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News | EU Agrees in Principle to Embargo on Iranian Crude Oil

04 Jan 2012 23:50Comments

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Iran Standard Time (IRST), GMT+3:30

DarkDerricksLarge.jpg11:50 p.m., 14 Dey/January 4 European Union diplomats announced today that the union's governments have agreed in principle to ban purchases of Iranian crude oil, which could constitute a substantial blow to the economy of the Islamic Republic. Bloomberg reports,
EU foreign ministers are aiming to announce harsher sanctions on Iran's energy and banking industries at their next meeting on Jan. 30 after Greece lifted its objections to an oil embargo.

"We want to tighten sanctions on Iran -- the things that have been mentioned are the oil sector and the financial sector," EU spokesman Michael Mann said by telephone in Brussels today.

French Foreign Minister Alain Juppé said in Lisbon today that he hopes a decision about an embargo on Iranian oil exports may be adopted at the Jan. 30 meeting of foreign ministers.

Reuters describes the final steps in reaching the agreement and its potential effect on both Iran's vital petroleum industry and world oil prices:

Diplomats said EU envoys held talks on Iran in the last days of December, and that any objections to an oil embargo had been dropped -- notably from crisis-hit Greece which gets a third of its oil from Iran, relying on Tehran's lenient financing. Spain and Italy are also big buyers. [...]

The embargo will force Tehran to find other buyers for oil. EU countries buy about 450,000 barrels per day (bpd) of Iran's 2.6 million bpd in exports, making the bloc collectively the second largest market for Iranian crude after China.

Prime Minister Mario Monti said Italy was ready to back an oil embargo as long as it was imposed gradually and deliveries to repay Tehran's debts to Italian energy firm ENI were exempted.

The news caused a spike rise in oil prices, with Brent crude peaking at nearly $114 a barrel in intraday trading, up nearly $2 from Tuesday's close.

As described here, the Iranian rial has severely weakened in recent days against the dollar, driven at least in part by reaction to increasingly strict international sanctions. If the E.U. does impose an oil embargo, the impact on the rial and inflation in Iran could be drastic.

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