May 19, 2010 | Forbes

Ignore Turkey and Brazil: Iran Sanctions Are A Go

Just as the momentum behind U.S. energy sanctions against Iran shifted into high gear, Turkey and Brazil this week tried to downshift with a much ballyhooed nuclear-fuel swap deal. Could Iran's energy sector be open for business soon?

Not so fast: The permanent members of the Security Council plus Germany (P5+1) treated the swap deal with deserved skepticism, and the U.S. announced Tuesday that it had reached a deal with its other P5+1 partners including holdouts China and Russia on U.N. sanctions against Iran.

As the UN track moves forward, don't forget about Congress. We can expect a Congressional conference committee to produce a final bill that targets the Iranian energy sector with tough sanctions. That bill should receive overwhelming bipartisan support and glide toward a final presidential signature.

While lobbyists work to weaken the bill, tougher legislation should nevertheless emerge that will prohibit companies from doing business throughout Iran's oil, natural gas and refined petroleum supply chains. That means everything from the import of refined petroleum, to investment, products, services, technology, and support for both upstream and downstream operations in Iran.

Conferees involved in the final mark-up of the bill have reportedly strengthened the original bill. In the upper chamber, Senator Joseph Lieberman (I-CT) is working with Banking Committee Chairman Chris Dodd (D-CT), Ranking Member Richard Shelby (R-AL) and other Senate and House conferees to ensure that the bill isn't rendered toothless by giving countries like Russia and China “cooperating country status” or something amounting to pre-emptive exemptions from the application of the legislation.

On the House side, Representative Howard Berman (D-CA), chairman of the House Foreign Affairs Committee, and Representative Brad Sherman (D-CA), Chairman of the Foreign Affairs Subcommittee on Terrorism, Nonproliferation and Trade, are plugging a current legislative hole that has allowed companies to provide products, technology, support, services and specialized energy information to the Iranian oil and natural gas sectors.

And don't forget the priorities of the many members involved in this legislation:

The interests held by Iran's Revolutionary Guards Corp (IRGC) in the energy sector, and international companies doing business with the IRGC, can also be expected to be hammered by tougher Congressional and Administration action, at the urging of Representatives Berman, Sherman and others.

Representative Ileana Ros-Lehtinen (R-FL), the Ranking Member of the House Foreign Affairs Committee, is focused on vigorous energy sanctions enforcement, which is where much of the attention will be once the bill gets signed into law.

Upon the recommendation of Representative Ron Klein (D-FL), also on House Foreign Affairs, companies working with the U.S. government likely will have to self-certify that they are not doing business in the Iranian energy sector in order to be eligible for U.S. contracts.

To understand the impact of this last provision, readers are advised to refer to the U.S. Government Accountability Office report recently released. The report disclosed that Uncle Sam doled out $880 million to seven foreign companies doing business in Iran's energy sector between 2005 and 2009. Then there's the New York Times report from earlier this year; it revealed that 74 companies received $107 billion in U.S. government contracts. That's a lot of money in contracts to deny Iran's energy partners.

While Congress is energized to press forward with these new sanctions laws, members have been at this for a while. In the same way that U.S. law already prohibits companies doing business with Sudan from winning government contracts, President Obama has signed into law legislative provisions prohibiting some government agencies from rewarding Iran's energy partners. Senator Jon Kyl (R-AZ) took measures last year to ensure that the Department of Energy is prohibited from providing financial support to companies doing business with the Iranian regime. He pushed for this after the discovery that Energy had given over $500 million in contracts to fill the U.S. Strategic Petroleum Reserve to three of Iran's energy partners (Vitol, Shell, and Glencore).

Numerous members of Congress also took measures to ensure that the U.S. Export-Import Bank is prohibited from supporting projects controlled by an energy producer or refiner involved in Iran's energy sector. Companies are now strongly advised to self-certify that they are not conducting this business. Congress added this proviso to a bill appropriating money for the State Department in 2010 after learning that more than $900 million in loan guarantees provided by Ex-Im went toward the expansion of a major refinery owned by India's Reliance Industries, which was refining petroleum for sale to Iran.

As the conference committee winds down, legislators are still looking for new targets. The next one we're likely to see: energy companies doing business with the Department of Defense. Chairman Ike Skelton (D-MO) and Ranking Member Buck McKeon (R-CA) of the powerful House Armed Services Committee recently introduced language to the Defense Department Authorization Act that would prohibit companies doing business in Iran's energy sector from winning contracts to supply the Pentagon with petroleum.

The bottom line: If you're the CEO of an energy company still doing business in Iran, don't expect that Turkey/Brazil deal to pan out. Congress is determined. Energy sanctions are speeding through conference and new ideas are being developed to keep up the pressure. Congress hasn't done all of this work to let the legislation sit on a shelf collecting dust.

Issues:

Iran Iran Sanctions Turkey