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Screws tighten on Iran as big buyers shun its oil
A view of a petrochemical complex in Assaluyeh seaport on Iran's Persian Gulf coast May 28, 2006.
Credit: Reuters/Morteza Nikoubazl
TEHRAN |
TEHRAN (Reuters) - Iran faced the prospect on Thursday of cutbacks in its oil sales to China and Japan as new measures to cut off Tehran's crude exports appeared to be driving its economy to the wall.
The developments in Asia follow news on Wednesday that EU leaders had agreed to halt European purchases of Iranian crude.
China, Iran's biggest trade partner, has already cut its purchases of Iranian oil by more than half this month and will extend the cuts to February, a Beijing-based trader who deals with Iranian oil said.
Japan will consider cutbacks in its Iranian oil purchases to secure a waiver from new U.S. sanctions signed into law on New Year's Eve by President Barack Obama, a government source said.
Between them, China, the EU and Japan buy about half of Iran's exports of 2.6 million barrels of oil per day.
International sanctions that for years had little effect are for the first time having a real impact on day-to-day life in Iran, where the rial currency has tumbled and people have rushed to convert savings into dollars.
Most oil traders still expect Iran will be able to find buyers for its crude, but it will have to offer steeper discounts that will cut the hard currency revenue it needs to import food and other basic supplies for its 74 million people.
Iran has put on a brave face. Foreign Minister Ali Akbar Salehi said on Thursday Iran would "weather the storm."
"Iran, with divine assistance, has always been ready to counter such hostile actions and we are not concerned at all about the sanctions," he told a news conference.
The economic hardship comes just two months before a parliamentary election, the country's first since a disputed presidential vote in 2009 led to massive public demonstrations across the country.
The authorities put those protests down by force, but since then the Arab Spring has revealed the vulnerability of authoritarian governments in the region to public anger driven by economic hardship.
Iran's leaders have responded to the sanctions with military saber-rattling, including a threat to blockade the Middle East's oil by shutting the Strait of Hormuz that leads to the Gulf, and even challenging a U.S. aircraft carrier if it sails the strait.
Washington says it will sail the strait at will and will guarantee free passage through the international waterway. British Defense Secretary Philip Hammond said any attempt to block the strait "would be illegal and would be unsuccessful."
EUROPEAN EMBARGO
European diplomats said this week they had agreed in principle to impose an EU oil embargo. The bloc - particularly Italy, Spain and Greece - has collectively bought about 500,000 barrels per day of Iran's oil, making it Iran's second biggest customer after China.
EU leaders have yet to agree when the embargo will take effect, but are expected to announce it at a foreign ministers meeting at the end of this month.
China, the largest buyer, which imported about 550,000 bpd of Iran's oil last year, has cut its purchases by more than half for this month and would now extend that cut to February, according to the Beijing-based trader.
China is seeking deeper discounts for continuing to do business with Iran in spite of Western sanctions.
The new U.S. measures, if implemented fully, would make it impossible for most countries' refineries to buy Iranian crude, marking a qualitative change in the West's approach to Tehran, which it accuses of seeking a nuclear weapon.
Iran says its nuclear program is peaceful. That standoff had led to four rounds of economic sanctions from the U.N. security council and a range of U.S. and European measures, but none of these directly hurt its ability to sell oil in the past.
Western resolve appears to have stiffened in recent months, especially after a U.N. report in November suggested Iran had taken concrete steps to develop a bomb. The storming of Britain's embassy by an Iranian crowd galvanized support among European countries for measures with more teeth.
Still, the West needs to balance its determination to isolate Iran with concerns about the impact on a fragile world economy of measures that might hurt oil supplies.
So far, the U.S. and EU sanctions have caused a steady rise in oil prices this week. Brent crude futures were trading at about $114 a barrel on Thursday, up by about $7 a barrel since Obama signed the new sanctions into law.
A Saudi government source said Saudi Arabia - the world's largest oil exporter and a foe of Iran - is ready to fill any supply gaps.
The new U.S. law allows Obama to offer waivers to prevent havoc in oil markets, but to receive the permits countries are expected to demonstrate that they are reducing ties with Tehran.
Washington has said it is discussing with allies how to apply the law gradually to tighten the screws on Tehran without causing an oil supply shock.
A Japanese government source said Tokyo, which buys about 250,000 bpd from Iran, would discuss with U.S. officials how to deal with the new sanctions law. Among options would be cuts in oil purchases to secure a waiver for its financial institutions.
Turkey, a U.S. ally which buys almost a third of its oil from Iran, has said it will also try to seek a waiver from the Obama administration.
NO TRADE IN THE BAZAAR
In Iran's bazaars, prices for basic foodstuffs and other goods have been rising fast in recent months.
Much of that inflation has been caused by President Mahmoud Ahmadinejad's policy of cutting back on government subsidies for staples that held prices down, a policy that has been praised by the International Monetary Fund.
The government has tried to ease the pain by giving cash payments to families. But the fall in the rial currency has slashed the value of those payments in dollar terms from about $45 a month to $27.
There are signs that some Iranians may blame the authorities for charting a foreign policy course that brought on sanctions.
"They give us some subsidy cash but it doesn't compensate for anything," said Saeed, a 33-year-old Tehran taxi driver, complaining that his imported cigarettes had doubled in price.
"When I ask people why things are becoming more expensive, they all say it's the sanctions."
Clothes merchant Mohammad, 34, said there was "no trade" despite the usual crowds swarming the shops and stalls in the maze of vaulted tunnels.
"We have to make the products more expensive because we have to pay more for dollars. We shopkeepers are putting pressure on people but we have no choice."
(Additional reporting by Chen Aizhu in Beijing and Tetsushi Kajimoto; Writing by Peter Graff; Editing by Giles Elgood)
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First off, disrupting supplies for the Far East and Europe, lands actually reliant on Middle Eastern oil (while the US imports primarily from Mexico and Canada), is only going inflate the price and allow other enemies — the Venezuelans for instance — and another oppressive and backward regime in the Saudis, among the world’s worst offenders regarding human rights, to flourish. A bit counterproductive foreign policy and human rights wise, eh?
Secondly, punishing the Iranian citizens isn’t going to get you anywhere. The usual scapegoat of U.S.-Israeli aggression driving the just about every Iranian crisis is already the usual playing card and — this time — it’s absolutely true. And even if the citizenry isn’t sympathetic to the ruling class, I would say the Green Movement has shown the layman hasn’t much of a say in the affairs of the state. Internally, you drive the Iranian into the hands of the government as their further impoverishing isn’t going to win you much support in a land rife with Western hatred. Or those actually with you have no power whatsoever and aren’t even a factor.
On that note, of the ruling class, the Revolutionary Guard is basically the broker, preserver, and main economic conduit of Iran. They’ve expanded into nearly every sector, both legitimately and illegitimately via the black market, as the mullahs poorly believe zealotry assures personal loyalty and stability for their rule (puppetry?). Shockingly enough, they are incredibly corrupt. They’ve expanded in just about everything you could think — from airports to weapons to heroin. Cash flows can be assured as the elite classes, as with damn near any country, is going to survive and “get theirs.” Ironically, though oil revenues will be reduced, I seriously doubt Russia, China, Venezuela (especially), and other countries not so friendly to the US will offer much more than words of support.
Yet again, we get further neo-con, /interventionist/ nonsense that will only punish the innocents while sparing the wicked — and if serious internal strife were to arise (not a chance), the Revolutionary Guard and militias would slaughter the dissidents (abductions and executions are already booming). As with most other actions by the wizards in Congress, it only exacerbates the situation and engenders consequence after consequence. I can’t wait for the warmongers to give us their new rallying cry, “Sanctions have failed; time for war.”
**For the record, if nuclear concerns top your sh*t list, Pakistan is much more of a worry. At least Israel and India have some semblance of stability (something Iran can also boast), Pakistan’s various factions either are directly involved or infiltrated by extremist groups and ISI, along with the military, isn’t exactly the most advanced when it comes to safeguarding their arsenals. One of the fringe groups taking a weapon would be disastrous (unlike Iran, they haven’t any real self-interest that must be maintained so them using it is beyond a likely scenario)
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