Days before Rouhani to be sworn in, US House sends message to Iran with harsh new sanctions

Bill passed by US House aims to bring Iranian oil exports essentially down to zero within a year from full passage.

Hassan Rouhani lauging370 (photo credit: REUTERS/Raheb Homavandi)
Hassan Rouhani lauging370
(photo credit: REUTERS/Raheb Homavandi)
WASHINGTON -- The US House of Representatives passed a bill on Wednesday containing punishing new sanctions against Iran, entrenching the US position on the Islamic Republic's controversial nuclear program just days before the inauguration of their new president, Hassan Rouhani.
The Senate is expected to support the legislation— the toughest sanctions package to date, targeting what remains of Iran's oil sector— once Congress reconvenes from its month-long summer recess, sources told The Jerusalem Post.
The bill aims to bring Iranian oil exports essentially down to zero within a year from full passage. Iran has already experienced a 60 percent decrease in oil exports since 2011 due to sanctions.
And yet, despite Western efforts to divorce Iran from its customers, the Persian state still exports over a million barrels a day. Because of the high price of oil, Iran experienced its fourth best year on record for oil revenues in 2012.
Those remaining customers— companies concentrated mostly in China, South Korea, India and Turkey— will no longer be granted exemptions for their activities by the Treasury Department if Wednesday's legislation becomes law.
Iranian Foreign Ministry spokesman Abbas Araqchi said intensifying sanctions against Iran "makes the nuclear issue more complex and more difficult to resolve".
"It will not help a resolution to the nuclear issue, rather it would help Iran consolidate its nuclear rights," Fars news agency quoted him as saying.
Iran called the bill counterproductive and Turkey, an importer of Iranian oil, said it would struggle to cut imports any further after having already reduced them by 40 percent.
A Turkish official reacted to the proposed sanctions, saying further cuts "would greatly stretch Turkey". Turkey's refiner Tupras has already increased purchases from Saudi Arabia, Libya and Iraq.
Previously given a pass for diplomatic reasons, the exemptions will expire after a year-long grace period, during which Iran's customers will face the choice of finding oil elsewhere or else be cut out of the US economy.
The US says there is spare capacity in the global market to replace Iran’s exports. Libyan oil production is back online since its revolution ended in 2011, and Saudi Arabia is prepared to accommodate Iran’s customers, with spare production capacity already at 2 million to 2.5 million barrels.
Mark Dubowitz, executive director of the Foundation for Defense of Democracies in Washington, said that House members were keen on voting on the bill before Rouhani's Sunday inauguration, and said the legislation would "massively intensify" ailing conditions in Iran.
Dubowitz noted that past sanctions regimens "tended to be front loaded," suggesting that Iran might experience the impacts of this new round by the end of the year.
"Everything is really coming to a head in the next twelve months," Dubowitz said.
On the House floor during debate on the bill, Representative Keith Ellison (D-Minnesota) stood nearly alone against his colleagues, saying that Mr. Rouhani ran his presidential campaign "on a policy of promise to pursue a path of moderation."
"Obviously we don't have rose-colored glasses," Ellison said, calling on the chamber to wait for a round of negotiations with the new Iranian government. "Why don't we wait and see?"
Representative David Price (D-North Carolina) joined Ellison in opposing the bill.
"The bill before us today could not come at a worse time," Price charged, noting that he has voted previously in favor of harsh sanctions against Iran. The bill "could slam the opportunity shut" to test the genuineness of Rouhani's overtures, he said.
Eliot Engel (D-New York), ranking member of the House Foreign Affairs Committee, noted that his committee had cast unanimous, bipartisan support for the bill.
"I have no reason to believe that the results of the recent Iranian election will fundamentally alter Iran's current course," Engel said in his speech on the floor, charging that Rouhani "was directly involved in efforts to deceive the international community when he served as Iran's chief negotiator."
House Speaker John Boehner called the sanctions "strong and targeted," and said they provided the president with the "political and economic tools" required to tighten the screws on the Iranian government. In an unusual sight, House Minority Leader Nancy Pelosi joined Boehner on the floor to voice support for the legislation.
The bill, H.R. 850, had 375 cosponsors in the 435-member body. The bill passed by a large margin of 400-20, but the Obama administration, which in previous rounds had pushed for exemptions for Chinese and Turkish companies, has voiced reservations in recent days over the timing and consequences of some of the bill's strictest provisions.
Uncertain how Rouhani will act in his first months as president, Obama would like to give him time, officials say. And the threatened expiration of exemptions may not intimidate Chinese companies, forcing the US to make decisions that would harm its own economy or, alternatively, renege on the law's requirements, weakening America's diplomatic clout.
"We continue to work with Congress on all sanctions legislation concerning Iran," State Department spokesperson Jen Psaki told journalists the day before the vote, calling the administration's sanction's regimen against Iran "unrelenting."
The State Department declined to comment on the specific House vote.
"Iran is increasingly cut off from the global financial system," Psaki continued. "Significant amounts of Iranian oil are coming off the market. The Iranian currency is plummeting in value. And firms all over the world are divesting themselves of business with Iran."
China stands to lose the most from the new legislation. Iran remains its third-largest source of oil after Saudi Arabia and Angola, and the companies that facilitate that trade have major assets in the United States. PetroChina, China’s largest oil producer, is one such company listed on the New York Stock Exchange.
These Chinese firms have repeatedly voiced their opposition to extraterritorial sanctions and to taking orders from the United States.
The House bill also targets other loopholes in the current sanctions regimen, including foreign exchange reserves that have allowed Iran to deal in euros. It also targets Iranian shipping with stricter inspection and flagging regulations.
The US and European Union have increased sanctions pressure on Iran significantly since early 2012, seeking a diplomatic solution to the Islamic Republic's pursuit of nuclear technology. The West believes Iran is developing the capability to build nuclear weapons through converging uranium enrichment and weaponization programs.