UPDATE 2-US, again, talks of sanctioning Iran's central bank

Thu Dec 1, 2011 3:47pm EST

Related Topics

* Senate vote expected on Iran amendment

* New sanctions were announced in late November

By Arshad Mohammed and Susan Cornwell

WASHINGTON, Dec 1 (Reuters) - Top U.S. officials said on Thursday they were looking to sanction Iran's central bank in a calibrated manner to avoid roiling oil markets or antagonizing allies, though that approach clashed with U.S. lawmakers pushing for fast action.

The Senate is expected to vote on Thursday on an amendment backed by Democrats and Republicans that would require sanctioning foreign financial institutions that do business with Iran's central bank, the main conduit for its oil revenues.

The United States already bars its own banks from dealing with the Iranian central bank, so U.S. sanctions would operate by dissuading other foreign banks from doing so by threatening to cut them off from the U.S. financial system.

The United States and its Western allies have supported multiple rounds of sanctions on Iran, seeking to persuade it to curtail its nuclear work. Washington suspects Tehran of using its civilian nuclear program to develop an atomic bomb, though Iran says its program is solely to produce electricity.

U.S. officials made clear that they oppose an amendment sponsored by Senator Robert Menendez, a Democrat, and Senator Mark Kirk, a Republican, that would allow the U.S. president to sanction foreign banks found to have carried out a "significant financial transaction with the Central Bank of Iran."

On Nov. 21, the United States, Britain and Canada announced new sanctions on Iran's energy and financial sectors, but the Obama administration stopped short of targeting Iran's central bank, a step that U.S. officials said could send oil prices skyrocketing and jeopardized global economic recovery.

"The Obama administration strongly supports increasing the pressure on Iran, and that includes properly designed and targeted sanctions against the central bank of Iran, appropriately timed as part of a carefully phased and sustainable policy toward bringing about Iranian compliance with its obligations," U.S. Under Secretary of State Wendy Sherman told the Senate Foreign Relations Committee.

WORLD OIL MARKETS

The amendment provides a six-month grace period before sanctions would kick in for petroleum transactions with Iran's Central Bank, a move that appeared designed to give world oil markets time to adjust.

It includes a "waiver" letting the president to suspend the sanctions if he deems this vital to U.S. national security.

The sanctions are being proposed as an amendment to a defense bill on the Senate floor. Similar provisions have passed a House of Representatives committee, increasing the likelihood that some version will become law.

"Our judgment is that the best course to pursue at this time is not to apply a mechanism that puts at risk the largest financial institutions, the central banks, of our closest allies," Undersecretary of the Treasury David Cohen told the Senate Foreign Relations Committee.

Sherman and Cohen drew a rebuke from Menendez, who argued that he had agreed to make changes in the amendment to suit the Obama administration only to find that it still rejected the legislation.

"I am extremely disappointed," Menendez said. "At your request, we engaged in an effort to come to a bipartisan agreement that I think is fair and balanced and now you come here and vitiate that very agreement."

"You should have said we want no amendment, not that you don't care for that amendment," he added.

The Obama administration's chief concerns appear to be that the amendment could be a blunt instrument that might send oil prices higher and that might undercut support for sanctions among U.S. allies, whose backing has been vital to pass four U.N. Security Council sanctions resolutions against Iran.

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