West’s pressure on Iran may squeeze U.S., too

Oil-price spike could crimp economy

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Iran’s strenuous efforts to strike back at the U.S. are the result of the ratcheting up of economic sanctions this year to a point where they are now causing serious pain for Iran’s economy and citizens, analysts say.

For the first time, the U.S. is threatening to impose sanctions on companies that do business with Iran’s central bank, deploying the broadest and most potent tool available to hobble Iran’s economy. The mere threat of such sanctions have thrown Iran’s markets into turmoil.

Moreover, the European Union is cooperating with the latest round of sanctions — potentially cutting off as much as one-fifth of Iran’s oil sales in what would be a stunning blow to Iran’s economy.

Reports on Thursday that the EU will delay its embargo of Iranian oil sales by six months to allow European nations more time to find alternative sources of crude caused oil prices to fall below $100 a barrel for the first time this year, a sign of how sensitive market prices are to the latest political twists and turns.

The U.S. has encouraged other nations to find new suppliers of oil in a bid to make the sanctions stick. In addition, to prevent Iran from diverting sales of oil from Europe to Asia, which currently consumes about 60 percent of Iran’s exports, the U.S. has appealed to big Asian oil importers such as Japan and China to cooperate. Treasury Secretary Timothy F. Geithner made a round of visits in Asian capitals this week to try to persuade nations to come on board.

While China continues to resist curbing its oil trade with Iran, insisting that such commercial matters should not be caught up in the debate over Iran’s nuclear programs, the U.S. is likely to get broader cooperation with the sanctions this time around because alternative oil supplies are being made available by Saudi Arabia, which has grades of crude that are comparable to those exported by Iran, said Jeffrey J. Schott, an analyst with the Peterson Institute for International Economics.

Chinese Premier Wen Jiabao is set to begin his own five-day tour of the Middle East this weekend, bypassing Iran to visit Saudi Arabia, Qatar and the United Arab Emirates. The trip comes as Saudi Arabian Oil Co. and China Petroleum & Chemical Corp. sign an agreement for a proposed refinery on the Red Sea coast — Beijing’s first direct investment in a Saudi oil facility.

The increased flexibility for U.S. allies to get crude from Saudi Arabia combines with the greater effectiveness of broad sanctions on the financial sector to pose a potent threat to the Iranian government, which depends on oil sales for most of its revenue, Mr. Schott said.

“This really is a big ratcheting-up of the pressure on Iran, and it could lead to big political backlash from Iran,” he said. Tehran could try using military or covert operations against the West in retaliation as well as threatening to block the straits, he said. “We have to be prepared for that type of reaction.”

Because of the danger to the U.S. and world economies from a huge spike in oil prices, the law gives President Obama the flexibility to waive or postpone the sanctions later this year if he determines they would endanger U.S. economic growth, Mr. Schott said.

“If he thinks sanctions would cause a major spike in oil prices, he wouldn’t do it,” the analyst predicted.

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