US May Target Insurers, Gasoline Imports in Iran Sanctions Strategy

By Ross Colvin and | September 30, 2009

The White House is weighing sanctions targeting Iran’s dependence on gasoline imports and insurance firms that underwrite the trade, even as U.S. officials focus for now on diplomatic efforts to resolve a nuclear standoff.

President Barack Obama warned Iran last week to come clean about the program, which Washington fears is a cover to build atomic weapons, or face “sanctions that bite.” Obama’s warning followed the disclosure of a secret uranium enrichment facility near the holy Iranian city of Qom.

The United States will hold direct talks with Iran this week in Geneva, along with France, Britain, Germany, Russia and China. U.S. officials say they will demand that Iran allow U.N. nuclear inspectors unfettered access to the Qom site, as well as to documents and personnel.

The powerful chairman of the U.S. Senate Banking Committee, Chris Dodd, said Tuesday he would propose broadening U.S. financial sanctions on Iran and those who do business with it.

“I intend to introduce legislation that will arm the administration with the ability to impose tough, targeted sanctions if Iran does not respond to our final diplomatic effort in the coming weeks,” Dodd said.

But administration officials say that for now they hope Western powers can persuade Iran to address concerns about its nuclear program, which Tehran insists is for the peaceful generation of electricity.

Publicly, officials are reluctant to discuss the steps they are considering, wary of creating an impression they view diplomacy as merely a smokescreen for eventual sanctions. But Obama’s warning and the increased chatter about sanctions in Washington is very deliberate, Iran experts say.

“If the Iranians are not convinced that there is a persuasive amount of economic pressure that might be applied, then they are more likely to be recalcitrant on Thursday,” said Suzanne Maloney of the Brookings Institution’s Saban Center.

DIPLOMACY IS ‘PLAN A’
“I don’t mean to suggest it is a bluff, but the sanctions talk is to set the stage for plan A, which is the diplomacy. Everything I have heard from the administration is that they genuinely understand the difficulty of sanctions,” she said.

Sanctions “are not an instrument that can produce results with speed,” said Ray Takeyh, a scholar at the Council on Foreign Relations, who was until recently an adviser to the Obama administration.

Mindful of the limitations of sanctions, the administration has consulted outside experts for their views on the most effective way to implement such measures. The White House is being urged to consider a wide range of options, including choking off gasoline supplies, although experts stress it is no “silver bullet” and must be part of a battery of measures.

U.S. officials are considering ways to discourage big financial firms from providing insurance for shipments to Iran. Such moves could affect big European companies such as Lloyd’s of London and Munich Re.

“The key fulcrum is the insurance and reinsurance companies,” said Mark Dubowitz of the Foundation for Defense of Democracies policy institute. “It’s difficult to ship without insurance and reinsurance.”

During the Bush administration, the U.S. Treasury began to crack down on financial companies that allow blacklisted entities such as Iranian companies and its larger state banks to illicitly access the U.S. banking system.

Those efforts are continuing in the Obama administration. Lloyds TSB Group Plc this year agreed to pay $350 million to settle charges it secretly allowed sanctioned clients from Iran and Sudan to do business with the U.S. banking system.

ABN AMRO Bank, now owned by Royal Bank of Scotland Group, agreed in 2006 pay $70 million in penalties assessed by U.S. regulators related to alleged dealings with entities from Iran and Libya.

A senior U.S. official said the Treasury’s tougher enforcement has encouraged big firms to curtail exposure to Iran. “What we’ve seen is a notable hesitancy by almost all large reputable banks, not just U.S. banks, not just those who are doing business in dollars, about handling this kind of business,” said the official, who spoke on condition of anonymity.

This, along with higher-profile criticism of Iran from European governments and increased regulatory scrutiny, has made European banks reluctant to handle Iran’s business, the official said.

OIL TRADERS SKEPTICAL
The U.N. Security Council has already imposed three sets of sanctions on Iran for refusing to freeze uranium enrichment, but they have had only a limited impact and Tehran insists it be allowed to pursue its nuclear program.

Many U.S. lawmakers believe gasoline sanctions could be particularly effective against Iran, which imports 40 percent of its gasoline. They hope the ensuing economic hardship could drive a wedge between the Iranian people and their leaders, who they believe have been weakened by a recent disputed election.

Howard Berman, chairman of the House Foreign Affairs Committee, plans to bring forward a bill in October that would impose sanctions on foreign companies that export refined petroleum products.

But oil traders are skeptical it would work. “I know for a fact that the market will find a way to meet demand from Iran, regardless of sanctions,” said an oil trader in the Gulf. “At a price, people will just do the deal.”

Getting multilateral support for such sanctions could be difficult. Russia and China, who have close trading ties with Iran, have expressed reluctance as has France’s foreign minister, Bernard Kouchner.

Patrick Clawson, an Iran expert at the Washington Institute for Near East Policy, said Europeans were more likely to support actions aimed at investment in Iran’s energy sector than those aiming to cut off gasoline supplies.

(Additional reporting by Jonathan Saul in London, and David Lawder and Timothy Gardner in Washington; Editing by David Storey and John O’Callaghan)

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