David Blair: Iran EU Sanctions: Q & A!

What sanctions has the European Union imposed on Iran? With immediate effect, no EU member state can sign a contract to import crude oil or refined petroleum from Iran. Existing agreements will be honored until 1 July, after which all imports must cease. In addition, the EU has introduced a range of financial restrictions, including freezing assets held in Europe by the Iranian Central Bank. The EU has imposed sanctions before. Why are these different? Because the oil industry forms the central pillar of Iran's economy, providing most of the country's export earnings and about 55 per cent of the national budget. Oil revenues poured some $90 billion into Iranian government coffers in 2010-11, compared with total expenditure of $165 billion. Iran now faces the loss of sales of almost 600,000 barrels of oil per day to the EU, 24 per cent of total exports. Won't Iran find other customers? Probably yes. But EU sanctions will have the effect of creating an instant buyer's market for Iranian crude. Because Iran will need to find customers for all the oil that once went to the EU, buyers will be able to insist on hefty discounts. China and India, Iran's two biggest customers who imported 860,000 barrels per day last year, are likely to ask for lower prices. Iran may be in no position to refuse. The result will be that it loses billions of dollars of revenues. Can Iran's government take this hit? Not without great difficulties.