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European sanctions against iran could raise oil prices

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European economic sanctions against Iran could send oil prices higher
10:50 AM EDT May 24

FRANKFURT, Germany (AP) - EU officials are weighing the possibility of sanctions as they try to contain Iran's nuclear ambitions - but any harsh move against Tehran could leave the world paying the price in more expensive oil.

Whether sanctions would force the country to agree to joint U.S.-European demands is uncertain, but - with Iran OPEC's second-largest producer - they would likely cause oil prices, still near $50 US a barrel, to rise again.

"The most severe sanctions that would affect Iran would be sanctions against their oil industry, that is, an international boycott on Iranian oil products," said Gary Sick, a senior research scholar at Columbia University. "That would mean basically taking three million barrels a day off the market which would probably cause the price to spike.

"That would be a factor that the three countries would have to take into consideration," he said, alluding to France, Britain and the United States.

The EU and the United States fear Iran is using its uranium-enrichment program to develop weapons, while Iran claims its nuclear program is for peaceful purposes - to build much-needed nuclear reactors to meet growing energy needs.

British Foreign Secretary Jack Straw expressed hope that talks with Iran on Wednesday in Geneva would make progress. Straw, along with foreign ministers from France and Germany and EU foreign policy chief Javier Solana, are scheduled to hold urgent negotiations with Iran aiming to put the talks back on track.

The 25-member EU is at pains to prevent Iran from developing nuclear weapons, and has offered the carrot of a free trade pact and further economic aid if the nation comes clean on its nuclear intentions.

Iran acquires most of its products from Europe, which is a key export market. As for American goods, it acquires them through Dubai and other points, circumventing U.S. restrictions on legal trade.

Iran suspended uranium-enrichment activities in November while it holds talks with the European countries, but said last week it was considering resuming some uranium reprocessing activities.

The EU then threatened to take Iran to the UN Security Council.

But Sick said sanctions were far from a certainty, given that it would take a vote by the UN Security Council to initiate them.

"They could take it to the Security Council independently - not through the IAEA - just as members of the Security Council," he said of France, England and the United States.

Even then, a vote wouldn't be guaranteed.

"The other two members are Russia and China, both of which have strong reasons for disagreeing with sanctions against Iran," Sick added.

China and Russia are among countries that have expressed opposition to taking Iran to the UN Security Council for alleged violations of the Nuclear Nonproliferation Treaty.

Still, support has been building in the U.S. Congress for new sanctions. More than 200 members of the House of Representatives - nearly half the elected body - are sponsoring a bill that would tighten and codify existing sanctions, bar subsidiaries of U.S. companies from doing business in Iran and cut foreign aid to countries that have businesses investing in Iran.

But the measure is far from becoming law, and more limited version is being considered by the U.S. Senate.

The legislation would put the United States on a more confrontational course than the one pursued by President Bush, who has supported European efforts to offer Iran incentives in exchange for abandoning its nuclear program.

But momentum would likely build if Iran carries out its threat to resume some nuclear activities and its talks with the European Union break down.

Peter Morici, an international business professor at Robert H. Smith School of Business at University of Maryland, said economic sanctions levied by the EU would "impose significant pain on Iran."

But in order for sanctions to be effective, they have to be done in tandem, he said: "EU or U.S. sanctions, alone, have much less effect than the combined force of joint sanctions."

"Sanctions against South Africa worked because the entire West co-operated," Morici noted. "U.S. sanctions against Cuba: Castro goes around U.S. sanctions."

The Canadian Press, 2005

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