US Congress Urged to Avoid Tighter Iran Sanctions

Carol Giacomo, Reuters:

The Bush administration urged Congress on Thursday not to tighten U.S. sanctions against foreign firms investing in Iran's oil and gas sectors, arguing it could damage the current major-power diplomatic initiative with Tehran at a delicate moment.

"We're on the verge possibly -- possibly -- of a negotiation with Iran on the future of its nuclear weapons program," Undersecretary of State Nicholas Burns told the Senate Banking Committee.

Later, he told Reuters he did not mean to suggest a breakthrough was imminent. But he stressed "we're at the point in our diplomacy now where ... we want to turn attention towards the Iranians, not our allies, because we don't want to weaken the international coalition that we've created." READ MORE

Burns and Pat O'Brien, a Treasury Department assistant secretary, said U.S. pressure and concerns about Iranian activities had already changed business calculations.

Banks and companies were increasingly slowing down or suspending business with Iran because of concerns over the political risks of doing business there, they said.

"Foreign interest in investing in Iran's oil and gas sector appears to be slowing, not accelerating," Burns said.

O'Brien said in the banking community, UBS had ceased doing business with Iran, Credit Suisse was not establishing new ties and ABN AMRO and HSBC had curbed their dealings with Iran.

CREDIT DOWNGRADED

Energy firms Baker Hughes Inc. , ConocoPhillips and BP had suspended dealings with Iran and in May the Organization for Economic Cooperation and Development downgraded Iran's credit rating for official credits and now assessed Iran at the same level as countries with active insurgencies as Sri Lanka and Columbia, he said.

Also, "reputable institutions around the world are making quiet decisions to cut back or sever their dealings with Iran," O'Brien added, without naming names.

The United States, Russia, China, Britain, France and Germany on June 6 presented Iran with a deal, including access to advanced civilian nuclear technology, but say Tehran must suspend weapons-related uranium enrichment before negotiations can start.

Iran has shown signs of interest in the compromise package, although no decision has been announced.

Key U.S. lawmakers have pushed for changes in the Iran-Libya Sanctions Act known as ILSA, which is up for renewal, to require the administration to actually enforce the law and close other "loopholes." Sanctions on Libya have been lifted because it gave up nuclear weapons.

Companies from Europe, Japan and China have signed energy contracts with Iran worth billions of dollars but the United States has not sanctioned any of them, despite the fact ILSA is on the books. The law gives the president power to waive sanctions.

Burns said the administration endorsed a straight renewal of the current law and called it a useful tool in drawing attention to troubling Iranian activities. Washington has accused Tehran of pursuing nuclear weapons under cover of a peaceful energy program, which it denies, and of sponsoring extremist groups.

The administration opposes moves to require strict enforcement of the law or other amendments because that would penalize U.S. partners at the heart of a new diplomatic effort to persuade Iran to abandon its nuclear programs, Burns said.

But Sen. Robert Menendez, a New Jersey Democrat, argued the "sanctions law doesn't have teeth that it needs" in part because it lets foreign subsidiaries of U.S. firms invest in Iran and allows U.S. pension funds to invest in those firms.

A lobbyist who tracks the issue closely said there was considerable support in both the House of Representatives and the Senate to tighten ILSA and he predicted this view would prevail.