Europe’s Iran sanctions may backfire

In light of Iran’s serious need for foreign capital in its energy sector, the crippling effect of Western sanctions on its oil and gas is bound to have ripple effects in accentuating Europe’s current energy insecurity, reflected in the 27-member EU’s wariness of undue dependence on Russia and its frantic search to diversify sources of gas imports.

It may well be that the implicit assumption behind the new EU sanctions is the comforting assurance that the energy sanctions will not cripple Iran’s ability to export, allowing Europe to continue to benefit. The crux of Europe’s dilemma, however, is that sanctions on Iran will inevitably translate into economic, financial and energy losses for the EU.

By imposing sanctions on Iran’s energy sector while expecting business as usual in the delivery of oil and gas, European politicians are engaging in the self-deluding notion that somehow they can be at the forefront of the sanctions regime on Iran without incurring substantial costs.

Already, Iran has warned that it may switch its energy transactions from the euro to other currencies, above all the dirham of the United Arab Emirates. The mere threat of such a move simply adds to the euro’s weaknesses at a critical time when the eurozone is grappling with multiple difficulties in its currency and financial health.

Not only that, the new EU sanctions, in addition to switching the EU’s so-called two-track diplomacy with Iran almost entirely to one-track coercive diplomacy, target Europe’s own hitherto reliable source of energy, unlike sanctions from the US, which does not directly import oil or gas from Iran. A case in point is the Swiss energy giant EGL, which has signed a US$13 billion 25-year contract with Iran that almost certainly will be hurt by the new Western sanctions on Iran’s energy sector.

http://www.atimes.com/atimes/Middle_East/LG28Ak01.html