Some economists and Obama administration officials have criticized the proposal, variations of which are circulating on Capitol Hill, saying such a measure could disrupt oil markets, alienate U.S. allies and drive up energy prices.
White House officials say they are exploring alternatives for further reducing the petroleum sales that provide Iran with the bulk of its foreign-currency earnings. At the same time, the administration and Congress are pushing for new financial measures to close loopholes that allow Iran to collect hard currency — particularly gold — for its oil and gas.
Underlying the efforts is frustration over Iran’s refusal to accept curbs on its rapidly advancing nuclear program, which U.S. officials fear will soon be capable of producing nuclear weapons. Sanctions have slashed Iran’s oil revenue by 40 percent in the past year. And a number of lawmakers and analysts say conditions are ripe for attempting a much deeper cut — to nearly 100 percent.
“If we’re talking about things that could really hurt the Iranian economy, at the top of the list is taking their oil off the market,” said a senior Senate aide involved in discussions of a proposal to require all countries to stop buying oil from Iran or risk losing access to the U.S. banking system. The aide, who spoke on the condition of anonymity to discuss internal Senate deliberations, described “strong interest, on a bipartisan level,” in the plan.
Among those who have been looking at ways to dramatically lower Iran’s oil exports are Sen. Robert Menendez (D-N.J.), chairman of the Foreign Relations Committee, and Sen. Mark Kirk (R-Ill.), a member of the Appropriations Committee and a leading Senate hawk on Iran sanctions. Congressional aides from both parties say that as many as two Iran sanctions bills are expected to win approval before the summer recess.
Supporters have been buoyed by conclusions in an independent report co-authored by the research firm Roubini Global Economics and Securing America’s Future Energy (SAFE), a Washington nonprofit group. The report says oil markets have loosened up significantly compared with five years ago, when rising demand from Asia strained global supplies and drove up prices. Today, sluggish European growth and increased oil production in Iraq and the United States have led to a surplus capacity of nearly 4 million barrels a day, the report says.
According to the report, the world market is capable of absorbing the loss of most or even all of the roughly 1.5 million barrels of crude being exported by Iran — a prospect that would have been unthinkable even a year ago. Although eliminating Iranian exports could cause temporary supply disruptions, “right now, the market would recover,” said Paul Domjan, Roubini’s managing director. “This is the best time to try to do it.”