UPDATE 1-Swiss leave loophole on EU's Iran oil embargo

Wed Apr 18, 2012 12:16pm EDT

Related Topics

* Swiss postpone decision on EU oil embargo

* Oil traders seen as potential beneficiaries

* Govt. adds eleven new names to Iran blacklist

* Exempts Iran's central bank from asset freeze

By Emma Farge

GENEVA, April 18 (Reuters) - Switzerland on Wednesday left a loophole open as sanctions tighten against Iran, that may let Swiss-based oil trading companies evade a European Union ban on trading Iranian oil.

The Swiss Economics Ministry said it would make a decision on the EU's ban on the importation, purchase or shipping of Iranian oil, at a "later date", without giving specifics.

The EU embargo bans all new oil contracts with Iran and is due to take full effect for existing contracts from 1 July.

While Switzerland does not directly import Iranian oil, the Swiss position on the EU oil embargo could impact the activities of oil companies based in the trading hubs of Geneva and Zug.

The EU has gradually tightened financial restrictions on Iran and on Jan. 23 agreed to phase in an oil embargo and to freeze the assets of Iran's central bank in an effort raise pressure on Tehran over its disputed nuclear programme.

Tehran says it is a purely civilian programme, while the West suspects it is aimed at making weapons.

The postponement of a decision on EU oil trading restrictions means that Swiss-based traders could in theory continue buying and selling Iranian oil after July, although industry sources say sanctions make funding difficult.

Top oil traders Vitol and Glencore said they were complying with sanctions on Iran but both companies declined to give further comment about whether complying with sanctions meant following EU or Swiss regulations.

Geneva-based Gunvor declined to comment and Trafigura was not immediately available for comment.

Matthew Parish, partner at Geneva-based law firm Holman Fenwick Willan, said he does not expect Bern to pass measures restricting the activities of oil trading companies.

"I don't see the Swiss government hobbling their country's own competitive advantage by creating a sanctions regime that deprives Switzerland-based traders of the light regulatory touch," he said.

"One of the reasons Switzerland has apparently overtaken London in terms of the volume of oil traded is due to the relative absence of regulatory and financial restrictions on trades."

The Swiss-based service company for the National Iranian Oil Company NICO which is responsible for oil trading and energy investment activities did not immediately respond to an emailed request for comment.

DIPLOMATIC RIFT

The Swiss Economics Ministry, which oversees sanctions policy, also said in the statement that the country would not follow the EU in freezing the assets of the Iranian central bank "due to its importance for the Iranian economy".

It did however add eleven new entities to its blacklist, freezing their assets, in a decision taking effect on Tuesday.

A European diplomatic source familiar with Bern's position said that Switzerland shared some of the EU's concerns about Iran but was worried about jeapordising its traditional role as a go-between for Tehran and Washington.

He added that Bern showed similar reluctance to introduce an earlier wave of EU sanctions against Tehran last year.

As a neutral intermediary, non-EU Switzerland has represented U.S. interests in Iran since 1980 following the Islamic revolution in 1979.

Switzerland is only bound to enforce U.N. Security Council decisions on a national level, although in recent years it has tended to copy EU sanctions to harmonise its laws with those of its main trading partners.

The Federal Council took the decision at a meeting on April 4, before world powers met Tehran negotiators for talks in Istanbul at the weekend on Iran's nuclear programme.

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