US steps up sanctions as Iran floats nuclear talks

Obama eyes curbs on Iran’s oil exports as Tehran seeks fresh nuclear talks
US steps up sanctions as Iran floats nuclear talks
US President Barack Obama aims to target Irans oil exports with new sanctions
By Bloomberg
Sun 01 Jan 2012 09:55 AM

US President Barack Obama signed new sanctions against Iran
into law
on Saturday, shortly after Iran signalled it was ready for fresh talks
with the West on its nuclear programme and said it had delayed long-range
missile tests in the Gulf.

Tensions between Iran and the West have grown since EU
leaders said they wanted to set tougher sanctions against Tehran by the end of
next month in a bid to force it to curb a research programme that they suspect
is developing nuclear weapons.

In the absence of a fresh mandate from the UN Security
Council, which has already imposed four rounds of global sanctions, Washington
has also stepped up the pressure with sanctions on financial institutions that
deal with Iran's central bank.

The defence funding bill, approved by Congress last week,
aims to reduce the oil revenues that make up the bulk of Iran's export
earnings. Obama signed it in Hawaii, where he was spending the Christmas
holiday.

If enforced strictly, the sanctions could make it nearly
impossible for most refiners to buy crude from Iran, the world's fourth biggest
producer.

However, Obama asked for scope to apply the measures
flexibly, and will have discretion to waive penalties. Senior US officials said
Washington was consulting foreign partners to ensure the new measures did not
harm global energy markets.

Iran responded to the growing pressure by warning this week
that it could shut the Strait of Hormuz if sanctions were imposed on its oil
exports. It launched 10 days of naval wargames in the Gulf as a show of
strength, further rattling oil markets and pushing up the price of crude.

In the past, Iran has threatened to close the waterway only
if attacked by the United States and Israel.

The US Fifth Fleet, based in Bahrain, said it would not
allow shipping to be disrupted in a waterway through which 40 percent of the
world's oil passes.

Analysts say that Iran is playing for time and that its
increasingly strident rhetoric shows its clerical leadership is concerned about
even harsher penalties.

Against this backdrop, Iran's state media reported early on
Saturday that long-range missiles had been launched during the naval exercises.

But Deputy Navy Commander Mahmoud Mousavi later went on the
English language Press TV channel to deny they had in fact been fired:
"The exercise of launching missiles will be carried out in the coming
days."

Separately, Iranian media reported that nuclear negotiator
Saeed Jalili would write to the EU foreign policy chief to say Iran was ready
for fresh talks on its nuclear programme, which it says is aimed exclusively at
power generation.

"Jalili will soon send a letter to Catherine Ashton
over the format of negotiations ... then fresh talks will take place with major
powers," the semi-official Mehr news agency quoted Iran's ambassador to
Germany, Alireza Sheikh Attar, as saying.

Article continues on
next page…

Negotiations between Iran and the five permanent members of
the UN Security Council - the United States, Russia, China, Britain and France
- plus Germany (P5+1) stalled in January.

Ashton, leading the European negotiators, wrote to Jalili in
October and has not yet had a reply, her spokesman Michael Mann said. But the
bloc was open to meaningful talks with Tehran:

"We continue to pursue our twin-track approach and are
open for meaningful discussions on confidence-building measures, without preconditions
from the Iranian side."

A US administration official added: "We have indicated
for years that we are willing to engage in talks with Iran, provided it is
ready to engage in a meaningful and constructive fashion." Senior
officials said the sanctions did not alter this policy.

Iranian analyst Hamid Farahvashian said Tehran was seeking
to send a message to the West that it should think twice about the economic cost
of putting pressure on Iran.

"The Iranians have always used this method of carrot
and stick ... first they used the stick of closing Hormuz and now the carrot is
their willingness for talks," said Farahvashian.

Talks between Iran and the P5+1 have been stalled for a year
and Malcolm Chalmers, Research Director at the Royal United Services Institute
think tank in London, said Europe would be sceptical about the offer.

"EU countries will be wary of yet another attempt by
Iran to play for time, seeking to postpone sanctions simply because talks have
resumed," he said.

"So Iran will have to offer significant concessions
even to get a conversation started on slowing the implementation of sanctions.
And, all the time, the Europeans are aware of the growing war talk in Washington,
where the pressure on [US President Barack] Obama to launch an 'October
surprise' to clinch the election seems to be growing."

The United States and Israel have not ruled out a military
option if diplomacy fails to resolve the nuclear dispute.

A senior Western diplomat in Tehran, who asked not to be
named, said the fact that the Iranians were stepping up their threats
"shows that they are worried about losing petrodollars, on which more than
60 percent of the economy depends".

The Iranian threat briefly pushed benchmark Brent crude up
by more than a dollar to over $109 a barrel this week.

Oil Minister Rostam Qasemi told Saturday's weekly Aseman that
further sanctions would push oil over $200 a barrel.

Chalmers said sanctions were most effective in influencing
behaviour when they were imminent and credible but not yet in place as, once in
place, they were hard to lift, short of a comprehensive conflict resolution.

"The Iranians know this, and are seriously worried by
the prospect of an EU oil embargo, especially as it could be followed by action
by the US's close Asian allies," he said.

"They could then be left at the mercy of China and
India, who are likely to demand big price discounts in order to shift purchases
from Arab countries, who will not be happy, to Iran."

The rising tensions are having an impact at home. Iran's
currency has nosedived in recent weeks as ordinary Iranians have moved money
from savings accounts into gold or foreign currency.

The price of staple foods has increased by up to 40 percent
in recent months and many critics have put the blame on increasing isolation
brought about by President Mahmoud Ahmadinejad's economic and foreign policies.

Iran's massive media coverage of the naval manoeuvres
appeared an attempt by the authorities to strike a patriotic chord among
ordinary Iranians worried about a military strike.

"I have already witnessed a war with Iraq in the 1980s
... I can hear the drumbeat of war," said merchant Mohsen Sanaie, 62,
glancing over newspaper headlines at a central Tehran newsstand. "One
stray bullet could spark a war."

For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.