Democrat proves YouTube hit on Iran sanctions

FT.com

Senators rarely make an impact on YouTube, especially when they are talking about arcane subjects such as Iran sanctions, but Robert Menendez, a Democrat from New Jersey, has already garnered a big audience for a speech from two weeks ago.

“We should not be leading from behind, we should be leading forward,” he thundered, in a clip titled “Menendez rips Obama administration”.

The five-figure viewership for his speech says something about the febrile political atmosphere building in Washington over Iran, which is about to place the Obama administration in a delicate political bind.

On one side, Republican presidential candidates and Congress are pushing for much tougher action against Tehran over its nuclear programme. The House passed a bill on Wednesday that includes a measure to place sanctions on the Iranian central bank, which the Senate is expected to approve on Thursday.

On the other, administration officials worry that the collateral damage from the new sanctions law will be inflicted on banks and companies in some key allied countries – and may even involve some of their central banks. Alarm bells have already started to go off in Japan about the potential impact.

The political difficulties for the administration have been building since the end of last month, when the Senate defied the partisan political climate to pass by 100-0 an amendment calling for sanctions on Iran’s central bank and any institution that does business with it.

With their presidential candidates sounding ever more hawkish on Iran, Republicans in Congress have started to suggest the Obama administration is soft peddling on Iran because it does not want to jolt the global economy in an election year.

“The administration is worried that the crisis will lead to higher oil prices and cripple their re-election prospects,” says Mark Kirk, the Republican senator from Illinois who co-sponsored the amendment. “But avoiding the issue might also trigger much greater instability, as well as Israeli military action.”

Yet Congressional Democrats are also impatient at what they see as the administration’s overly cautious approach. “We are not concerned about how China feels about the new sanctions, given that they are currently the biggest violator of existing sanctions,” Mr Menendez, the amendment’s other co-sponsor, told the FT.

Administration officials publicly opposed the measure on the grounds that it could cause oil prices to soar. As well as talking to Saudi Arabia, the administration is now starting to press other oil producers, including Libya and Iraq, to take up some of the supply slack left by reduced Iranian sales.

But the administration is also worried it will be forced to take action against not only big commercial banks in friendly nations which have been conducting business with the Iranian central bank, but also some central banks.

“It potentially requires us to take certain sanction actions on banks and central banks in countries that could include very important partners of the US,” says Daniel Glaser, assistant secretary for terrorist financing at the Treasury department.

With Europe planning its own new sanctions, the main remaining importers of Iranian oil include South Korea, China and India, but two people familiar with the discussions over the amendment say that the administration is particularly concerned about the impact on Japan, which receives about 10 per cent of its crude imports from Iran. It is possible the Bank of Japan could run foul of the sanctions law as a result of involvement in settling financial transactions with Iran.

Japanese officials fret that tightening sanctions on Iran could push up oil prices. “We are expressing concern to the US government about the possible effect on the world economy,” Osamu Fujimura, Japan’s chief cabinet secretary, said this week.

Mr Menendez said that such concerns were overplayed because under the bill, offending companies would have 180 days before the sanctions came into effect and the president had the power to issue a waiver on national security grounds.

Additional reporting by Mure Dickie in Tokyo

Copyright The Financial Times Limited 2011.