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EU Debt Crisis – Iran’s New Bargaining Chip?

EU Debt Crisis – Iran's New Bargaining Chip?

Source: CIA World Factbook

Iran seems to have found a new and valuable angle to outmaneuver the world community’s – predominantly the West – latest attempt to ‘deal’ with Iran’s gradually progressing nuclear weapons program.

The playbook is as follows: If your back is against the wall, it is time to get creative! So, how about targeting the weakest link in the chain holding your opponent together? Due to the fact that we deal with nation states here, it is not surprising that they all pursue diverging national interests and tend to have different priorities. The only worldwide common denominator is probably that longer-term higher oil prices are in nobody’s interest – for various reasons. Now, even the West is not a homogeneous group and this is where the imposition of an EU oil embargo, due to come into effect on July 1, becomes a valuable bargaining chip for Iran trying to create a rift between the United States and the European Union, effectively moving the ‘crisis-solving’ lever back to the European-style ‘crisis-managing’ lever.

According to Iran’s official Islamic Republic News Agency – as reported by the New York Times – a warning was issued to its six largest European buyers on Wednesday that it might cut them off from Iranian oil before July 1. In this context, it is interesting that it would primarily hit Greece, Spain, Portugal, and maybe to a lesser extent Italy, which according to the EIA gets significant supplies from Libya (28% of Libyan oil exports (data until Nov. 2010)) compared to supplies from Iran (10% of Iranian exports (data from 2010)). Each of these countries are in weak fiscal positions, to say the least, and in some cases might be compared to an astronomical financial “black hole”. Most of them cannot afford to reach out to alternative suppliers at likely higher prices. Serious consequences for the aforementioned economies are obvious. However, what might be overlooked is that this could also increase the bailout costs for core European countries like Germany and France. This is also not very helpful in election years and in a slowing near-recession economic environment.

In sum, Iran is now ready to exploit the weakest link within the West and use the EU debt crisis as a bargaining chip for renewed negotiations. In this respect, the New York Times writes that the Islamic Republic News agency paraphrased Dr. Saeed Jalili (head of Iran’s Supreme National Security Council), in a letter to Catherine Ashton (High Representative of the European Union for Foreign Affairs and Security Policy), saying that “returning to the negotiation table would be the best means to broaden cooperation between the two sides.”

Well, we should not be surprised if the parties start talking again. In general, talking to each other is not a bad thing. However, talking does not make any sense if the positions on the nuclear issue are still hardened, with prior talks having resulted in nothing substantial. It only gives time to the party that obviously needs some more time to increase its leverage, while oil prices are likely to increase seemingly justified by geopolitical risk factors.

Thus, if EU officials are willing to talk again, it has more to do with the EU debt crisis than the underlying nuclear issue at hand. The United States, however, should keep the lever in ‘crisis-solving’ mode and not go back to ‘crisis-managing’ mode. The progress in Iran’s nuclear weapons program will not magically disappear, even if you wait long enough.

 

Author

Roman Kilisek

Roman Kilisek is a Global Energy & Natural Resources Analyst.
His research focuses on global energy politics, mining, infrastructure and trade, global political risk and macroeconomics. He is fond of using scenario development and analysis.

He has lived on three continents and traveled to over 40 countries around the world. He now lives and works in New York City.