In what is likely a long overdue move, Iran has finally decided to give Europe a harsh lesson in game theory. Instead of letting Euro-area politicians score brownie points at its expense by threatening to halt imports and cut off the Iranian economy, the Iranian government will instead propose a bill calling for an immediate halt to oil deliveries to Europe. The move, with most reports citing the Iranian news agency Mehr, has come about in response to the EU agreement to impose sanctions against Iran, which were announced earlier this week. And why not? After all if Europe is indeed serious, sooner or later Iran will be cut off but in the meantime experience significant policy uncertainty, which is precisely what the flipflops on the ground need. The one thing that Europe, however is forgetting, is that all that whopping 0.8 Mb/d in imports will simply find a new buyer.Quickly.
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So with China, India and Russia already having bilateral agreements with Iran in place, we are confident that said buyer will have a contract signed, sealed and delivered within an hour of the proposed bill's passage. Furthermore, as SocGen speculated [14], the fact that Europe will be even more bottlenecked in its crude supplies (good luck Saudi Arabia with that imaginary excess capacity), and which just may force the IEA to release some more of that strategic petroleum reserve (and thus give JPM some more free money on the replenishment arbitrage) will send Brent to $125-150 - something which Iran will be delighted by. That is of course unless some "experts" discover that Iran may or may not have a complete arsenal of shark with fricking nuclear warheads attached to their heads (despite what Paneta has already said) which gives the US the green light for a full blown incursion, which in turn will send oil over $200, and the world economy into a global coordinated re-depression.
From Spiegel [15]:
"If this bill is passed, the government will be forced to stop selling oil to Europe before the actual implementation of their sanctions," said Emad Hosseini, spokesman for the Iranian parliament's energy commission, reportedly said. The bill is set to become law on Sunday.
The EU sanctions allow for oil deliveries from Iran until July 1. Any pre-empting of this timescale by Tehran could prove problematic for countries like Italy, Greece and Spain, who would need to urgently find new suppliers.
China, meanwhile, a major importer of Iranian oil, has also criticized the EU sanctions. The Xinhua news agency quoted the Chinese Foreign Ministry on Thursday as saying: "To blindly pressure and impose sanctions on Iran are not constructive approaches."
Many members of the EU are now heavily dependent on Iranian oil. Some 500,000 barrels arrive in Europe every day from Iran, with southern European countries consuming most of it. Greece is the most exposed, receiving a third of all its oil imports from Iran, but Italy too depends on Iran for 13 percent of its oil needs. If this source were to dry up abruptly, the economic conditions in the two struggling countries could become even worse.
Already on Wednesday, the International Monetary Fund (IMF) warned of the economic consequences of the EU's planned embargo. Stopping deliveries from the world's fifth largest producer could drive up the price of oil by 20 to 30 percent.
Perhaps instead of doing its best at crippling the world energy markets, and crushing the global economy, Europe should stick to bailing itself out, and other activities in which it has extensive experience.