israel in the last few days to discuss targeting Iran's energy exports, and is developing plans to implement Congressionally-mandated sanctions on its central bank that complicate the international purchases of crude. The US is also urging Japan, the No. 2 buyer of Iran's oil, to reduce its reliance on imports from the country and discourage refiners from buying the crude by imposing tariffs, according to diplomats who are in consultation with the administration.
"The ultimate goal is not to take every barrel of Iranian oil off the market, but to significantly decrease the revenue Iran receives for its oil sales," said Mark Dubowitz, director of the Iran Energy Project at the Foundation for Defence of Democracies in Washington, who has been advising Congress on targeting Iranian energy revenues.
Oil prices
The prospect of a European embargo of Iranian crude helped push oil prices higher Tuesday. Futures for January delivery advanced $3.34, or 3.6 per cent, to settle at $97.22 a barrel in New York.
Oil is Iran's main source of income, earning the country $73 billion in 2010 and supplying more than 50 per cent of the national budget, according to the US Energy Department and International Monetary Fund. The second-largest exporter in the Organisation of Petroleum Exporting Countries (Opec) after Saudi Arabia, Iran exported an average of 2.58 million barrels a day in 2010, according to Opec.
US officials say they want to target Iran's oil earnings to force the regime to abandon its nuclear work, or at least reduce funding for missile, nuclear development and militant financing. Iran already is under four rounds of United Nations sanctions and separate economic and financial measures by the US and the European Union.
Iranian Oil Minister Rostam Qasemi on Saturday downplayed further sanctions, saying the world needs Iranian supply and can't make up the shortfall, the state-run Fars news agency reported.
The US is "encouraging all of our partners to do what they can to wean themselves from Iranian oil," Victoria Nuland, a State Department spokeswoman, said in Washington on Monday. All measures are being considered "in close consultations with our allies and partners about protecting their legitimate interests, their economic interests."
Finding substitutes
Secretary of State Hillary Clinton met Japanese Foreign Minister Koichiro Gemba in Washington on Monday and "discussed new sources of oil that are coming online — Iraq, Libya, etc. — and about what we can do together to help partners make that transition to more secure supplies," Nuland told reporters.
Japan gets 10 per cent of its crude imports from Iran, according to the EIA. Gemba told reporters he feared "there is a danger of causing damage to the entire global economy if the imports of Iranian crude oil stop."
The US is pressing Japan to impose a surcharge on refiners who import oil from Iran, Dubowitz said. This is to encourage refiners to seek cheaper crude from other nations or force Iran to cut its prices.
An EU embargo as well as modest decreases in Japanese and South Korean imports from Iran would leave remaining buyers, including China and India, better positioned to wring deep discounts, Dubowitz said.
Iran is advancing on elements of its nuclear programme, according to United Nations inspectors. The White House is concerned it is within weeks of enriching uranium at a deep underground facility near Qom, according to administration officials. Used to fuel power plants and reactors, enriched uranium may be further processed into atomic weapons material. Iran says its nuclear programme is for civilian use.
A military strike?
The International Atomic Energy Agency detailed nuclear activities that have no purpose other than for weapons, according to a November 8 report. That's increasing pressure on President Barack Obama from some in Israel and some Republican presidential challengers to consider a military strike. The drive for an embargo and sanctions is part of an effort to force Iran to co-operate with international inspectors and drop the suspect activities, and to forestall use of force, according to diplomats who spoke on condition of anonymity.
Gulf diplomats, who spoke on condition of anonymity, said they have reassured the US and Europe of their willingness to increase production to offset the loss of Iranian oil in Europe.
Currency: feeling the heat
Iran's currency, the rial, plunged to a record low against the dollar yesterday, trading at 15,800 to the greenback on the street market.
The depreciation marked an acceleration of a long fall in the value of the rial as Western sanctions bit into Iran's economy.
The slide undercut avowed Iranian policy to keep the rial steady against the dollar.
President Mahmoud Ahmadinejad put the movement down to "rumours" started by profiteers and sought to reassure the public that the economy was "stable and calm," in a speech broadcast on state television. "We are not experiencing any particular problems," he said.
On Tuesday, Ahmadinejad said "mischief from outside and inside" the country was affecting gold and currency prices, according to Iranian media. Iran's parliament yesterday summoned the economy minister, central bank chief and foreign ministry officials to explain the current economic situation and ways they planned to weather the sanctions.
