EU approves tough oil embargo on Iran

EU approves tough oil embargo on Iran

Sanctions to ban new contracts between bloc's 27 member states and Islamic Republic over its disputed nuclear programme

The Obama administration has imposed sanctions on Iran's third largest bank, adding to sanctions imposed on Tehran by the EU earlier in the day.

Iran's Bank Tejarat, and an affiliate Trade Capital Bank, were blacklisted for providing financial services to other entities already sanctioned for their involvement with the country's nuclear weapons program, the US said on Monday.

Earlier on Monday the European Union governments adopted an embargo against Iran as part of sanctions over its disputed nuclear programme.

Timothy Geithner, the US Treasury Secretary and Hillary Clinton, the US Secretary of State said in joint statement that Europe's ban on imports of Iranian crude oil and moves to freeze the assets of Iran's central bank are "another strong step in the international effort to dramatically increase the pressure on Iran".

The Obama administration said the EU sanctions were consistent with steps the US had taken against Iran.

The EU sanctions approved on Monday follow financial punishments signed into law by the US on December 31 last year and mainly target the oil sector, which accounts for some 90 per cent of Iranian exports to the European Union.

Contracts forbidden

All new contracts for crude oil and petroleum products between Iran and any of the EU's 27 member states, will be forbidden under the the embargo. Existing contracts have to be suspended by June.

The UN's International Atomic Agency also confirmed on Monday that a high-level visit to Iran would take place from January 29-31 for talks on Tehran's nuclear activities.

Describing the measure on Monday as part of "an unprecedented set of sanctions", William Hague, the British foreign secretary, said: "I think this shows the resolve of the European Union on this issue."

"Today's sanctions show how serious EU member states are about preventing nuclear proliferation and pressing Iran to return to the negotiating table," he said.

The meeting in Brussels comes after French and British warships joined a US carrier aircraft group on Sunday and passed through the Strait of Hormuz, the narrow passage between Iran and Oman, which Iran has threatened to close in retaliation to tightening sanctions, thus imperilling much of the world's oil supply.

The manoeuvre was meant "to underline the unwavering international commitment to maintaining rights of passage under international law", a spokesman for the UK defence ministry said.

Western countries believe Iran's uranium enrichment programme is part of an effort to build a nuclear bomb, but Iran says the programme is to generate electricity.

A member of Catherine Ashton's office, the EU's high representative of foreign policy, confirmed to Al Jazeera that the decision to go ahead with sanctions was ratified by all 27 member states.

France, Britain and Germany said hours after the decision on Monday that they were willing to negotiate with Iran if it
was ready to talk seriously about its nuclear programme.

"We call on Iran's leadership immediately to suspend its sensitive nuclear activities and abide fully by its international obligations," said the countries in a joint statement by its leaders.

Calling on Iran to engage in "serious" and "meaningful" negotiations about its nuclear programme they said in the statement: "Until Iran comes to the table, we will be united behind strong measures to undermine the regime's ability to fund its nuclear programme."

Iran responds

However, Iran's foreign ministry responded to the decision saying it was "unfair" and "doomed to fail".

"The method of threat, pressure and unfair sanctions against a nation that has a strong reason for its approach is doomed to fail," said Ramin Mehmanparast, the ministry spokesman, reported the state broadcaster's website.

Al Jazeera's Nick Spicer, reporting from the sidelines of the meeting in Brussels, said: "There will be a review of sanctions in three months, in May, to see how things are going and then the embargo will begin in full force on July 1.

"The reason for that is so that countries heavily dependent on Iranian oil, namely Greece, Italy and Spain, some of the most ailing members of the eurozone, can find new sources of supply, and secondly, to see what steps Iran is taking to come back to the negotiating table."

He said that details regarding freezing the assets of the Iranian Central Bank would be disclosed at a news conference expected to take place later on Monday.

In addition to the oil embargo, the EU measures are also expected to include sanctions against the Iranian central bank and a ban on trading in gold with the government, diplomats say.

But EU sanctions are likely to take effect slowly.

Issues of concern ahead of the meeting included the impact and costs of the ban for countries like Greece which relies on financial help from the EU and the International Monetary Fund to stay afloat, and received Iranian crude on preferential financing terms.

"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 said on Friday.

With a significant part of EU purchases of Iranian oil covered by long-term contracts, a grace period was an important factor in the efficiency of EU measures.

The unprecedented effort to take Iran's 2.6 million barrels of oil per day off international markets has kept global prices high, pushed down Iran's rial currency and causing a surge in the cost of basic goods for Iranians.

Impact on Iran

Al Jazeera's Dorsa Jabbari, reporting from Tehran, said the Iranian government believes that the EU sanctions will not really affect their oil revenues.

The Iranian government believes that the embargo will increase oil prices and, hence, will make up for the loss in revenue, our correspondent said.

Our correspondent said the impact of the sanctions would be felt by ordinary Iranians as it will increase the price of the US dollar vis-a-vis the Iranian rial, she said, noting that the dollar rose by about 10 cents following the EU sanctions announcement on Monday.

A diplomatic push is under way, officials say, to secure supplies from other producers. Saudi Arabia, the world's top producer, said this month it would increase production by about two million barrels per day.

Speaking to Al Jazeera, Sadegh Zibakalam, a professor of political science at Tehran University, said that EU sanctions would not "terribly affect" Iran.

"The real problem for Iran comes [from] Asia and not from Europe," Zibakalam said. "That is to say if China, South Korea, Japan ... and India move towards ... reducing their oil from Iran, that will create a serious problem for Iran."

The four Asian nations purchase about 59 per cent of Iran’s oil each year, while EU countries account for 18 per cent.

[Al Jazeera and agencies]