Therefore, it seems that the Iranian move was directed towards a domestic audience and aimed to keep the country united. The country will hold parliamentary elections in March 2012 and presidential elections in 2013, in which support for Ahmadinejad is all but certain. Defending the country's nuclear programme, which enjoys wide-ranging domestic support, can therefore be seen as a step towards uniting against the "outside evil." Secondly, as IISS' Michael Elleman argues, "Iran is trying to convince others that it has a deterrent capacity and one element of that is the claim that it could close the Straight of Hormuz." The threat of closing the Strait of Homruz, like the military drills, are thus a show of force, attempts to show Iranian strength.
Both moves come from a position of weakness, not of strength. Indeed, Iran is making progress in its nuclear programme and advances in its missile development. Iran also is the biggest beneficiary of the US invasion of Iraq and a key factor in western success in Afghanistan. And yet, Fareed Zakaria is correct in arguing that Iran is in a "growing state of desperation." The clearest example is its recent currency devaluation, with Iran's Rial hitting all-time lows following the announcement of US sanctions. At the same time, various reports claim that there are sharply rising food prices, with 25% food price inflation in early 2011. Whereas Iran denies that this is a result of the sanctions, particularly the latest measures imposed by the US and Britain to ban all financial institutions doing business with Iranian banks, including the central bank, the restrictions do seem to bite hard.
Banning all imports of Iranian oil into the EU would contribute to this loss of revenue, though only to some extent. Were the EU to impose such measures, it seems likely that India and China would jump in to buy the extra crude oil. Even though China recently cut its purchases of Iranian oil by more than half, it likely that it is doing that to put pressure on the price, rather than to support the sanctions.
Furthermore, the economic relations between Iran and the EU function as a stability mechanism between the two. At present, a military attack against Iran would halt the flow of Iranian oil to the world. Similarly, the potential loss of revenue from the European Union restricts Iran's willingness to advance its nuclear weapons programme. These last measures of restraint lower the threshold for irrational behaviour - on both sides. As history has shown, the threat of sanctions has a bigger impact than the sanctions themselves.
For that reason, the EU should keep the threat of cutting Iranian oil supply as a "stick" to use in the next round of talks on Iran's nuclear programme. Several proposals for further negotiations have been made - by Turkey and Brazil in the so-called Teheran agreement; in a more recent Russian proposal; and in a new confidence-building measure proposed by former IAEA chief inspector Olli Heinonen. However, with Iranian elections coming up in 2012 and 2013 as well as US elections in November, it is unlikely that either side can allow itself to be seen as weak. But whilst success is unlikely, the EU should at least try to use its economic power to force Iran to the negotiation table. A weakened Iran or even a military conflict would be a gigantic destabilising factor in the Middle East – with severe global implications.