Iran oil sanctions face economic risks

DUBAI (AP) ― With Iran angrily defiant about a U.N. report accusing it of developing nuclear weapons, Western powers and allies faced complicated questions Wednesday on how to further tighten pressure on the oil giant without shaking the fragile world economy.

The path toward possible new sanctions also quickly confronted a huge roadblock as Iranian ally Russia said it would oppose any new measures in the U.N. Security Council and rejected any military options as risking “grave consequences” to global security.

The sharp push back reflects the increasing difficulties for Western leaders to find ways to rattle Iran. So far, four rounds of U.N. sanctions have apparently failed to stop secret nuclear tests that brought Iran to the brink of mastering the process for atomic weapons, according to a U.N. watchdog agency report released Tuesday.

Iran claims the evidence in the report is baseless and says its nuclear program is only for energy and research.

The two opposing narratives where on vivid display Wednesday.

In a speech broadcast live on Iranian TV, President Mahmoud Ahmadinejad vowed that Iran won’t retreat “one iota” from its nuclear ambitions, which include the process to enrich uranium.

About the same time in Paris, French Foreign Minister Alain Juppe said the world cannot accept a nuclear-armed Iran and pledged that France would support boosting sanctions to an “unprecedented scale” if Iran stonewalls investigations. Israel, meanwhile, called on the world to stop Iran’s nuclear program, but did not repeat its warnings of a military option.

“There is lots of talk about how to slap new punishments on Iran,” said Patrick Clawson, deputy director of the Washington Institute for Near East Policy. “Where it would hurt is oil. That, however, is a tough call with the world economy teetering.”

Iran’s oil exports ― among the biggest in OPEC ― are undoubtedly the Islamic Republic’s most vulnerable spot as its key revenue source, but also represent a possible no-go zone for new sanctions.

“You’d want to impose the last big sanction on Iran to cut the revenue once and for all, but there would be detrimental consequences” by driving up oil prices and rattling world financial markets already uneasy over Europe’s debt crisis, said Jamie Webster, a senior analyst at the Washington-based consultants PFC Energy.

An indirect option is seeking U.S. and European bans on dealings with Iran’s central bank, which handles the country’s oil commerce around the world. But that, too, could drive up oil prices ― now approaching $100 per barrel ― by raising the costs of transactions in Iran’s main markets in Europe and Asia, including Security Council member China, which depends on Iran for about 10 percent of its growing fuel needs.

“There seems to be no appetite from the Obama administration to do anything to drive oil prices higher,” said Helima Croft, a geopolitical analyst with Barclays Capital. “An oil embargo seems absolutely off the table.”

Oil prices jumped 25 percent from the middle of February to March, when a rebellion in Libya cut off that country’s 1.5 million barrels of daily oil exports. Iran currently produces about 3.6 million barrels per day, or about 5 percent of the world’s total output.

“Who else wants to do an embargo at this point?” Croft said. “Certainly not the big consuming countries. Do you think the Chinese want an embargo? Do you think the Indians want one, or the South Koreans? Absolutely not.”

China also has booming commercial ties with Iran ― becoming Tehran’s main trading partner two years ago ― and would likely oppose any tougher sanctions. Beijing officials did not publicly comment on the report by the International Atomic Energy Agency in a likely sign that it will wait for Washington and Moscow to signal their intentions.

Russia ― which built Iran’s only major nuclear reactor ― left no doubt where it stood.

It first shut the door on any new U.N. sanctions. Then Deputy Foreign Minister Sergei Ryabkov sharply condemned talk of possible military action on Iran as “illegitimate.”

“It may have unpredictable and grave consequences in this already troubled and extremely explosive region, including for global security,” he told the Itar-Tass news agency.

“We hope that common sense will prevail. We hope for that very much, indeed.”

In his first reaction to the report, Ahmadinejad strongly criticized the U.N. agency for siding with “absurd” accusations he claimed were fabricated by Washington.

“This nation won’t retreat one iota from the path it is going,” Ahmadinejad told thousands of people in Shahr-e-Kord in central Iran. “Why are you ruining the prestige of the (U.N. nuclear) agency for absurd U.S. claims?”

For Iran, nuclear progress is a point of major national pride, along with other technological gains such as firing a satellite into space in 2009 and development of missiles capable of striking Israel.

“The Iranian nation is wise. It won’t build two bombs against 20,000 (nuclear) bombs you have,” he said in comments apparently directed at the West and others. “But it builds something you can’t respond to: Ethics, decency, monotheism and justice.”

In Israel, Prime Minister Benjamin Netanyahu’s office said the IAEA report confirmed long-standing claims by Israel and Western countries that Iran is developing nuclear bombs.

“The significance of the report is that the international community must bring about the cessation of Iran’s pursuit of nuclear weapons, which endanger the peace of the world and of the Middle East,” the statement said.