UPDATE 2-Obama tightens sanctions on banks helping Iran sell oil
* Targets foreign banks' deals with Iran traders NIOC, NICO
* Blacklists a Chinese and Iraqi bank
* Comes on eve of congressional votes on more sanctions
* 'Not the final word on Iran sanctions' -Rep. Berman
By Laura MacInnis and Roberta Rampton
WASHINGTON, July 31 (Reuters) - President Barack Obama announced new U.S. sanctions on Tuesday against foreign banks that help Iran sell its oil and said the measure would increase pressure on Tehran for failing to meet its international nuclear obligations.
Obama's decision, in an executive order, came ahead of congressional votes on new sanctions intended to further strip Iran of its oil-related revenues.
It also followed criticism from Republican presidential challenger Mitt Romney that the White House is failing to act strongly enough to stop Iran's suspected pursuit of a nuclear weapon. Iran says its nuclear program is for peaceful purposes.
The United States remains committed to finding a diplomatic resolution to the standoff with Tehran, but is also determined to step up the pressure, Obama said in a statement.
"If the Iranian government continues its defiance, there should be no doubt that the United States and our partners will continue to impose increasing consequences," he said.
Obama's new sanctions target foreign banks that handle transactions for Iranian oil or handle large transactions from the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO), two key players in Iran's oil trade.
That builds on oil trade sanctions signed into law in December that have prompted buyers in Japan, South Korea, India and China to significantly cut their purchases to avoid penalties.
The new executive order has the same rules, providing "exceptions" to countries that have demonstrated significant cuts.
OIL OFF THE MARKET
Israeli Prime Minister Benjamin Netanyahu said this week that sanctions have not set back Iran's nuclear program "one iota" and that "a strong military threat" was also needed.
But U.S. officials argue that the sanctions are inflicting significant economic pain on Iran and further isolating the country.
Iran's currency has plunged since the United States and European Union first targeted its oil revenues this year, making it harder for Tehran to spend money on its nuclear program, and ramping up internal political pressures within the country, said Ben Rhodes, a national security adviser to Obama.
"The proof of the success of the approach can be seen in the data, that you have up to a million barrels of oil a day that are off the market from last year," Rhodes told reporters.
Obama's order also targets China's Bank of Kunlun and Iraq's Elaf Islamic Bank for providing services to Iranian banks.
"We expect that today's action will have a significant chilling effect on the ability of Kunlun and Elaf to operate anywhere in the world," said David Cohen, the Treasury Department's undersecretary for terrorism and financial intelligence, in a briefing with reporters.
The new measures will help curb Iran's efforts to evade U.S. banking and oil sanctions, said Mark Dubowitz, head of the non-profit group Foundation for Defense of Democracies, which pushes for tough sanctions on Iran.
But Dubowitz and other sanctions advocates said more steps are needed to blacklist Iran's energy sector and require countries to further cut their oil purchases.
"There is no reason why President Obama should oppose a full economic blockade of Iran at this point," said Mark Wallace, a former ambassador to the United Nations in the George W. Bush administration, and now head of a pressure group called United Against Nuclear Iran.
SANCTIONS VOTE PLANNED
The U.S. Congress has pushed for additional oil-related sanctions, and late on Tuesday negotiators agreed to a final package that will require the Obama administration to crack down on those who ship or insure Iranian oil cargoes, or who pay for oil using gold.
"The bicameral, bipartisan Iran sanctions bill is a further step in our commitment to prevent Iran from obtaining nuclear weapons capability," said Democratic Senator Robert Menendez, who worked on the measures.
Lawmakers said they are prepared to go further if needed. "This legislation and today's executive action are important steps in the right direction, but not the final word on Iran sanctions," said Howard Berman, the top Democrat on the House of Representatives Foreign Affairs Committee.
The House is expected to vote on the bill on Wednesday. A Senate vote on the sanctions is expected to happen before Congress breaks at the end of the week for an extended recess.
"In the coming weeks, should the Iranian regime continue to defy the U.N. Security Council and refuse to halt its uranium enrichment activities, we will build a new bipartisan coalition to impose farther-reaching sanctions," Republican Senator Mark Kirk said in a statement.
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