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June 28, 2012
European Union sanctions on Iran’s oil industry go into full effect on Sunday, adding to the pressure on Iranian leaders to negotiate a settlement of the international concerns about their nuclear program.
The world runs on oil, much of it transported on ships from countries in the Middle East, including Iran. But the European Union has all but stopped its imports from Iran, and the flow will stop completely by Sunday.
The move was expected to be costly, resulting in an increase in the price of oil. Instead, the price has dropped by 20 percent since April.
"What has happened is that Libyan production is coming back, Saudi production has been increased, Nigerian production went up and Iraq has also increased output. And the net increase has been half a million barrels a day," said Leo Drollas of London’s Center for Global Energy Studies.
No need for Iran's oil
Drollas says the world has so much oil that it doesn’t need Iran’s output. And Iran’s rival Saudi Arabia appears eager to keep it that way.
That is bad news for Iran, where international sanctions have caused a 20 percent inflation rate, with food prices rising more than twice that fast.
Now, the situation will only get worse, according to Iran expert Mark Fitzpatrick at London’s International Institute for Strategic Studies.
"More sanctions will be imposed on the Iranian economy, not just the ones that have already been agreed, that fall due on July 1st, but more on top of that. It won’t be a pleasant place to live, in Iran, in the months to come," he said.
Fitzpatrick believes the sanctions will get worse because negotiations to curb Iran’s nuclear fuel enrichment program appear to be in trouble. Recent talks in Moscow produced no move toward compromise. Iran says its program is for peaceful uses but foreign experts say it could easily lead to the production of a nuclear bomb.
Resilient economy
Still, Fitzpatrick says Iran’s economy is strong enough to withstand the pressure of sanctions at least for a little longer.
"It won’t fall to its knees immediately," he said. "But the pressure on the Iranian consumers, is only going to get worse. And what for? What is the purpose of all this pain? So that Iran can have an enrichment program to produce a nuclear weapon in the future, that if they ever took that step the United States will go to war against Iran? It doesn’t make any sense.”
Fitzpatrick does not expect military action as long as negotiations continue. But later this year, if talks fail, he says Israel could attack Iran’s nuclear facilities, and that could trigger a wider war.
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