EU to pursue Iran sanctions despite Tehran’s threat to close vital oil transit

The European Union is pressing ahead with plans to impose new sanctions on Iran, an EU spokesman said Wednesday after Tehran threatened to close a vital oil transit channel in response to Western measures.

“The European Union is considering another set of sanctions against Iran and we continue to do that,” Michael Mann, spokesman for EU foreign affairs chief Catherine Ashton, told AFP.

“We expect the decision will be taken in time for the foreign affairs council on January 30,” he said, referring to the next meeting of EU foreign ministers in Brussels.

Iranian Vice President Mohammad Reza Rahimi warned on Tuesday that “not a drop of oil will pass through the Strait of Hormuz” if the West broadened sanctions against Iran over its nuclear program.

The United States and the 27-nation EU are considering new sanctions aimed at Iran’s oil and financial sectors. But EU governments have been divided over whether to impose an embargo on Iranian crude.

Oil from Iran in 2010 amounted to 5.8 percent of total EU imports, making Tehran the bloc’s fifth-largest supplier after Russia, Norway, Libya and Saudi Arabia.

Spain represents 14.6 percent of Iranian oil imports to Europe, Greece 14.0 and Italy 13.1 percent.

More than a third of the world’s tanker-borne oil passes through the Strait of Hormuz, linking the Gulf -- and its petroleum-exporting states of Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates -- to the Indian Ocean.

The United States maintains a navy presence in the Gulf in large part to ensure that passage for oil remains free.

Gulf prepared to offset loss

Meanwhile a senior Saudi oil official said Gulf Arab nations are prepared to offset any potential loss of Iranian crude in the world market in remarks that could allay concerns as oil prices climbed Wednesday.

The comments by Rahimi may be little more than a warning by the Islamic Republic, they still stoked fears in the market. A closure of the strait could force shippers to take longer, more expensive routes that would drive oil prices higher. It also potentially opens the door for a military confrontation with Iran that would further rattle global oil markets.

The Saudi oil ministry official told The Associated Press that OPEC kingpin Saudi Arabia and other Gulf producers were ready to step in if necessary. He did not say what other routes the Gulf nations could take to ship the oil if the strait was closed off. The official spoke late Tuesday on condition of anonymity because he was not authorized to discuss the issue.

Reflecting unease over the rising tensions in the Middle East, the U.S. benchmark crude futures contract for February delivery was up above $101 per barrel in electronic trading on the New York Mercantile Exchange. Its London-based Brent counterpart fell slightly, but still remained above $109 per barrel on the ICE Futures exchange.

Saudi Arabia, the world’s largest oil producer, has been producing about 10 million barrels per day, leaving it with over 2 million barrels per day in spare capacity.

The oil rich kingdom is widely seen as the only producer able to offset production losses elsewhere. But others would have to also boost their output to accommodate a loss of exports from Iran, which is the world’s fourth largest oil producer.

Gulf Arab oil ministers, who met in Cairo on Dec. 24, declined to comment on whether they were eying alternative routes for oil in the case that Iran closes off the Strait of Hormuz. The ministers had gathered for a meeting of the Organization of Arab Petroleum Exporting Countries.

OPEC, of which both Iran and Saudi Arabia are members, agreed on Dec. 14 to set its output ceiling at about 30 million barrels per day - in line with the bloc’s current production. In the OAPEC meeting in Cairo days later, the ministers appeared comfortable with that level and said future moves would be determined based on demand and supply fundamentals in the market.

Sanctions targeting Iranian oil would hit Europe and Asia markets hardest. Crude from the country does not go to the United States because of existing sanctions.

The West maintains that Iran is pursuing nuclear weapons, a charge the country denies. Iran says its nuclear program is purely for peaceful purposes, such as generating electricity.