This week, the European Union went to war against Iran. There was no formal declaration, of course, nor even any undeclared use of military force. But the EU decision to place an embargo on Iranian oil imports, ban new contracts, and freeze Iranian Central Bank assets is effectively an act of war and may very well result in the military hostilities that sanctions are meant to forestall.

Oil exports account for over 50 percent of Iranian government revenue and about 80 percent of its hard currency earnings. And the EU, as a bloc, is Iran’s second-largest customer, taking about a quarter of Iranian exports. Consequently, unless other customers neutralize EU actions by stepping up their own purchases from Iran — and indications from China, Japan and South Korea suggest that this is unlikely to be the case — the EU decision, coupled with existing American measures, will come close to imposing the “crippling sanctions” that Secretary of State Hillary Rodham Clinton threatened but could not deliver without European cooperation.

If that turns out to be the case, then the Iranian regime, already coping with high inflation and a rapidly depreciating currency, will feel constrained to react. One possibility is that it will capitulate and essentially dismantle its nuclear weapons program. That is obviously the outcome that Europeans and others hope sanctions (or even the credible threat of sanctions) will bring about.

But it is at least as likely that Iran, feeling trapped, will lash out in a desperate attempt to frighten the Europeans into backing down or at least introduce so much hysteria into the oil market that price spikes will allow it to earn the same revenue from a reduced volume of exports. Read full article in The New York Times...