Dec. 1 (Bloomberg) -- The U.S. Senate unanimously approved a measure to sanction foreign financial institutions that do business with the Central Bank of Iran, a move aimed at reducing the number of countries able to buy Iranian crude oil.
The measure, if enacted into law, would make it more difficult for Iran to get paid for oil sold to foreign buyers. It gives the Obama administration power to bar foreign financial institutions that do business with the Central Bank of Iran from having correspondent accounts in the U.S.
The amendment to the 2012 defense authorization bill, which sets Pentagon policy and spending targets for the fiscal year that started Oct. 1, was sponsored by Senators Mark Kirk, an Illinois Republican, and Robert Menendez, a New Jersey Democrat. It passed by a vote of 100-0.
The Obama administration opposes the amendment on the grounds that, by threatening oil supplies for key Asian and European partners, the move may fracture the international coalition behind coordinated sanctions on Iran and send the price of oil soaring.
“There’s absolutely a risk that, in fact, 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.
The full Senate is expected to vote on the defense bill later today. The House and Senate will need to negotiate a final bill that would go to President Barack Obama for his signature.
Pressure on Nuclear Program
The aim of the sanctions measure is to deprive Iran of its main source of revenue and thereby force the regime to abandon nuclear weapons work. On Nov. 8, a United Nations atomic inspectors report cited examples of clandestine weapons work, which Iran denied.
The Central Bank of Iran is a vital intermediary for purchasers of Iranian crude because existing sanctions against the Persian Gulf country have so constrained Iran’s ability to use 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.
Oil is Iran’s main source of income, supplying over 50 percent of the national budget, according to International Monetary Fund figures. Oil provided the Islamic state $56 billion in the first seven months of 2011, according to the U.S. Energy Department. Oil prices have increased 9.7 percent this year to close at $100.20 a barrel on the New York Mercantile Exchange.
U.S. Undersecretary of Treasury David Cohen testified before the same panel that taking unilateral U.S. action against the central bank is likely to undermine sanctions support that the U.S. has garnered from international partners over the last three years.
The European Union today added 180 Iranian officials and companies to a blacklist and debated further measures. On Nov. 21, the U.K., Canada and the U.S. announced new measures, including Britain’s sanctioning of Iran’s financial system.
The top refiners of Iranian oil are China, Japan, India, Italy and South Korea, according to the U.S. Energy Information Administration.
While China has supported four rounds of UN sanctions, leaders in Beijing as well as a number of U.S. allies in Asia and Europe who buy Iranian oil have resisted targeting Iran’s energy products.
“Greece has a certain number of reservations” about an oil cutoff, French Foreign Minister Alain Juppe told reporters at an EU foreign ministers’ meeting in Brussels today. “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 action with allies and partners is better than unilateral U.S. action, Cohen suggested. “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,” Cohen testified.
Iran pumped 3.6 million barrels 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 go into effect July 1 if included in final legislation signed by Obama. The measure 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 today.
“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.
The Obama administration has imposed numerous restrictions on Iran aimed at cutting off financing, shipping and insurance for Iranian banks and enterprises it accuses of illicit activities.