* EU foreign mins target Iranian oil revenues
* Five month 'grace period' to blunt impact
* EU wants Iran to curb nuclear activity, return to talks
* Debt, oil supply problems complicate EU foreign policy
(Adds analyst comment, details)
By Justyna Pawlak and David Brunnstrom
BRUSSELS, Jan 23 European Union
governments agreed on Monday to an immediate ban on all new
contracts to import, buy or transport Iranian crude oil, a move
to put pressure on Tehran's disputed nuclear programme by
shutting off its main source of foreign income.
However, to protect Europe's economy as it battles to
overcome a debt crisis, the governments agreed to phase in the
embargo, giving countries with existing contracts with Iran
until July 1, 2012 to end those deals.
At a meeting of foreign ministers in Brussels, EU
governments also agreed to freeze the assets of Iran's central
bank and to ban all trade in diamonds, gold and other precious
metals with the bank and other public bodies.
Western powers hope the far stricter sanctions net, which
brings the EU more closely into line with U.S. policy, will
force Iran to scale back or halt its nuclear work, which Europe
and the United States believe is aimed at developing weapons.
Iran says it is enriching uranium solely for peaceful purposes.
EU foreign policy chief Catherine Ashton said she wanted
financial sanctions to persuade Tehran to return to negotiations
with the West , which she represents in talks with
"I want the pressure of these sanctions to result in
negotiations," she told reporters before the ministers met.
"I want to see Iran come back to the table and either pick
up all the ideas that we left on the table ... last year ... or
to come forward with its own ideas," she said.
Tehran says its nuclear programme is necessary to meet its
rising energy needs, but the United Nations' International
Atomic Energy Agency said last year it had evidence that
suggested Iran had worked on designing a nuclear weapon.
In a statement, EU ministers said a recent move by Iran to
start enriching uranium at its underground Fordow nuclear plant
was a "flagrant violation" of U.N. resolutions.
"(It) further aggravates concerns about possible military
dimensions to Iran's nuclear programme," the ministers said.
EU sanctions follow fresh financial measures signed into law
by U.S. President Barack Obama on New Year's Eve mainly
targeting the oil sector, which accounts for some 90 percent of
Iranian exports to the EU. The European Union, a bloc of more
than half a billion people, is Iran's largest oil customer after
Economic considerations weighed heavily on EU preparations
for the embargo in recent weeks, because of the heavy dependence
of some EU states on Iranian crude. As a result, concessions
pushed for by states such Greece will likely blunt the impact of
EU sanctions for now, experts said.
Greece, which is at the heart of the debt crisis and relies
on international aid to stay afloat, sources about a quarter of
its oil imports from Iran because of favourable financing terms,
and must now seek alternative sources.
It had pushed strongly for a grace period on existing deals
and had originally argued it needed a year to prepare.
To reassure the Greek government, its EU peers agreed to
return to the issue of oil sanctions before May to assess
whether the measures are effective and whether EU states are
succeeding in finding sufficient alternative resources.
The review could potentially affect the date when
the full ban takes effect, diplomats said.
"The financial situation of Greece at the moment is not the
brightest one, and rightly they are asking us to help them find
a solution," a senior EU official told reporters on Friday.
Saudi Arabia, Kuwait and other oil-rich Gulf states are
expected to raise their output of crude oil to offset the loss
of access to Iranian exports and prevent market instability.
With a significant part of EU purchases of Iranian oil
covered by long-term contracts, the grace period will be an
important factor in the effectiveness of the EU measures.
Emanuele Ottolenghi of the Foundation for the Defense of
Democracies in Washington said the oil embargo was possibly the
last card Western governments could play to avoid military
confrontation with Iran.
But, he said, Europe's gradual approach and the possibility
of waivers in U.S. measures weakened their impact.
"Regrettably, Europe's delay and America's loopholes mean
Iran gets a reprieve at a time when, with Iran's nuclear
programme accelerating, it would have been preferable to see an
embargo implemented sooner," he said.
European ministers also agreed to outlaw the export of key
equipment and technology for the oil sector to Iran, and new
investment in Iranian petrochemical firms.
Measures against the central bank will go into effect with
the provision that allowed trade can continue, allowing for
limited impact on the Iranian population.
The unprecedented effort to take Iran's 2.6 million barrels
of oil per day of exports off international markets has kept
global prices high, pushed down Iran's rial currency and caused
a surge in the cost of basic goods for Iranians.
(Additional reporting by Adrian Croft in London and Sebastian
Moffett in Brussels; Editing by Luke Baker and Rex Merrifield)