European Union sanctions on Iran entered into full force yesterday after exemptions on some contracts and insurance ended, adding pressure on crude prices to rise and on the Persian Gulf nation to halt its nuclear-enrichment program.
The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency. It also comes as a strike by Norwegian workers is curbing flows from North Sea fields.
Secretary of State Hillary Clinton said Iran will face increasing pressure from sanctions aimed at its nuclear program. Complementing the European restrictions is a U.S. law enacted Dec. 31 that cuts off international banks from the U.S. financial system if they settle oil trades with Iran. The U.S. rule gave importing nations, including China, India and Japan, until June 28 to demonstrate they had “significantly reduced” their purchases of Iranian oil in order to qualify for exemptions.
“These are the toughest measures the EU has adopted against Iran to date,” U.K. Foreign Secretary William Hague said yesterday in a statement. “It is in the power of the Iranian leadership to end Iran’s current isolation, but unless they change course, the pressure will only increase.”
“Nobody can be totally certain how it’s really going to affect the market,” he said. “There’s probably been huge inventory builds in Iran, and this could pose a bearish effect for next year or the second half of this year if there is a resolution.”