By Jeremy Herb - 01/04/12 05:48 PM EST
The European Union has agreed in principle to blocking imports of oil from Iran, a decision that could deal a devastating blow to the Iranian economy.
The EU embargo, as reported by Reuters, comes on the heels of the United States approving sanctions against the Central Bank of Iran. The EU embargo creates a one-two punch against Iran for its nuclear program.
EU diplomats said member countries dropped their objections to the Iran embargo at a meeting in late December.
“A lot of progress has been made," an EU diplomat told Reuters. "The principle of an oil embargo is agreed. It is not being debated any more."
Iran threatened last month to close down the Strait of Hormuz, an oil passage in the Persian Gulf through which nearly one-fifth of the world’s oil travels, if the West imposes economic sanctions.
The U.S. Fifth Fleet, based in Bahrain, has said it would prevent Iran from closing the strait.
Tensions between the two countries continued to rise on Tuesday, after Iran warned U.S. carriers to stay out of the Persian Gulf. The Pentagon rebuffed Iran and said the U.S. would not stop its operations there.
The U.S. sanctions, which were included in the Defense Authorization Act that President Obama signed into law last week, would penalize financial institutions conducting business with Iran’s Central Bank. Obama took some issue with the provision in a signing statement, indicating there could be some flexibility in how the law is enforced.
But the sanctions could continue to take a bite out of Iran’s economy, where the Iranian rial has dropped against the dollar.
Analysts warn that conflict between the U.S. and Iran could cause oil prices to spike. They say that while the Iranians are not able to shut down the strait because the United States would stop them, they still have the ability to disrupt the world market.