Europe is gearing up for a summit later this month on a new set of sanctions against Iran's oil industry, following a similar move by the United States. Analysts say the EU members who are the worst-hit from the euro debt crisis stand to lose the most from any sanctions.
With sanctions tightening, Iran’s leader toured South America, including a stop in Cuba Wednesday. President Mahmoud Ahmadinejad is looking for new friends and new markets.
The U.S. has already imposed sanctions on oil companies trading with Iran, in response to Tehran's nuclear enrichment program. Now it's Europe's turn. The EU will meet on January 23 to agree on its own embargo.
Professor Paul Stevens of the London-based analyst group Chatham House, said agreement won't be easy. Europe's most indebted countries are also Iran's main customers.
“Particularly Greece, for example, is dependent for about a third of its oil imports on Iran, on very favorable financial terms and given the situation in Greece, they would not give that up lightly. Also, Italy, for example, is owed quite a lot of money, or the Italian company ENI is owed quite a lot of money by the Iranian government, which is being repaid in oil,” said Stevens.
Stevens said Japan, China and India all buy between four-hundred to five-hundred thousand barrels of Iranian oil a day. U.S. Treasury Secretary Timothy Geithner has been touring Asia trying to persuade them to cut back.
But many Europeans remain unconvinced that sanctions will stop Iran from pursuing what the West believes is a nuclear weapons program - a charge Tehran denies. British political commentator Simon Jenkins predicts there will be a backlash and the Iranian opposition will suffer.
“It’ll make the Iranian regime be very tough with anybody who seems to be liberal-minded, pluralistic, open to outside influences, particularly open to Western influences. Everything to do with sanctions will make the situation within Iran worse not better. It [sanctions] certainly has never toppled a regime,” said Jenkins.
Iran is flexing its military muscle - staging recent exercises in the Gulf. Iran has threatened to close the Strait of Hormuz in the Gulf - through which a fifth of the world's oil passes each day. Energy analyst Paul Stevens said that would lead oil prices to skyrocket and spark a global financial crisis.
“Closing the Strait of Hormuz or attempting to close it is Iran’s trump card. It is a major deterrent against the U.S. or Israel attacking Iran over this nuclear issue. I find it very unlikely, therefore, that they’re going to play that trump card over something like a new oil embargo,” said Stevens.
Still, the U.S. and Europe aren't taking any chances. Britain's most advanced warship - the HMS Daring - has set sail on its maiden voyage to the region. The British Ministry of Defense says it's a routine deployment - but insists the ship's crew is prepared for any scenario. Meanwhile, the U.S. reportedly has sent a message to Tehran saying it will not tolerate any attempts to block the Strait of Hormuz.