Bloomberg News

Cameron Says World Will Ensure Iran Can’t Block Hormuz Strait

January 23, 2012

Jan. 13 (Bloomberg) -- U.K. Prime Minister David Cameron said he and other members of the international community are ready to ensure the Strait of Hormuz stays open should Iran attempt to block it in retaliation for sanctions.

Iranian Vice President Mohammad Reza Rahimi said on Dec. 27 that his nation would block shipments through the strait, the world’s biggest chokepoint for seaborne oil trade, if sanctions are imposed over Iran’s nuclear program.

“We are now looking at this whole issue of having an embargo on Iranian oil to get that regime to think again,” Cameron told Al Arabiya television in Riyadh, Saudi Arabia, where he held talks with King Abdullah today. “It is in the interests of the whole world that those straits are open and I’m sure if there was any threat to close them the world would come together and make sure they stayed open.”

Western countries say the Gulf state may be seeking atomic capability to build nuclear weapons. Iran says its program is for civilian purposes, including power generation. A European Union embargo is currently likely to be delayed for six months to allow members to find alternative supplies, according to two EU officials with knowledge of the talks. It’ll be discussed by the bloc’s foreign ministers Jan. 23.

Oil dropped to a three-week low on that news, declining as much as 1.4 percent. Crude for February delivery fell 73 cents, or 0.7 percent, to $98.37 a barrel at 10:47 a.m. on the New York Mercantile Exchange. The contract dropped as much as $1.40 to $97.70, the lowest level since Dec. 21. Oil is headed for a 3.1 percent decline this week.

Temporary Ability

U.S. Joint Chiefs of Staff Chairman General Martin Dempsey said on Jan. 8 that Iran can temporarily choke off the Strait of Hormuz, through which 17 million barrels of oil pass each day, the Energy Department estimates. He added that the U.S. would be able to defeat such a blockade.

The EU ban is likely to include an exemption for Italy, so crude can be sold to pay off debts to Rome-based Eni SpA, Italy’s largest oil company, according to the officials, who declined to be identified because the talks are private.

A ban on petrochemical products would start sooner, about three months after EU ministers agree to the measure, one official said yesterday. Once a decision is made, member states would be barred from concluding new oil contracts with Iran or renewing those that are due to expire, while existing deals will be terminated within six months, according to a second diplomat today. Long-term contracts constitute the bulk of Europe’s purchases of Iranian oil.

‘Different Options’

“Work by experts from the 27 member states is in a very intensive phase,” Maja Kocijancic, a spokeswoman for the European Commission, said by phone yesterday from Brussels. “They are looking into different options for restrictive measures with a view to adoption on Jan. 23.” She declined to comment on possible phase-in periods or exemptions.

Phasing in the European embargo would satisfy the concern of nations most dependent on Iranian crude, including Italy, Greece and Spain, the first EU official said. Those three nations accounted for 68.5 percent of EU imports from Iran in 2010, according to European Commission data.

Germany, France and the U.K. have been pushing for the embargo to increase pressure on Iran over its nuclear program, and it has the support in principle of all member states, the EU official said yesterday.

‘Different Path’

“There is a clear threat from Iran in terms of that country’s attempt to acquire nuclear weapons,” Cameron said. “I think that would be very bad for the region, very bad for the world and I think it’s right that all countries across the world step up the pressure on Iran to take a different path. And Britain has been leading the way in that regard in the European Union arguing for sanctions.”

Cameron also urged Russia and China to drop their opposition to United Nations sanctions against Syria and listen to the Arab League, which he said was “leading the way” on the issue.

“President Assad has lost the consent of his people,” he said. “I would urge the Russians, the Russian government, even at this late stage, to look really carefully at why it is proposing to do what it keeps doing in respect to Syria. This is appalling bloodshed, appalling murder on the streets of Syria.”

International Atomic Energy Agency inspectors will go to Tehran at the end of the month to discuss Iran’s nuclear program, two diplomats with knowledge of the talks said today.

Iran’s willingness to resume talks doesn’t mean it’s ready to negotiate restrictions on its nuclear program, said Michael Singh, a former official on the U.S. National Security Council.

Negotiating Delay

“All the signals from the Iranians are not that they’re now willing to negotiate an end to their nuclear program, but that they’re not,” said Singh, who is now at the Washington Institute for Near East Policy. “They’re probably hoping to use talks as a delaying tactic, and to raise the hopes of those in the international community who think that negotiations can resolve the issue.”

As Europe weighs its embargo, President Barack Obama’s administration has sent teams worldwide to consult with countries on managing the supply and demand of oil, according to an administration official who briefed reporters in Washington.

Iran, the second largest producer in the Organization of Petroleum Exporting Countries, pumped 3.58 million barrels of crude a day last month, according to Bloomberg estimates.

OPEC’s other members would be able to make up for a drop in Iranian oil supply if the EU agrees to an embargo, said Chakib Khelil, the group’s former president. Even so, prices may temporarily rally to as high as $200 a barrel on news of any such blockade, he said today in London.

“It should be possible to replace, at least, the European consumption of Iranian oil,” Khelil said in an interview with Mark Barton on Bloomberg Television’s “On the Move.”

--With assistance from Ewa Krukowska and James G. Neuger in Brussels, Steve Bryant in Ankara, Indira A.R. Lakshmanan and Nicole Gaouette in Washington and Raj Rajendran and Mark Barton in London. Editors: Eddie Buckle, Fergal O’Brien

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.


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