By Nader Uskowi
Effective today, the European Union has put in place a complete embargo of crude oil imports from Iran. The EU imported 20 percent of Iran’s total oil exports, or about 450,000 bpd. The EU also has banned its insurance companies to cover tankers that carry Iranian crude oil or petrochemical products.
Three days ago, foreign countries had to cut their oil imports from Iran by at least 20 percent every six months to receive temporary waivers from new U.S. sanctions that target banks for processing oil payments through the Central Bank of Iran. The U.S. reported on Thursday that 20 countries, including China, have complied.
Between the insurance ban and the 20 percent reduction in oil imports, it is estimated that Iran would lose some 550,000 bpd in oil sales. Added to EU embargo, the total loss in Iran’s oil exports come to approximately 1 million barrels a day.
In 2011, Iran exported some 2.2 million bpd with revenues of about $80 billion. The loss of 1 million bpd, or 45 percent of the country’s total exports would mean a loss of $40 billion a year. The falling oil prices could make matters worse, resulting in a net loss of more than $45 billion a year. For Iran, that’s huge.
The theory behind these new rounds of sanctions by the US and the EU is that Iran will change its behavior and will limit its nuclear program, because these sanctions are targeting oil, the lifeline of its economy, and are isolating its financial systems globally. Losses Iran cannot absorb for long.
So far the Iranians have not done anything to prove the theory! They will be selling oil, albeit at half the volume, but that’s still some $40 billion in revenues a year. The country also enjoys high foreign currency reserves, officially at $150 billion. The Iranian counter-theory is if they can survive long enough, the West, needing Iranian oil, will eventually give up and the sanctions regime will collapse.
But what if their theory proves wrong and the West could show a staying power beyond Iran's expectations. That question is also asked in Tehran and there are indications that the Iranians have taken these new rounds of sanctions seriously: they have participated in three rounds of talks with the major powers in the past three months, complaining loudly these days that the West is not taking the negotiations seriously, and finally requesting a meeting of technical experts that is now scheduled for next Tuesday.
Of course a peaceful settlement of the standoff between Iran and the West requires compromise on both sides. Iran has already proven to the world that it can enrich uranium at any level of purity and it is probably high time to work out a swap deal with the West on higher purity nuclear fuel. For a country that has repeatedly said it has no intentions to build the bomb, that’s really not a loss. But the continuation of the current situation is really a loss: the national currency on a free fall, the inflation getting out of control, the oil revenues cut in half with more to come, and the banking system becoming isolated globally.
Iran can in return demand a recognition of its rights to peaceful nuclear program, including the enrichment of uranium below the 5 percent threshold, and the lifting of sanctions. Those are real gains. Iran should take them and get back to normalcy. The country is running out of options.