The European Union this week joined the U.S. strategy of strangling Iranian oil revenue to pressure it into surrendering its defiant nuclear enrichment that Western countries suspect is meant to build a nuclear bomb.

The new measures, agreed to by the 27 EU foreign ministers, outlaw all new contracts effective immediately and countries will have until July 1 to find new suppliers to replace existing deals. The EU also limited relations with Iran’s Central Bank, but it fell short of America’s tougher sanctions.

But Iran won’t feel the economic pain without its other oil customers joining the embargo, nor will it stop enriching uranium –or its pursuit of the bomb if that’s what it’s doing. Oil prices will increasingly feel bullish prices over the standoff, while Iran will find it increasingly hard to convince suppliers it’s a reliable business partner.

Iran wins short and mid-term, US and Europe win in the long term. And somewhere in the middle is the threat of Iran getting a nuclear bomb or starting a war in the Persian Gulf, if you believe the bellicose tit for tat. So why are the US and the EU pursuing such blatant counterproductive diplomacy?

It could well be, because it has been the case numerous times in the past, that Western leaders actually believe they can force Iran to bow. It hasn’t since 1979, despite living under some of the strongest and longest international pressure, and all along the regime has managed not only to survive, but to prosper and expand its sphere of influence.

Iran will not budge under pressure. It didn’t when it was weaker, poorer, and at a disadvantage, so it certainly won’t now that it has the upper hand and time playing to its advantage.

So while conspiracy theories abound, the embargo seems more designed as a negotiating ploy.

Oil markets agree

Oil prices are flat on the embargo news, not only because the EU decision was already factored in, but more importantly because Iran’s other big customers have little appetite to join the US and Europe, including China, India, Japan, South Korea, and Turkey, the latter three considered military and political allies.

World oil supplies are unaffected by the EU decision. It will just require shuffling around contracts. The EU replaces Iranian crude with Arab supplies, almost entirely from Saudi Arabia, which means China, India, and others will have to buy more from Iran, ultimately benefitting the Ayatollahs and other anti-American forces.

In the very unlikely case that other Iranian oil buyers join the embargo, the US and Europe now that they stand to lose more. If Iran’s oil revenue is significantly cut, the regime’s survival would be at stake, but despite rhetoric, it would not try to shut the Strait of Hormuz, but rather resort to covert actions in Iraq, Afghanistan, and the broader Middle East.

Besides, most people familiar with Iranian history, the regime mentality, and its ambitions agree that the Islamic Republic will not cross a red line because it knows it stands to lose. Iran is almost completely militarily surrounded and only in the past years won some breathing room in Iraq.

“We do not see Iran as close to having a nuclear weapon. They may be close to being able to test a crude nuclear device under controlled circumstances (and we don't know this either), but the development of a deliverable nuclear weapon poses major challenges for Iran,” wrote this week George Friedman, CEO of Stratfor, the global intelligence consultancy.

“While the Iranians may aspire to a deterrent via a viable nuclear weapons capability, we do not believe the Iranians see nuclear weapons as militarily useful,” Friedman said. “A few such weapons could devastate Israel, but Iran would be annihilated in retaliation.”

He adds: “While the Iranians talk aggressively, historically they have acted cautiously. For Iran, nuclear weapons are far more valuable as a notional threat and bargaining chip than as something to be deployed. Indeed, the ideal situation is not quite having a weapon, and therefore not forcing anyone to act against them, but seeming close enough to be taken seriously. They certainly have achieved that.”

The other option

Western countries are not so alarmed by Iran’s nuclear weapon program, but by its growing clout in the Middle East and its power to sway oil markets.

Washington has long said that its priorities lie east in Asia with China and Russia. It wants to extricate itself from the responsibility of keeping oil flowing globally to focus on real threats to global supremacy. But it can’t as long Iran is able to threaten that oil flow in the Persian Gulf, either militarily in the Strait of Hormuz or by fomenting instability through its allies.

Iran for its part wants Western powers to stop targeting it through sanctions and the military build-up on its borders. And it wants to assert itself in the region. Above all though Tehran wants its enemies to drop regime change as a goal.

Could the US and Europe thus be seeking another goal through negotiations other than Iran’s capitulation?

The EU foreign affairs chief Catherine Ashton and Secretary of State Hillary Clinton both said in the past few days that the goal is to bring back Iran to negotiations table. Ashton said that the “phased embargo,” which comes on top of several rounds of sanctions, “are not an end in themselves. The purpose is to put pressure on Iran to come back to the negotiating table and either pick up all the ideas that we left on the table or to come forward with its own ideas.”

Clinton also hinted at a compromise. “We do not seek conflict. The country can be reintegrated into the global community ... when their government definitively turns away from pursuing nuclear weapons,” in turn a really good deal for Iran.

“The United States doesn't want a conflict with Iran. Iran doesn't want one with the United States. Neither can be sure how such a conflict would play out. The Iranians want to sell oil. The Americans want the West to be able to buy oil. The issue really comes down to whether the United States wants to guarantee the flow of oil militarily or via a political accommodation with the country that could disrupt the flow of oil -- namely, Iran,” Friedman wrote.

No matter how hard a sell it would be for Western and Iranian domestic audiences, both sides could be discreetly contemplating the more obvious alternative of exchanging security guarantees. The survival of Iran’s regime in exchange for stability and free flow of oil in the Middle East. The nuclear bomb issue would be addressed and supervised as part of a deal, naturally, and the US could extricate itself to concentrate on its real concerns in Asia.