European governments have agreed in principle to ban imports of Iranian oil, EU diplomats said today, dealing a blow to Tehran that crowns new western sanctions months before an Iranian election.
The prospective embargo by the European Union, along with tough US financial measures signed into law by president Barack Obama on New Year's Eve, form a concerted western campaign to hold back Iran's nuclear programme.
Iran says the programme is strictly non-military, but western countries say a November UN report shows it has sought to build an atomic bomb. Talks between Tehran and major powers broke down a year ago.
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.
"A lot of progress has been made," one EU diplomat said, speaking on condition of anonymity. "The principle of an oil embargo is agreed. It is not being debated any more."
A US treasury official said Washington supported the European proposal to ban purchases of Iranian crude and believes Tehran's oil revenues can be choked off without disrupting global oil markets.
Treasury secretary Timothy Geithner will travel to China and Japan next week to discuss US sanctions on Iran and the state of the global economy, the treasury department said.
The embargo will force Tehran to find other buyers for oil. EU countries buy about 450,000 barrels per day of Iran's 2.6 million barrels in exports, making the bloc collectively the second largest market for Iranian crude after China.
The news caused a spike in oil prices, with Brent crude peaking at nearly $114 a barrel in intraday trading, up nearly $2 from yesterday's close.
Tehran insisted it would have no trouble: "We could very easily replace these customers," said S. M. Qamsari, international director of the National Iranian Oil Co.
But the new US sanctions have already made it difficult for Iran to keep its customers, and could force it to offer steep discounts to countries willing to risk doing business with it, hurting its revenues.
Biggest trading partner China, driving a hard bargain, has cut its orders of Iranian oil by more than half this month.
Western countries have imposed various sanctions on Iran for years with little impact. But the latest measures are qualitatively different, directly targeting Iran's oil industry, which forms 60 per cent of its economy.
Most traders expect Iran will still find buyers for its crude, mostly in Asia, but it is going to have to offer substantial discounts, cutting back the revenue that the state relies on to subsidise basic goods for its citizens.
Tougher sanctions appear to be having an impact already on Iran's streets, where prices for foodstuffs are soaring. The rial currency has lost 40 per cent of its value against the dollar over the past month.
Currency exchanges have shut in Tehran and Iranians have queued to withdraw their savings from banks and buy dollars.
Reuters