US Senate Banking Panel Passes Iran Sanctions Bill 23-0

The U.S. Senate banking committee Thursday passed legislation authorizing stringent new sanctions against Iran and the firms that conduct business with the state, particularly targeting the energy sector.

The bipartisan bill--which sailed through the panel on a 23-0 vote--is part of a larger effort to try to halt Tehran's nuclear enrichment program.

Like a similar bill that passed in the House Foreign Affairs Committee Wednesday, it gives the Obama administration stronger powers to sanction companies that provide Iran with gasoline, diesel and other refined petroleum fuels.

The U.S. and other countries fear Iran is pursuing a nuclear weapons program. International sanctions through the United Nations have so far failed to make major progress in negotiations with Tehran, spurring Congressional lawmakers to legislate more stringent unilateral sanctions.

Despite being one of the largest exporters of crude in the world, Iran imports a major portion of its gasoline needs due to a dearth of refining capacity.

It also follows the President Wednesday signing an appropriations bill into law that prohibits the Department of Energy from purchasing fuel for the Strategic Petroleum Reserve from companies that do business with Iran.

The Foundation for the Defense of Democracies, which tracks companies doing energy business with Iran, said from August through October the main suppliers include Vitol Holdings, Trafigura, Total SA (TOT), Royal Dutch Shell (RDSA), Reliance Industries (500325.BY), Independent Petroleum Group (IPG.KW) and Malaysia's Petronas. FDD Executive Director Mark Dubowitz says the National Iranian Oil Company (NIOC) also shows up as a supplier "which probably means it is acting as a front for other suppliers."

Vitol Holdings, one of the world's largest energy traders, says it's responsible for importing 42 million gallons of gasoline into the U.S. a day.

"This legislation provides real teeth to a comprehensive economic warfare strategy against the Iranian regime," said Dubowitz.

But Cliff Kupchan, a senior analyst at Eurasia Group, said multilateral actions wouldn't likely ratchet up the pressure U.S. lawmakers are seeking, with other countries able--and willing--to fill the supply gap.

"Lack of refining capacity in Iran is an Achilles heel, but a measure that lacks multilateral enforcement can easily be circumvented," Kupchan said. "They will at best have a limited affect," he said.

Firms from China, Malaysia, Gulf countries, Indonesia and South Africa are likely to backfill any lost western supplies.

Iranian transactions costs are likely to increase, putting some pressure on the Iranian economy, but Kupchan said Tehran is deeply committed to its nuclear program and the broader economy is not performing badly.

The bill expands the existing Iran Sanctions Act to cover a broader range of financial institutions, and extend sanctions to oil and gas pipelines, tankers and the petroleum export supply chain. It establishes additional sanctions prohibiting specified foreign exchange, banking and property transactions. The U.S. administration would also have to report back to Congress every six months on which individuals and companies had potentially violated the act.

Currently, the administration hasn't applied the Iran Sanctions Act to any company for nearly a decade, though a raft of companies have invested more than the threshold amount. State Department officials have said applying sanctions against companies based in other countries raised sovereignty issues and complicates negotiations for multilateral sanctions.

State Department officials have said they're reviewing nearly two-dozen companies to see if there have been violations of the Iran Sanctions Act.

-By Ian Talley, Dow Jones Newswires; [phone]; [e-mail];