The Associated Press February 15, 2012, 12:02PM ET

US, Europe look at fast but risky penalty on Iran

The White House says Iran is lashing out at the world to "distract attention" from the damage that international sanctions are having at home.

Iran is claiming Wednesday that it has achieved two major advances in its program to master production of nuclear fuel, a defiant move in response to increasingly tough Western sanctions over its disputed nuclear program. Iran state media also reports steps to cut oil exports to six European countries in retaliation for new European Union sanctions, including a ban on Iranian oil.

White House press secretary Jay Carney says such "defiant acts" show that Iran's leaders are under pressure.

The sanctions are intended to persuade Iran to back down. Iran has refused, although it signaled Wednesday that it is willing to return to talks.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

The United States and Europe are weighing unprecedented punishment against Iran that could cripple the country's financial lifeline but result in higher oil prices for the U.S. and its allies. Underscoring the potential costs, Iran on Wednesday cut oil exports to six European countries.

The Obama administration wants Iran evicted from SWIFT, an independent financial clearinghouse that is crucial to the country's overseas oil sales. That would leapfrog the current slow-pressure campaign of sanctions aimed at persuading Iran to drop what the U.S. and its allies contend is a drive toward developing and building nuclear weapons. It also perhaps would buy time for the U.S. to persuade Israel not to launch a pre-emptive military strike on Iran this spring.

But it's an extreme option in the banking world that would come with its own costs -- oil prices could soar, even as many of the world's economies are still frail. Underscoring that possibility, Iran on Wednesday cut oil exports to the Netherlands, Spain, Italy, France, Greece and Portugal. And in another defiant move, Iran began loading domestically made nuclear fuel rods into its Tehran research reactor.

In the financial world, the United States can't order SWIFT to kick Iran out. But it has leverage in that it can punish the Brussels-based organization's board of directors. Talks are focused now on having Europe make the first move.

Short of total expulsion, Washington and representatives of several European nations are in talks over ways to restrict Iran's use of the banking consortium to collect oil profits.

The Obama administration is divided over whether the possible gain is worth the risk in trying to threaten SWIFT into kicking out a member country, in part because of concern that it would set back the global financial recovery. Iran remains a global financial player despite years of banking sanctions, and blocking it from using the respected transfer system would be a black mark like no other.

More than 40 Iranian banks and institutions use SWIFT to process financial transactions, and losing access to that flow of international funds could badly damage the Islamic republic's economy. It would also probably hurt average Iranians more than the welter of existing banking sanctions already in place since prices for household goods would rise while the value of Iranian currency would drop.

SWIFT handles cross-border payments for more than 10,000 financial institutions and corporations in 210 countries. It lets users exchange financial information securely and reliably, thereby lowering costs and reducing risk. It operates on trust and neutrality -- SWIFT accepts nearly all comers and does not judge the merits of the transactions passing through its secure message system. Its managers generally brush off investigators and enforcement agencies, telling them to take up suspected wrongdoing directly with nations or corporations.

Established in 1973, the essential but little-known hub is overseen by major central banks, including the U.S. Federal Reserve and the European Central Bank.

While the U.S. and Europe debate options, some American lawmakers are trying to increase pressure on SWIFT. The Senate Banking Committee passed a measure earlier this month directing the White House to press SWIFT to block Iranian entities. A tougher House bill would compel the administration to sanction SWIFT unless it stopped providing services to Iran.

In a brief statement posted on its website, SWIFT said it is committed to fighting misuse of the financial system to finance terrorism and has cooperated with enforcement agencies in the U.S. and Europe.

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Associated Press writer Slobodan Lekic in Brussels contributed to this report.


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