January 27, 2012: In response to the European Union decision to stop buying crude oil from Iran as of July 1, 2012, Iran is threatening to cut off all oil exports to Europe in the near future – well ahead of the EU's self-imposed July 1 deadline. The EU decision aligns itself with the United States in upping the level of economic sanctions imposed on Iran in an attempt to influence the Irananian nuclear program.

EU members with sizeable oil imports from Iran as a portion of their oil supply (Greece, 60 percent; Italy and Spain, 13 percent) favored the July 1 cut-off date to have time to arrange for substitute arrangements to be made. Other EU members agreed, enabling a unanimous decision on the boycott. An immediate Iranian boycott would likely have little effect on the overall EU economy, however, because the EU as a whole imports only 6 percent of the oil it uses from Iran.

What effect would an Iranian boyoctt have on Greece, Italy and Spain? Replacing the oil they import from Iran would not be a major problem under current market conditions. The problem for Greece – the EU country most dependent on imported oil from Iran – would be financial in nature. Greece has longer term contracts with Iran at favorable prices, and an immediate replacement would likely mean considerably higher prices for Greece. That's the last thing Greece needs in light of the debt problems facing the country.

If Iran as the world's fifth largest oil producer were to wind up sitting on the daily 1.5 million barrels of oil affected by the boycott, oil prices worldwide couldd rise 20 and 30 percent, according to the IMF. However, most oil analysts believe that a shift suppliers and buyers would be the most likely result. Iranian oil currently bound for Europe would be sold elsewhere – possibly at a loss of revenue for Iran, since Iran would be pressed to find new customers and might have to offer lower prices as an initial incentive to get them on board. With only Iranian oil affected, there would not be a repeat of the total OPEC boycott of western Europe following the Jom Kippur war of October 1973.

Iran could only wreak havoc on world oil markets by provoking a military confrontation over the Strait of Hormuz, which would choke off tanker oil exports from the Persian Gulf. Any such action, though, would also affect Iranian exports and do further damage to the country's economy, which is already feeling the effects of sanctions.

Perhaps the most interesting aspect of the proposed boycott is the use of oil in an attempt to force desired compliance on another country. Iran's response is a pre-cursor to what lies ahead for Europe with its dependence on imported oil.