With an eye on the dependence of recession hit economies of Greece, Italy and Spain on Iranian oil, Foreign Ministers of the European Union (EU) countries on Monday decided to shift the ban on oil imports on Iran to July 1.

“As of July 1, we have a ban on the import of oil and oil products from Iran,” said Uri Rosenthal, the Dutch Foreign Minister in Brussels, after EU Foreign Ministers met on Monday to discuss their collective stance on Iran, which they fear is developing atomic weapons. Following the EU decision, neither the existing oil deals with Iran will be extended beyond July 1, 2012 nor will new contracts on importing oil be signed. EU member countries can receive oil shipments from Iran till the end of June.

The decision by the 27-nation bloc not to impose an immediate energy import ban on Iran, will allow the three EU countries — Greece, Italy and Spain, which consume 68 per cent of the bloc’s total import of Iranian oil, to find alternative suppliers, analysts said. However, this may turn out to be an onerous exercise, as the jury is still out on the whether the world has sufficient excess capacity that can compensate for the elimination of Iranian oil from the world’s energy market.

Iran’s daily production of oil in December stood at 3.58 million barrels, Bloomberg estimated. In case Iran was prevented from exporting its oil, Saudi Arabia and the rest of the OPEC countries would manage to ramp up their existing daily production by 2.85 million barrels, according to the International Energy Agency (IEA).

Notwithstanding the capacity of Persian Gulf countries to produce more oil, Iran has threatened to block flows through the Strait of Hormuz through which the bulk of the region’s oil passes.

In case Iran obstructs the transit route through Hormuz, Saudi Arabia, Kuwait, the United Arab Emirates and Qatar, which use this route, would find it hard to ship most of their oil and gas to the international markets. Iran’s warning to impede energy flows through the Strait of Hormuz came amid threats by the United States and its allies to choke Tehran’s oil supplies. Oil exports, estimated at around $73 billion annually are Iran’s economic lifeline, catering more than 50 per cent of the national budget and 80 percent of the country’s exports.

Some observers say that by deferring the imposition of an oil embargo on Iran, the West may have hoped to activate a debate in Iran on soon opening a dialogue with its adversaries on its nuclear programme. On Monday, Swedish Foreign Minister, Carl Bildt said in Brussels that sanctions alone are “not the answer.” Instead, the EU needs to seek “diplomatic engagement” with the Iranian leadership, he observed.

Russian Foreign Minister Sergei Lavrov on Monday swiftly rejected unilateral sanctions against Iran, saying that embargoes against Iran would be "unhelpful".

"Unilateral sanctions do not help matters," Mr. Lavrov observed. "We will restrain everyone from making harsh moves. We will seek the resumption of negotiations.”

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