Amid Pressure For New Iran Sanctions, Obama Administration Weighs
Efficacy
By Ian Talley, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- While the U.S. Congress appears on course to approve
legislation that sanctions Iran, the Obama administration isn't convinced the
punitive measures will work.
The administration is still grappling with a number of questions, such as can
such sanctions be effective without multilateral support and could they
ultimately backfire by playing into Tehran's hands?
A majority of lawmakers in both chambers of Congress support legislation that
would hit Iran where it is thought sanctions will hurt the most: embargoing
petroleum products such as gasoline and diesel. Although the Persian nation has
one of the largest crude reserves in the world, the country imports around 35%-
40% of its petroleum products because it lacks refining capacity.
Lawmakers say they plan to pass the Iran refined Petroleum Sanctions Act after
the August recess to give President Barack Obama leverage in upcoming
international negotiations.
Political analysts and former State Department officials say such a measure by
itself isn't likely to lead Tehran to halt its nuclear enrichment program but
they warn it could be one of the last and most effective alternatives to
military action, particularly by Israel as that nation fears a nuclear-armed
Iranian hegemony in the Middle East.
If the administration hesitates too long, many warn it could miss an
auspicious opportunity amid ongoing unrest over the recent presidential election
and before Iran finishes building new refining capacity.
"This is exactly the time to use financial tools to build leverage for
diplomacy," Matthew Levitt, a former Bush-Administration Treasury official
responsible for international sanctions, told a Senate panel earlier this month.
Levitt now directs the Stein Center on Counter terrorism and Intelligence at the
Washington Institute for Near East Policy.
Officially, the State Department has declined to say whether it's considering
the embargo sanctions. In response to questions about the issue last week,
Secretary of State Hillary Clinton said the U.S. would continue to try to engage
Tehran in talks. But, she added, in the absence of a positive response from
Iran, the next steps could include tougher sanctions.
Several senior officials within the State Department have confirmed to Dow
Jones Newswires that a petroleum embargo is one of the options under review.
"The question...is more a case of can they be effective, and whether that is
something that can get the international community support," one official said,
speaking on condition of anonymity. "You want to have it impact on the
government (and) you have to be careful that you don't have undue impact on the
Iranian people...driving the people back to the regime," the official said.
Following the June Presidential election, opposition protests have rocked the
Tehran and other Iranian cities, with tens of thousands of Iranians accusing the
regime of stealing the election and violent repression.
With the regime significantly de-legitimized and both moderates and hard-
liners overtly questioning the supreme leader, "the regime's ability to easily
deflect criticism over the state of Iran's economy over sanctions imposed over
the nuclear program is significantly undermined," Levitt said.
Mark Dubowitz, executive director of the Washington-based think tank
Foundation for Defense of Democracies, said based on the targeted sanctions the
U.S. and the United Nations has already established, "I think we've seen the
evidence...that there won't be a rally around the flag."
The timing isn't just based on political expediency. The construction of new
refinery capacity that could make the country a net exporter of petroleum
products by 2012 builds a deadline for petro sanctions.
At the same time, the Obama administration is hesitating to win multilateral
action. So far, support from Russia and China for censuring Tehran has been a
hard-fought task. Russia has strong business ties with Iran, providing nuclear
expertise, petroleum development and arms sales. Likewise, China has sold arms
to Iran and has been investing heavily in its oil and natural gas sector.
"We're talking to a number of partners on this...and I wouldn't say there's a
complete meeting of the minds," said another ranking State Department official.
"But those discussions continue."
Obama has set an unofficial deadline for Iran to come to the negotiating table
by the time the Group of 20 leading nations meet this September in Pittsburgh.
In the meantime, U.S. diplomats hope to shore up international support for
stronger sanctions.
Supply Chain Repercussions
The administration's also concerned that while U.S. action may curb gasoline
and diesel shipments, Iran could import from other countries such as Russia.
But some analysts say multilateral efforts - while certainly helping to
enforce any embargo - aren't absolutely necessary.
Dubowitz says the concern is largely founded on a misunderstanding of the
petroleum trade. While many firms from around the world ship petroleum products,
there's a limited number of companies that underwrite both the ships carrying
the petroleum and the cargo itself.
By targeting shipping underwriting, not only would the risk premium paid by
Iran to ship their fuel become prohibitive, Dubowitz said it could be possible
to persuade the insurance companies to exit the market.
The Chinese and the Russians have a very limited ability to provide such
service, he said, and since Iranian insurance companies have already been
sanctioned, petroleum traders would have to do business with designated
entities.
Furthermore, with the Iranian Revolutionary Guard Corps and other designated
entities integrated so intimately into the Iranian economy, Dubowtiz said many
Western companies doing business there are likely unknowingly working with
sanctioned groups or their proxies. If the U.S. or an organization were to
publish a report the business links that show such activities, the reputational
risk for Western companies would also likely curb petroleum imports.
"It's not that difficult to map the supply chain," Dubowitz said.
By Ian Talley, Dow Jones Newswires; (202) 862 9285; ian.talley@dowjones.com;
(END) Dow Jones Newswires
08-10-091240ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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