Between Syria and Iran: Concessions and Contradictions in Brussels

The European Union (EU) is finding itself in a practical dilemma, unwaveringly targeting the Syrian oil industry with its sanctions but hesitant to target the Iranian oil industry due to the precarious balance currently in place

Following Syria’s induction into the “rogue state” club by Western powers, the EU’s recent decision to intensify economic sanctions against both Syria and Iran comes as no surprise. After all, this tactic allows the EU to isolate and pressure regimes deemed by the organization to be uncooperative (and perhaps unwanted) without the need to resort to controversial military campaigns rarely favored by the organization. The oil factor plays majorly into the political standoff between the EU and the two defiant regimes, as the nature of the sanctions imposed on both countries reveals discrepancies, not entirely consistent with the political narrative.

EU’s sanctions against Syria, prompted by reported human rights violations in the Syrian regime’s handling of popular protests that have erupted in the country over recent months, have been intensified by a new round last month, which adds 12 people and 11 entities to the list of those targeted. The list now includes major state-owned corporations such as Cham Holdings and the state-owned General Petroleum Corporation, as well as prominent figures within the ruling regime including the Syrian President Bashar al-Assad himself.

Syria was also banned from acquiring loans from the European Investment Bank. These steps were accompanied by a parallel increase of sanctions over Iran due to its alleged nuclear weapons program as well as a spike in EU-Iran tensions following the British embassy in Tehran debacle. A total of 39 people and 141 entities were added to an already sizeable list of Iranian officials and banks, as well as corporations with ties to the Revolutionary Guard Corps. The key difference between both packages of sanctions is simply OIL. 

The most remarkable measure in the new round of sanctions against Al-Assad’s regime is then imposition of a complete ban on buying, importing, or transporting Syrian crude oil. No such action was deemed necessary against Iran. While the Iranian energy sector is hampered by a ban on exports of natural gas refinement technology to Iran, while the oil industry remains virtually untouched by the EU in terms of sanctions. An oil embargo against Iran is certainly not out of the question, and was in fact an idea put forth by EU leaders as a possible future method of punishing Iran for non-compliance with EU demands, but the European Council has so far been noticeably hesitant in acting on these threats, unlike the case of Syria.

The oil embargo against Syria, a country that relies on crude oil exports for approximately 25% of its national revenue, has left Al-Assad’s regime scrambling for buyers for the economically vital industry. Approximately 95% of Syria’s oil exports formerly went to the EU, and even alternate buyers, such as India, are finding it difficult to deal with Syria due to the inclusion of transportation of oil in the EU-decreed restrictions. The sanctions have forced global oil corporations, such as Total, Royal Dutch Shell, Suncor Energy and Gulfsands Petroleum to cease operations in the country, effectively cornering the Syrian oil industry. 

The importance of EU-bound crude imports to the Syrian economy means that the Syrian oil embargo is likely to prove instrumental in isolating the Syrian regime. The Iranian regime, on the other hand, remains free to trade in oil with EU members, and thus uses the resource to maintain its economic legitimacy despite the fact that crude exports are even more vital to the country’s economy than in the case of Syria. Crude oil exports constitute roughly 50% of Iranian budget revenues, which marks the industry as the beating heart of the Iranian economy. The EU is Iran’s biggest trade partner, with 90% of EU imports from Iran being energy-related, and this relationship continues despite the EU’s political stance regarding Iran, which is arguably even more severe than its position on Syria.

The EU’s recent differences with Syria are centered on matters of principle and world view (primarily the sanctity of human rights), and while these issues resonate with European public opinion and are thus important in preserving public legitimacy for EU regimes, they cannot be equated with the EU’s differences with Iran, which primarily concern matters of regional and global security. In light of these observations, the EU’s decision to enforce a ban on Syrian but not Iranian oil stands out as somewhat of an anomaly.

A closer look at both countries’ standing in the global oil game reveals a significant gulf and helps partly explain the EU’s continued hesitation in imposing an embargo on Iranian oil. In recent years, Syria has been producing an estimated 400,000 barrels of oil per day (a figure which has fallen significantly post-sanctions, one estimate placing it at 250,000), which amounts to less than 1% of global oil production. Syria’s proven oil reserves lie at approximately 2.5 billion barrels, which leaves it outside of the top 30 oil-rich nations.

While the overwhelming majority of Syrian oil exports went to the EU (before the sanctions were initiated), the country’s overall production capabilities were not substantial enough to dissuade the EU from imposing an embargo.

Iran is a different story. Home to proven oil reserves estimated to be 137 billion barrels, Iran ranks 4th globally in terms of oil wealth, and produces roughly 4 billion barrels of oil per day, estimated to be 5% of total global production. While a number of oil giants, such as Total and Royal Dutch Shell, has been dissuaded from dealing with Iran due to US pressure (the US itself has imposed harsh economic sanctions on Iran’s oil sector), Iran still exports a healthy amount of oil to global markets in general and the EU in particular; Spain for example, an EU member, imports roughly 15% of its oil from Iran.

Iran is an important source of crude for the EU, but the effects of a complete cessation of oil imports from Iran by the EU would be more than simply the loss of an exporter for member states. The previously discussed centrality of Iran in global oil markets, coupled with the globalized, integrated nature of modern economics and in particular energy markets, means that the impact of an embargo on Iran could end up being felt in Europe more than in Tehran.

Iran’s substantial contribution to global oil production makes it an integral component in the balance of modern oil trade. The elimination of the significant EU market from Iran’s list of buyers would undoubtedly drive oil prices up due to the cut in supply. Saudi Arabia is the only country with spare production capability, which may be able to cover a large portion of Iranian supply if banned, but political as well as economic difficulties may arise in such a scenario. Even then, Iranian exports would not be fully compensated for, and a spike in prices would ensue for a resource essential to keeping national economies operational. This would entail severe consequences at a time in which most national economies (not least those of EU members) are ill-prepared to deal with them.

The damage done to Iran, surely the objective of any future sanctions, may pale in comparison. The statement that the EU is Iran’s largest trade partner is somewhat deceptive in this context, as oil exports in particular have gradually shifted away from the EU towards Asia in the past years. In 1995, 47% of Iranian oil exports were sold to EU members; a number that shrunk to 25% by 2009, with China has become Iran’s biggest oil buyer. While an EU oil embargo on Iran would damage the country’s economy, the presence of alternate buyers, along with Tehran’s significant experience in navigating sanctions and systematizing their adaptation to them will provide substantial insulation from potential disaster. Oil may be more vital to Iran than to Syria, but the defense mechanisms of the Iranian leadership in the face of an embargo by far trump those of Syria.

Another factor perhaps taken into consideration in European corridors of power is the Strait of Hormuz, the world’s most important oil shipping lane, which runs through Iran. Following recent tensions between Iran and the US due to the Iranian authorities’ recovery of a downed US spy drone flying in Iranian airspace, Tehran threatened to use its navy to shut down the Strait, which resulted in a briefly raise of oil prices. The probability of such Iranian action is slim to none, particularly when the embargo’s effect would be less-than-disastrous as stated. If an EU oil embargo manages to exceed expectations in terms of the damage done to Iran, however, the possibility of such an act of desperation to raise oil prices will most likely not be discounted by EU leadership in the face of a regime seen by some to be capable of irrational behavior.

Perhaps the EU’s biggest fears of a ban on Iranian oil have less to do with the dynamics of Iran and its oil exports and more to do with the dynamics of the EU itself. The hesitation to ban Iranian oil is born of the fact that the readiness to do so is vastly and clearly unequal among EU members. Countries such as the UK and Germany clearly lean towards implementation, while others such as Spain, Italy and particularly Greece rely heavily on Iranian oil imports and are thus unenthusiastic towards the idea.

The EU statements confirm this division, with French Foreign Minister Alain Juppe conceding that this issue must be taken into account and compensation for the cuts must be ensured. The sovereign debt crisis currently rattling the EU has caused significant polarization within the EU, as member states blame each other for the crisis and constantly disagree on how to solve it. Euro-skepticism is on the rise and some are predicting breakaways or even a complete breakup of the Eurozone or the entire Union, and the fact that the members most dependent on Iranian oil are some of those suffering most severely from the debt crisis certainly does not help.

An oil embargo against Iran may initially seem appealing to those with the EU’s strategic interests in mind, particularly after it was applied so decisively against Syria. However, the situation is starkly different in the case of Iran. The political gains of the Syria embargo most likely outweigh the economic loss to the EU. An embargo against Iran certainly remains a possibility and may well end up being implemented after inter-member coordination, but costs both economic and political will potentially surpass any gains to be made. The core EU members are looking down the gun barrel at Iran, but if they ever pull the trigger they may end up shooting themselves in the foot.

By Ahmed Maaty


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