US Tightens Iran Sanctions As Tehran Tones Down Hormuz Threats

The US president and Congress have separately tightened the sanctions screw on Iran, drawing criticism from both Tehran and China. While Iran and some of its customers scramble to find insurance cover for tankers carrying Iranian oil, Tehran has toned down its threats over the Strait of Hormuz. Nick Wilson reports.

On 31 July President Barack Obama signed new sanctions against non-American banks that help what he called �the increasingly desperate Iranian regime� sell its oil. Sanctions were also extended to buying Iranian petrochemical products � which had previously only been targeted by EU sanctions. The penalties aim to stop Iran�s efforts to evade existing US banking and oil sanctions.

The following day the US House of Representatives voted for a bill that would hit energy, shipping and insurance sectors. The bill targets the state-run National Iranian Tanker Company (NITC) and companies that ship goods considered to be useful to Iran�s nuclear program. It would also deny visas to and freeze assets of people and firms that supply Iran with technology including tear gas, rubber bullets and surveillance equipment. Furthermore, itrequires companies that trade on US stock exchanges to report any Iran-related business to the Securities and Exchange Commission. House and Senate negotiators reached a deal on 30 July over this latest round of sanctions and the senate was expected to vote on them before Congress went into summer recess on 3 August. Previously the president and Congress clashed over sanctions, but this time the White House worked closely with lawmakers.

Closing Loopholes

Most of the measures aim to close loopholes in earlier sanctions, allowing the blacklisting of any financial institution that receives payments for Iranian oil. This will stop Iran from using foreign banks or the National Iranian Oil Company (NIOC) to replace the Central Bank of Iran (CBI) in processing oil transactions. The US Treasury Department has also targeted two banks � Bank of Kunlun in China and Elaf Islamic Bank in Iraq � for alleged sanctions busting. It accuses them of helping blacklisted Iranian banks gain access to international finance markets.

The moves immediately drew fire from China and Iran. State-owned Xinhau news agency reported Chinese Foreign Ministry spokesman Qin Gang as saying: �The Chinese side urges the American side to immediately correct the relevant error, revoke unwarranted sanctions against the Bank of Kunlun, and stop doing things that are detrimental to the Chinese side�s interests as well as China-US relations.�

Iran�s President Mahmoud Ahmadinejad, at the inauguration of a new unit at the Tehran oil refinery, said: �Interestingly, they use the oil industry as a weapon against the oil producers. This is a ridiculous political behavior of a bunch of politically backward people.� Iran�s parliamentary spokesman for the Industries and Mines Committee, Ruhollah Abbaspur, said: �The enemies plan to impose sanctions, causing an economic war against Iran and crippling the country, but sanctions are not something new for us.�

The US government, however, is pleased with the results. Sanctions have cut Iran�s oil exports by 40-50%, losing it $9bn in revenue every quarter, said Robert Einhorn, the State Department�s special adviser on non-proliferation. Furthermore, the rial has lost about 40% of its value since the sanctions law was passed last January, stoking inflation and increasing poverty.

Insurance Scramble

Sanctions have hit insurance cover of oil tankers, making Iran and countries that are still buying Iranian crude scramble to provide protection. The major international providers have withdrawn in the face of sanctions � 95% of oil tankers are insured by the 13 members of International Group of P&I Clubs, which is based in London.

India, China and Japan provide direct and/or indirect insurance to tankers that import Iranian oil or have relied on Iran�s fleet. In June, Japan�s parliament passed a bill to provide $7.6bn of sovereign insurance to tanker owners that carry Iranian oil. India, the third-biggest buyer of Iranian oil, will soon provide state-backed insurance to tankers. The move will help the nation�s biggest sea carrier, Shipping Corporation of India (SCI), to resume deliveries. Indian insurers have agreed to give as much as $100mn of cover per voyage, SCI Chairman Sabyasachi Hajara told Bloomberg News . India�s state-owned Mangalore refinery has stopped buying crude from Iran after the sanctions stopped ships from carrying it.

Indian insurers offer $100mn cover per voyage, but potential liabilities may run into �billions of dollars,� Mr Hajara said. It would be up to the Indian government to bail out SCI �should the company face any claims stemming from accidents.� SCI is also pulling out of the six-vessel Irano Hind Shipping Company joint-venture with Islamic Republic of Iran Shipping Lines (IRISL), whose assets are blocked and frozen in the US and in which it has a 49% stake.

A maritime insurer tells MEES, however, that although this amount would meet the typical international minimum cover allowed per trip for many tankers � $140mn per VLCC down to $30mn for smaller vessels � the sanctions would impact the ability to process payments in the event of a claim. �If the payout is in dollars the banks would need a license � permission from a clearing house � so as not to be hit by sanctions,� he says.

Tehran has set up a new government guaranteed credit line that will provide �multi-billion dollars of liquidity� to the members of the Tehran P&I club, state-controlled Fars News Agency reported. Managing Director of IRISL Mohammad Dajmar said that the imposed sanctions �made us launch Iranian insurance of P&I and this has been gifted to us.� Iran�s OPEC governor Mohammad Ali Khatibi said importers of Iranian crude �have two options. They can either use their own tankers to ship the purchased oil or they can hand over this task to the Iranian fleet.�

Iran hopes the Tehran P&I club will allow South Korea to restart imports � on 27 July South Korean Economy Minister Hong Sukwoo said it was probable that Seoul would resume imports of Iranian crude, which it stopped on 1 July (MEES, 30 July).

MrAhmadinejad is stressing that this is the type of self-reliance that Iran should aim for to beat the sanctions. He said the West fears Iranian experts� ability to design and produce all types of equipment. �A while ago Mr Baba'i [an official at the Tehran refinery ceremony] whispered in my ear that previously 95% of the parts and devices were imported from outside the country. The report here said that the amount [of parts produced in Iran] is now 70%, 60%. If we take another step, it will be 90-95%,� he said. The government also claims that Iran�s domestic industry is so advanced that it will soon land a man on the moon.

Military Rhetoric

The sanctions squeeze is set against the backdrop of a US election year, hawkish Republican presidential candidate Mitt Romney visiting Israel to talk tough on Iran, and increased speculation in Israel of an Israeli military strike on Iran�s nuclear program sites.

�Israel has made it pretty clear that they�re not going to sit by much longer,� Senator Jim DeMint said of the new sanctions. �So we need to apply pressure. I think we�ve been slow in doing it.�

Recently the Israeli news media have carried speculation about a strike by October, and a slew of public statements and private communications from the Israeli leadership has the Obama administration worried that Israel might be preparing to attack Iran, according to The New York Times .

Israeli Prime Minister Binyamin Netanyahu thinks sanctions against Iran have been ineffective. �Right now the Iranian regime believes that the international community does not have the will to stop its nuclear program,� he said. �This must change and it must change quickly because time to resolve this issue peacefully is running out.�

Iran, in contrast has toned down its military rhetoric, saying it will keep the Strait of Hormuz shipping lane open. �Iran�s goal is for everyone in the world to use the Strait of Hormuz, but as long as it does not harm Iran�s interests,� IRNA news agency quoted senior Revolutionary Guards commander Masoud Jazayeri saying. Foreign Minister Ali Akbar Salehi had previously been reported as saying Iran is unlikely to close the strait unless its own vessels were denied its use.

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