BLBG:U.S. Targets Iran’s Oil, Central Bank in Effort to Thwart Nuclear Program
The U.S. expanded measures aimed at thwarting Iran’s nuclear program, targeting its central bank and oil industry with actions intended to cut the regime off from international financial transactions.
Yesterday’s actions, matched by similar steps from the U.K. and Canada, are in response to a Nov. 8 United Nations atomic agency report concluding that previous sanctions have not stopped Iran from clandestine nuclear-bomb work.
The Obama administration for the first time yesterday declared that the entire Iranian financial sector, including its central bank, is involved in money laundering. It invoked the anti-terrorism USA Patriot Act to target direct and indirect financing of Iran.
Any institution or company that engages in transactions with Iran’s banking system is “at risk of supporting Iran’s illicit activities: its pursuit of nuclear weapons, its support for terrorism,” Treasury Secretary Timothy F. Geithner said in a press conference in Washington. “Financial institutions around the world should think hard about the risks of doing business with Iran.”
Oil rose for the first time in four days as new sanctions against Iran and violence in Egypt raised concern that supplies will be disrupted. Crude for January delivery gained $1.09 to $98.01 a barrel on the New York Mercantile Exchange. Trading ranged from $96.55 to $98.70.
Geopolitical Risks
“There are new sanctions on Iran and rioters back on the streets of Cairo reminding us of the geopolitical risks that impact this market,” said Michael Wittner, the head of oil- market research at Societe Generale SA in New York.
New U.S. sanctions also target companies that provide goods or services to Iran’s oil and gas industries. Existing U.S. laws have forced most international oil companies out of Iran and the new measures aim to stop it from obtaining technology and money from smaller foreign companies.
“We have succeeded in slowing its nuclear program,” President Barack Obama’s national security adviser, Tom Donilon, said today at the Brookings Institution policy group in Washington. “The international community has the time, space and means to affect the calculus of Iran’s leaders.”
The Obama administration hasn’t ruled out further banking sanctions, including on Iran’s central bank, he said. And it will continue to expose hidden nuclear programs, such as the 2009 revelation with the U.K. and France of a facility at Qom.
Watching Iran
“First and foremost, we will continue to be vigilant,” Donilon said. “We will work aggressively to detect any new nuclear-related efforts by Iran. We will expose them and force Iran to place them under international inspections.”
Iran’s Foreign Ministry today condemned the latest penalties, saying they demonstrate “animosity against the Iranian nation” on the part of the U.S. and U.K.
“Countries undertaking these measures themselves have economic problems and their governments have the least support amongst their people,” Ramin Mehmanparast, the Foreign Ministry spokesman, said in comments aired on state-run Press TV. The measures are “in vain” and won’t affect Iran’s economy or its will, he said.
Russia said the U.S. sanctions are “unacceptable and violate international law,” in a statement on the website of the Foreign Ministry. The sanctions harm the interests of other countries that have been working with Iran in the oil and banking industries, and won’t bring the Persian Gulf country to the negotiating table, the ministry said.
Oil-Related Sanctions
The U.S. administration authorized sanctions against anyone helping Iran develop petroleum resources in any transaction of $1 million or more, or any series of deals valued at $5 million in a one-year period, the Treasury Department said.
Obama said the U.S. acted because Iran has violated its obligations under the Nuclear Non-Proliferation Treaty and its commitments to the UN’s International Atomic Energy Agency.
The Vienna-based IAEA said this month that Iran used front companies and foreign scientists to pursue nuclear weapons. Iran says its program is to ensure energy for its growing population of about 75 million and for medical research.
Oil is Iran’s major source of income, with $80 billion in annual revenue from its daily output of about 3.5 million barrels, according to Iranian official figures and International Energy Agency estimates. That makes it the second-largest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia
Evading Sanctions
An Iranian Cabinet minister yesterday said Iran will find new ways to do business.
“With stricter sanctions, our techniques to circumvent also become more elaborate,” Industries, Mines and Commerce Minister Mehdi Ghazanfari said in Tehran, according to the official Islamic Republic News Agency.
The U.S. doesn’t want to immediately take Iranian oil off the market and is putting in place an “extra roadblock,” which can scare off companies that have an interest in both countries and wouldn’t want to “be branded as sanction busters,” Ali al- Saffar, an analyst at the Economist Intelligence Unit in London, said in an interview.
Japan, China, India and South Korea are the top four buyers of Iranian oil, according to the U.S. Energy Department.
American financial institutions were already prohibited from doing business with Iranian financial firms, including the central bank. The move will require them to ensure that none of their relationships with foreign banks are used to benefit Iran.
Banking Scrutiny
U.S. banks “will be scrambling over the next several weeks to put in additional procedures” to check on foreign correspondent banks, because they don’t want any connection to money laundering, David Caruso, chief executive officer of Dominion Advisory Group LLC, an anti-money laundering firm based in Centreville, Virginia, said in an interview.
The U.K. also banned its financial institutions from doing business with Iranian counterparts, including the central bank. Canada is blocking “virtually all transactions” with Iran, Peter Van Loan, the government’s leader in the House of Commons, told lawmakers.
The European Union says it will impose further sanctions on Dec. 1.
To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Cheyenne Hopkins in Washington at chopkins19@bloomberg.net
To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Andrew J. Barden at barden@bloomberg.net
