Commentary | January 30, 2012

EU Oil Embargo and Sanctions Against Iran

EWI’s Raymond Karam spells out the decisions taken in Brussels that have upped the pressure on Tehran.

At a meeting in Brussels on Jan. 23, EU foreign ministers, agreed on a ban on the transport, purchase and import into Europe of Iranian crude oil, petroleum products, and related finance and insurance. In a joint statement, British Prime Minister David Cameron, French President Nicolas Sarkozy and German Chancellor Angela Merkel said Iran had “failed to restore international confidence in the exclusively peaceful nature of its nuclear program.”

In order to provide struggling European economies enough time to find alternative suppliers, the agreement allows already concluded contracts to be executed until July 1, 2012. The measures will also be reviewed before May 1 to assess the impact of the embargo on countries such as Greece, which is facing financial collapse and has sought compensatory measures from the rest of the EU before agreeing to the embargo.

The sanctions ban the export of key technology for the energy sector and new investment in Iranian petrochemical firms and their joint ventures.

The EU also froze the assets of the Iran's central bank in the EU and banned trade in gold, precious metals and diamonds with Iranian public bodies and the central bank.

In addition, the sanctions bar the sale to Iran of more “sensitive dual use” goods—those that can have a military or security application. They add three people to a list of people targeted by asset freezes and visa bans, and freeze the assets of eight more companies. Details of the sanctions were published in the EU's Official Journal.

Reacting to the agreement, Mohammad Kossari, deputy head of the Iranian parliament's Foreign Affairs and National Security Committee, warned that “if any disruption happens regarding the sale of Iranian oil, the Strait of Hormuz will definitely be closed.” Ramin Mehmanparast, Iran's Foreign Ministry spokesman, told the state broadcaster that the “European Union sanctions on Iranian oil is psychological warfare.” He added, “imposing economic sanctions is illogical and unfair but will not stop our nation from obtaining its rights.”

In response, Ivo Daalder, the U.S. ambassador to NATO in Brussels, pledged that the United States and its allies would keep the waterway open to international shipping and the oil business. “The Strait of Hormuz needs to remain open and we need to maintain this as an international passageway. We will do what needs to be done to ensure that is the case.”

Oil prices reached nearly $100 per barrel on Jan. 23, reacting to the renewed Iranian threat.

Existing Sanctions

The oil embargo represents a leap in the sanctions regime against Iran, following four earlier rounds of escalating penalties. The EU had gradually imposed sanctions on Iran starting in 2007 as part of Western efforts to put pressure on Tehran over its nuclear work. Sanctions include those agreed upon by the United Nations and autonomous EU measures. Current EU sanctions include:

  • A trade ban on arms and equipment that can be used for repression, and a ban on goods and technology related to nuclear enrichment or nuclear weapons systems, including nuclear materials and facilities, certain chemicals, electronics, sensors, lasers, navigation and avionics;
  • A ban on investment by Iranian nationals and entities in uranium mining and production of nuclear material and technology within the EU;
  • A ban on trade in dual-use goods and technology, for instance telecommunication systems and equipment; information security systems and equipment; and nuclear technology and low-enriched uranium;
  • An export ban on key equipment and technology for the oil and gas industries (i.e. exploration and production of oil and natural gas, and refining and liquefaction of natural gas). There is also a ban on financial and technical assistance for such transactions. This includes geophysical survey equipment, drilling and production platforms for crude oil and natural gas, equipment for shipping terminals of liquefied gas, petrol pumps and storage tanks;
  • A ban on investment in the Iranian oil and gas industries (exploration and production of oil and gas, refining and liquefaction of natural gas), meaning no credits, loans, new investment in and joint ventures with such companies in Iran;
  • A ban on new medium- or long-term commitments by EU member states to offer financial support for trade with Iran, and restrictions on short-term commitments;
  • A ban on EU governments extending grants and concessional loans to the Iranian government, or providing insurance and re-insurance to the Iranian government and Iranian entities (except health and travel insurance);
  • A requirement for EU financial institutions to report to national authorities any transactions with Iranian banks they suspect could be financing nuclear activities, to report transfers above 10,000 Euros to national authorities, and to request prior authorization for transactions above 40,000 Euros (with humanitarian exemptions);
  • A ban on Iranian banks opening branches and creating joint ventures in the EU, and on EU financial institutions opening branches or bank accounts in Iran;
  • A ban on the issuance of and trade in Iranian government or public bonds with the Iranian government, central bank and Iranian banks;
  • EU governments must require their nationals to exercise vigilance over businesses with entities incorporated in Iran, including those of the Iranian Revolutionary Guard Corps (IRGC) and of the Islamic Republic of Iran Shipping Lines (IRISL);
  • A declaration that national customs authorities must require prior information about all cargo to and from Iran and may inspect such cargo to ensure trade restrictions are respected;
  • Cargo flights operated by Iranian carriers or coming from Iran may not have access to EU airports (except flights with both passengers and cargo). No maintenance services to Iranian cargo aircraft or servicing to Iranian vessels may be provided if there are suspicions that they carry prohibited goods;
  • Visa bans are imposed on persons designated by the United Nations, associated with or providing support for Iran's proliferation-sensitive nuclear activities or development of nuclear weapon delivery systems, and senior members of the IRGC. As of Jan. 22, visa bans and asset freezes apply to 113 people (41 designated by the United Nations and the rest by the EU); and
  • An asset freeze on 433 entities associated with Iran's proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems and on senior members and entities of IRGC and the IRISL. U.N. designations cover 75 entities, including companies in banking and insurance sectors, the nuclear technology industry and in the fields of aviation, armament, electronics, shipping, chemical industry, metallurgy, oil and gas, and branches and subsidiaries of IRGC and IRISL.

Human Rights

In addition to the nuclear track, the EU has imposed travel bans and asset freezes on 61 Iranians seen as responsible for human rights violations.

Economic Relations

The EU had a free-trade agreement with Iran until 2005. Europe remains an important trade partner. Ninety percent of EU imports from Iran are either oil or oil-related products. In 2010, the EU imported 14.5 billion Euros worth of goods from Iran while exporting 11.3 billion Euros of goods to the country.

Raymond Karam is a program assistant for EWI's Regional Security Initiative.