By Parisa Hafezi – Thu Jan 12, 12:26 pm ET
TEHRAN (Reuters) – U.S. allies in Asia and Europe voiced support on Thursday for Washington's drive to cut Iran's oil exports, though fear of self-inflicted economic pain is curbing enthusiasm for an embargo that a defiant Iran says will not halt its nuclear program.
As a newspaper close to the clerical establishment called for retaliatory assassinations of Israeli officials after the latest mystery killing of an Iranian nuclear scientist, a former U.N. inspector said a new, almost bomb-proof plant could provide Iran enough enriched uranium for an atom bomb in just a year.
Such timetables, while Iran denies all Western charges that it even wants nuclear weapons, have added to speculation that Israel and the United States could resort to a military adventure against the Islamic Republic - something an aide to Russian leader Vladimir Putin said was growing more likely.
Threats of disruption to the Gulf oil trade, from war or simply blockades, have kept crude prices firm. Benchmark Brent crude was up 1.5 percent at nearly $114 per barrel.
A day after a motorcycle hitman blew up a 32-year-old engineer during the Tehran rush hour, many Iranians directed anger over the violence, and over painful economic sanctions, at the Western powers, which have hoped to turn popular sentiment against an increasingly divided ruling elite.
"We should retaliate against Israel for the martyring of our young scientist," wrote Hossein Shariatmadari, the editor-in-chief of the Kayhan newspaper, who was appointed by the country's Supreme Leader Ayatollah Ali Khamenei.
"These corrupted people are easily identifiable and readily within our reach ... Assassinations of the Zionist regime's military men and officials are very easy.."
While declining comment on allegations it carried out the bombing on Wednesday, Israel has a history of such actions and will be on the alert for possible attacks against it.
Kremlin Security Council head Nikolai Patrushev, close to Putin, was quoted blaming Israel, which says an Iranian bomb would threaten its existence, for pushing for war: "There is a likelihood of military escalation of the conflict, towards which Israel is pushing the Americans," he told Interfax.
Former U.N. nuclear inspection chief Olli Heinonen said this week's announced start of uranium enrichment at a bunker complex could provide Iran with the ability to have enough such material for one nuclear bomb early next year - though it was not clear it would yet have the ability to build one.
Since President Barack Obama signed laws on New Year's Eve that, by denying buyers access to U.S. dollars, aim to cripple Iran's oil sales until it gives ground on the nuclear issue, major importers have been taking positions, torn between keeping in with Washington and quenching their thirst for Iranian oil.
On Thursday, Japan, whose economy is already deep in the doldrums after cuts in its nuclear power supply following last year's tsunami, pledged to take concrete action to cut its oil imports from Iran in response to an appeal for support from visiting U.S. Treasury Secretary Timothy Geithner.
However, Tokyo's support was not without reservations.
Finance Minister Jun Azumi said Japan buys 10 percent of its oil from Iran. "We would like to take action concretely to further reduce in a planned manner," he said. But he added: "It would cause immense damage if they were cut to zero."
Chief Cabinet Secretary Osamu Fujimura, the government's top spokesman, later tried to soften Azumi's pledge to reduce Iranian oil imports, saying it was just one of many options under consideration. And Prime Minister Yoshihiko Noda voiced concern to Geithner about the potential impact of the U.S. sanctions on Japan and the world economy.
The U.S. Treasury chief welcomed Tokyo's cooperation, an encouraging sign for U.S. foreign policy after China rebuffed his arguments for sanctions earlier on his Asian tour.
One issue affecting Asian governments' willingness to follow the U.S. lead is the availability of alternatives to Iran, the second biggest exporter in OPEC after Saudi Arabia. While ready to help, it is not clear how far U.S. ally Riyadh can increase its own output and exports to make up for spurned Iranian crude.
Japan has already sought extra supplies from Saudi Arabia and the United Arab Emirates. China's Premier Wen Jiabao will visit Saudi Arabia, the UAE and Qatar in a trip beginning this weekend. The prime minister of South Korea, another major buyer of Iranian crude, is due to visit the UAE and Oman from Friday.
Korean minister Hong Suk-woo told Reuters "it was too early to say" if Seoul would reduce oil imports from Iran. "Our basic stance is to cooperate with the U.S.," Hong said.
China, the biggest buyer of Iranian crude, gave no hint on Wednesday of giving ground to U.S. demands to curb Tehran's oil revenues.
U.S. officials sounded more optimistic, saying they will focus more on China's actions than on its public statements.
However, China has reduced crude purchases from Iran for January and February in a dispute over contract pricing terms.
India faces pressure to cut crude purchases from Iran, but policymakers and industry officials have sent mixed messages on future plans with one unnamed cabinet minister on Thursday saying the country would continue to do business with Tehran.
The European Union is more sympathetic to U.S. pressure on Iran. EU foreign ministers are expected to agree on a ban on imports of Iranian crude oil on January 23.
However, even Europe, whose governments largely share the concern of Israel and Washington over Iran's nuclear ambitions, is looking for ways to limit the pain of an embargo.
"We expect a slow and gradual implementation of what will eventually become a full embargo," said Mike Wittner from Societe Generale. "Europe has the same concerns about its fragile economy and an oil price spike as the U.S., probably even more."
Firms in Iran's three biggest EU oil customers, Italy, Spain and Greece, all suffering acute economic discomfort, have lately extended existing purchase deals in the hope to at least delay the impact of any embargo for months, traders told Reuters.
EU diplomats said a consensus was emerging to grant a grace period before banning new deals with Iran - six months for crude oil purchases and three for petrochemicals. Moreover, companies would be able to go on accepting Iranian oil in payment for outstanding debts - something especially helpful to Italy.
Diplomats and traders say the grace period would give European companies time to find alternative sources of crude, but the process would be far from smooth.
"Some (EU members) are saying: 'help us find alternative suppliers and find a way to sustain the discounts we currently have'," one diplomatic source said.
The problem of replacement supplies to Europe could be partially solved with the help of Saudi Arabia. European diplomats have spoken to the kingdom's leadership who have signaled readiness to fill a supply gap, although concerns mount about the producer's spare capacity nearing its limit.
But there is no reason why Riyadh would agree to supply crude at a discount to a buyer like Greece, traders said. Many in the oil market have already pulled the plug on supplies for fear that Athens might default on its debt.
Greek officials have said their country imports up to 40 percent of its oil from Iran and wants to continue the flow without disruption and on the same funding terms.
The EU is also planning new sanctions on Iran's financial sector but states have been divided over whether to include Iran's central bank in these sanctions. Diplomats said France and Britain backed this but Germany opposed the idea - though a German diplomat denied that was the case.
(Additional reporting by Robin Pomeroy, Ramin Mostafavi and Mitra Amiri in Tehran, Stanley White and Tetsushi Kajimoto in Tokyo, Ralph Gowling in London, Fredrik Dahl in Vienna, Gleb Bryansky in Moscow and David Brunnstrom and Julien Toyer in Brussels; Writing by Alastair Macdonald)
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