AP News

Iran feels pinch of new EU oil sanctions


TEHRAN, Iran (AP) — As new European Union sanctions targeting Iran's vital oil industry took effect Sunday, Tehran acknowledged the measures aimed at reining in its disputed nuclear program were taking a toll. The vice president said authorities had stockpiled imported goods and hard currency to help cushion the blow to the economy.

The ban by the 27-member EU on the purchase of Iranian oil dealt the Islamic Republic its second economic setback in days, following fresh U.S. sanctions that prohibit the world's banks from completing oil transactions with Iranian banks. Combined, the measures significantly ratchet up the pressure on an Iranian economy already squeezed by previous rounds of sanctions.

"Today, we are facing the heaviest of sanctions, and we ask people to help officials in this battle," Vice President Mohammad Reza Rahimi was quoted as saying on state television's website.

He said the "dastardly sanctions" might cause "occasional confusion" in the domestic market. Iran reacted furiously when the U.S. and EU sanctions were announced, threatening to block the strategic Strait of Hormuz, a vital waterway used to ship about one-fifth of the world's oil. On Sunday Iranian officials appeared to be backing away from that threat, which roiled international oil markets at the time.

Rahimi also said Tehran has stocked up on some imported goods to reduce the embargo's impact, without saying what specifically.

The EU, which accounted for around 18 percent of Iran's oil exports, said earlier this week that all contracts for importing Iranian oil will have to be terminated from Sunday. Also, European companies will no longer be involved in insuring Iranian oil.

In Washington, White House spokesman Jay Carney welcomed the EU oil embargo. He said in a statement that the U.S. and EU "are committed to holding Iran accountable for failing to meet its international obligations," showing "the seriousness with which the international community views the challenge of Iran's nuclear ambitions."

Carney said Iran has a "clear choice between isolation and meeting its obligations." He said Iran must take "concrete steps" to resolve international concerns over its nuclear program.

Iran is the second largest OPEC oil producer, producing about 4 million barrels of oil a day. The country's recoverable oil reserves are estimated at more than 137 billion barrels, or 12 percent of the world's overall reserves. The country relies on oil exports for about 80 percent of its public revenues. However, most of Iran's crude production is used domestically.

The sanctions are the latest move in the West's standoff with Iran over its disputed nuclear program, which the U.S. and its allies suspect is aimed at developing atomic weapons. Iran denies the charges and insists its program is designed solely for peaceful purposes, such as energy and producing medical isotopes.

Three rounds of nuclear talks between Iran and world powers, including the U.S., have failed to produce a breakthrough, prompting some critics to charge that Tehran is merely dragging out the negotiations to buy time to further advance its suspected weapons program. The U.S. and Israel have left the door open to a possible military strike if no agreement is reached.

In the meantime, Washington and its allies have used sanctions to target Iran's oil sector — the nation's primary revenue source — and there are already indications that previous rounds of sanctions have started to bite.

Last week, U.S. Secretary of State Hillary Rodham Clinton said Iranian crude exports have dropped to 1.5 million barrels a day from 2.5 million barrels last year, which comes out to almost $32 billion in revenue lost over a year.

The Iranian rial has slumped against international currencies, with the unofficial rate spiking at around 21,000 to the dollar this week, up from around 19,000. That's down from a high of around 23,000 in January, but still far above the rate of around 11,000 about 18 months ago.

The price of staples has skyrocketed as well. Since the EU first announced its embargo in January, Iranian government figures show the prices of bread, milk and meat have risen around 20 percent, while the price of chicken has jumped some 80 percent.

Fully aware of the burden this places on families, Ayatollah Ahmad Khatami, an adviser to Supreme Leader Ayatollah Ali Khamenei, said last week that the price hikes are "a matter of pain" for Iran. But he also urged people not to complain, telling them: "If you say ouch, the arrogant ones will say they have achieved their goal. So be patient, and make them regret it."

So far, the Iranian public has proven patient, in part because of widespread support for the nation's nuclear program, which is a source of pride for many in Iran, regardless of their political leanings.

"Westerners said the sanctions have aimed at halting nuclear activities. But they have targeted our families and children," said Abbas Heidar, a 32-year-old teacher in Tehran. "The government is continuing its nuclear activities and I do not expect it stop."

Iranian officials, meanwhile, scrambled Sunday to present the government as actively working to ease any hardship the sanctions might bring.

Central bank governor Mahmoud Bahmani told the semiofficial Mehr news agency that Iran has "plans" to deal with the embargo and enough hard currency to meet its import needs.

"We have not remained passive. To confront the sanctions, we have plans in progress," Bahmani said without elaborating.

Iran's Oil Minister Rostam Ghasemi ordered his staff to "mobilize" against the sanctions, according to Mehr. It did not elaborate.

Ghasemi also sought to boost public morale, telling state television late Saturday that Iran has weathered previous rounds of sanctions.

"I do not see it as a problem that enemies have imposed an embargo today," he said. "They have imposed similar sanctions years ago, and nothing happened."

He said Iran has already halted oil sales to many EU countries, and had found new buyers to replace them.

"Developing countries and countries with fast economic growth have no alternative to oil. Fortunately, because of the quality of our country's oil, all are interested in using it," he said.

Mehr published its own analysis listing measures that Iran could take to counter the sanctions, including shutting the vital Strait of Hormuz. The semiofficial news agency's editorials sometimes reflect views held by top Iranian officials who do not wish to state them publically.

On Sunday, however, Iran's Defense Minister Gen. Ahmad Vahidi made statements to the official IRNA news agency about the strait in which he did not mention any plans to close it — remarks that suggest that Iran is playing down the threat in dealings with the West.

Vahidi said Iran is the main protector of the waterway, and that Tehran "has confronted anybody who tried to endanger the Strait."

Mehr also suggested that Iran could make use of hard currencies other than the U.S. dollar and the euro, form its own insurance syndicate to replace foreign companies that withdraw from the market, store up oil in tanks for later sale so as not to cut production, or simply reduce oil production to save its reserves for the future.

___

Lucas reported from Cairo.


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