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With EU On Board With Iran Oil Sanctions, Western Eyes Turn To Asia

  • Charles Recknagel

A flare burns at Iran's North Rumaila oil field. (file photo)

A flare burns at Iran's North Rumaila oil field. (file photo)

The decision by European Union foreign ministers to stop taking deliveries of crude oil from Iran might well represent a momentous change and a blow to Tehran.

But by most accounts such a move -- even in conjunction with a host of other punitive steps -- is insufficient to force Tehran to stop what the West says are efforts to develop nuclear weapons.

The 510,000 barrels per day (bpd) of oil that the EU imports from Iran represent less than one-fifth of the more than 2.6 million bpd Iran ships out daily.

Still, what the West hopes is that the EU's example will create pressure for Asia's energy-hungry economic giants to follow suit.

China, Japan, India, and South Korea account for a combined 53 percent of Iran's total exports. If they join the sanctions, there is little chance Iran's regime -- which depends on energy exports for nearly half its budget revenues -- could survive.

That makes the EU's latest action a milestone on a still-long journey to muster economic pressure against Tehran, with no end in sight because nobody knows whether the Asian giants will join the campaign or not.

Customer Loyalty

"Both China and Russia, China in particular, have very strong and strengthening commercial ties [with Iran]," David Knott of the Middle East Economic Survey (MEES) says, noting that China is Iran's biggest oil customer at 543,000 bpd. "And while the Western...world has been withdrawing from Iran because of the tightening U.S. and international sanctions, China has not been so much bound by those."

China gets 10 percent of its imported oil from Tehran. It also has important business interests in Iran, including projects to develop oil and gas fields and drilling work.

Beijing has repeatedly said sanctions will not resolve the nuclear issue and signaled that finding a substitute supplier is not on its agenda.

The other three biggest Asian importers of Iranian oil -- India, Japan, and South Korea -- are also reluctant but may be easier for the West to woo. Unlike China, which is America's biggest creditor, they are all to varying degrees U.S. allies.

India shows no signs of cutting back on Iranian oil. The country gets 11 percent of its crude oil from Iran, or 341,000 bpd, making Tehran its second-largest supplier.

Japan, a close U.S. ally gets 6 percent of its oil from Iran, or 251,000 bpd. It has signaled reluctance to halt those imports, though it might cut them back. When Japan's finance minister earlier this month said Japan would join sanctions, other officials raced to backtrack, indicating nothing is decided.

South Korea, which gets 7.5 percent of its crude from Iran, or 239,000 bpd, says it would be difficult for it to find alternative supplies quickly. Seoul is in bilateral discussions with Washington to find a compromise as it tries to maintain its energy security without alienating the U.S., its key trade partner.

Cat And Mouse

All this suggests Western powers have much work ahead to re-route Iran's customers to other suppliers. The most obvious alternative is Saudi Arabia, which this week affirmed it has the capacity to fill any drop in the world's oil supply that may result from sanctions on Iran.

But Iran can equally be expected to do everything it can to hold onto its customers, including making it easier for them to stay ahead of the sanctions effort.

Knott says that while the most effective sanction on Tehran is Washington's ban on countries doing business with the Central Bank of Iran, even that is not foolproof.

"One of the things that might happen is that the American targeting of the Central Bank of Iran," Knott says. "The rules are going to get tighter around June when the next swath of sanctions come in, what might happen then, people are thinking, is that the Iranians might be more open to barter deals for oil."

Could some Asian countries play a cat-and-mouse game with Washington, observing U.S. bans to the letter but going around them in practice?

Tehran clearly hopes so. And that means Western capitals will continue to seek real commitments from their Asian partners to reduce Iranian oil imports.

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