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Will the EU Respond to US Sanctions by Switching to Euro for Iran Oil Payments?

© AFP 2023 / JOHN THYS / A man walks near US and European Union flags at the EU headquarters on May 15, 2017 in Brussels
A man walks near US and European Union flags at the EU headquarters on May 15, 2017 in Brussels - Sputnik International
The unilateral US withdrawal from the JCPOA and re-imposition of sanctions threatens Iranian crude oil exports and every company buying it, including European companies. Sputnik discussed the situation with energy security expert Omid Shukri Kalehsar.

An independent Washington expert of Iranian origin on energy security, Omid Shukri Kalehsar, believes that the US scrapping of the JCPOA (also known as the Iran deal) and the imposition of new anti-Iranian sanctions could paralyze the Iranian gas and oil sectors. According to him, gas and crude oil production in Iran are heavily dependent on foreign investments, thus future sanctions against it can significantly influence it, both directly and indirectly.

After the Iran deal was struck, Tehran planned to attract some $200 billion in foreign investments into its energy sector in order to boost oil production and to use its resumed exporting to secure one of the leading roles in the market, explains Kalehsar. So far, Tehran has managed to draw 5-10% of that sum.

READ MORE: EU to Switch From Dollar to Euro in Payments for Iranian Oil Supplies — Source

He adds that now that the US has withdrawn from the JCPOA, other investors ended up in a difficult situation. For example, French Total has announced that if the US treasury will not issue a waiver for its operations in South Pars, it will have to abandon the project.

"Today, Iranian oil reserves are used at half of their capacity. We are seeing an annual drop of 8% in production. To offset this drop, Iran needs investments, high-end equipment, which it can probably never acquire due to possible US sanctions. […] Iran has planned to reach 500,000 barrels of oil per day level in production in the very near term, but it has never happened and, with renewed sanctions, probably never will; not without foreign investors," Kalehsar said.

The EU, which companies may become subjected to possible US sanctions, is currently working on measures to counter or avoid them. One of the latest suggestions is to use the euro instead of the US dollar to buy Iranian oil. Kalehsar is confident that such a suggestion is not a mere attempt to give the US a European response for its withdrawal from the JCPOA, but a result of Iranian diplomacy.

"Iran, which has considered such a possible US course of action, has made certain diplomatic moves in other directions in advance, to counter possible sanctions," he said.

Kalehsar says that the Iranian foreign minister, during his visit to China, asked Beijing to guarantee the sustained import of Iranian crude oil, even in the face of possible US sanctions. He also recalls the negotiations with India that recently took place, where Tehran offered certain incentives to Delhi to guarantee that it will not stop buying Iranian oil. China and India are the largest importers of Iranian crude oil, Kalehsar adds.

READ MORE: Global Oil Prices on the Rise as France's Total Warns to Scrap Its Iran Project

He is confident that the EU's proposal to switch to the euro is just another result of Tehran's diplomacy. The energy security expert notes that, so far, this suggestion hasn't taken any official form, but said that its implementation partially depends on the US' reaction to it.

Kalehsar believes that if the EU imposes such mechanism, Tehran will be able to maintain its share on the world market. Otherwise Iran will face difficulties, especially since Saudi Arabia has promised to fill the gap left by Iran on the oil market.

The views and opinions expressed are those of the speaker and do not necessarily reflect those of Sputnik.

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