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As we just heard, new British sanctions are the reasons for those increased tensions between Iran and Britain. The U.S. is considering even stronger measures. Legislation targeting the central bank of Iran is moving rapidly through Congress with bipartisan support. Such sanctions would almost certainly do severe damage to Iran's economy.

As NPR's Tom Gjelten reports, the challenge is making sure other countries aren't hurt as well.

TOM GJELTEN, BYLINE: In the long history of devising sanctions to influence Iran's behavior, targeting its central bank is the latest big idea. Here's Texas Governor Rick Perry, speaking last week in the Republican candidates' foreign policy debate.

GOVERNOR RICK PERRY: When you sanction the Iranian central bank, that will shut down that economy. At that particular point in time, they truly have to deal with the United States.

GJELTEN: On that, Democrats and Republicans agree. The legislation pending in Congress would essentially block U.S. banks from doing business with any financial institution that in turn does significant business with the central bank of Iran. Foreign companies that buy Iranian oil and pay for it through Iran's central bank, would have to halt those transactions or lose the chance to do business in the U.S. Right now, Iran covers more than half of its government budget with revenue from oil exports.

Democrat Howard Berman of California, a co-sponsor of the new sanctions legislation in the House, says targeting the central bank is an effective way to hit Iran's finances.

REPRESENTATIVE HOWARD BERMAN: My guess is that will make it very difficult for Iran to export its petroleum, 'cause how will it get paid?

GJELTEN: So foreign buyers of Iran's oil now pay the central bank, sanctions would ban business with Iran's central bank. Result: sanctions shut down Iran's oil exports. But here's the problem: the global economy is interconnected. Limiting Iran's oil exports could shrink the global oil supply. If supply goes down and demand is unchanged, the price of oil globally will go up. So Jamie Webster, a senior analyst with PFC Energy, says messing with Iran's oil exports under current conditions is a dangerous game.

JAMIE WEBSTER: It's a very tight oil market. Whether we want to admit it or not, we need those barrels from Iran. So anything that would actually reduce the ability of Iranian crude to make their way into markets has that real ability to press up the price.

GJELTEN: The concern here is that a spike in oil prices right now, just as the global economy is teetering on the edge, could push the U.S. and Europe back into recession.

So the Obama administration and the U.S. Congress have to choose which is the most worrisome: the higher oil prices that could result from sanctioning the Iranian central bank or not sanctioning the bank and risking the possibility that Iran could move ahead more easily to develop nuclear weapons.

Congressman Berman recognizes the dilemma, but he thinks the concerns about losing Iran's contribution to the global oil supply are overblown.

BERMAN: Iran exports about two and a half to three million barrels of crude oil a day. Saudi Arabia alone - and certainly Saudi and the other Gulf countries - could quite quickly replace that amount of crude oil and avoid that kind of disruption in global oil markets in terms of price and supply.

GJELTEN: That's because Saudi Arabia has more oil-producing capacity right now than it's using. That excess capacity has always acted like insurance against supply disruptions for the global oil market. Michael Wittner, director of oil research at Societe Generale, says in theory, the Saudis could make up for lost supplies from Iran.

MICHAEL WITTNER: And it's a similar quality crude. It's coming from the same part of the world, so shipping times are comparable. But the other thing, though, is that would leave less spare capacity for, say, other events 'cause, you know, we still have other unrests ongoing throughout the Middle East and North Africa. I mean, it would clearly be bullish for oil prices.

GJELTEN: Bullish for oil prices means oil prices would go up, even with more Saudi oil in the picture. Given concerns about the economic impact, the Obama administration has been slow to endorse wholeheartedly the sanctioning of Iran's central bank. But Congressman Berman is predicting Congress will move ahead speedily with this new approach.

BERMAN: Both parties, both Houses, and I think with enough flexibility to allow the administration to carry this agenda to the Security Council and in bilateral relationships with other countries to get them on board as well.

GJELTEN: Flexibility may be the key. Under an emerging compromise, Congress would allow the administration to implement sanctions on Iran's central bank gradually with careful attention to any impact they would have on the global economy. Tom Gjelten, NPR News, Washington.

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