US hopes new Iran sanctions take a scalpel rather than axe

By Andrew Quinn, Reuters

WASHINGTON — The United States has armed itself with some of the toughest sanctions yet targeting Iran but must carefully assess how to avoid catching energy-importing allies such as Japan, South Korea and India in the crossfire. U.S. President Barack Obama signed the law on Saturday imposing sanctions on financial institutions that deal with Iran’s central bank, the main clearinghouse through which OPEC’s No. 2 oil exporter deals with clients around the world. The new U.S. sanctions were pushed through Congress despite misgivings among administration officials, who now must consider how to implement the law without roiling global energy markets or upsetting friendly governments that depend in part on Iranian crude oil imports. Political analysts said Washington hopes the new sanctions will spur foreign banks to change their behavior before the United States is required to begin freezing them out of U.S. financial markets. “The sanctions will force a choice between buying Iranian oil or engaging in the U.S. financial system, the largest in the world. That is going to change the risk calculus for a lot of folks,” said Brian Katulis, a security expert at the Center for American Progress. “They are going to wait to see how this signal is received before they take any further steps.” More Scalpel Than Axe The new U.S. measures target both private and government-controlled banks, including central banks, and would take hold after a two- to six-month warning period depending on the transactions.

U.S. officials acknowledge that allies such as Japan have concerns, and have built in several provisions designed to make the new law more of a scalpel than an axe. The law allows Obama to exempt institutions in a country that has significantly reduced its dealings with Iran. He may also grant waivers deemed to be in the U.S. national security interest or otherwise necessary for energy market stability. Obama would need to notify Congress and waivers would be temporary but they could be extended.

White House officials declined to say which countries have sought waivers or how they expect the sanctions to impact U.S. relations with Iran’s oil customers. China, the No. 1 customer for Iran’s oil, and Russia have both resisted additional sanctions on Tehran and are unlikely to be swayed by the new U.S. law, analysts said. But for countries such as Turkey, which gets about 30 percent of its oil from Iran, or India, which gets 11 percent, the prospect of a U.S. waiver could reduce anxieties over the sanctions and consolidate support for Washington’s aggressive stance on Iran’s nuclear ambitions.