Dec. 2 (Bloomberg) -- The U.S. Senate unanimously approved a measure yesterday to sanction the Central Bank of Iran, a move intended to shrink Iran’s oil exports and deprive it of cash that might be used in nuclear or missile programs.
The Senate measure would give the Obama administration power to bar foreign financial institutions that do business with the 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 exporter of the commodity.
“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.
The Obama administration opposed the amendment on the grounds that by targeting an important oil supplier for Asia and Europe, the move threatens to fracture the international coalition supporting coordinated pressure on Iran and may send oil prices soaring if world supply is perceived to be in jeopardy.
“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.
Oil prices have increased 9.8 percent this year to trade at $100.37 a barrel on the New York Mercantile Exchange today.
The measure, sponsored by Senators Mark Kirk, an Illinois Republican, and Robert Menendez, a New Jersey Democrat, was an amendment to the 2012 defense authorization bill, also passed yesterday, which sets Pentagon policy and spending targets. The House and Senate will need to negotiate a final bill that would go to President Barack Obama for his signature.
The aim of the sanctions, its sponsors said, is to deprive Iran of revenue and thereby force the regime to abandon nuclear- weapons work. On Nov. 8, a report by the United Nations’ International Atomic Energy Agency highlighted evidence of clandestine work, which Iran denied.
Oil is Iran’s major source of income, supplying over 50 percent of the national budget, according to International Monetary Fund figures. It provided the Islamic state $56 billion in the first seven months of 2011, according to the U.S. Energy Department.
U.S. Undersecretary of Treasury David Cohen testified before the Senate Foreign Relations Committee yesterday that taking unilateral action against the Central Bank of Iran is likely to undermine support for multinational sanctions that the U.S. has worked hard to garner.
Hours before the Senate action yesterday, the European Union added 180 Iranian officials and companies to a blacklist and debated further measures that may be enacted next month. On Nov. 21, the U.K., Canada and the U.S. announced expanded sanctions aimed at Iran’s banking system.
While China has supported four rounds of UN 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.
Greece “has a certain number of reservations” about an Iranian oil cutoff, French Foreign Minister Alain Juppe told reporters at an EU foreign ministers’ meeting 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,” he said.
Coordinated pressure on Iran is more effective than unilateral action, which can be more easily evaded, Cohen said. “It is imperative that we act in a way that does not threaten to fracture the international coalition” and “does not inadvertently redound to Iran’s economic benefit” through higher oil prices, Cohen testified at the Senate.
Iran pumped 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 Organization of Petroleum Exporting Countries statistics.
The Senate measure would come into effect July 1 if included in final legislation signed by Obama. It would permit the president to waive sanctions for national security reasons or because of insufficient oil supply to replace Iran’s crude.
The timing would allow the market to adapt while rising production from Libya and Iraq helps European refiners offset the loss of Iranian crude, Kirk said in a telephone interview.
“We intentionally put a delay in the language so markets could adjust,” he said.
Iran is the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. About 15.5 million barrels of oil a day, about a sixth of global consumption, flows through the Strait of Hormuz between Iran and Oman, according to the U.S. Department of Energy.
A U.S. business and trade association that represents more than 300 member companies expressed “deep disappointment” over the passage of the measure yesterday.
The vote “was both ill-timed and ill-advised,” said Bill Reinsch, president of the National Foreign Trade Council. “Should world oil prices spike as a result, Iran will be the beneficiary,” he said.
--With assistance from Michelle Jamrisko, Brian Faler, Roxana Tiron, Brendan McGarry and Kathleen Hunter in Washington, James G. Neuger in Brussels and Pratish Narayanan in Mumbai. Editors: Alexander Kwiatkowski, Paul Gordon
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