Iranian Diplomacy: At their Luxembourg meeting, EU Foreign Ministers confirmed the implementation of sanctions on Iranian oil beginning on July 1. Considering Europe’s financial crisis, what effects will these sanctions have on the European and global markets?
Mehdi Fakheri: The first point to consider is whether these EU sanctions will really be implemented as announced or not. The second is whether Iran, in its present situation, can once again move past these sanctions and manage them or not. The third point is that international developments, such as the US election, might influence this issue.
Despite initial predictions that these sanctions would not be implemented, it seems that we are currently moving in that direction. However, it is possible that, due to the economic crisis, some European countries might not fully implement certain provisions of these sanctions for various reasons and in different forms. But the important point is that the EU’s official stance on this issue has not changed and this in itself should cause us to think more seriously about how to deal with its ramifications.
Regarding the consequences we will face, it seems that our country’s economic situation requires deep thought about a serious and long-term solution for this problem. The reason is that Iran will probably have problems entering foreign currency resources until the end of the fiscal year, because, on one hand, the price of oil has gone down, and on the other, Iran’s oil exports, and consequently its non-oil exports, have also been reduced. This issue has direct influence on Iran’s imports and we might therefore see another rise in prices. The third point is that regional crises, which undermine the stability needed for proper decision-making, might also affect this issue, whether we like it or not. This means that, in the current circumstances, we cannot act as we do with other issues, because, globally for example, the US election is very near, one in which all candidates, especially Obama, will naturally pay close attention to issues that will influence people’s votes. In addition, we have witnessed changes in seven European governments in the past year. Five governments in the Middle East have also changed. These issues show that, in the last twelve to fifteen months, twelve governments have changed, either due to economic crisis, or due to Middle East developments. This means that the so-called technology of change has been formed and the technology to counter this change has mutually been started as well. Developments in Syria and other countries are examples of this counter-change technology.
Therefore, it seems that the current situation is very fragile. I believe that, even if we neglect the political ramifications, there will be considerable economic and social consequences for Iran and we need to think of a more serious solution for this problem.
ID: You mentioned the fall of oil prices. What is the main reason behind this change? It had been predicted that the implementation of sanctions in Iranian oil would give a big shock to the prices in the market. Can we say that the fall of oil prices was a plan to weaken the ramifications of the shock caused by sanctions on Iran’s oil?
MF: This has certainly been planned, because we are witnessing the increased pumping of oil by non-OPEC importers, the non-respect of OPEC quotas, as for Saudi Arabia, and the use of oil reserves. Therefore, it seems that consumer countries have tried to control the mental effect of the elimination of Iranian oil using these three techniques. In addition to this, the summer season has automatically reduced the consumption of oil. The rate of economic growth in consumer countries has also slowed down and this will naturally lead to a decrease in their oil consumption. Therefore, a series of political and economic factors have joined together to contain demand and cause a fall in oil prices.
ID: US sanctions penalize companies and or countries that are associated with Iran. Do EU sanctions also target third parties? If this is the case, how will this issue affect Iran’s oil revenues?
MF: The Europeans did not make such a decision. Even in the previous case of the Helms-Burton and D’Amato acts against Cuba and Iran, the EU took an official position and strongly criticized the US’ extra-territorial decisions. However, in practice, we might be faced with such a situation. This means that, apart from the 27 EU member countries, their other trade partners might pressure them in unofficial talks to also secretly join these sanctions, or if not, stop their considerable trade dealings with Iran’s sanctioned industries. The EU might move in this direction in the long run, but no such legislation exists which states that countries or companies that have trade with Iran will also be sanctioned. There is no legal basis for this matter.
ID: Would you like to add anything in conclusion?
MF: It seems that current regional and international circumstances require both sides to make efforts to reach an agreement. The reason is that, as you mentioned before, the EU’s situation is too fragile for it to have to deal with new shocks, and Iran’s economic situation, especially its production capacity, need us to try to prevent any new blows to an industry which is becoming more and more limited day by day. Therefore, we might be able to say that the solution to this problem can no longer just be a political or an economic one, but a comprehensive one that considers both aspects.
Some sensitivities might become bolder in some cases, but the fact of the matter is that both sides consider their economic and social development process and I just hope that they will also think about their political and social stability as well. It can be said that solutions that stressed national or even partisan agendas have reached a deadlock. We do not see unanimity in opinion in the EU either and countries such as Italy, Spain, Portugal, and Greece, which are faced with crises, are so strongly hit that their financial institutions strongly depend on the market too. Therefore, these issues might either weaken the pressure of sanctions, or cause our politicians to try to find a comprehensive and long-term solution which would not be easily affected by issues such as a change in government.