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EU Ban on Iranian Oil: Silly Idea

Posted by alanmirs on November 27, 2011


A useful rule of thumb is that when the European Union gears up to do something economically stupid then there’s a Frenchman behind the idea. Despite having produced one of the world’s great economists, Frederic Bastiat, there’s something about the country that seems to inspire various silly ideas. So it is with this idea that the EU should place sanctions on, ban, the import of Iranian oil:

European Union officials will weigh next week a French-led effort to ban Iranian oil imports in what would mark an unprecedented step against the world’s third-largest oil exporter over its alleged nuclear-bomb program.

EU foreign ministers will meet Thursday to try to hash out a political consensus on the measure. Teams in Brussels are already meeting to study implementation issues, diplomats said.

“There is a real intent to do this and this is a sector where the Iranians would really be hurt,” said one Brussels official.

Well, no, not really, this won’t hurt the Iranians at all. There will be a little bit of reshuffling of orders to tanker captains and it’s reasonable to assume that the effort expended by Europe to make sure no Iranian oil comes in will be greater than that expended by the Iranians in sending it elsewhere.

This is partly because Iran doesn’t in fact send all that much to Europe anyway:

“The National Iranian Oil Company (NIOC) does not export any crude oil to France to get subjected to sanctions,” head of NIOC Ahmad Qalebani told Mehr.

France imported 20,000 barrels per day of Iranian crude in the first half of 2011, according to United States government data. European Union countries accounted for 18 percent of Iranian crude oil sales in that period, the US Energy Information Administration (EIA) also said.

There aren’t any Iranian pipelines to Europe in fact, as yet, there aren’t any major export pipelines to anywhere. Iranian exports are made by crude carrier and the Iranians run their own fleet of VLCCs. The numbers are (without aiming at any great accuracy) that Iranian exports are some 2-3 million barrels a day and as above, Europe takes a little under 20% of that. VLCCs can (depending upon size, of course) carry some 2 million barrels of oil

So Iran have their own tankers, they can tell them where to sail, and the amount that Europe might not buy is equal to their changing the destination of one tanker every three days or so. This really is not the world’s greatest logistical or economic problem.

For, you see, the important thing about crude oil is that it is fungible.

OK, so Europe doesn’t buy Iranian oil, it decides it will buy Saudi instead. Fine, but the people who would have bought that Saudi oil are on the look out for the same amount of oil from somewhere else now and hey, guess what? Iran has a tanker or two with exactly the same amount of oil they used to get from Saudi floating around somewhere on the oceans.

You really don’t have to employ the assembled minds of the oil broking community to work out what happens next. Those who would have bought the Saudi oil end up with Iranian and the Europeans use Saudi instead of Iranian. Everyone gets oil, every exporter exports oil, everybody gets paid and the only real pain is that some poor sailors have to spend a few more days at sea.

Oh, yes, sorry, forgot to mention: the European politicians get to feel smug because they’re “doing something”.

Limited boycotts of fungible products simply do not work: total boycotts of them do (well, until the smugglers spring into action), but not limited ones. The EU banning Iranian oil is political posturing, no more.

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