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Sanctions Tighten on Iran
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By Kelsey Davenport

Additional U.S. sanctions targeting Iran’s banking and oil sectors went into effect June 28, further restricting Iran’s ability to export oil and isolating the country from the international financial system.

The U.S. sanctions, which are intended to pressure Iran to address international concerns about its nuclear program, are part of the fiscal year 2012 National Defense Authorization Act, which was signed into law Dec. 31. (See ACT, January/February 2012.) The provisions of the law that went into effect June 28 prevent foreign banks from accessing existing accounts or opening new accounts in the United States if they process oil-related transactions with the Central Bank of Iran. The president can waive the sanctions on countries that continue to import Iranian oil after he has certified that they have “significantly reduced” their purchases from Iran. Waivers are granted for six-month periods, but can be renewed.

The day the sanctions went into effect, Secretary of State Hillary Rodham Clinton announced China and Singapore had met the significant-reduction standard and were eligible to continue importing oil from Iran without penalty.

The last-minute exemption for China did not come as a surprise. Clinton hinted on June 20 that a waiver could be in the works, saying that Beijing was “slowly but surely” taking actions to reduce its oil purchases from Tehran.

In response to the granting of the waiver, Sen. Robert Menendez (D-N.J.), one of the authors of the sanctions legislation, said in a June 28 statement that Clinton had assured him that China “met the significant reduction standard.” However, he said that China must also be “mindful” that under the terms of the law such a reduction is required every 180 days for renewal of the waiver and that this would be expected from all countries to “qualify for future exemptions.”

House Foreign Affairs Committee Chairman Ileana Ros-Lehtinen (R-Fla.), in a June 28 press release, described the Chinese waiver as “a free pass to Iran’s biggest enabler” and called on Congress to “strengthen sanctions” against Tehran.

With China and Singapore, the Obama administration certified that 20 countries would be exempt from the sanctions. Earlier in the month, Clinton announced that seven countries—India, Malaysia, South Africa, South Korea, Sri Lanka, Taiwan, and Turkey—had received waivers and can continue to import Iranian oil without penalty. The June 11 announcement was the second such determination. In March, Japan and 10 EU countries were granted waivers. The EU countries, however, will not be able to continue importing Iranian oil under the waiver after July 1, when an EU embargo on Iranian oil goes into effect. In a June 25 press release, the Council of the European Union reaffirmed that oil import contracts with Iran must be “terminated by July 1.”

In the June 28 statement, Clinton cited figures from the International Energy Agency, which found that Iran’s average daily oil exports dropped from 2.5 million barrels per day in 2011 to a current average of approximately 1.5 million barrels per day. This represents nearly $8 billion in lost revenues every quarter, and is a “clear demonstration” to Tehran of the “enormous economic cost” of continuing to violate “international nuclear obligations,” she said. She urged Iran to take “concrete steps” to resolve the nuclear issue or face “continuing pressure and isolation.”

Insurance Ban

In addition to banning imports of Iranian oil, the EU decision that will take effect July 1 prohibits companies in EU member countries from insuring tankers transporting Iranian crude oil to any country. Tankers are unable to transport crude oil without protection and indemnity insurance coverage. As a result, even if countries receive a waiver from the United States allowing them to purchase Iranian oil without financial sanctions, some may be prevented from continuing imports if they cannot obtain other insurance guarantees to cover the tankers.

Some countries are arranging alternative means to cover the loss of insurance after July 1. In June, Japan passed a law that allows the government to provide the necessary insurance guarantees for the oil tankers. India is allowing state-run oil refineries to import oil on Iranian tankers insured by state guarantees from Tehran, and China was reportedly looking into similar measures. The South Korean government, despite receiving a waiver from the United States to continue importing Iranian oil, said it will stop the imports on July 1 and is not pursuing sovereign guarantees. These four countries are among the top purchasers of Iranian oil.

French Foreign Minister Laurent Fabius indicated that the European Union could adopt further sanctions. In a statement following negotiations in Moscow between Iran and six world powers over Tehran’s disputed nuclear program (see page 27), he said that sanctions will “continue to be toughened” if Iran “refuses to negotiate seriously.”

New U.S. Sanctions Urged

With no agreement coming out of the Moscow talks, members of Congress have indicated that further sanctions designed to isolate Iran could be passed.

In a bipartisan effort, 44 senators called on the administration to take additional steps against Tehran if it failed to address certain concerns about its nuclear program. In the June 15 letter to President Barack Obama, the senators called for “significantly increasing the pressure” on Iran through sanctions if no “substantive agreement” was reached during the June 18-19 talks in Moscow.

The letter also stated that unless Iran complied with International Atomic Energy Agency inspections and UN Security Council resolutions, it should not be relieved of any current sanctions or those that went into effect June 28.

In a June 19 statement, Ros-Lehtinen called on the United States and other countries to take further measures, saying the countries need to impose “game-changing sanctions” that would “compel” Iran to “abandon its nuclear program now.”

Ros-Lehtinen has authored legislation that would strengthen existing sanctions against Iran’s energy and financial sectors. The legislation passed in the House in December, and a slightly different version passed the Senate in May.

Posted: July 5, 2012