Iran General NewsU.S. gasoline sanctions on Iran seen as last resort

U.S. gasoline sanctions on Iran seen as last resort


ImageReuters: Proposed U.S. sanctions on companies supplying gasoline to Iran would be so damaging to the Iranian economy they would only be passed as a last resort, although Tehran says such measures could be bypassed with ease.

By David Sheppard and Luke Pachymuthu – Analysis

ImageLONDON/DUBAI (Reuters) – Proposed U.S. sanctions on companies supplying gasoline to Iran would be so damaging to the Iranian economy they would only be passed as a last resort, although Tehran says such measures could be bypassed with ease.

The gasoline sanctions bill, being considered by the U.S. Congress, aims to put pressure on Iran to stop enriching uranium.

Despite huge oil reserves, Iran lacks the refining capacity to cater for its highly subsidized local transport market, forcing it to import up to 40 percent of its gasoline supplies.

The bipartisan bill, sponsored by chairman of the House Foreign Affairs Committee, Howard Berman, would ban any company involved in exporting gasoline to Iran from doing business with the United States, be they refiners, shipping firms, banks or insurers.

Tehran says its nuclear program is peaceful and only for generating electricity while Washington believes it could ultimately be used to gain a nuclear weapons capability.

"If the Berman bill passes it will certainly crimp the Iranian economy — this is one of the most severe sanctions available to the United States," Eurasia Group's Iran Director Cliff Kupchan said.

"There will be smaller companies with very minor U.S. exposure that at a higher transaction cost will make up some of the difference. But while the Iranians are rather effective at finding ways round sanctions, by forming front companies and the like, that's generally a case of plugging gaps. This is a hole."

Iran introduced gasoline rationing in June 2007, a move that sparked riots in Tehran.

It was one of the most visible demonstrations of anger against the Iranian government since President Mahmoud Ahmadinejad came to office four years ago.

Despite rationing, Iranian gasoline demand has risen by around 6 percent per year since 2007. Iran is expected to import around 128,000 barrels of gasoline per day in May, the equivalent of 12-13 standard sized tanker cargoes.

Iranian oil minister Gholamhossein Nozari said on Monday Iran had plans ready to meet the country's gasoline needs within 48 hours of sanctions being put in place.

Nozari said there were seven Iranian refineries that could raise gasoline production at short notice, and expressed doubt Iran would lose access to international gasoline markets.

"The market is not controlled by one party and it is a vast market," Nozari was quoted saying by official news agency IRNA.


Some traders backed Nozari's view.

"If the U.S. thinks a piece of legislation will stop Iran from getting gasoline… they just don't understand the way the physical oil markets trade," one U.S.-based trader said.

"There are many small, niche, one man trading shops which can do this business. (This bill) is quite superficial. It's like putting a band-aid on a gaping wound."

One trader at an international firm in Singapore said it would require a blockade to stop Iran importing gasoline.

"The only way you can stop any oil from going in is to block flows of shipping traffic in the (Strait of) Hormuz that are bound for Iran," he said.

About 40 percent of the world's traded oil flows through the narrow strait separating the Persian Gulf and the Gulf of Oman.

But some analysts think these traders and the Iranian government are being too confident.

"This has the potential to be very stinging for the Iranians. The sanctions would be effective, even if they don't seal the door completely," Global Insight's Samuel Ciszuk said.

"The Iranians would need to find banks willing to deal with offshore Iranian companies – but so many of the world's financial currents flow through the United States.

"If they warned any bank dealing with Iranian counterparties they face severe penalties, their hands would soon be tied."

PFC Energy consultants said in a research note that, "any U.S. sanctions on refined products exports to Iran would by necessity force the regime to restrict gasoline consumption."

Raad Alkadiri, senior director for country strategies at PFC in Washington, said the bill was unlikely to be passed before the Obama administration exhausted its diplomatic approach.

"This is very visible position that the Americans can leverage as part of their foreign policy efforts to halt Iran's nuclear capabilities," Alkadiri said.

"(Congress) will defer to the administration as long as they are taking the initiative — but they will be there to be called upon if there's not a halt to nuclear activity."

President Barack Obama set out a rough timetable for his diplomatic outreach to Iran for the first time on Monday, saying he wanted serious progress by the end of the year.

If Iran continues with its nuclear program, analysts said the bill may become part of a much broader range of sanctions backed by the European Union and United Nations.

Ciszuk at Global Insight said the bill would not be rushed.

"It's a last minute move as it leaves little room for maneuver," he said. "It's likely to be used as a bargaining chip for the moment, as once they've done this, the next escalation is taking up arms."

(Reporting by David Sheppard, editing by Anthony Barker)

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