Iran May Evade U.S. Sanctions as U.A.E. Delivers Fuel

A U.S. effort to pressure Iran into nuclear concessions by curbing gasoline imports may have little impact because the United Arab Emirates and other countries are willing to keep shipping fuel to the Islamic Republic.

About $2.8 billion worth of gasoline passes through the U.A.E. to Iran each year, amounting to 75 percent of Iran's refined fuel imports. Sanctions passed yesterday by the House Foreign Affairs Committee will have limited effect unless international curbs follow, said Cliff Kupchan, a senior analyst at Eurasia Group, a New York political-risk consulting firm.

“U.S.-imposed gasoline sanctions would place a crimp but not a stranglehold on the Iranian economy,” Kupchan said. “The problem with unilateral sanctions is that companies in countries that don't support them can provide Iran with gasoline.”

The U.A.E.'s role as a transit hub, which makes it easy to confuse the origins of fuel shipped through its ports, and the willingness of China and private shipping companies to supply gasoline to Iran show the difficulty of getting measures against Iran's nuclear program to be effective.

Iran, the world's fourth-largest oil producer, brings in a third of its gasoline because it lacks refining capacity. About three-quarters of Iran's gasoline imports pass through the U.A.E., according to an April report in Tehran-based Etemade Meli newspaper, citing Iranian data.

Mercini Lady

The U.A.E. role was in evidence at Dubai's Jebel Ali port, the largest in the Middle East, when the gasoline tanker Mercini Lady sailed for Bandar Abbas in Iran in mid-September. The red- hulled ship made another trip a month later.

Trading companies Vitol Group of Rotterdam and Amsterdam- based Trafigura Beheer BV ship fuel to the U.A.E. for later transport to Iran, says New York-based Energy Intelligence Group Inc. Both companies have chartered the Mercini Lady in the past two months, data on ship movements compiled by Bloomberg show.

The U.A.E. is a U.S. ally and the second-biggest exporter of goods to Iran after China. It joins India, Turkmenistan, Algeria and France, among other countries, in supplying gasoline to Iran, Etemade Meli said.

The House committee measure, the Iran Refined Petroleum Sanctions Act, seeks to cripple Iran's petroleum sector by prohibiting such activities as shipping and consulting. A person or entity that violates the House measure would be prohibited from doing business in the U.S. or with U.S. banks.

'Must be Prepared'

“We have very little time to lose should diplomacy fail,” said Committee Chairman Howard Berman, a California Democrat. “We must be prepared.”

The Senate Banking Committee plans to vote today on similar legislation that would impose sanctions on entities involved in petroleum exports and set limits on international investment in Iran.

The sanctions are being considered as part of an effort to pressure Iran to stop enriching uranium. Iran says that is for purely civilian purposes, while the U.S. and its allies say is part of a covert program to develop nuclear weapons.

In the absence of a United Nations-approved gasoline crackdown, the U.A.E. will continue to act as a conduit for refined fuel imports to Iran, said David Kirsch, an analyst at Washington-based consulting firm PFC Energy.

Russian Support

Russian Foreign Minister Sergei Lavrov on Sept. 10 told a meeting of Russia experts in Moscow that oil-products sanctions against Iran would not get Russian support, according to Kupchan, who was present.

China, another veto-wielding permanent member of the UN Security Council, supplies as many as 40,000 barrels of gasoline a day, or a third of all imports through third parties, to Iran, Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York, said in an e-mail.

Trade between the U.A.E. and Iran totaled about $7.68 billion in 2008, about 80 percent of which was from goods re- exported from the U.A.E., according to the U.A.E. Ministry of Economy.

Brad Sherman, a California Democrat who is one of the sponsors of the House sanctions bill, told a congressional hearing in July the U.A.E. was a “vital lifeline to the Iranian regime.” Iran imported $2.8 billion in gasoline through the U.A.E. in the 12 months to March 20, according to Iranian government data cited in the Etemade Meli April report.

'Entrepot of Trade'

“Dubai is the regional entrepot of trade, like Singapore in Asia,” Kirsch said. “You can drop your product off there and someone else will deliver it to Iran.”

Iranian gasoline imports mainly come from Chinese firms and Vitol and Trafigura because other companies have cut back their trade with Iran over concern about U.S. pressure, said Mark Dubowitz, executive director of the Foundation for Defense of Democracies, a Washington-based group lobbying for harsher sanctions against Iran.

Royal Dutch Shell Plc, Europe's largest oil company, sent two cargoes of gasoline to Bandar Abbas in Iran in September, according to Energy Intelligence Group, citing Gulf shippers.

Shell would take steps to comply with trade restrictions against Iran in the event of international agreement on them, said a Shell spokesman at company headquarters in The Hague.

Vitol and Baar, Switzerland-based Glencore declined to comment on their fuel trading and shipping operations.

International Laws

An e-mailed statement from Trafigura said the company does have business interests in Iran: “All of Trafigura's activities are undertaken in full accordance with existing international laws and regulations.”

Iran will find new gasoline suppliers, National Iranian Oil Co. Vice President for Investment Affairs Hojatollah Ghanimifard said in an Oct. 6 interview.

The U.A.E. has always respected international law, while individual companies must decide how to respond to any U.S. legislation, Foreign Minister Abdullah bin Zayed al-Nahyan said on Oct. 13.

“The U.A.E. has a long and big trading relationship with Iran but that has not stopped us from fully implementing our obligations towards international agencies,” al-Nahyan told Bloomberg News on a visit to Chile.