August 19, 2018 (06:53)

Iran and the US sanctions – possible impact on energy security of Europe

The second package of the US sanctions on Iran for breach of the “Nuclear agreement” (Joint Comprehensive Plan of Action as of July 14th, 2015) enters into force on November 5th, 2018. The decision on withdrawal from the agreement on behalf of the US came after introduction of documents from Israel which were received during intelligence-gathering operation in Iran.

Unlike the US, other states and the United Nations did not consider the received information as a proven fact of violation of agreement and refused to withdraw from the agreement. Despite this the US stance seems to be the biggest influential factor which will eventually define further actions of Iran and the level of escalation of confrontation.

As a result of 2017 Iran and the EU have substantially developed commercial relations while the share of European investments into the Iranian economy has increased significantly.

The export structure consisted of 88,7% of Iranian energy costs, mainly crude oil, while value-added share of the EU consisted of 50,9% of auto manufacturing products and transport industry  1.

Greece’s Hellenic Petroleum, Royal Dutch Shell, France’s Total, Italy’s ENI and Saras, Spain’s Repsol, та Hungary’s MOL  were among the biggest customers of Iranian oil, that is, states for which oil transportation via marine routes, mainly by Mediterranean sea, is possible 2. 

Implementation of the first package of the US sanctions on August 7th, 2018 will impact commercial transactions including US dollars significantly since such transactions can be monitored by the US Department of Treasury and such transactions can be the reason of the US sanctions or at a minimum a ban of operations at the US market and cooperation with American companies.

Thus, the French companies (automotive industry) and Total (carbon extraction) have already noted that they will correct their plans of actions in Iran due to the US sanctions 3. 

There is a concern of German business and the federal government and the supreme bodies of the EU, namely the European commission and The European external action service are pushed in every means to negotiate with the US in order to find and introduce exceptions 4.

However, the German energy companies  which are connected to import and oil processing have not seen substantial activity on protection of their interests in Iran, which is caused by  low volumes of energy costs  (according to the results of 2017 – 106, 15 billion Euro) 5. Russia, to the contrary, provided the supply of more than 40% of all crude oil import in 2017, in total more than all other European states all together, not to speak of OPEC countries.

The so called “Blocking statute”, the instrument which  is thought to protect and even prevent European companies from  ceasing cooperation because of the US sanctions,  was approved at the EU level on August 7th, 2018 6.

Along with this even European top officials admit that the prototype of this instrument, approved in 1996, was effective only as a preventative measure for the US regarding use of so called secondary sanctions against European companies for the operations in Iran; it has never become a court precedent, which are nowadays much more possible with respect to peremptory policy of Donald Tramp 7. 

Iran is a part of military rhetoric too and announced its intention to block passage of tank vessels in the Strait of Hormuz which is traversed by a third of world marine traffic of crude oil from Kuwait, Bahrain, Iraq and UAE.  This will impact oil export from Saudi Arabia indirectly, making this state to shift its focus to the Black Sea ports and liquefied natural gas export from Qatar, which can get significantly complicated due to safety requirements on passage of tank vessel through Strait of Hormuz.  

How can these events affect Europe?

1. Decrease of Iranian oil export to the European market will lead to deficiency in certain countries and will cause crude oil price increase at the world market in general. 

2. Possible confrontation between Russia and the US in the Strait of Hormuz threatens to cause a higher deficiency of crude oil at the world market due to decrease of export from neighboring countries and corresponding influence on costs. 

3. Qatar risks being threatened with blocking of export of liquefied natural gas, which endangers its financial stability and will decrease demand at the European gas market as well and questions perspectives of  implementation of ways on alternative  routes of gas supply to the Western Europe by means of  receiving liquefied natural gas  through terminals in Spain, France and the UK. 

4. Poland and Lithuania are in the zone of geopolitical risk since decrease in capacity of import of liquefied natural gas from the Near East (Qatar) endangers the plans of these states regarding refusal from Russian natural gas. 

5. The role of the EU member states, which are traditionally oriented at purchase and processing of Russian oil, is increasing.

 6. Russia has an additional opportunity to cause collaborations of the EU and the US to fail since even the judicial claims either in the US or the EU can be used for political propaganda and separation of top officials. 

7. High interest of China, Turkey and India in import of Iranian oil is one of the ways of Moscow to achieve geopolitical isolation of the US and strengthen its position as a global actor by bringing back international meeting “without Trump”.

8. The EU will increase the attention to renewable energy as the most accessible resource to substitute import of energy costs and energy efficiency in order to reduce its consumption.

The possible solutions to these problems can be the following:

  1. Reaching a political solution at the level of the US, the EU and other nuclear states (possibly, expect of Russia) on detailed analysis of documents received by Israel;
  2. Suspension of the US sanctions, at least mining and cancellation of second package of sanctions  against energy sector and European “Blocking statute”;
  3. Implementation of analysis of influence of sanctions on the EU and the US, other partners, including South Korea, India and Japan;
  4. Negotiations at the level of the US, the EU and nuclear states (possibly, expect of Russia) based on the results of analysis of security threats from Iran to Israel and Saudi Arabia and formation of a strong position regarding Iran.

Joining forces of the international community in order to solve the situation of Iran, which is crucial since it will promote the stabilization of global oil market and will aid in overcoming dangerous tendencies of fragmentation of settled world order and co-existence of states, desire of democratic standards and respect of human rights. If the democratic leaders of the world do not join, further escalation of situation on Iran in order to provoke new global confrontation might take place. 

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