What does the EU embargo on Iranian oil mean for the UAE?
Posted on 24 January 2012 with 1 comment from readers
The European Union has agreed an immediate embargo on new oil contracts with Iran while existing contracts will be allowed to run until July, in order to pressure Iran over its nuclear ambitions.
The EU will also freeze assets in Europe of the Central Bank of Iran and eight other entities and ban trade in gold, precious metals, diamonds and petrochemical products from Iran.
It is always uncomfortable writing about Iran when sat in the UAE even from a business perspective. But local business here can hardly ignore what is happening with Iran occupying islands less than 100km offshore.
Military balance
The military balance is not an issue. Six warships from the US, France and USA led by a 100,000 ton aircraft carrier passed through the Strait of Hormuz yesterday without incident.
Iran does not have such a navy and would very quickly lose what little it has if push came to shove. The EU is adamant that what it wants is to get Iran into ‘meaningful’ talks in the words of British foreign secretary William Hague.
What does this long shadow cast over the UAE economy mean? Does it call the UAE’s status as a safe haven from the Arab Spring uprisings into doubt? Will the oil supplies of the world be cut off?
The answer to the last question is the easiest. By this summer the UAE will have its crude oil pipeline bypassing the Strait of Hormuz operational, so the oil will stay flowing. If the tensions boost the oil price that will increase national revenues and quickly pay for the pipeline.
It is also highly unlikely that the UAE would be hit in any military showdown, although accidents can happen. Still if the region became a warzone it would hardly encourage tourism and both Dubai and Abu Dhabi have their hotels to fill. July and August are low season anyhow.
Safe haven?
For the Arab diaspora fleeing the Arab Spring countries the UAE will still be a safe haven. Crime figures show Dubai to be one of the safest cities in the world. Its modern urban infrastructure is also way ahead of any other in the region. Even the recent real estate crash makes accommodation more affordable though an Iranian crisis would hit property investment.
Then again if the Strait of Hormuz became a battle ground the UAE could no longer function as a trading hub. Container ships would not be able to get the insurance to visit its ports. That certainly would be very bad news. But the navies of the US, UK and France are there to keep the Strait open.
So while the UAE’s new oil pipeline to Fujairah is a lifeline for the local economy, if the embargo goes ahead this summer there would be serious consequences for trade and tourism. This approaching EU oil embargo casts a long shadow over 2012 and it is a shame things could not have been resolved more quickly.
Of course this is written only from the UAE perspective. Some 90 per cent of Japan’s oil supplies pass through the Strait of Hormuz, for instance. And the impact of a surge in global oil prices on the fragile global economy can only be imagined, and this is perhaps the biggest risk, not a military showdown.
1 Comment posted by readers:
Iran isn’t in the habit of starting wars. If I were in Tehran, I might be tempted to cry ‘war’, ‘war’ ,’war’ while watching the price of oil go up, up, and up. I would never complete a bomb, and if I did, I sure wouldn’t test it. As their President said, they are obsolete once others have them. You become a target. Not only do you not win a nuclear war, you don’t survive a nuclear war.
I’m sure they noticed the US leaving Iraq. What other country would dare invade Iran? No one with half a brain. There are WAY too many of them. Even retired Pentagon generals have described an invasion of Iran as a ‘bad idea’. And Iran isn’t a tiny little country on the Med that you can drive across in a few minutes. There are enough tunnels and caves in Iran to hide 5 million soldiers. It’s not like the good old days of WW II, when you could plunder the invaded country and steal all their gold, art, jewels, and stuff, like Hitler’s Nazis did. You can’t steal an oil field and take it back to the mother country. And if you violate any of the numerous war rules, you find yourself on YouTube and end up on trial. All these modern wars do is make you broke. They don’t need a bomb for security. Nor do they need one to spread their influence in the region. Maybe they are worried about Pakistan. Aren’t we all. I suspect India will keep them occupied. North Korea has the bomb. Look how great they are doing. I suspect that it is a national prestige thing.
Not to mention what a total cut-off of oil from Iran will soon do to the world economy. There is not a lot of surplus oil production out there anymore. Nigeria is turning into a mess.
So your safe haven is still safe. Geography isn’t going to change. The UAE is in a good spot. No need to start digging yet, like they did next to the White House for a couple of years after 2001. I bet those are some fancy underground digs. Speaking of which, did you know that the main public library in New Orleans has a 2 story underground bomb resistant basement? It was built during the Cold War. The architect who designed it, also did the Louisiana Superdome. He cleverly made the building water proof up to about a foot above sea level, so Katrina didn’t flood it, even though much of the below sea level city went under water when the levees failed. We have a massive underground nuclear bunker near the Lake, miles from the CBD, built in case the Russians nuked us. (Like that would help a lot.) It has its own well, fuel system, radiation filtering, food supply, and such. Everything you need for World War III with those commies threatening capitalist profits. It is currently flooded and abandoned. I went down there when it was still functioning. Spooky. I can remember thinking that if we could force the politicians to live down there for a couple of weeks, we could probably achieve nuclear disarmament. I’m still trying to figure out how they keep the water out of the library basement at -7 meters.
Natural gas is so cheap over here in the USA right now, they are saying that utilities might switch to gas from coal, which isn’t exactly in short supply either. And just a few years ago, we were supposedly running out.