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Bloomberg May 31 2006
U.S. Plan to Limit Iran's Finances May Stoke Discord
Wed May 31, 2006 09:25

U.S. Plan to Limit Iran's Finances May Stoke Discord (Update1)

Bloomberg May 31 2006

May 31 (Bloomberg) -- A U.S. plan to curtail Iran's access to international financial markets because of the Islamic Republic's refusal to suspend its nuclear program may run into opposition from United Nations Security Council members at a meeting tomorrow, according to security analysts.

U.S. Secretary of State Condoleezza Rice will meet in Vienna tomorrow with diplomats from China, France, Russia and the U.K. The representatives of the Security Council's five permanent members will be joined by a German delegation to discuss incentives to offer Iran if it stops making nuclear fuel and penalties if it continues the atomic work.

The U.S. wants the group to agree to cut off Iran's access to international capital if it doesn't stop enriching uranium, which can fuel a power plant or form the core of an atomic bomb, State Department spokesman Scott McCormack said yesterday. The Europeans are offering incentives for Iran to stop the nuclear work, including a reactor. Unidentified diplomats today told Agence France-Presse the U.S. may join European talks with Iran.

``Sanctions would be as damaging to the West as they would be to Iran,'' said Alex Bigham, who leads the London-based Foreign Policy Center's Iran program and has worked in the Islamic Republic. ``It would be the case of the West shooting itself in the foot.''

China, Russia

China and Russia have opposed threatening Iran with penalties. As permanent members of the Security Council, each nation has a veto over its resolutions.

China is in talks to buy 250 million tons of liquid natural gas from Iran over the next 30 years. Russia is selling anti- aircraft missiles to Iran and has been paid $1 billion to build a nuclear reactor in Bushehr.

``Sanctions are not necessarily going to achieve the desired effect in the short term,'' said Middle East analyst Heinrich Matthee of London-based Control Risks, who led a trade mission to Iran this month. ``We will definitely see a business response against this and its effectiveness will depend on the country.''

The Foreign Policy Center, a research institute supported by the U.K. Foreign Office, estimates that sanctions could disrupt the flow of oil through the Strait of Hormuz. Around 30 percent of the world's oil, including 70 percent of Japan's supply, flows through the strait, Bigham said.

`Pay a Price'

``The advantage of the measures that the U.S. Treasury is evidently pursuing is that it makes Iran pay a price, even if other countries don't enact the penalties themselves,'' said Mark Fitzpatrick, a former U.S. State Department diplomat who now leads the London-based International Institute for Strategic Studies' nuclear non-proliferation program.

The U.S. will target ``like-minded states getting together to work on various financial measures that might be taken so that the Iranian regime can't exploit the international financial system,'' McCormack said yesterday.

Iran, which says that it won't stop its nuclear work, plans to issue an international tender for the construction of two light-water nuclear reactors. The tender will be announced within two months, the state-run Iranian Students News Agency cited Iran Atomic Energy Organization Deputy Head Mohammad Saeedi as saying yesterday.

White House spokesman Tony Snow yesterday declined to address questions on whether the U.S. would join European talks with Iran.

The Bush administration, in a bid to enlist Russian support, has agreed to language for a Security Council resolution that rules out the immediate threat of military force, the New York Times reported, citing American and European officials.

Chapter 7

Russia has opposed passage of a Security Council resolution under Chapter 7 of the United Nations Charter, saying it wants to avoid a replay of the run-up to the Iraq war, the Times said. Chapter 7 allows the council to threaten punishment on member countries.

The United States has agreed to a resolution that invokes only Article 41 of Chapter 7, which makes no reference to the possible use of force, the Times said.

``The U.S. effort is a long-term campaign that started last year,'' Matthee said. ``We've seen measures against banks in the last year and efforts to close loopholes.''

UBS AG, Europe's largest bank by assets, cut all business ties with Iran in January and met with U.S. legislators in April about its transfers of U.S. banknotes to the Islamic Republic. Credit Suisse Group, Switzerland's second-biggest bank, also quit Iran in January because of the country's political situation.

Bank Fines

ABN Amro Bank NV, the biggest Dutch lender, was fined $40 million by the U.S. last year for unauthorized wire transfers and other transactions for state-run banks in Iran and Libya. UBS was fined $100 million in 2004 for transfers to Iran, Cuba and other nations subject to U.S. trade sanctions.

Societe Generale SA, France's third-largest bank, was appointed an agent of the state-owned National Iranian Oil Co. to raise $2.7 billion from European banks for a natural gas project in the country, the Tehran Times reported in April.

Iran, with the world's second biggest oil and natural gas reserves, had its foreign and local currency ratings cut last month because of possible sanctions. Fitch Ratings dropped its rating to B+ from BB- with a ``stable'' outlook.

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