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U.S. Lawmakers Target Iran Energy Sector for Expanded Sanctions

By Indira A.R. Lakshmanan
March 29, 2012 8:40 PM EDT 4 Comments
The Bushehr nuclear power plant in southern Iran.
Photographer: Majid Asgaripour/AFP/Getty Images
The Bushehr nuclear power plant in southern Iran.

U.S. lawmakers are seeking to expand sanctions on Iran’s energy sector by banning the purchase of its natural gas and prohibiting investment in oil and gas services, exploration and new pipelines.

Representatives Ted Deutch, a Florida Democrat, and Robert Dold, an Illinois Republican, introduced the Iran Energy Sector and Proliferation Sanctions Act in Congress yesterday. The measure is the latest in a stepped-up campaign to tighten sanctions aimed at depriving Iran’s government of revenue that may be used for its nuclear and missile programs.

Iran is the second-largest crude producer in the Organization of Petroleum Exporting Countries. It also has the world’s second-largest natural-gas reserves, which are largely undeveloped.

“We must not allow the Iranian regime to use the nation’s vast energy resource as a financial pipeline for its nuclear ambitions,” Deutch said in an interview. The legislation is intended to “put the world on notice that the entire Iranian energy sector is off limits so long as Iran continues to defy the international coalition.”

The new measure declares Iran’s energy sector “a zone of proliferation concern with which no legitimate international business should be conducted,” according to a copy of the legislation provided by Deutch.

The proposed legislation expands on existing laws by making the Iranian energy sector a “no-go zone” for any foreign investment in energy, any imports of natural gas and the sale of energy-related technology, goods and services, said Mark Dubowitz, who advised Deutch on the bill and is executive director of the Foundation for Defense of Democracies, a research group in Washington.

‘Blacklisting’ Energy Sector

“Blacklisting Iran’s entire energy sector would reduce the number of companies willing to trade in Iranian oil and natural gas, thus forcing Iran to reduce its prices for whatever it can still sell,” Dubowitz said. “If aggressively enforced, these sanctions also would discourage most foreign companies from investing in Iran’s energy sector.”

Dubowitz said the idea is based on a 2010 United Nations Security Council resolution that refers to a “potential connection” between Iranian oil and gas revenues and “the funding of its proliferation-sensitive nuclear activities.”

In November, the U.S. Treasury Department declared the Iranian financial sector a zone of money-laundering concern, and lawmakers said they are following that model by trying to identify Iran’s energy sector as a source of funding for nuclear and missile technology.

Bipartisan Consensus

For decades, U.S. companies have been forbidden from doing any business with Iran’s energy sector. Since 1996, a U.S. law has sought to ban foreign companies from making investments of more than $20 million in Iran’s energy sector. In 2010, the U.S. imposed sanctions to prohibit foreign countries from selling refined gasoline to Iran.

A law enacted Dec. 31 demands that foreign nations “significantly reduce” Iranian oil imports. Financial institutions in those countries that fail to do so may be cut off from the U.S. banking system if they pay for oil through Iran’s central bank.

Iran derives more than half of its government revenue from oil exports, according to the International Monetary Fund. The IMF forecasts that Iran’s oil income for 2011 will be $97 billion, a $25 billion increase over the previous year.

A Bipartisan Consensus

Dold, the Republican co-sponsor of the bill, said in an interview that there is a bipartisan consensus in Congress “to ratchet-up pressure on this Iranian regime’s nuclear weapons ambition” by “further depriving Iran’s government of energy revenues it uses to fund its nuclear program.”

The U.S. and European Union have adopted dozens of financial, insurance and energy-related restrictions since November in an effort to squeeze Iran’s economy and force its leaders to abandon any illicit aspects of their nuclear program. The U.S., EU and Israel say Iran is seeking the capability to produce a nuclear weapon. Iran says its program is for civilian energy and medical research.

Aides to Senator Mark Kirk, an Illinois Republican, said he plans to introduce similar legislation in the Senate.

Crude oil for May delivery dropped $2.63, or 2.5 percent, to $102.78 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 16. It was the biggest decline since Dec. 14. Prices are up 4 percent this year and set for a second quarterly gain.

To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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