Europeans fear Iran oil embargo will wreck economy

ANDRES CALA | JANUARY 2012 | SOURCE: Christian Science Monitor

The European Union is poised to ban Iranian oil imports, even as critics warn the move could bring deep economic pain to the continent while doing little to change the course of the Iranian nuclear program.

Iran is playing a game of political chicken with the EU and US. Iran loses if it can't sell its oil.  But its leaders are calculating that the tight oil market and a weak global economy will prevent the West from being able to persuade others to join their embargo, allowing Iran to simply find new customers.

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The outcome is completely uncertain, but it will have a substantial impact on the global economic recovery.

It will 'backfire'

“I don’t know why Europe is going along with this. Europeans have been more balanced than the US, but somehow they have become more emotional. [Joining the embargo] will backfire,” says Iraqi Manouchehr Takin, a senior oil markets analyst with the London-based Center for Global Energy Studies who spent almost a decade in the secretariat of the Organization of the Petroleum Exporting Countries (OPEC). The embargo could end up hurting the EU more than Iran.

“Those who will suffer are refiners in Europe, especially those in countries in financial problems like Italy, Spain, and Greece,” says Dr. Takin. The three buy three quarters of the Iranian crude purchased by the EU and are the ones pushing for a delayed embargo so that they have time to find alternative sources for affordable oil.

“Iran might lose part of its customers for a few months until it adjusts, but higher prices will compensate,” Dr. Takin said.

Related article: Iran adds upward pressure to oil prices

Can the west survive without Iran’s oil?

For further insight, order The Potential Impact of Further Sanctions on Iran