Iran – Oil Embargo

Embargos on Iranian oil are not a new phenomenon, the Clinton Administration enacted the Iran-Libya Sanctions Act (now Iran Sanctions Act) in 1995 (ISA) following discontent regarding Iran’s stepped up nuclear program and support of terrorist organisations such as Hizbollah and Hamas. The US has recently accused Iran of plotting to assassinate a senior Saudi diplomat in Washington and taken trade sanctions against Iran’s Central Bank. As of the end of 2011 Europe has added to the count of countries no longer deeming it acceptable to trade in matters such as oil with Iran – a measure which is likely to be passed by the end of this first month of 2012.

Iran’s nuclear programme was established in the 1950s and until relatively recently continued to recieve support from both the U.S. and Europe, major players in the area, though not oil-rich themselves. The European embargo came after concerns were raised following a report released in November 2011 claiming Iran was developing and researching for nuclear weapons capabilities. Notably, as Iran is not a member of the World Trade Organisation, it merely began accession negotiations in earlier years, the legality of the measure in the WTO is not an issue.

Is the measure likely to be effective? Whether an embargo will prevent the controverisial is a matter of speculation. However, the impact of the trade sanction shall in the least be persuasive. Iran relies on oil for over 20% of its GDP, furthermore, during the aftermath of the ISA it was noted that the onshore oil plants within Iran were in great need of investment in order to modernise the equipment and as such further strains on an alreadt “needy” sector will not be welcomed, and may even stir up some political unrest within Iran.

The consequences: Proposers of the embargo have said that oil supply is unlikely to suffer due to the number of oil-rich country who also oppose Iranian nuclear who would be willing to supply oil to Europe in order to hit Iran further. Complications are already immenent as Italy and Greece, two very vulnerable European countries, are major buyers of Iranian oil and this embargo could further damage growth if oil levels sink and prices rocket. Iranian defense officials have targetted Western ships and to that extent have passed a bill requiring Western ships to seek permission from Tehran when travelling through the Strait of Hormuz, a key route for oil cargo ships. The U.S. has not commented further from saying it is fighting to keep international waters free.

There is no doubt that trade sanctions are amongt the most effective tool for encouraging certain activity on an international level, however, in the light of recent retaliations to Western action, it remains to be seen whether this issue will be clear cut or lead to a potentially devastating diplomatic battle.