U.S. mulls Iran sanctions but not on oil, central bank

WASHINGTON Tue Nov 8, 2011 11:46pm EST

A general view of the Bushehr main nuclear reactor, 1,200 km (746 miles) south of Tehran, August 21, 2010.  REUTERS/Raheb Homavandi

A general view of the Bushehr main nuclear reactor, 1,200 km (746 miles) south of Tehran, August 21, 2010.

Credit: Reuters/Raheb Homavandi

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WASHINGTON (Reuters) - The United States may impose more sanctions on Iran, possibly on commercial banks or front companies, but is unlikely to take further steps against its oil and gas industry or go after the central bank for now, a U.S. official said on Tuesday.

The official spoke after the International Atomic Energy Agency, the U.N. nuclear watchdog, completed a new report that said Iran has worked on developing an atomic bomb design and may still be conducting relevant research.

Citing what it called "credible" information from member states and elsewhere, the agency listed a series of activities applicable to developing nuclear weapons, such as high explosives testing and development of an atomic bomb trigger.

"I think you will see bilateral sanctions increasing," the U.S. official, speaking on condition of anonymity, told Reuters.

But because of Russian and Chinese opposition, chances are slim for another U.N. Security Council resolution sanctioning Iran for its nuclear program, the official said.

As a result, officials said the main focus appeared to be better implementation of existing sanctions and the sounding out of "like-minded" countries to try to persuade them to impose additional sanctions on Iran.

The United States has long suspected Iran of using its civil nuclear program as a cover for developing atomic weapons capability. Iran says its nuclear program is peaceful and designed to generate electricity.

Russia and China are likely to oppose a fifth Security Council sanctions resolution against Iran, leaving the United States with few options but to tighten its own extensive sanctions and try to persuade others to follow suit.

"From our side, we are really looking to close loopholes wherever they may exist," the U.S. official said, adding U.S. sanctions are so comprehensive that "there is not a whole lot out there other than the oil and gas market -- and you know how sensitive that is. I don't think we are there yet."

The United States has long barred U.S. companies from trading with or investing in Iran, including its oil and gas sector. But it also has laws permitting sanctions on non-U.S. companies that develop Iran's energy sector.

Washington has been reluctant to impose such sanctions for fear of a diplomatic backlash from countries whose support it needs to isolate Iran. But members of Congress have been pushing the administration to embrace such penalties.

The House Committee on Foreign Affairs last week passed legislation to toughen such penalties by denying U.S. visas to people who do business with Iran's energy sector.

It also approved legislation requiring sanctions on Iran's central bank if the president finds it is enabling terrorism or the development of nuclear arms or supporting Iran's Islamic Revolutionary Guard Corps, an elite military force.

Asked where additional U.S. sanctions might come, the official said: "You want to look for other commercial banks, further identify and go after some of these front companies ... We want to try to clamp down on some of that."

MORE U.N. SANCTIONS UNLIKELY NOW

The official played down the chances of sanctioning Iran's central bank, which is the clearinghouse for much of its petroleum trade, the mainstay of the Iranian economy.

"That is off the table" for now, he said. "That could change, depending on what other players (think). I don't want to rule that out but it is not really currently on the table."

The official said there were limits to how much pressure the United States, acting on its own, could place on Iran without targeting the petroleum industry or the central bank.

"The reality is that without being able to put additional sanctions into these key areas, we are not going to have much more of an impact than we are already having," he said.

Existing sanctions are hurting Iran, he added.

The official said he hoped the IAEA report would help to persuade Russia and China that Iran's nuclear ambitions were not benign.

But he acknowledged it was unlikely Russia and China, which hold Security Council vetoes, would back more multilateral sanctions and said it may even be hard to persuade them to support a new IAEA board of governors resolution.

"Hopefully, they will move toward supporting a resolution in the (IAEA) board but for them to do so it would have to be very anodyne," the official said. "But the reality is getting further sanctions at the U.N. is probably not doable."

Senator John McCain, the Republican U.S. presidential nominee in 2008, said the United States should be doing more to persuade Russia and China to crack down on Iran.

"This is clearly a rogue nation and for us to sit there and watch the Russians and Chinese veto sanctions which could affect Iranian behavior is in my view not acceptable," McCain told the Reuters Washington Summit. (Additional reporting by Andrew Quinn and Tabassum Zakaria; Editing by John O'Callaghan)

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