Iran threatens to widen oil embargo

Mon, Feb 20, 2012, 00:00

Tehran is considering extending an oil embargo on France and Britain to other European countries, a semi-official Iranian news agency reported today.

The head of Iran's state oil company Ahmad Qalehbani was quoted by Mehr as saying that the country would stop selling crude to countries who take action against Tehran.

"If the hostile acts of some other European countries continue, oil exports to these countries will be cut," he said.

Iran announced the cut-offs to France and Britain yesterday, a pre-emptive retaliation for an EU embargo over Tehran's controversial nuclear programme that is scheduled to go into effect in July. The 27-member EU accounts for about 18 per cent of Iran's oil exports.

Since the embargo was announced last month, Iranian officials have said that Tehran should enact its own sanctions immediately, before European countries lined up alternative suppliers.

The news sent oil prices to a nine-month high, reaching $105 per barrel in Asia today. Mr Qalehbani predicted the prices could rise even higher. "The current situation of the market shows that there is a probability of oil price passing $150 per barrel," he said.

Iran says Spain, the Netherlands, Greece, Germany, Italy and Portugal are among its European customers. Some of these countries may no longer be importing Iranian oil. France has played down the impact of Tehran's action, saying French oil companies already have stopped purchases of Iranian crude.

Mr Qalehbani said demand for Iran's oil has increased in recent weeks, saying that Iran seeks "unconditional" contracts. He did not elaborate, but the Iranian media has previously mooted the idea of having buyers sign long-term contracts before they are allowed to buy any oil at all.

China rebuked Iran today for the move, calling for renewed efforts at dialogue over an escalating stand-off over Tehran's controversial nuclear programme. China has repeatedly called for talks over Tehran's efforts to enrich its own uranium, which Western countries suspect is aimed at obtaining nuclear weapons.

China is one of the largest users of Iranian oil, buying about 20 per cent of total exports.

A five-member team from the UN International Atomic Energy Agency (IAEA) arrived in Tehran this morning for talks, although western diplomats have played down any hopes of a major breakthrough in the two-day meeting. "I'm still pessimistic that Iran will demonstrate the substantive cooperation necessary," one envoy said in Vienna.

Yet the outcome of this week's discussions is important and will be watched closely because it could either intensify the standoff or offer scope to reduce tensions.

The European Commission says the EU would not be short of oil if Iran stopped crude exports as it has enough stock to meet its needs for around 120 days.

Industry sources said European oil buyers were already making big cuts in purchases from Iran months in advance of EU sanctions. France's Total has stopped buying Iranian oil while debt-ridden Greece is most exposed to Iranian crude disruption among European countries.

Western powers have not ruled out using force against Iran, and there has been an intense public discussion in Israel about whether it should attack Iran to stop it making a nuclear bomb.

Yesterday, the top US military officer said a military strike would be premature as it was not clear that Tehran would use its nuclear capabilities to build an atomic bomb.

"I believe it is unclear (that Iran would assemble a bomb) and on that basis, I think it would be premature to exclusively decide that the time for a military option was upon us," said General Martin Dempsey, chairman of the US military's Joint Chiefs of Staff. He said he believed the Iranian government was a "rational actor".

Oil is a major part of Iran's export revenues and an important lifeline for its increasingly isolated economy. It has little refining capacity and has to import about 40 per cent of its fuel needs for domestic consumption.

Tightening sanctions, combined with high inflation, have squeezed the ability of working-class Iranians to feed themselves and their families, and this uncertainty forms the backdrop to a parliamentary vote on March 2nd.

"Everything's become so expensive in the past few weeks," said Marjan Hamidi, an Iranian shopper in Tehran, "But my husband's income stays the same. How am I going to live like this?"

Agencies