But the market’s reaction illustrates the risks involved in the US and European decision to strain Iran's economy with an oil embargo over its current nuclear program, analysts say. Iran stands to lose less at this juncture because there are others willing to buy its oil and it can still deliver a big punch through oil prices.
Iran is demanding that EU countries relinquish the contractual right to stop payments in case of "cause major" like a war, asking for additional payment guarantees, and eliminating short-term oil supply contracts, Spanish Foreign Minister José Manuel García Margallo said in audio statement released Thursday by the ministry. He didn’t offer details.
Spain said that it has already secured alternative supplies, mainly from Saudi Arabia and Iraq, echoing similar calls for calm throughout Europe.
“If they were to cut it off earlier, we would accommodate quicker, that's what we'd do,” EU Trade Commissioner Karel De Gucht said Wednesday in Hong Kong after a trip to Beijing.
The market will adjust
Furthermore, from a technical point of view, in the unlikely event Iran actually decided to cut supplies unilaterally, it would take it as much as two months to implement – and even then, only if it had alternative buyers lined up.
Timing is critical, Mr. Tchilinguirian says. "In effect you have a window of one or even two months before it would hit oil supplies.”
EU Energy Commissioner Günther Oettinger said in Brussels officials are considering alternatives to allow Greece to secure oil supplies at market rates.
The EU has been gradually cutting back on Iranian supplies for some time, but it still bought a quarter of Iran’s exports of 2.5 million barrels per day between January and October 2011, according to the International Energy Agency. Spain, Italy, and Greece account for three-quarters of that.
Meanwhile, Asian economies have been buying more. China buys 22 percent of Iran’s exports, India 12 percent, and most of the remainder is exported to Turkey, Japan, and South Korea, close EU and US allies.
'We can mess with you'
EU officials have said the embargo, while economically painful, is necessary to pressure Iran into foregoing nuclear enrichment. But not all agree.
“This embargo was introduced without any thought to the consequences. [EU leaders] clearly didn’t bother to talk to energy experts about this,” says Paul Stevens, senior research fellow in energy at London-based Chatham House and an expert on oil markets. The commission should explain “who came up this … idea because it was a very stupid decision.”
“If Iranians decide to do this, Europe would cope with a lot of difficulty. We won’t know until it happens,” Dr. Stevens says.
And he is not sure it is a toothless threat. “I’d be surprised if this is a bluff," he says. "They could easily sell the oil to China instead. And it makes sense that they would [unilaterally cut supplies to Europe] because it would push prices up. They are saying ‘You wanna mess with us, we can mess with you and probably do more damage.’ ”