Today Iran announced that it may halt exports to EU next week. The best defense is a good offense - Iran's unexpected action is an attempt to preempt the embarrassing repudiation by Europe, whose sanctions don't fully kick in until July. This move would allow Iran to score politically, despite increased economic difficulties, underscored by Ahmadinejad raising interest on rates of bank deposits to 21% this week. This rate may seem like a fantastic opportunity to make money, but it is merely an attempt to stay ahead of 20% inflation, and was combined with a prohibition to exchange rials for dollars.
A member of the Majlis ("a place of sitting" in Farsi) Energy Committee, Nasser Soudani, said:
“Europe will burn in the fire of Iran’s oil wells,” and sanctions will take their toll on European countries for three reasons. “The first reason is that a number of European countries have no other option besides buying Iran’s oil since the structure of their refineries is compatible with Iran’s oil, and it is difficult for them to replace Iran’s oil. The second reason is that the embargo will cause an increase in oil prices, and the Europeans will be compelled to buy oil at higher prices. The third reason is that the Europeans, due to their need for Iran’s oil, will be compelled to buy Iran’s oil indirectly and through intermediaries, and this will inflict more expenses on them.”Iran's logic for preemptive action is sound: by the time Europeans have come around to impose real sanctions on Iran their position has changed. The EU froze the assets of the Central Bank of Iran on Monday (January 23rd), but existing contracts will be honored until July 1, in large part because Greece has lucrative contracts with Iran an is unable to afford higher prices. This delay gave Iran a chance to find replacement for it's European contracts, however, they are willing to take an economic hit to score a political blow against EU. The language of Soudani, which is typical of Iran, clearly reveals a desire for some kind of revenge.
The threat to "definitely" close the straits of Hormuz, like Iran's earlier threat to do it, is a bluff. The last time Iran mined the straits of Hormuz, US navy fought in it's heaviest engagement since WWII in Operation Praying Mantis in April 1988, giving Iranian navy such a thrashing that it lost the will to fight, and hobbled back to port. Iran knows that if it initiates hostilities it will not only imperil its navy, but open its nuclear facilities to attack as an "integral part" of US response.
|Iranian frigate IS Sahand burning from bow to stern on 18 April 1988|
after being attacked during Operation Praying Mantis.
The previous time Iranians threatened to close off the Strait of Hormuz, and warned US warship not to return, US navy did just that sending two U.S. aircraft carrier battle groups through the strait of Hormuz, accompanied by HMS Argyll and one French ship. Despite the Iran threat U.S. aircraft carrier group went through the strait of Hormuz without incident. British defense ministry spokesman, who was not named per policy, said that the "HMS Argyll and a French vessel joined a U.S. carrier group" went through the strait "to underline the unwavering international commitment to maintaining rights of passage under international law."
"Closing Hormuz is a myth. Iran tried to do that for eight years during the (1980s) Iran-Iraq war, and it wasn't successful even for one hour," said Mustafa Alani, head of Security and Terrorism Studies at the Gulf Research Center. US recognizes Iranian bluster for what it is, so the Joint Chiefs of Staff who said the U.S. could reopen the waterway by force have an elite commando team to handle the more probable attempts by Iran to fight back using asymmetric warfare.
Israeli defense minister, Ehud Barak, tried to renew pressure on the elites gathered at World Economic Forum at Davos: ""We are determined to prevent Iran from turning nuclear. It seems to us to be urgent, because the Iranians are deliberately drifting into what we call an immunity zone where practically no surgical operation could block them."
French oil major Total has stopped buying oil from Iran in line with new EU sanctions introduced on Monday, January 23rd. It's chief executive Christophe de Margerie has explained at World Economic Forum at Davos why he is sceptical of the political decision:
I think [Iran's] oil will go somewhere else... Iran may give a discount to make it easier and quicker but nothing will change.So, while Iran is wisely avoiding overt conflict with US navy, it shows no signs of backing down in the face of EU sanctions. They are too little, too late.