Iran has cut oil exports to Spain and may halt sales to Germany and Italy, Iran's English-language state television reported on Tuesday, in an apparent move to strengthen its position ahead of crucial talks with world powers later this week.
But, in an indication that Tehran's "counter-sanctions" were of little impact, Spain's biggest refiner said it had already replaced Iranian crude with Saudi Arabian oil months ago. Iran has played a tit-for-tat game over crude shipments since the European Union decided in January to stop all Iranian oil imports as of July, part of a range of tough new sanctions aimed at forcing Tehran to curb the atomic work that the West suspects is part of a nuclear weapons program. Talks between Tehran and six world powers aimed at easing the nuclear stand-off are set to resume in Istanbul on Saturday, and could pave the way for an easing of sanctions and might lift the threat of Israeli air strikes on Iran. EU states have sought alternative oil supplies ahead of July's deadline, with Iran threatening to cut exports first, something Iran's Press TV said was well under way. "Tehran has cut oil supply to Spain after stopping crude export to Greece as part of its counter-sanctions," Press TV said, citing unidentified sources, adding that a similar move was being considered for Germany and Italy. A spokesman for Spanish refiner Repsol said it had not been buying Iranian oil for months. "No crude out of Iran for us since January," he said. The EU was the second biggest buyer of Iranian oil after China before the embargo, which is a direct strike on the OPEC member's biggest source of export income.
Repsol's Iranian imports were estimated at around 65,000 barrels per day last year, making it one of Tehran's medium-sized European customers. Most European buyers have already reduced or halted their purchases from Iran in anticipation of the July 1 deadline and because of increasing difficulties in paying for the crude after tough new sanctions were imposed on Iranian banks. Earlier on Tuesday, a defiant President Mahmoud Ahmadinejad said Iran could withstand a total embargo on its oil sales for several years. "We must say to them (the West) that we have that much (money) saved that even if we did not sell oil for two to three years, the country would manage easily," the semi-official Fars news agency quoted him as saying.
But western countries hope the sanctions pressure will squeeze concessions from Tehran. British Foreign Office Minister Alistair Burt said the fact that Tehran had agreed the talks should cover its nuclear program - something it sought to avoid last year - was an optimistic start. "In the past, they have been unsuccessful because the Iranian government has not been prepared to talk about its nuclear program. If that is different now, then these talks have a good chance of success," Burt said in a "video blog" recorded for a Foreign Office website aimed at Iranians called "UK for Iranians".
A western diplomat said hopes for Saturday's talks were modest and at best they would lead to a second meeting. "The key objective is to launch a sustained process. We want to make modest steps, if there is a conducive environment for progress, and go for a second meeting," the diplomat said. Iraq's Foreign Ministry website said on its website all parties had agreed to hold a meeting after Istanbul in Baghdad - a location favored by Tehran which has built close ties with the post-Saddam Hussein Shi'ite-led government. The International Energy Agency, the energy adviser to industrialized nations, has said the sanctions against Iran could reduce its oil exports by as much as 1 million barrels per day, or 40 percent, from the middle of the year.
In addition to the European embargo, Iran faces cuts in orders from its biggest customers in Asia after concerted diplomatic pressure from the United States. Analysts say such a large dent in revenues will be painful for the Islamic Republic which is experiencing rising inflation, already well above 20 percent, and a devalued currency. But since the European embargo was announced the price of Brent crude has increased, giving Tehran more flexibility to discount shipments. The US Energy Information Administration (EIA) issued a report on Tuesday that said even without the newest sanctions, Iran's oil production could fall almost 15 percent this year due to reduced foreign investment.