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US 'wants sanctions to hurt only Iran'

Washington, February 17, 2012

US President Barack Obama hopes the toughest sanctions ever imposed on Iran will squeeze its oil exports - all without scaring markets, crimping growth, impoverishing ordinary Iranians or antagonizing allies.

The geopolitical equivalent of threading a needle is made even more difficult by elections in both the US and Iran. Obama's goal, persuading Iran to curb its nuclear program, seems far from assured.

In recent weeks, US officials have crisscrossed the globe to meet allies such as Japan and South Korea that rely heavily on Iranian oil and are worried that the new law may hurt their economies.

The US also wants to fend off any dramatic spike in oil prices that could hurt its own economy, the top issue for voters who will decide whether Obama is re-elected in November.

US officials say their talks have been productive so far and stress they are not looking to make enemies of their friends, and so will implement the sanctions with care.

'There is flexibility on the sanctions, countries will make their own financial decisions and the United States will work with them,' Daniel Glaser, assistant secretary for terrorist financing at the U.S. Treasury, said in an interview.

'The goal here is not to punish any individual country, the goal is to target Iran,' he said.

The new law gives Obama the ability to cut off foreign banks, including central banks, from the U.S. financial system if they conduct petroleum-related transactions with Iran's central bank, the main clearing house for its oil exports.

Yet even before the new sanctions go into effect, evidence is mounting that Western pressure may be hitting some of the wrong targets. Shipments of grain to Iran, exempt from the sanctions like other humanitarian goods, have been held up because of financial restrictions on Iranian banks that would handle the transactions.

If previous sanctions efforts elsewhere are any guide, Iran's elites will find ways to insulate themselves from economic pain imposed from outside.

The director of the US Defense Intelligence Agency, Lieutenant General Ronald Burgess, told Congress on Thursday that despite increased pressure on Iran, 'Tehran is not close to agreeing to abandoning its nuclear program.'

Still, the sanctions are clearly having some impact.
Iran, which denies Western charges that it is seeking to build nuclear weapons, this week offered what it called 'new initiatives' for nuclear talks with world powers. The move was widely seen as a response to mounting economic pain.

In Iran, the rial currency has weakened sharply to about 20,000 to the US dollar on the black market from about 13,000 before Obama signed the law on December 31.

'The precipitous drop in the value of the rial as well as their inability to responsibly manage their economy is the best evidence of the effectiveness of sanctions,' Glaser said.

'Isolating Iran's central bank from the international financial system will make it difficult for Iran to manage its economy. That, over time, is going to be as important as directly impacting Iran's oil revenue,' he said.

The US has not set a specific target, saying only that it wants to see a 'significant' reduction in Iran's oil exports, deliberately leaving that term vague to preserve some latitude.

Analysts say a 20-25 percent reduction in Iran's oil revenue would show sanctions biting, while some US senators say significant means an 18 percent reduction in total payments to Iran for oil.

'I think it is a success if there is a 25 percent reduction in Iranian revenue or exports,' said Frank Verrastro, director of the energy and national security program at the Center for Strategic and International Studies.

Facing rising prices for staples such as meat, bread and rice, many Iranians are withdrawing savings to buy increasingly scarce hard currency to preserve their purchasing power as the rial plummets.

'I think psychology has started to take over, started to take hold perhaps more than is warranted,' said Ken Katzman, a Middle East specialist at the Congressional Research Service. 'It's almost irrelevant whether these fears are unfounded or not because they are creating an economic reality with the fear.'

The new US sanctions go into effect for non-petroleum transactions with the Iranian central bank on February 29 and for oil-related transactions on June 28. That is aimed at giving Iran's oil customers - China, the European Union, Japan, India, South Korea and Turkey top the list - time to adapt, and to avoid whipping up oil prices.

'The United States continues to talk to buyers of Iranian oil about their energy needs and alternative sources with the goal being a significant, steady reduction in oil purchases from Iran over time, but it won't happen all at once,' Glaser said.

'We need to understand what's in the realm of the possible, and it is unrealistic to apply one standard to all countries. This is going to have to be done on a case-by-case basis.' Glaser spoke with Reuters before traveling to Oman, Qatar and Russia last week to discuss the sanctions and other issues.

The US is hoping that Saudi Arabia, the UAE and other oil producers will help fill the gap created by restrictions on Iranian oil. - Reuters




Tags: Iran | US | Nuclear | Sanctions | Obama |

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