UPDATE 3-Bill to ramp up Iran sanctions fails in US Senate
* Senator Rand Paul's objection effectively blocks the bill
* Package meant to build on existing oil, banking sanctions
* Timing of next step not immediately clear (Recasts with Senate action, adds comment)
By Roberta Rampton and Rachelle Younglai
WASHINGTON, March 27 (Reuters) - A U.S. Republican lawmaker on Tuesday blocked Democrats from passing legislation designed to further punish Iran for developing its nuclear program, and each side blamed the other for its failure in a presidential election year that will put extra scrutiny on President Barack Obama to be tough on Tehran.
The legislation, which had the backing of many Democratic and Republican Senators, focused on foreign banks that handle transactions for Iran's national oil and tanker companies, and included a host of measures aimed to close loopholes in existing sanctions.
A handful of Republicans wanted to include additional measures to the bill such as sanctions on companies that insure trade with Iran. But Majority Leader Harry Reid wanted to take up the legislation without amendments.
"New changes to the bill at this time will only slow down its passage," Reid, a Democrat, said before he sought unanimous consent from Senators to approve the legislation - a procedure that allows no amendments.
Senator Rand Paul formally objected to taking up the legislation unless the Senate would also consider his amendment to it saying that nothing in the bill could be construed as an authorization of war against Iran or Syria. This effectively blocked the bill from advancing.
The timing of the next step was not immediately clear.
The latest set of penalties signed into law by President Barack Obama in December have made it increasingly difficult for Tehran to sell its oil. They are aimed at slowing Iran's nuclear program, which Tehran has said is purely for civilian purposes. The United States and some other Western countries say the program is for nuclear weapons.
The bill would have built on efforts by the United States and other Western nations to implement oil and banking sanctions.
"These sanctions are a key tool as we work to stop (Iran) from obtaining a nuclear weapon, threatening Israel and ultimately jeopardizing U.S. national security," Reid said earlier on Tuesday.
The Senate Banking Committee easily passed the sanctions bill on Feb. 2 and the full House of Representatives passed its version in December.
Since then, several lawmakers have floated additional proposals to penalize underwriters that insure oil and gas trade with Iran; to block foreign companies dealing with Iranian energy companies from U.S. financial markets; and to ban foreign companies that buy Iranian oil from buying oil from U.S. emergency reserves.
Before Paul blocked the bill, Reid said Democratic senators had agreed to move forward without offering any amendments, which could speed a vote. "I'm willing to move this bill without amendments at any time," Reid said afterward.
Democrats were quick to blame Republicans for blocking the bill. "I hope that the select few Republicans who reportedly blocked this important bill will reconsider their opposition and allow it to move forward as soon as possible," said Tim Johnson, the Democratic chairman of the Senate Banking Committee.
A Republican congressional aide said it was "unfortunate" that Reid "seeks to silence both Democrats and Republicans who want to consider tougher sanctions against Iran."
Republicans were pushing to include at least one amendment from Senator Mark Kirk, Jon Kyl, the second-ranking Republican in the Senate, said before the bill was blocked.
Kirk, one of the architects behind the sanctions that became law in December, has continued to work on Iran sanctions issues as he recovers from a stroke. A number of his measures had won support from Democrats.
"We remain hopeful that Senators can find a bipartisan way forward to incorporate ideas from both sides of the aisle that would help strengthen sanctions against Iran," a spokesman from Kirk's office had said.
Kyl told reporters that he did "feel some obligation to make sure that Senator Kirk is satisfied before we go forward" with the legislation.
Senator Joe Lieberman, an independent who caucuses with Democrats, said he wanted to see the sanctions advance but would like to see some amendments allowed.
"I'd really prefer to have a bipartisan agreement with a limited number of amendments on both sides," Lieberman told reporters before the bill was blocked. (Additional reporting by Susan Cornwell; editing by Mohammad Zargham)
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