BLBG:U.S. Senate Overrules Obama With Iran Oil Sanctions as EU Blacklist Grows
The U.S. Senate took aim at the Iranian central bank in an effort to choke off oil exports, while the European Union stopped short of targeting crude as it tightened sanctions intended to curb Iran’s nuclear program.
The Senate bill, passed unanimously yesterday, would give the president the power starting July 1 to bar foreign financial institutions that do business with Iran’s central bank from having correspondent bank accounts in the U.S. If enacted, it could be much harder for foreign companies to pay for oil imports from Iran, the world’s third-largest crude exporter. The Obama administration opposes the legislation.
While EU remains divided over calls to halt purchases of Iranian oil, ministers meeting yesterday in Brussels added 180 Iranian officials and companies to their sanctions list and started work on measures against Iran’s oil exports, banks, transportation and the Revolutionary Guard Corps.
“The Central Bank of Iran has become a vital intermediary for purchasers of Iranian crude because existing sanctions against the Persian Gulf country have constrained Iran’s ability to access the international financial sector to settle oil trades,” said Mark Dubowitz, director of the Iran Energy Project at the Foundation for Defense of Democracies in Washington.
Renewed international pressure over Iran’s nuclear ambitions risks igniting tensions in the Middle East that may threaten the flow of oil to the increasingly fragile world economy. Iran denies western allegations that its nuclear program is disguising weapons development.
U.K. Embassy Stormed
The moves by Europe and the U.S. to deepen Iran’s political and economic isolation came as furor continued over this week’s storming of the U.K. Embassy in Tehran.
European officials said the attack had the blessing of Iran’s government. Britain evacuated its staff from the mission and ordered Iranian diplomats out of the U.K. The assault prompted international condemnation, and Italy, France and Germany recalled their ambassadors from Iran.
The U.S. administration opposed the Senate sanctions against Iran on the grounds that by targeting an important oil supplier for Asia and Europe, the move threatens to fracture the international coalition backing coordinated pressure on the country and may send oil prices soaring if world supply is perceived to be in jeopardy.
Oil-Price Risk
“There’s absolutely a risk” that “the price of oil would go up, which would mean that Iran would, in fact, have more money to fuel its nuclear ambitions, not less,” Undersecretary of State Wendy Sherman told the Senate Foreign Relations Committee yesterday before lawmakers voted.
EU states are also grappling with the implications of sanctions aimed at strangling Iran’s crude exports.
“Greece has a certain number of reservations” about an oil cutoff, French Foreign Minister Alain Juppe told reporters in Brussels yesterday. “We have to take account of them and work with the different partners so that the interruption of Iranian deliveries can be offset by higher production in other countries.”
Oil rose, heading for its first weekly gain in three, amid concern that tension between Iran and the west will disrupt Middle East exports. Futures gained as much as 0.9 percent and are up 4 percent this week.
UN Report
The aim of the new U.S. sanctions, the measure’s sponsors said, is to deprive Iran of revenue and thereby force the regime to abandon nuclear-weapons work. The latest confrontation was triggered by a Nov. 8 report by United Nations atomic inspectors that drew on “credible” intelligence to argue that Iran’s efforts to build a nuclear bomb “may be ongoing.”
Oil is Iran’s major source of income, supplying more than 50 percent of the national budget, according to International Monetary Fund figures. It earned the Islamic state $56 billion in the first seven months of this year, according to the U.S. Energy Department.
The EU said its latest measures will strike at Iran’s nuclear program, the Islamic Republic of Iran Shipping Line and members and affiliates of the Revolutionary Guard Corps. The bloc will freeze the assets of the targets and bar them from traveling to Europe. With France’s Juppe calling for “tough and unprecedented sanctions” on Iranian banks and the oil business, the ministers aim to hammer out the tougher measures by their next meeting in January.
Sever ‘Links’
EU foreign policy chief Catherine Ashton declined to say whether an oil-purchase halt will be part of the package. She told reporters the bloc will “look at a range of issues including the energy sector, but the detail of exactly what shall be done now goes to the technical experts.”
Yesterday’s U.S. and EU moves follow the Nov. 21 announcement by the U.S., the U.K. and Canada of expanded sanctions aimed at Iran’s banking system.
While China has supported four rounds of United Nations sanctions on Iran, leaders in Beijing as well as a number of U.S. allies in Asia and Europe who buy Iranian oil have so far resisted targeting the nation’s energy products.
The top refiners of Iranian oil are China, Japan, India, Italy and South Korea, according to the U.S. Energy Information Administration.
The U.S. measure would come into effect if included in final legislation negotiated by the House and Senate and signed by President Barack Obama. It would permit the president to waive sanctions for national security reasons or because of insufficient oil supply to replace Iran’s crude.
Market Timing
The timing would allow the market to adapt while rising production from Libya and Iraq helps European refiners offset the loss of Iranian crude, Senator Mark Kirk, an Illinois Republican and co-sponsor of the measure, said in a telephone interview.
“We intentionally put a delay in the language so markets could adjust,” he said.
Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, pumped about 3.6 million barrels of oil a day last month, a Bloomberg survey showed, and exported an average 2.58 million barrels a day in 2010, according to OPEC statistics.
To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Asjylyn Loder in New York at aloder@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net
To contact the editors responsible for this story: Mark Silva at msilva34@bloomberg.net; Dan Stets at dstets@bloomberg.net; James Hertling at jhertling@bloomberg.net
