February 24, 2010 | New York Post

Hitting The Mullahs At Their Pumps

Support for sanctions against Iran's energy sector is gaining momentum in Washington as a means to confront Tehran's nuclear ambitions, its human-rights abuses and its support for terror.

In December, the House passed the Iran Refined Petroleum Sanctions Act by a vote of 412 to 12. Last month, the Senate unanimously approved the Comprehensive Iran Sanctions, Accountability, and Divestment Act — which includes refined petroleum and gasoline sanctions. A conference committee should be able to produce a bill with real teeth that can pass both houses and go to President Obama for his signature.

This could be a rare bipartisan win for the president: His administration is unwilling to squeeze the entire Iranian economy, so energy and gasoline sanctions are a good compromise.

The idea here is simple. Iran produces oil and gas, but has limited refining capacity, and so depends on a handful of foreign companies for 30 to 40 percent of its gasoline. If America and its allies imposed sanctions on these companies, the regime could be forced to implement several costly and politically unpopular countermeasures that would drain the regime's treasury, divert funds from its illicit activities and further weaken Iran's already struggling economy.

Opponents argue that such measures will only hurt common Iranians, and not impact the regime. But recent developments prove them wrong: The mere threat of new sanctions is already making an impact.

Last week, for example, the Italian energy company ENI announced it will soon cease business operations in Iran. Norway's Statoil suspended all new investments, and even Russia's Gazprom withdrew from a handful of projects.

The German industrial and engineering firm Siemens also announced it wouldn't enter into any new contracts with Iran — after a presence there of more than a century. Siemens' business in Iran was worth roughly $700 million in 2009. The threat of gasoline sanctions also recently persuaded BP, Reliance Industries and Glencore — all with deep, longstanding ties to Iran — to terminate direct gasoline sales.

Many banks have stopped underwriting the Iranian gasoline trade, while the insurance and reinsurance companies that underwrite gasoline shipments say they'll leave the market if the proposed US sanctions become law.

In response, Iran's oil ministry is trying to up domestic refinery capacity. But the looming sanctions have also left foreign contractors unwilling to partner with Tehran on the necessary work — which Iran lacks the technical expertise and capital to do on its own.

The Ahmadinejad regime is also creating a procurement agency that's meant to look independent of the government: It fears that the Treasury Department may slap more sanctions on its existing chain of refined-petroleum supply. One obvious target would be the Iranian-controlled Kala Naft, which is already on British and Japanese watch lists over concerns that it procures parts for Iran's nuclear program.

In another apparent preemptive defense, Tehran also announced this month plans to slash the subsidies that hold down the prices of energy and basic commodities for the Iranian people. If it indeed lets the prices of gasoline, water, electricity, gas, wheat, sugar and rice rise to market levels, this would drive the inflation rate from 20 percent now to 30 percent or even 40 percent — adding to the country's domestic discontent. (When Tehran imposed a gasoline-rationing program in 2007, riots broke out across the country.)

Critics will claim that this only harms the beleaguered Iranian populace — but it also provides important political ammunition for the opposition. Indeed, the frustration of Iran's middle class was one key that helped bring down the shah in 1979.

Note that all this occurred in the last few months, when Congress was only working to pass the measure. If it becomes law, the impact is likely to be far greater.

Choking off its supplies of refined petroleum may not persuade Iran to drop its nuclear aspirations or its support of terrorism, nor does it ensure the regime's downfall. But the mere threat of sanctions has already upped the pressure on Tehran, forcing it to make tough choices about its own financial resources. This means we're on the right track.

Mark Dubowitz is the executive director of the Foundation for Defense of Democracies and head of its Iran Energy Project. Jonathan Schanzer, a former Treasury terrorism analyst, is FDD's vice president for research.

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