Newswire: Iran, Sanctions And The Oil Spike — A Nail Biting Start To 2012?

New US Sanctions

Sanctions signed into law by U.S. President Barack Obama on New Year's Eve allows the US to cut off financial institutions worldwide who deal with the Central Bank of Iran ("CBI") from the U.S. financial system. The CBI is the main path for payments for Iranian oil, being the main clearing house through which Iran deals with clients around the world. If implemented fully, this will make it near impossible for many refineries worldwide to pay Iran for crude. Given many payments to and from Iran now require the involvement of the CBI, international trading will be challenged further.

However, the U.S. will not automatically take action against those non U.S. banks doing business with the CBI. The new laws allow President Obama to exempt institutions in a country that has significantly reduced its dealings with Iran. He may also grant waivers deemed to be in the U.S. national security interest or otherwise necessary for energy market stability. This represents a half way house between the U.S. hawks and those in the US State Department who consider the stability of global markets should take precedence over punishing Iran and those who do business with it. We will likely see the U.S. implementing these new sanctions in the following ways:

to physically sanction a very small number of targeted overseas banks who are resident in jurisdictions considered to be neither friendly towards the US nor vital for U.S. interests; to use the sanctions as a stick with which to threaten carefully targeted overseas banks - this will be achieved informally with a subtle message as to what might happen if they do not play ball and cease Iranian business. However, we consider that the majority of these overseas banks have already voluntarily ceased links with Iran; and certain overseas banks in friendly jurisdictions or jurisdictions which are considered vital for the U.S. will be quietly informed not to worry and they will benefit from a presidential waiver. Pending EU Sanctions

French Foreign Minister Alain Juppe said yesterday Paris wants new measures taken by January 30, when EU foreign ministers meet. President Nicolas Sarkozy has proposed the EU freezes CBI assets and an EU wide oil embargo.

Italy, Spain and Greece

An EU ban on oil imports will impact Italy, Spain and Greece, who, between them take exports of circa 450,000 barrels of Iranian oil per day. These European countries are likely in the midst of seeking significant "carrots" from...