Paris:
European countries have taken their boldest step so far in the increasingly tense standoff with Iran over its nuclear program, agreeing in principle to impose an embargo on Iranian oil, French and European diplomats said on Wednesday.
A final decision by the European Union will not come before the end of January and would be carried out in stages to avoid major disruptions in global oil supplies. But the move by some of Iran's most important oil customers appears to underscore the resolve of Western allies to impose on Iran the toughest round of sanctions to date, increasing pressure on Tehran to stop enriching uranium and negotiate an end to what Western leaders argue is an accelerating program to build a nuclear bomb.
Iran denies any military intent and refuses to stop enrichment of uranium for what it describes as civilian purposes. But it has responded to the threat of new American and European sanctions with a series of military and diplomatic threats. It has test-fired new missiles, announced the production of its first nuclear-fuel rod, warned an American aircraft carrier not to return to the Persian Gulf, and threatened to shut the Strait of Hormuz to shipping, which analysts said could drive oil prices up by at least 50 percent.
Iran has also said that it wants to reopen talks with the West on the nuclear issue, which was interpreted in Paris as an effort by Iran to buy time to continue its program.
The threats from Iran, aimed both at the West and at Israel, combined with a recent assessment by the International Atomic Energy Agency that Iran's nuclear program has a military objective, is becoming an important issue in the American presidential campaign. Republican presidential candidates are urging stronger measures against Iran, including some who are pushing for the use of military force, to stop the Islamic government from getting nuclear weaponry and to better protect Israel.
Israel has warned that time is running out to stop Iran from developing a nuclear weapon, given that Tehran has been moving its enrichment facilities deep into mountains, making it harder to attack them militarily. Israel has called on the United States and the West to make sanctions more punishing to persuade Iran to negotiate seriously and to make the development of a nuclear weapon more costly for an economy already suffering from an array of financial and trade sanctions.
In Washington, the Obama administration welcomed the reports that the European Union was moving toward an oil embargo in Iran as "very good news and the result of lots of consultations among us, between the U.S. and E.U. countries," said the State Department spokeswoman, Victoria Nuland. Such action "is consistent with tightening the noose on Iran economically," she said. "We think that the place to get Iran's attention is with regard to its oil sector."
Last weekend, President Obama signed legislation aimed at imposing sanctions on foreign companies that do business with Iran, which could reduce Iran's ability to sell its oil and other exports. Iran's first vice president, Mohammad-Reza Rahimi, then declared that if sanctions were imposed on Iranian oil exports, Iran would block shipping through the Strait of Hormuz.
While American officials discounted the threat as self-defeating for Iran, at the same time they said they had plans to keep the strait open.
Iran has its own domestic politics, with parliamentary elections in March, and the government wants to show that it will protect Iran's interests, both economic and military.
The increasingly shrill tone from Iran seemed a direct response, diplomats suggested, to economic sanctions that are finally biting hard and threaten to damage Iran's ability to export oil. Oil represents about 60 per cent of Iran's economy, and oil exports are a vital source of foreign currency. In 2010, European countries bought about 18 per cent of Iranian oil exports, with most of the rest going to Asia. So a European oil embargo would have a limited but significant effect on Iran, which depends heavily on its oil exports for cash to buy needed imports.
In 2010, oil from Iran accounted for some 5.8 per cent of total European imports of crude, with Spain, Italy and Greece the most reliant. The new Italian Prime Minister, Mario Monti, said this week that Italy would support an oil embargo as long as it was applied gradually and deliveries to repay Tehran's debts to the Italian energy company ENI were exempted.
Turkey, not a member of the European Union, is another important customer, getting about 30 percent of its oil imports from Iran. It has asked the United States for a waiver on dealing with Iran's Central Bank so it can continue to buy at least some Iranian oil.
The United States and France have been pushing hard for an embargo and sanctions against Iran's Central Bank. But some European nations depend heavily on Iranian oil and have been reluctant to cut off their imports during a severe economic slump.
At the end of December, lower-ranking diplomats agreed in Brussels to the shape of a European oil embargo on Iran, vowing to meet objections by some states that have significant oil imports from Iran, including Italy, Spain and Greece.
Those countries also expressed concerns about the impact on their already fragile economies of the increase in oil prices that would inevitably follow a sudden embargo. Wednesday's news caused a spike in the price of oil, with Brent crude reaching nearly $114 a barrel, up nearly $2 from Tuesday.
European Union diplomats said Wednesday evening that while objections to an embargo had been overcome, there had been no formal agreement yet.
The compromise was to draw up phased sanctions that would not immediately break pre-existing contracts, the diplomats said. Italy, for instance, has already paid for a significant amount of Iranian oil in advance, one senior French diplomat said. "If they stopped importing right now they would lose a lot of money," the diplomat said.
The phased approach would also give international oil markets time to adjust to fill the supply gap created by a ban on Iranian oil, the diplomat said. Talks among European envoys will continue and focus partly on what contracts should be exempted from the ban and for how long.
"Now modalities and timing still need to be decided," said another European diplomat, speaking on condition of anonymity as negotiations were under way. "There's still a lot of work to be done," that diplomat said.
In addition, European nations must resolve differences over sanctions on the financial sector in Iran, including transactions with the Central Bank, and here there was little agreement, diplomats said.
Alain Juppé, the French foreign minister, said Wednesday evening in Portugal that a decision on an oil embargo could take place at a European Union summit meeting on Jan. 30, although putting one into place would take longer.
"It's at this occasion I hope that we can adopt this embargo on Iranian oil exports," Mr. Juppé said at a news conference in Lisbon. "We are working on this and things are on track."
He said that "we have to reassure some of our European partners who purchase Iranian oil, we have to provide them with alternative solutions." But alternatives exist, he said, without going into specifics, "and I think we can attain the objective by the end of January."
In Tehran, the governor of Iran's Central Bank, Mahmoud Bahmani, acknowledged Wednesday that the "psychological effects" of new United States financial sanctions were partly responsible for the devaluation of Iran's currency, the rial, which rebounded some from record lows on Tuesday. Mr. Bahmani said Iran might raise interest rates to stabilize the market.
In comments published Wednesday, Mr. Bahmani said that Iran could handle sanctions itself. "I say this with great certainty that sanctions don't create problems for the country's economy," he said. "While knowing this, the enemy is depending on creating psychological tensions. If we are intimidated, we will be playing into the enemy's hands."