U.S. sees sanctions as effective on Iran

WASHINGTON Thu Jan 13, 2011 1:39am IST

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WASHINGTON (Reuters) - Oil is the black gold financing Iran's nuclear ambitions and the Obama administration is increasingly convinced that U.S., U.N. and European Union sanctions are effectively pinching Tehran's purse.

The U.S. official in charge of measures aimed at curbing financial flows to Iran said there was growing global awareness about the link between the potential threat a nuclear-armed Iran would pose and the source of its nuclear program funding.

Stuart Levey, Treasury's under secretary for terrorism and and financial intelligence, told Reuters in an interview that that realization has led to a greater willingness to cooperate on measures to slow investment in Iran's oil and gas fields.

The tightening noose on Iran's oil production has raised pressure on Tehran's hard-line leaders to relent in their drive for a nuclear capability, and in Levey's view could eventually bring about a shift in behavior.

"The lack of investment in Iran's energy infrastructure is a direct threat to their medium and long-term economic viability," he said, adding there is evidence to show that production is falling in Iranian oil fields.

He noted that President Barack Obama signed legislation in July imposing sanctions on any company that invests in Iran's oil infrastructure or sells refined products to Iran.

"That is a very significant step toward targeting their energy industry," Levey said. Other U.S. officials, including Secretary of State Hillary Clinton, have expressed growing optimism about prospects for keeping Tehran in check through broad-based sanctions.

Clinton was in the Gulf region this week urging Iran's neighbors to step up enforcement of sanctions and stay united in insisting that Tehran drop efforts to build atomic weapons.

OIL PAYMENTS

In the eyes of U.S. officials, one of the more promising recent developments was India's refusal to continue a practice of making payments for Iranian oil through a long-standing clearinghouse system run by regional central banks.

That action was taken within weeks of a visit to India by Obama, though Indian officials do not concede it was done because of U.S. pressure or any quid pro quo.

U.S. officials have also declined to say whether they put pressure on India, which has yet to work out with Iran how future oil payments will be handled. Direct payments would be less convenient for Tehran than payments made through an established clearinghouse, and the money trail could be easier to follow.

A U.S. Treasury official, who requested anonymity, said as evidence is publicized about Tehran's efforts to avoid sanctions, more financial institutions, regulators and governments are willing to constrain channels through which they now deal with Iran.

Some analysts who monitor developments in Iran, however, say it is unlikely U.S.-led sanctions will derail Tehran's nuclear program, noting that the 2009 Iranian elections reinstated a hard-line regime.

Since Iran's 2009 presidential election hundreds of reformists have been detained and put on trial in a crackdown on the pro-reform opposition.

"I don't have any hope that sanctions can impose enough economic pain to dissuade them from their nuclear ambitions," said Joshua Muravchik, a fellow at the Foreign Policy Institute of Johns Hopkins University's School of Advanced International Studies who is in touch with dissident groups in Iran.

A change in Iran's ruling regime "is something that I hope for devoutly," Muravchik added, but he doubted that economic pressure alone can force the political shift that could lead Tehran to end its drive for nuclear weapons.

Levey, though, insists that growing wariness about dealing with Iran generally together with the impact of sanctions that limit participation in Iranian energy projects is taking a toll.

The Paris-based International Energy Agency said last June that it expected Iran's oil-pumping capacity to fall by about 18 percent, or 700,000 barrels daily, to 3.3 million barrels a day by 2015. In December, it further revised its estimate down to 3.1 million barrels a day by 2015.

The IEA said sanctions were choking investment in new projects and added "our outlook has also been downgraded on expectations of higher decline rates as the country struggles to secure needed technology and equipment."

With the prospect that oil and gas production will keep declining because it is harder to produce, ship and receive payments for it, U.S. officials say there is political vulnerability for Tehran's hard-line leaders.

"We believe that trend does give us the opportunity to make the choice for the Iranian regime clear enough and stark enough that they will choose another path," the U.S. official said, adding: "It's only going to get worse."

(Reporting by Glenn Somerville, editing by Vicki Allen)

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