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EU in Agreement on Iranian Oil Sanctions, Crude Oil Futures Surge on Supply Concerns

By on January 5, 2012

After weeks of back and forth threats between the US, the EU on a side and Iran on the other, feelers are emerging that the European Union member countries have largely reached a consensus to place an embargo on crude oil deliveries from Iran.

This embargo is to serve as sanctions against Iran due to its perceived unwillingness to provide full disclosure on its nuclear program. Iran has maintained that it does not intend and is not in fact building nuclear weapons, and is simply developing nuclear technology for peaceful purposes.

Opposition from the EU emanated from Greece and other weaker economies, and this opposition has now been quelled, diplomats told news agencies yesterday.

Meanwhile no timetable has yet been set for the imposition of the sanctions.

Iran has issued counter-threats insisting that the country will shut down the entire Strait of Hormuz should the embargo be effected. US warships in the region have debunked Iran’s claims that it has the ability to undertake such a military feat whilst US vessels are in the region.

The Strait of Hormuz is a strategic waterway in the Perian Gulf via which over 15 million barrels of crude are transported everyday.

The US is in support of the sanctions and recently imposed additional sanctions on the middle-eastern country, severing all commercial ties with its central bank.

Iran also indicated that the embargo on its crude will not have the desired effect as it can easily replace its European customers.

It appears it is Europe that will have difficulty replacing supplies from Iran. Spain, Greece and Italy are the largest consumers of Iranian oil, and their economies would have to enjoy a seamless transition to new supply not to be affected adversely.

Saudi Arabia has issued a statement saying it will increase its production in order to fill in the supply void created, however it is not certain if this will be sufficient.

Pending strikes in Nigeria that will shut down the oil industry from next week will also have an adverse effect on global crude supplies.

The price of the commodity has began to surge in response to the perceived impending threats on supply availability.

According to Bloomberg, “Oil traded near the highest in eight weeks in London as speculation that sanctions against Iran will curb crude supplies countered concern that Europe’s debt crisis will worsen and slow demand.”