‘Iranian sanctions to strike Europe’s soft underbelly’

With the French President urging a “more decisive sanctions regime,” the drive to cripple Iran is in full gear. However, energy analyst Sara Vakhshouri says as the screws tighten on Tehran, Europe’s weakest economies may end up feeling the pinch.

­Speaking to an audience of diplomats on Friday, President Nicolas Sarkozy admitted that war against Iran “would not solve the problem, but would unleash chaos in the Middle East – and perhaps elsewhere."

Sarkozy, who pinned the blame of a “potential military breakdown" on Russia and China's reluctance to support potentially crippling sanctions, maintained that targeting Tehran economically was the only way to avert war.

"Time is limited. France will do everything to avoid a military intervention, but there is only one way to avoid it: a much tougher, more decisive, sanctions regime," he said.  

French Foreign Minister Alain Juppe confirmed a diplomatic leak claiming European foreign ministers were planning to meet Monday over an Iranian oil embargo. They also intend to freeze the assets of the Iranian Central Bank, Reuters reports.

But Sara Vakhshouri, an independent energy consultant and former advisor to the National Iranian Oil Company International's director, argues that France’s insistence on harsher sanctions would ultimately come at the expense of Europe’s most vulnerable economies.

“If you look at the European Union, which is buying 18 per cent of Iranian crude oil, there are three main countries – Italy, Spain and Greece – the major European importers of Iranian crude oil … are currently facing an economic crisis,” she said.

While Iran could find other customers for the roughly 500,000-600,000 barrels of oil going to this region, Vakhshouri says "these countries are going to face a huge problem. Countries like France or the UK are not substantial importers of Iranian crude oil, but Spain is supplying 20 per cent of its oil needs from Iran, while thirteen per cent of Italy’s and 14 per cent of Greece’s oil is coming from Iran.”

The analyst also says Tehran already has a valid way to mitigate problems arising from a sanctions regime targeting the Iranian Central Bank's international assets.

“In case of any sanctions on the Iranian Central Bank, Iran can still enter into a barter [system] with its customers. Simply look at China, which is buying 22 per cent of Iranian crude oil, which represents 11 per cent of the Chinese oil demand." She adds that "China is the main supplier of gasoline to Iran, and from July 2010-2011, the Chinese refinery Zhenrong sold upwards of 500 billion barrels of gasoline to Iran.  So these two countries can easily enter into a barter [system].”

But Mahmud Reza Sajadi, Iran’s ambassador to Russia, says the US-led drive for an oil embargo is unlikely to materialize, as countries like China will continue to purchase crude oil from Iran regardless of US pressure.