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Iran feels pinch of new EU oil sanctions

By Ryan Lucas

Associated Press

Published: Sunday, July 1 2012 12:20 p.m. MDT

FILE - In this Saturday, Nov. 17, 2007 file photo, Iranian workers make repairs to a unit at Tehran's oil refinery. Iran has stored up imported goods and hard currency for a "battle" against EU sanctions targeting the country's vital oil sector that went into effect Sunday, officials said. They acknowledged though that the measures, which aim at pressuring the Islamic Republic over its nuclear program, may cause economic disruptions.

Vahid Salemi, File, Associated Press

TEHRAN, Iran — As new European Union sanctions targeting Iran's vital oil industry took effect Sunday, Tehran acknowledged the measures aimed at reining in its disputed nuclear program were taking a toll. The vice president said authorities had stockpiled imported goods and hard currency to help cushion the blow to the economy.

The ban by the 27-member EU on the purchase of Iranian oil dealt the Islamic Republic its second economic setback in days, following fresh U.S. sanctions that prohibit the world's banks from completing oil transactions with Iranian banks. Combined, the measures significantly ratchet up the pressure on an Iranian economy already squeezed by previous rounds of sanctions.

"Today, we are facing the heaviest of sanctions and we ask people to help officials in this battle," Vice President Mohammad Reza Rahimi was quoted as saying on state television's website.

He said the "dastardly sanctions" might cause "occasional confusion" in the domestic market. Iran reacted furiously when the U.S. and EU sanctions were announced, threatening to block the strategic Strait of Hormuz, a vital waterway used to ship about one-fifth of the world's oil. The threat roiled international oil markets.

Rahimi also said Tehran has stocked up on some imported goods to reduce the embargo's impact, without saying what specifically.

The EU, which accounted for around 18 percent of Iran's oil exports, said earlier this week that all contracts for importing Iranian oil will have to be terminated from Sunday. Also, European companies will no longer be involved in insuring Iranian oil.

Iran is the second largest OPEC oil producer, producing about 4 million barrels of oil a day. The country's recoverable oil reserves are estimated at more than 137 billion barrels, or 12 percent of the world's overall reserves. The country relies on oil exports for about 80 percent of its public revenues. However, most of Iran's crude production is used domestically.

The sanctions are the latest move in the West's standoff with Iran over its disputed nuclear program, which the U.S. and its allies suspect is aimed at developing atomic weapons. Iran denies the charges and insists its program is designed solely for peaceful purposes, such as energy and producing medical isotopes.

Three rounds of nuclear talks between Iran and world powers, including the U.S., have failed to produce a breakthrough, prompting some critics to charge that Tehran is merely dragging out the negotiations to buy time to further advance its suspected weapons program. The U.S. and Israel have left the door open to a possible military strike if no agreement is reached.

In the meantime, Washington and its allies have used sanctions to target Iran's oil sector — the nation's primary revenue source — and there are already indications that previous rounds of sanctions have started to bite.

Last week, U.S. Secretary of State Hillary Rodham Clinton said Iranian crude exports have dropped to 1.5 million barrels a day from 2.5 million barrels last year, which comes out to almost $32 billion in revenue lost over a year.

The Iranian rial has slumped against international currencies, with the unofficial rate spiking at around 21,000 to the dollar this week, up from around 19,000. That's down from a high of around 23,000 in January, but still far above the rate of around 11,000 about 18 months ago.

The price of staples has skyrocketed as well. Since the EU first announced its embargo in January, Iranian government figures show the prices of bread, milk and meat have risen around 20 percent, while the price of chicken has jumped some 80 percent.

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