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Categorized | Banks

US imposes sanctions on Iran oil industry

Posted on July 31, 2012

Iran flag

The Obama administration announced new sanctions on the Iranian oil industry and on a Chinese and an Iraqi bank on Tuesday, saying “defiance” by the Iranian government would lead to “increasing consequences”.

The new measures come as Congress is also getting close to approving a new sanctions law, and after Republican presidential candidate Mitt Romney claimed the White House was not doing enough to prevent Iran from acquiring a nuclear weapon.

The new sanctions will aim to penalise foreign banks that handle transactions for National Iranian Oil Company (NIOC) or its trading subsidiary Naftiran Intertrade Company (NICO). Separately, the Treasury department said it was placing sanctions on China’s Bank of Kunlun and Iraq’s Elaf Islamic Bank, because they had been doing business with Iranian banks which were covered by sanctions.

    The new sanctions are part of a broader US and international effort to put pressure on Iran to abandon its efforts to build a nuclear weapon. They follow a European ban on oil imports and US legislation passed at the end of last year placing sanctions on Iran’s central bank, which led Iran’s main customers in Asia to sharply reduce their imports in the first half of the year.

    While Israeli prime minister Benjamin Netanyahu said at the weekend that sanctions were not changing Iran’s behaviour, US officials on Tuesday said the existing sanctions were already having a “crippling” effect on the Iranian economy.

    Robert Einhorn, a senior state department official for non-proliferation and arms control, said Iranian exports of oil this year had been cut by around 1m barrels a day – equivalent to a decline of 40-50 per cent. The new measures were “a clear sign that the Obama administration is determined to increase the pressure on Iran until it is willing to negotiate seriously”, he said.

    The sanctions were announced hours after a draft text of a new sanctions bill was agreed by negotiators from the Senate and the House of Representatives. The US Congress is now racing to try to pass the bill before the summer recess starts at the end of the week.

    The bill has strong support in both political parties but is considerably weaker than some leading Republican members of Congress had wanted, which could still lead to it being held up. Ben Rhodes, a National Security Council official, said the bill was “complimentary” to the new sanctions.

    The new bill aims to impose new penalties on companies that insure or ship Iranian oil and to reduce the scope for Iranian companies to reflag their vessels or turn off their tracking systems.

    The new text also includes penalties for Swift, a telecommunications network used by many financial institutions, if it helps Iranian banks transfer funds electronically. It also seeks to punish companies that sell riot-control equipment such as teargas to Iran.

    Some Republican senators had been pushing for a much tougher bill. One proposal was to declare the Iranian energy sector a “zone of proliferation concern”, a legal formula designed to make it much harder to do any business with Iran’s oil companies. Others wanted much broader restrictions on doing business with the Central Bank of Iran.

    “It is probably too late to open up the bill again, but some senators are still calling for stronger language,” said one congressional staffer involved in the legislation.

    Mahmoud Bahmani, governor of the Central Bank of Iran, said on Tuesday that the bank had begun a “guerrilla economic war” to offset the impact of international sanctions, which he described as like “military war” against the country. Mr Bahmani did not give details of what Iran’s banking system was doing to deal with the sanctions.

    Bank of Kunlun is owned by CNPC, China’s largest oil company and whose listed arm is PetroChina. Based in the far-western Xinjiang province, CNPC bought the bank three years ago. Although China has a six-month exemption from a law which bars banks from doing business with Iran’s central bank, the Treasury department said Kunlun has transferred payments worth $100m for Bank Tejarat, which is subject to different sanctions.

    Amid speculation about an Israeli attack on Iran’s nuclear facilities, the Obama administration has insisted that the sanctions be given time to work. Leon Panetta, the defence secretary who will visit Israel on Wednesday, said on Tuesday that sanctions would eventually persuade Iran “to do what is right”.

    “These sanctions are having a serious impact in terms of the economy in Iran,” he said. “And while the results of that may not be obvious at the moment, the fact is that they have expressed a willingness to negotiate and they continue to seem interested in trying to find a diplomatic solution.”