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International Herald Tribune: U.S. tightens financial squeeze on Iran

But sanctions aimed at energy projects could anger Europe

By Steven R. Weisman Published: March 20, 2007

WASHINGTON: For all of the U.S. efforts to apply economic and political pressure on Iran over its nuclear program, Washington has never used a potentially potent tool in its arsenal — penalties on foreign companies that assist Iran in producing oil and natural gas.

That may be about to change. The United States has quietly been warning energy companies, including Royal Dutch Shell, Repsol and SKS, as well as the governments of China, India, Pakistan and Malaysia, that sanctions are possible if they pursue energy deals with Iran.

As a result, several huge projects planned for Iran could be vulnerable, including one possible $10 billion project planned by Shell and Repsol, the Spanish oil company, and another $20 billion venture by SKS, the Malaysian oil company, to produce natural gas in Iran’s Golshan and Ferdows fields.

In recent months, the administration has tried to avoid a diplomatic or political flap from its jawboning. But the potential for sanctions is posing a dilemma for the administration by setting up a possible new fight with Europe if it proceeds with them, or a fight with Congress if it does not.

One factor behind the warnings, administration officials acknowledge, is that Congress, out of concern about Iran’s suspected nuclear arms program and support for terrorism, appears to be moving quickly toward passing a law that would make sanctions mandatory.

“What we’re trying to do is create multiple points of pressure on Iran in both the private and public sector,” said R. Nicholas Burns, U.S. under secretary of state for political affairs. “These companies also need to know that the attitude of Congress on their activities in Iran is hardening.”

Last month, the U.S. ambassador to Spain, Eduardo Aguirre Jr., met with Repsol executives in Madrid to advise them against going forward with a deal to develop Iran’s South Pars field, which contains one of the world’s biggest natural gas deposits. The ambassador was told that the deal was not yet final, according to American and Repsol officials.

“No investment is being made at present,” said a Repsol spokesman in Madrid, asking not to be identified by name. “There will not be a decision on this until next year.”

The messages to oil companies mark the latest episode in a long campaign of pressure that reached a turning point in December, when the administration won approval of a United Nations Security Council resolution designating 10 Iranian companies and a dozen individuals as off limits for international financial dealings.

Another resolution designating another 15 individuals and 13 Iranian government and business groups, including a leading Iranian bank, could be approved later this week. The administration, using the Security Council list, wants virtually all of the world’s banks and businesses to boycott all these Iranian entities.

But in orchestrating all this pressure on Iran, President George W. Bush and his top aides have been careful to avoid any kind of boycott or other threat that might cause oil and gas prices to soar and strangle the economies of the West.

Short of a cutoff, the administration clearly wants to make it harder for Iran to tap into its oil and gas reserves to increase exports in the future. Iranian energy output has lagged in recent years, and many experts say the country faces the possibility of not having enough oil to export in as soon as 10 years.

Despite the stepped-up American pressure, some Democratic leaders in Congress charge that the administration has not gone far enough.

They want Bush to invoke a statute enacted in 1996 that obliges the U.S. government to punish any foreign energy company doing business with Iran, unless the president waives the sanction on national security grounds.

“This administration has done nothing to punish Iran,” said Representative Tom Lantos, a California Democrat who is chairman of the House Foreign Affairs Committee. “The method I don’t favor on Iran is to bomb their nuclear facilities. The method I favor is to starve them of resources, which can only be done through sanctions.”

After the bill passed a decade ago, European governments and companies vehemently objected, charging that it amounted to a brazen case of “extraterritoriality,” the term for one nation imposing its laws on foreign companies and sovereign nations.

Then-President Bill Clinton, acting in part to avoid a confrontation with Europe and in part to send a conciliatory message to Iran at a time when moderates seemed to be vying for power, waived the sanctions on several European companies, including Total, the leading French oil concern.

Recalling that precedent, Lantos said his bill would strip the president of the ability to waive sanctions on Iran on national security grounds. The Bush administration opposes that provision as a weakening of presidential prerogatives.

A spokesman for House Speaker Nancy Pelosi said that she supported Lantos’s bill, and Lantos said he was confident he could pass such a bill with a big enough majority to override a presidential veto.

The existing sanctions law gives the government the option to choose among several penalties, including denial of government credits to companies that deal with the foreign oil company, denial of export licenses and a ban on U.S. government procurement or imports from these companies.

Administration officials say the reason no decisions have been made on whether to invoke or waive such sanctions is that the energy exploration deals by Shell, Repsol, China, Malaysia, China and Pakistan are all still in an “embryonic” stage, and that it is better to head them off by using persuasion.

But they also say that the administration does not want to take any action now that would divide the United States from its allies in Europe on Iran, or to provoke China, India and Pakistan, whose support Washington needs for other foreign policy objectives.

A senior European envoy involved in discussions over Iran said that Europeans would be unhappy with American sanctions against private oil companies but that they also understood the importance of pressing the Tehran government.

“As long as we want to avoid a war with Iran, we have to try sanctions,” he said.

The energy steps being contemplated are part of a web of pressures, American and European officials say, which could be invoked in coming months. These include plans to sanction Iranian banks beyond the two that have already been sanctioned and barred from obtaining dollars from U.S. banks.

The aim, American officials say, is to prevent Iran from obtaining dollars, the world’s reserve currency, for use in any purchase of goods or services. Iranian leaders have said that American sanctions are forcing them to sell oil for euros or other currencies, even though oil is traded on the international markets in dollars.

In a separate set of actions, U.S. and European officials say that recent stepped-up pressure on European governments has led several to reduce, or to pledge to reduce, their government- backed credit guarantees for deals with Iran.

Germany had $6.2 billion in outstanding export credits to Iran as of 2005, according to figures circulating at the United Nations. But recently Germany reported that after cutting back credits by 60 percent, it planned further cutbacks this year.

Japan, which had $1.9 billion in credits as of 2005, has also informed the United States that it has granted no medium or long-term credit insurance since last June and had cut short-term credits to $8 million since last May.

American officials say they have received similar pledges from Italy and France to cut back export credits.

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