Two leading congressmen are calling on the Obama administration to use its leverage in international financial institutions to press for greater fiscal transparency in Burma, formally known as Myanmar, and ensure progress in the human rights situation in the Southeast Asian country as it emerges from decades of isolation.
The two leaders of the House Committee on Financial Services, Chairman Spencer Bachus (R-AL), and ranking Democrat Barney Frank (D-MA) wrote a letter Aug. 22, obtained by The Cable, to Treasury Secretary Timothy Geithner asking him to safeguard the fragile reform process in Burma and ensure that Burma's opening to the world is done according to international financial management standards and with respect to the welfare of the Burmese people. Today Burmese President Thein Sein reshuffled his cabinet, replacing key ministers with reform minded appointees.
The lawmakers specifically called out the Myanmar Oil and Gas Enterprise (MOGE), which saw sanctions relief from the U.S. government despite suspected corruption and ties the Burmese military. Obama lifted the ban on U.S. companies doing business with MOGE in July, over the objections of Nobel Peace Prize winner Aung San Suu Kyi, now a member of the circumscribed Burmese legislature.
"We are cautiously optimistic that Burma will continue to implement necessary reforms, but we believe vigilance on questions of government transparency and human rights remain critical," the lawmakers wrote. "We urge the administration to use its leadership at the IFIs [international financial institutions] to emphasize fiscal transparency, systems of accountability and respect for human rights and to insist that the institutions pay close attention to the urgent social needs of the Burmese people."
They want the IMF's Code of Good Practice on Fiscal Transparency enforced on all branches of the Burmese government, including the military and MOGE. The code would require the government and its state enterprises (including MOGE), in essence, to publish their revenues and expenditures and subject them to public and parliamentary oversight, as well as an independent auditing process.
"Such transparency is necessary is necessary not only to allow the IFIs to properly supervise the use of multilateral aid but also to help end corruption and the off budget funding of the Burmese military," the letter states.
Burma is a resource-rich county that could provide for its people but remains mired in corruption and mismanagement, Tom Malinowski, Washington director of Human Rights Watch, told The Cable.
He said that IFI lending for big infrastructure projects, absent fiscal transparency reforms, could reinforce those bad habits, making the promotion of fiscal transparency central to the IFIs' mission. The IFIs hold good leverage over the Burmese government because infrastructure development is one of the regime's key goals.
"The key question in Burma's reform process is whether elected civilians will wrest full control over the country from the military establishment, including control of revenues from Burma's lucrative oil and gas and mineral exports. It's not just Aung San Suu Kyi who wants this - Burma's reformist president and its new parliament also have a huge stake in figuring out where the money is and asserting their authority to oversee how it's spent," Malinowski said. "It would help them if the IFI's prioritized fiscal transparency - providing technical assistance to help the Burmese get there, and holding up lending for big infrastructure projects until they do."
The top Kurdish representative in Washington on Friday pushed back against Iraqi Prime Minister Nuri al-Maliki's attempt to encourage U.S. President Barack Obama to stop U.S. oil companies -- particularly ExxonMobil -- from investing in the Kurdish area of Iraq following Chevron's recent purchase of 80 percent of two blocks in the autonomous region.
The Kurdish representative, Qubad Talabani, the Kurdish Regional Government's representative in Washington and the son of Iraqi President Jalal Talabani, was responding to Maliki's claim that Obama had sided with Baghdad in the escalating dispute in a recent letter.
"We would like to confirm that the letter was positive and convincing and stresses its respect for the constitution and Iraqi laws, in the same manner as the Iraqi government is seeking," read a statement from Maliki's office on Thursday.
On Friday, in a short interview with The Cable, Qubad Talabani shot back: "Every U.S. company that is working in Kurdistan today is working under the Iraqi constitution, so the notion that Obama has sent a letter to Maliki supporting his position on Exxon is misleading because the U.S. reaffirmed their support for the Iraqi constitution, and expressing their support is not contradictory to ExxonMobil working in Kurdistan."
But the dispute is not simply a legal matter. Baghdad is concerned that the KRG's cooperation with oil companies threatens its authority, since Article 112 of Iraq's constitution states that the management of the country's oil and gas fields and Iraq's energy policy are responsibilities of the federal government. "Firstly, the prime minister of Iraq should know that private U.S. companies ... don't act on the behalf of the U.S. government," Talabani said, "and they certainly don't take their orders from the U.S. government."
Baghdad banned ExxonMobil from bidding at a recent auction for exploration blocs after the company signed a 25-year exploration deal with the KRG last year. The KRG drew the ire of the Iraqi federal government earlier this month when it announced that it had exported some crude to Turkey, which gave the KRG refined product in return.
"This is an illegal and unconstitutional business that we will take the right decision against," a spokesman for Hussein al-Shahristani, Iraq's deputy prime minister for energy, said at the time. "The [Iraqi government's] oil ministry solely reserves the right to export crude oil, gas, or oil products to other countries."
American Enterprise Institute resident scholar Michael Rubin told The Cable on Monday that KRG president Massoud Barzani had also raised the issue with President Obama, which The Cable was unable to confirm.
"It's my understanding that Barzani walked away with the perspective that Obama was favoring Maliki's claims over Barzani's, so it seems already that the U.S. is siding with the Iraqi central government on this issue at least," he said. "We can't pressure Iraqis because we have no leverage left."
JIM WATSON/AFP/Getty Images
Accession to the Law of the Sea Treaty is crucial to protecting U.S. economic interests, senators and industry leaders argued during a U.S. Senate Foreign Relations Committee hearing Thursday.
"On rare earth minerals, on oil and gas, on whatever unknown minerals or products may be findable under the ocean, we have a choice," said committee chairman John Kerry (D-MA). "We can either join the major industrial nations ... and secure the benefits of the Law of the Sea Treaty for our businesses and our industries, or we can remain on the outside."
The European Union and 161 countries belong to the treaty, which came into force in 1994 and created rules for determining mineral and other rights beneath the ocean floor. Senator Kerry has led the push for ratification, while critics argue that the treaty erodes American sovereignty and diverts royalties to an international seabed authority. Pentagon leaders, including Secretary of Defense Leon Panetta, have voiced their support for accession, which they say would codify U.S. rights to use international shipping lanes and lay underwater cables, level the playing field for mineral rights, and result in more jobs and revenue.
"Today ... China controls about 97 percent of the production market for these [rare earth] minerals," Kerry said. "Can anybody in their right mind suggest that the U.S. is safer ... in a situation where we're sitting on the outside?"
Ratifying the treaty would significantly increase the potential scope of U.S. domestic energy production by expanding the definition of the outer continental shelf, top industry representatives told the committee.
"It would secure an additional 4.1 million square miles [of ocean floor] under U.S. jurisdiction," said American Petroleum Institute president and CEO Jack Gerard.
But to reap the benefits, Kerry added, the United States needs to act quickly so that U.S. energy companies can compete with foreign firms.
"They want and need certainty in order to invest the billions of dollars required to develop the extended shelf, especially in the Arctic, where the Chinese and Russians are already laying claims," he noted.
U.S. Chamber of Commerce president and CEO Thomas Donahue testified that the treaty is "critical to America's global leadership" and that the benefits of accession outweigh any negative criticism.
"The U.S. has more than any country to gain or to lose," he said. "The treaty is not perfect. It'll be changed like all treaties are, but we better be sitting at the table."
U.S. senators grilled Derek Mitchell, nominated by President Barack Obama on May 17 as the first U.S. ambassador to Burma in two decades, in a confirmation hearing Wednesday, but they used the session primarily to urge the administration to allow American investment in the country's oil and gas sectors.
Mitchell has served as special coordinator for Burma policy since last year, but democratic reforms and the election of opposition leader and Nobel Peace Prize winner Aung San Suu Kyi to parliament have prompted the Obama administration to step up its diplomatic engagement with the Burmese government.
Although the State Department has proposed a "sector by sector" plan to renewing private sector relations, the White House has not decided if it will lift sanctions on Burma's notoriously opaque and abusive energy industry.
"There's nothing I can say here definitively on this, because it is an ongoing internal, interagency discussion," Mitchell told the Senate Foreign Relations Committee. "But ... we are not looking to exclude any sectors from this."
Senator James Inhofe (R-OK), addressing "rumors" that the administration plans to "exclude oil firms from new rules allowing U.S. investment in the country," argued that such a policy would be detrimental to U.S. companies as foreign firms continue to sign oil and gas exploration agreements with Burma.
"This or any other ‘carve-out strategy' would be a strategic mistake," he said. "I believe that U.S. companies including the oil and gas companies can play a positive role in the effort by demonstrating high standards or responsibility, responsible business conduct, and transparency -- including respect for human rights in Burma."
Suu Kyi, on the other hand, is not as optimistic, and cautioned foreign firms against partnering with the state-owned Myanmar Oil and Gas Enterprise earlier this month during a speech in Geneva.
In January, Burma's Energy Ministry estimated its natural gas reserves at 22.5 trillion cubic feet, and the international bidding process for 25 offshore oil and gas blocks is scheduled to take place within two to three months.
A new set of sanctions against Iran is pending in the Senate, but the Obama administration refuses to say whether or not it supports the legislation as negotiations with Tehran resume.
Senate Majority Leader Harry Reid (D-NV) said today that he still intends to move as soon as possible to pass the Johnson-Shelby Iran Sanctions, Accountability and Human Rights Act of 2012, named for Finance Committee heads Sens. Tim Johnson (D-SD) and Richard Shelby (R-AL), that was approved by the committee in February. The bill would pile on more punitive measures against Iran's energy, shipping, and mining sectors, while punishing a broader range of Iranian government officials for their involvement in human rights violations.
Before the latest Senate recess, Reid attempted to pass the bill by unanimous consent, but Republicans objected because several senators want to offer amendments to strengthen the bill. Lawmakers from both chambers and both sides of the aisle want the bill to go through the regular legislative process so that changes can be made before passage, but Reid says the bill should be passed as is.
Reid told reporters today that his staff would be meeting today "to see if something could be worked out," regarding a way forward for the legislation. (After the meeting, a Reid spokesman told The Cable that "nothing" was worked out at today's meeting and there is no definitive schedule for moving ahead with the bill.)
"I think the best thing to do is to move forward with the bill that was reported out of committee on a bipartisan basis, unless we can get agreement from basically everyone," Reid said. "Each day that goes by without Iran feeling more of our sanctions, that's too bad for the world and helpful to Iran. We need to move forward on this as soon as possible."
The Obama administration hasn't said anything positive or negative about the legislation, even though it has been vocal about other Iran sanctions bills being debated in Congress. Administration officials met with Iranian negotiators as part of the P5+1 group in Turkey last weekend and more talks are scheduled for next month in Baghdad.
If the administration supports the new sanctions, it risks upsetting the new negotiations just as they are beginning. If the administration doesn't support the new sanctions, it leaves them open to GOP allegations of weakness towards Iran in the midst of the presidential election season.
National Security Council Spokesman Tommy Vietor did not respond to requests for comment today on whether or not the White House supports quick passage of the Johnson-Shelby bill. Late last month, a senior administration official told The Cable, "We're not just taking a position on that particular bill at this point."
House Armed Services Committee ranking Democrat Adam Smith (D-WA) told The Cable Monday that he supports moving forward with the bill quickly.
"I think it's perfectly appropriate to keep up pressure with the sanctions. I think you've got to keep ramping up the pressure," he said. "If we want to add to the options the president has, I think that's a good idea."
Senate Armed Services Committee ranking Republican John McCain (R-AZ) said today that without the administration's green light, the bill probably would not move quickly through Congress.
"Unless the administration advocates for that, I think it's less likely," he said.
Canada is upset that Washington special-interest groups are thwarting the Keystone XL pipeline, Canadian Foreign Minister John Baird told The Cable, forcing the country to move forward to find other customers for its oil.
"There's a great deal of frustration, less with the administration and more that the future prosperity of our country could lie in the hands of some radical environmentalists and special interests," Baird said in a Thursday interview in Washington. "That causes us great concern, so we want to look to diversify our markets, whether that be with Japan, Korea, or China, which has expressed a great interest."
U.S. President Barack Obama rejected TransCanada's permit application to build the pipeline in January after being compelled to issue a quick decision on the application by congressional legislation. He had received pressure from environmental groups, which had organized protests around the country opposing the construction of the pipeline.
No decision is expected on the pipeline this year, although Obama did announce last month that he intends to approve the southern piece of the pipeline soon. On Wednesday, Nebraska lawmakers passed a bill to re-launch a review of the pipeline route.
But Ottawa isn't waiting around for the United States to make a decision. The Canadia government is proceeding to build its "Northern Gateway" pipeline that would end in British Columbia, where the oil could be shipped directly to East Asia.
"It was certainly driven home to the energy sector in Canada that being captive to a special interest can have huge consequences on the future prosperity of our country. That's certainly known and accepted in a way that it wasn't last fall," Baird said.
Canada also knows how to deal with environmental groups, said Baird. The Canadian government has eliminated environmental impact studies for 90 percent of projects and has sped up the approval process, he said.
According to Baird, the United States is losing jobs due to the delay of the pipeline approval in Washington. But in a way, Canada stands to benefit from the impasse.
"Oil sands oil currently sells at a discount because we are a captive market, and if we could diversify that market, that discount could end," said Baird.
"If you look at all the oil around the world, there's precious little of it that is found in stable economies and stable democracies, and we want to share that resource with our closest partner," he said. "We're going to work hard to see the project approved, hopefully early next year."
Baird came to Washington for the G-8 foreign minister's meeting, which focused on the crises in Iran, North Korea, and Syria. Canada supports humanitarian and medical aid to the Syrian people but not arms for the Syrian opposition, Baird said. He also said there's no talk right now within NATO about establishing buffer zones inside Syria using NATO assets.
After Syrian troops fired over the Turkish border this week, Turkish Prime Minister Recep Tayyip Erdogan suggested that Turkey might invoke NATO Article 5, which provides for common defense of any threatened NATO country. Baird said the red line was if Syrian troops actually enter Turkey.
"There will be strong international support for Turkey if Syrian forces cross the border," he said. "Canada is a member of NATO, and if Syria wants to conduct military operations in a NATO country, they will get a strong reaction."
He didn't clarify what that strong reaction might entail.
Baird also shared news of a bet he made Thursday with Secretary of State Hillary Clinton over the NHL playoff series between the Ottawa Senators and the New York Rangers. If the Senators win, Clinton must wear their jersey. If the Rangers win, Baird will sport a Rangers sweater.
"After the Ottawa Senators win, she'll look great in red," he said, noting that in Canada, unlike in the United States, red is the liberal color.
Alex Wong/Getty Images
President Barack Obama issued a determination Friday that there are enough sources of oil around the world to allow all Iran's customers to stop buying its crude.
The decision was required by a section of the latest defense authorization bill, which included new sanctions against the Central Bank of Iran and any other country that does business with Iran. Countries can be exempted from those sanctions if they "significantly reduce" their oil business with Iran, and the president was required to decide if the world oil market could absorb that demand before the sanctions could be fully implemented.
"[A]fter carefully considering the report submitted to the Congress by the Energy Information Administration on February 29, 2012, and other relevant information, and given current global economic conditions, increased production by certain countries, the level of spare capacity, and the existence of strategic reserves, among other factors, I determine, pursuant to section 1245(d)(4)(B) and (C) of the National Defense Authorization Act for Fiscal Year 2012, Pub1ic Law 112-81, that there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum andpetroleum products purchased from Iran by or through foreign financial institutions," Obama wrote in a Friday memorandum.
"I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran."
The State Department exempted 11 countries from the Central Bank sanctions earlier this month and has until June 28 to decide whether to sanction the other 12 countries that buy crude oil from Iran, a list that includes China, India, South Korea, and Turkey. This determination allows that process to continue moving forward.
Today's determination was not a surprise. A Feb. 29 report from the Energy Information Agency stated that Saudi Arabia was pumping more oil than usual but also found that spare capacity in the oil market was modest by historical standards. Energy Secretary Steven Chu seemed to preview the determination March 1 when he said, "There is spare capacity and we believe -- we'll see -- but I think there is sufficient spare capacity."
In a conference call with reporters Friday afternoon, two senior administration officials touted the administration's effort to use the sanctions to persuade other countries to wean themselves off of Iranian oil and said the administration expected South Korea to move away from Iranian oil purchases soon and Turkey announced related moves today.
"It's our belief that these sanctions are having a significant impact on the Iranian government and the Iranian economy and that therefore they present the strongest pressure we've placed to date to effect Iran's political calculus about pursuit of nuclear program, particularly as we move toward P5+1 negotiations," one senior administration official said.
The official neglected to mention that the administration publicly opposed the legislation that created the sanctions, written by Sens. Robert Menendez (D-NJ) and Mark Kirk (R-IL), which was added to the defense authorization bill over administration objections and passed by the Senate by a vote of 100-0.
In a statement Friday, Menendez praised Obama's determination.
"Today, we put on notice all nations that continue to import petroleum or petroleum products from Iran that they have 3 months to significantly reduce those purchases or risk the imposition of sanctions on their financial institutions," Menendez said. "It is my opinion that most countries will significantly reduce their purchases by the June 28 deadline -- either because of the sanctions or because they share the U.S., EU, and IAEA's grave concerns about Iran's verified effort to acquire nuclear weapons capability."
The Cable asked the officials whether they supported the Johnson-Shelby Iran Sanctions, Accountability and Human Rights Act of 2012, which Senate Majority Leader Harry Reid (D-NV) tried to speed through the Senate this week without any debate or amendments.
"We're not just taking a position on that particular bill at this point," the official said.
We then asked whether the administration had a position on the right of senators to offer amendments to the Johnson-Shelby bill, in light of Reid's position that there is simply no time to offer amendments to the legislation.
"We've not made any specific determinations with regard to that amendment," the official said.
We didn't ask about any specific amendment, but it's possible the official was referring to a new amendment from the office of Kirk, which would expand sanctions on the Central Bank of Iran to include all Iranian banks and would threaten sanctions on any international firms that facilitate those banks' transactions, including the EU-based international transactions facilitator SWIFT and Clearstream, a firm that works with SWIFT to process worldwide money exchanges. Swift announced it would stop processing transactions with Iran's Central Bank earlier this month.
Kirk's new amendment would also target the Iranian insurance industry, expand sanctions against the Iranian energy sector, target Iran's high-tech and telecommunications sectors, and try to narrow the conditions under which the administration can exempt third countries who are still buying oil from Iran from existing sanctions.
"We welcome the president's determination and applaud the administration's faithful implementation of the Menendez-Kirk amendment," a Kirk spokesperson told The Cable. "To build on this momentum, we hope the Senate will consider amendments to the pending Iran sanctions bill that would continue to increase the economic pressure on the Iranian regime."
Senate Majority Leader Harry Reid (D-NV) is trying to pass a new Iran sanctions bill through the Senate without any amendments or debate in a legislative move many see as designed to prevent both Republicans and Democrats from adding even more sanctions to the legislation.
Reid announced on the Senate floor Tuesday morning that he wanted to bring up the Johnson-Shelby Iran Sanctions, Accountability and Human Rights Act of 2012, a new set of sanctions that would punish anyone who provides Iran with equipment or technology that facilitates censorship or the suppression of human rights, including weapons, rubber bullets, tear gas, and other riot control equipment -- as well as jamming, monitoring, and surveillance equipment. It also calls on the Obama administration to develop a more robust Internet freedom strategy for Iran and speed related assistance to pro-democracy activists in the country.
The legislation, named for Senate Banking Committee heads Tim Johnson (D-SD) and Richard Shelby (R-AL), would formally establish that U.S. policy is intended to prevent Iran from obtaining a nuclear weapon, and would require the administration to report extensively and repeatedly on its efforts to increase diplomatic and financial pressure on the Iranian regime.
But here's the rub: Reid wants to bring up the bill for passage by unanimous consent, meaning there would be no debate and no amendments offered. The bill could be passed by a simple voice vote if nobody objects, but Reid said the Republicans won't let it happen.
"I'm going to ask consent soon to moving forward on this unanimously reported bill out the Banking Committee. Unfortunately, I have been told that my Republican colleagues will object to moving forward with these new sanctions because they want to offer additional amendments," Reid said on the Senate floor Tuesday morning.
"I have Democrats who want to offer additional amendments also, but we don't have the time to slow down passage of this legislation," he added. "When we put this away, we're not going to be finished with Iran. ... But in an effort to get sanctions in place now, Democrats have agreed to streamline the process and refrain from offering their amendments. We can't afford to slow down the process."
Senate aides from both parties told The Cable that Reid's office is working behind the scenes to prevent more amendments that would strengthen the sanctions in ways the administration and Reid are resisting. The Cable has obtained the text and a detailed summary of one lengthy amendment that would add several new punitive measures to the bill.
The amendment isn't signed but it appears to come from the office of Sen. Mark Kirk (R-IL) because it contains expanded sanctions against all Iranian banks that matches legislation Kirk had already been working on. An aide to Kirk declined to comment on the amendment.
The summary of the proposed amendment includes a direct rebuttal to Reid's argument that the Johnson-Shelby bill should be passed quickly and that there will be plenty of other chances to sanction Iran after that.
"As Iran continues inching closer to ‘red lines' surrounding its illicit nuclear weapons program, S. 2101 will likely serve as the last legislative vehicle to impose further economic sanctions against the Islamic Republic until December," the summary reads. "Therefore, as long as opportunities exist to incorporate new ideas and creative sanctions into the legislation, we should seize upon those opportunities in overwhelming bipartisan fashion. In this way, we keep our promise to the American people and support the President's stated objective to exhaust every available diplomatic option."
The proposed amendment would expand sanctions on the Central Bank of Iran to include all Iranian banks and would threaten sanctions on any international firms that facilitate those banks' transactions, including the EU-based international transactions facilitator SWIFT and Clearstream, a firm that works with SWIFT to process worldwide money exchanges. Swift has already taken some actions to cut off Iran's Central Bank.
The amendment would also target the Iranian insurance industry, expand sanctions against the Iranian energy sector, target Iran's high-tech and telecommunications sectors, and try to narrow the conditions under which the administration can exempt third countries who are still buying oil from Iran from existing sanctions. The State Department exempted 11 countries from Iran sanctions last week and has yet to make a determination on 12 others.
There are plenty of other potential amendments out there as well. For example, a bill ruling out containment of a nuclear Iran led by Sens. Lindsey Graham (R-SC), Joe Lieberman (I-CT), and Bob Casey (D-PA), could also become an amendment.
By calling for unanimous consent on the Johnson-Shelby bill today, Reid is trying to portray the GOP as objecting to quick passage of Iran sanctions. It's likely that after he files for unanimous consent today and Senate Minority Leader Mitch McConnell (R-KY) objects, the two will retreat behind closed doors and negotiate a compromise way forward. A similar dynamic played out over the last round of sanctions when Kirk and Sen. Robert Menendez (D-NJ) wanted to sanction the Iranian Central Bank over the administration's objections.
"Sooner or later -- and most likely it will be sooner -- both sides are going to sit down together and figure out a way forward that everyone can live with -- reflecting the overwhelming bipartisan consensus that exists in support of additional Iran sanctions," one senior Senate aide told The Cable.
"Hopefully calm will prevail on all sides after today and the Majority Leader will authorize Chairman Johnson to negotiate with key Democrats and Republicans on the contents of a manager's amendment that includes everyone's best ideas," another senior Senate aide said. "In the end, the president says the window of diplomacy is shrinking and we owe it to the American people to consider every available non-military option."
UPDATE: In a short interview, Sen. Joe Lieberman (I-CT) said he does want to offer an amendment to the Johnson-Shelby bill and does not want to see it go through the senate via unanimous consent.
"Senator Graham and I are the lead sponsors of a bipartisan resolution that says containment is not an acceptable policy against Iran. With regard to the bill coming out of the banking committee, we're having a discussion with Sen. Reid about when to take it up and how many amendments to allow," Lieberman said.
"We are a little bit concerned. I'd really prefer to have a bipartisan agreement with a limited number of amendments on both sides. I think that's Sen. McConnell's position. So I'm going to talk to Sen. Reid and try to work that out."
Senate Minority Whip Jon Kyl (R-AZ) said this afternoon that Republicans will continue to object to moving forward on the bill until Kirk's amendment gets a hearing.
"I just wanted to say that Senator Kirk is doing a lot of homework but he's not here, would like to add an amendment -- a change to the proposal and therefore, would hope that we could work out something with the leader so that we could accommodate Senator Kirk's desire in that regard," Kyl said.
Late Tuesday afternoon, Sen. Rand Paul (R-KY) filed the formal objection to unanimous consent on the Johnson-Shelby bill, due to his desire to be able to offer an amendment of his own.
The State Department announced on Tuesday that it would exempt 10 European countries and Japan from penalties for doing business with Iran's central bank, because those countries are making significant progress toward weaning themselves off of Iranian oil.
"I am pleased to announce that an initial group of eleven countries has significantly reduced their volume of crude oil purchases from Iran -- Belgium, the Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain, and the United Kingdom. As a result, I will report to the Congress that sanctions pursuant to Section 1245 of the National Defense Authorization Act for 2012 (NDAA) will not apply to the financial institutions based in these countries, for a renewable period of 180 days," Secretary of State Hillary Clinton said in a Tuesday statement. "The actions taken by these countries were not easy. They had to rethink their energy needs at a critical time for the world economy and quickly begin to find alternatives to Iranian oil, which many had been reliant on for their energy needs."
The European Union banned all new purchases of Iranian crude oil as of Jan. 23 and will phase out existing contracts by July 1, Clinton said. Japan was able to reduce its dependence on Iranian oil even despite energy shortages created by the Fukushima nuclear disaster.
"We commend these countries for their actions and urge other nations that import oil from Iran to follow their example," said Clinton. "Diplomacy coupled with strong pressure can achieve the long-term solutions we seek and we will continue to work with our international partners to increase the pressure on Iran to meet its international obligations."
Sen. Bob Menendez (D-NJ), who co-authored the sanctions against the Central Bank of Iran (CBI) and those who do business with it, praised the State Department's move in a Tuesday statement of his own.
"The sanctions are working," he said. "Countries and companies are stepping up in recognition of the real threat that Iran poses to its neighbors and the global community and are terminating business relationships with Iran. On Saturday, SWIFT - the financial messaging service provider - cut off services to the Central Bank of Iran and 30 designated Iranian banks, and as a result -- for the first time -- we are seeing a real impact on the Iranian economy."
A senior State Department official said Tuesday that there are 12 countries left who import Iranian oil and could be sanctioned but didn't get exemptions today. Butthe official said that if those countries are going to be sanctioned, it won't be for a while.
Since the CBI sanctions didn't actually go into effect until Feb. 29, any case for implementing sanctions against those 12 countries would have to be based on evidence from that date forward, which would take time.
On March 30, President Barack Obama will have to make a determination as to whether price and supply conditions in the energy market allow for countries to switch from Iranian crude oil to other suppliers. If he determines they do, then a new set of harsher sanctions would go into effect on June 28 against any countries that don't have exemptions by then.
The main countries that the United States might be forced to sanction at that time include China, Turkey, India, and South Korea, none of which received exemptions today. The State Department official admitted that the conditions for receiving an exemption are vague.
"On the case of the other countries, the legislation specifies ‘significantly reduce.' It doesn't define what ‘significantly reduce' is," the official said.
The official said that Japan represents a model for how other countries could act to avoid sanctions. But under questioning, the official refused to say exactly how much Japan has committed to reducing its dependence on Iranian oil, calling that "commercially protected information." He said Japan reduced its intake of Iranian oil between about 15 to 22 percent over the last half of 2011, depending on how you look at the data.
One senior Senate aide called into question the State Department's decision to issue Japan an exemption. The aide pointed out that the law requires countries to reduce their intake of Iranian oil in 2012, not 2011, and it's not clear if Japan is going to continue that trend ahead of the June 28 deadline.
"The bottom line is that if Japan has in fact committed to reducing their purchases of Iranian oil by 15 to 22 percent in 2012, this exemption is fully warranted. But if this is just a get out of jail free card issued on the basis of past performance alone, this would not be a faithful application of the law," the aide said.
The aide also pointed out that the 10 EU countries are no-brainers for exemptions, because the EU is in the process of implementing a full Iranian oil embargo anyway.
"This is no diplomatic success, this is just cover to make sure that those EU countries that are complying with the embargo have cover from the sanctions."
On Thursday, the Senate Banking Committee will officially start work on a new sanctions bill against Iran, and senators are set to add even more sanctions to the bill as it goes through the legislative process -- including measures that directly target President Mahmoud Ahmadinejad and Supreme Leader Ayatollah Ali Khamenei.
The Banking Committee will mark up the Johnson-Shelby Iran Sanctions, Accountability and Human Rights Act of 2012, named after committee heads Sens. Tim Johnson (D-SD) and Richard Shelby (R-AL), who will lead Thursday's proceedings. The bill will pile on more punitive measures against Iran's energy, shipping, and mining sectors, while punishing a broader range of Iranian government officials for their involvement in human rights violations.
President Barack Obama's administration is still working to implement the last round of Iran sanctions that was signed into law, which included the Menendez-Kirk sanctions on the Central Bank of Iran that were added to the defense authorization bill in December by a 100-0 vote. But the Senate has no intention of giving the administration a breather, and Thursday's mark-up is the beginning of a new and aggressive push to tighten the noose on Tehran and further damage the Iranian economy.
"Iran's continuing defiance of its international legal obligations and refusal to come clean on its nuclear program underscore the need to further isolate Iran and its leaders," Johnson said in statement about the bill.
The bill would sanction anyone who provides Iran with equipment or technology that facilitates censorship or the suppression of human rights, including weapons, rubber bullets, tear gas, and other riot control equipment -- as well as jamming, monitoring, and surveillance equipment. It also calls on the administration to develop a more robust Internet freedom strategy for Iran and speed related assistance to pro-democracy activists in the country.
The legislation would also formally establish that U.S. policy is intended to prevent Iran from obtaining a nuclear weapon, and would require the administration to report extensively and repeatedly on its efforts to increase diplomatic and financial pressure on the Iranian regime.
Johnson and Shelby's bill expands sanctions to cover companies involved in joint ventures with Iran that aid the country's energy sector, targets any Iranian joint ventures involving uranium mining, authorizes the administration to target corporate executives of sanctioned firms, and requires U.S. companies to report to the SEC business they have with any Iranian firms that could fall under sanctions.
The Banking Committee bill is a scaled-down version of the Iran, Syria, North Korea Sanctions Consolidation Act, sponsored by Sens. Robert Menendez (D-NJ), Jon Kyl (R-AZ), Joe Lieberman (I-CT), Mark Kirk (R-IL), Kirsten Gillibrand (D-NY), Bob Casey (D-PA), and Scott Brown (R-MA). The Syria and North Korea provisions in that bill were left out of the Banking Committee's version so there wouldn't be any jurisdictional confusion between the Banking Committee and the Foreign Relations Committee.
Several senators are set to offer amendments on Thursday to strengthen the Johnson-Shelby bill even further. Although negotiations are still ongoing, a list of the amendments in the queue as of Wednesday afternoon was obtained by The Cable.
Among the amendments that could be considered in committee on Thursday is an amendment by Menendez, offered on behalf of himself and Kirk (who is in Chicago recovering from a stroke) that would impose immigration restrictions on Ahmadinejad, Khamenei, and a host of other senior Iranian government officials. The amendment would also trigger visa restrictions on Ahmadinejad and Khamenei, although those restrictions could be waived for U.N. meetings in New York.
A separate amendment by Menendez and Sen. Roger Wicker (R-MS), also offered on behalf of Kirk, would sanction banks with officers on the board of the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the organization that handles the bulk of international electronic bank transfers, if SWIFT doesn't stop processing transactions for Iranian banks.
Another Menendez amendment would require the Treasury Department to determine whether the Iranian National Oil Company and the Iranian National Tanker Company are tied to the Islamic Revolutionary Guard Corps. If they are, those two companies would then be sanctioned as well, which could wreak further havoc on Iran's economy.
"This is a reminder that there are still more stones left unturned and there are still more ways to increase the pressure on an already extraordinarily pressured Iranian economy," a senior Senate aide told The Cable. "In bipartisan fashion, the Senate is moving to do just that."
The Treasury Department today designated Iran's third-largest bank, Bank Tejarat, as subject to new sanctions, on the same day the EU announced a complete oil embargo of Iran.
"At a time when banks around the world are cutting off Iran and its currency is depreciating rapidly, today's action against Bank Tejarat strikes at one of Iran's few remaining access points to the international financial system," Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen said in a statement. "Today's sanction against Bank Tejarat will deepen Iran's financial isolation, make its access to hard currency even more tenuous, and further impair Iran's ability to finance its illicit nuclear program."
Bank Tejarat is being sanctioned for providing financial services to Bank Mellat, the Export Development Bank of Iran (EDBI), the Islamic Republic of Iran Shipping Lines (IRISL), and the Ministry of Defense for Armed Forces Logistics (MODAFL), all of which were previously sanctioned for the involvement in the proliferation of weapons of mass destruction.
Treasury also sanctioned Iran's Trade Capital Bank, a Minsk-based subsidiary of Bank Tejarat, bringing the total number of Iranian financial institutions under U.S. sanctions to 23, according to a Treasury Department fact sheet. Because the banks are being sanctioned under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA), any foreign bank that does business with these Iranian banks risks losing access to the U.S. financial system.
In its statement, Treasury accused Bank Tejarat of facilitating the movement of tens of millions of dollars to the Atomic Energy Organization of Iran (AEOI) for the purchase of uranium. Treasury also said the bank has helped other Iranian organizations circumvent sanctions, including the Islamic Revolutionary Guard Corps (IRGC).
"Iran's economic isolation seems to worsen each day as reflected in its plummeting currency, the Iranian rial," a senior Treasury official told reporters in a Monday afternoon briefing."
The official said the Iranian government is going to extraordinary lengths to prop up the rial.
"In recent weeks, the government has tried to ban the sale of Western currency. It reportedly has restricted citizens' ability to communicate by blocking text messages containing the word ‘euro' or ‘dollar.' Plainclothes police officers are reportedly patrolling the currency exchanges to enforce currency restrictions and arrest violators," the official said.
The Treasury and State Departments are also in the process of implementing the Menendez-Kirk sanctions on the Central Bank of Iran, which the official said would cause more pain for the Iranian economy.
"The economic hardship it is currently facing will only increase in the months to come, and will continue to increase as long as Iran refuses to meaningfully engage with the international community regarding its nuclear program," the official said.
A reporter asked the official when Treasury would issue the implementation rules for the new CBI sanctions. Lawmakers are concerned the rules may be crafted in a way to allow some partner countries to avoid cutting off all business with Iran.
"As soon as they are ready," the official said.
President Barack Obama's administration is working on the details of how it will implement crippling new sanctions against Iran, and the two senators who wrote the legislation warned the White House today not to water down the measures.
"We understand that the administration is drafting rules to guide the implementation of the law and we hereby seek to convey the legislative intent underlying certain terms and phrases in the amendment and to ensure that the positive developments that have occurred as a result of the amendment are buttressed by the administrative rules," wrote Sens. Robert Menendez (D-NJ) and Mark Kirk (R-IL) in a letter today to Treasury Secretary Timothy Geithner, who traveled personally to Japan and China this month to discuss the issue.
The State Department has sent teams to several countries urging them to comply with the new measures imposed by the Menendez-Kirk amendment, but the administration's recent enthusiasm for the sanctions is at odds with their attempts to water down the sanctions language while it was going through Congress. The law would punish any country or bank that does business with the Central Bank of Iran (CBI), or with Iran's state-controlled oil sector.
That's why Kirk and Menendez, along with their allies, are now worried that the Obama administration will try to implement the rules in such a way that will allow some countries that refuse to stop doing business with Iran to wiggle off the hook, by delaying implementation for months or claiming that other countries' adherence is more robust than it really is.
Obama, for his part, has hailed his administration's success in establishing a broad-based coalition aimed at isolating Iran.
"When I came into office, what we had was a situation in which the world was divided, Iran was unified, it was on the move in the region. And because of effective diplomacy, unprecedented pressure with respect to sanctions, our ability to get countries like Russia and China -- that had previously balked at any serious pressure on Iran -- to work with us, Iran now faces a unified world community, Iran is isolated, its standing in the region is diminished. It is feeling enormous economic pressure," the president told Time in an interview released today.
The Menendez-Kirk letter list several concerns about the forthcoming rules, which could be unveiled as early as next week. Their two main worries are that the administration will allow countries to avoid being penalized by saying they have achieved "significant reductions" in their dealing with Iran, and that Obama will postpone implementation of the sanctions on national security grounds.
The implementation rules will define exactly what the term "significant reductions" means. Menendez and Kirk want the administration to use the same definition as was used for the last round of Iran sanctions, as dictated by the Comprehensive Iran Sanction, Accountability, and Divestment Act of 2010 (CISADA), to avoid any confusion.
"To ascribe more variable terminology to the definition of ‘significantly reduced' would diminish the ability of countries to understand and comply with the amendment," the senators wrote. "An unevenly applied interpretation would also call into question the seriousness of the sanctions policy and send mixed signals to both Iran and our allies."
The senators' other main concern is that Obama will avail himself of the "national security waiver" found in the law to postpone implementing the new sanctions altogether for another 120 days. If he doesn't invoke this waiver, sanctions against countries that do business with the CBI could take hold Feb. 29. If Obama uses the waiver, he won't have to sanction any countries until late June, which tracks with the timeline the law specifies for the imposition of the oil-related sanctions.
The senators also don't think Obama should be able to waive all the sanctions with one stroke of the pen. They want him to have to waive sanctions for each country on a case-by-case basis. That's one of the things the forthcoming rules will address.
"We would welcome an opportunity to discuss these points with you prior to the publication of the final rule for the Menendez-Kirk amendment," the senators wrote -- a nice way to complain to the administration that they are not being properly consulted.
A senior Senate aide who works on the issue was more direct with The Cable.
"There's been little to no consultation or communication on this rule," the aide said. "There is growing concern that the administration may be moving toward a broad and non-specific definition for ‘significant reduction,' and the intention of the authors is that every bank that is in violation of the law would need its own national security waiver in order for the president to exempt them."
The actual rule writing is done at Treasury's Office of Foreign Assets Control (OFAC), run by Adam Szubin.
"The administration is hard at work drafting the regulations implementing the legislation. We are already using this law, in concert with our other efforts, to reduce Iran's access to oil revenue, both by working with our partners to significantly reduce their imports of Iranian crude and by impeding the CBI's ability to receive payment for whatever oil Iran is able to sell," a Treasury Department spokesman told The Cable. "We will continue our intensive engagement to ensure that the maximum amount of pressure is exerted by the international community against Iran's illicit nuclear program."
Former National Security Advisor Jim Jones called today for quick action on the Keystone XL pipeline construction, directly opposing the White House he worked for only a few months ago.
Jones, who rarely speaks in public and almost never contradicts his former boss President Barack Obama, lashed out against the administration in a press call and warned of grave consequences to U.S. national security if the project to build the pipeline doesn't move forward immediately. The call was sponsored by the American Petroleum Institute and Jones was joined on the call by API President and CEO Jack Gerard.
"In a tightly contested global economy, where securing energy resources is a national must, we should be able to act with speed and agility. And any threat to this project, by delay or otherwise, would constitute a significant setback," said Jones. "The failure to [move forward with the project] will prolong the risk to our economy and our energy security" and "send the wrong message to job creators."
The comments come at the worst possible moment for the Obama administration, which is trying to beat back an effort from congressional Republicans to attach language that would force a decision on the pipeline to legislation that extends unemployment insurance and the payroll tax holiday for middle class Americans.
Obama has promised to veto any bill that comes to his desk with the Keystone XL pipeline language, and the State Department has said that if it is forced to come to a quick decision on the pipeline, that decision would be no because there has not been enough time to properly evaluate environmental and logistical considerations.
The Cable asked Jones if he was getting paid by API for supporting its cause. Jones said he was not getting paid, and was speaking out because he believed in the pipeline cause.
"I've known Jack Gerard for a number of years... and when he called me a few days ago and asked me if I was willing to participate in this because of my interest in energy issues, I agreed to do so," Jones said.
Jones said the project was an important piece of the U.S.-Canada relationship and that if the United States doesn't act, Canada may decide to cancel the project and give its energy resources to the Chinese. He also said if they United States doesn't move forward with the pipeline, that would be another signal of fading U.S. leadership in the world.
"If we get to a point where the nation cannot bring itself to do, for whatever reason, those things that we all know is in our national interest... then we are definitely in a period of decline in terms of our global leadership and in terms of our ability to compete in the 21st century," said Jones.
Jones said that he was not in touch with the administration directly on this issue, but that he told Obama personally just before resigning that Obama had a chance to be the "energy president," but was failing to distinguish himself on the issue.
"I do not think the United States has a comprehensive strategy for energy writ large and that's a critical shortfall. Nor do I think we are properly organized," Jones said. "In my last few days I communicated that to the president."
UPDATE: A reader passes on this 2008 article from ThinkProgress that points out Jones was the Institute for 21st Century Energy, a organization closely affiliated with the U.S. Chamber of Commerce. According to the article, Jones' Transition Plan at the Institute "calls for billions of dollars in subsidies for the nuclear and coal industry, a dramatic expansion in domestic oil and natural gas drilling into protected areas, and massive new energy industry tax breaks and loopholes."
House Armed Services ranking Democrat Adam Smith (D-WA) told The Cable today that claims he is trying to "water down" Iran sanctions legislation inside secret conference negotiations is "utter and complete bullshit."
Smith reached out to The Cable today to refute claims made by a senior GOP aide in our story yesterday that he and Senate Armed Services Committee Chairman Carl Levin (D-MI) were pushing for changes to the Kirk-Menendez Iran sanctions amendment that would weaken its penalties on the Central Bank of Iran (CBI) and any foreign banks that do business with it. The administration has been pushing for changes to the amendment that would weaken the sanctions, and give the administration more flexibility in implementing them.
The Kirk-Menendez amendment was added to the fiscal 2012 defense authorization bill last week by a 100-0 vote in the Senate. House and Senate conferees are meeting behind closed doors this week to hash out a compromise version of the bill, which includes negotiations on the Kirk-Menendez language. Whatever emerges from the secret conference will be voted on by both chambers next week and sent to President Barack Obama for his signature.
A senior GOP aide told The Cable on Thursday that Smith and Levin were advocating inside the secret conference for the changes the administration wants. Smith said flatly today he may be seeking changes in the amendment, but is not trying to "weaken" the sanctions.
"It is not accurate to say we are trying to water it down," Smith said, declining to get into specifics about what changes he is seeking.
"Different people have different views on what is stronger than something than something else, but this notion that Menendez and Kirk got it absolutely 100 percent perfectly right, and that there's no point discussing anything else that can be done to it, doesn't make any sense to me," Smith said.
"It's not a matter of weaker or stronger, it's a matter of making sure we get the language right, in order to put us in a position to put the maximum amount of pressure on Iran. That's what we're trying to do."
The secret nature of the negotiations has contributed to the confusion of what's going on with the Iran sanctions language. Adding to the problem is that, once the conferees reach a final decision, it will be virtually impossible to go back and alter the language because that would open up the entire defense bill again and there's no time to do that if Congress wants to pass the bill this year.
Sen. Mark Kirk (R-IL) and Robert Menendez (D-NJ), who are both upset at the administration over its handling of the sanctions negotiations, could have kept total control over the amendment by not adding it to the defense bill in the first place, which is managed by the Armed Services Committee and therefore somewhat out of their control. But they needed to attach the amendment to a piece of "must pass" legislation in order to see their ideas sent to Obama quickly and without a real possibility of a veto.
Smith was careful in our interview to explain that while the secret process is managed by him, Levin, House Armed Services chairman Buck McKeon (R-CA), and Senate Armed Services ranking Republican John McCain (R-AZ), the negotiations would take the views of other lawmakers into consideration as well.
"We're certainly not going to just leave it up to the four of us to figure out how to work this," Smith said. "But we are trying to make sure it gets in the bill, gets signed, and gets into force as soon as we can do it."
House Foreign Affairs ranking Democrat Howard Berman (D-CA), who announced yesterday that he would definitely not be the one carrying the administration's water on the issue, is one of the other key voices within the conference.
"I will not, and Congress should not, give into entreaties from the administration or elsewhere ... to dilute our approach to sanctions on the Central Bank of Iran's petroleum transactions," Berman said to applause at a conference on Thursday sponsored by the Foundation for the Defense of Democracies, a conservative policy and research organization. "The Kirk-Menendez amendment is a good amendment."
Menendez also spokes at the FDD conference and doubled down on his push for the stronger measures.
"In the case of Iran I've argued that we have no choice but to impose the most robust sanctions possible because we will NEVER permit Iran to have a nuclear weapon and the timeline for acting is now - NOT when we are facing no other choice than military action," Menendez said.
"Last week, the U.S. Senate unanimously voted to support this option... The time to act is now."
Levin's office declined to comment on the secret negotiations.
The State Department formally rolled out a new plan today for how it will tackle economic, energy, and environmental issues -- by combining them all into one bureaucratic structure.
Undersecretary Bob Hormats is the leader of the newly expanded "E" team in Foggy Bottom, making him the undersecretary for economic growth, energy, and the environment. Before today, Hormats was the undersecretary for economic, energy and agricultural affairs. The change moves several offices under Hormats' umbrella, and also places him in charge of two new offices that never existed before.
Hormats is now in charge of three bureaus led by assistant secretaries and their teams: the Bureau of Oceans and International Environmental and Scientific Affairs (OES), led by Assistant Secretary Kerri-Ann Jones, the Bureau of Economic and Business Affairs (EB), led by Assistant Secretary Jose Fernandez, and the brand new Bureau of Energy Resources (ENR), led by State's Coordinator for International Energy Carlos Pascual, pending the confirmation of an assistant secretary.
The new "E" family will also, for the first time, include the Office of the Science and Technology Advisor, led by E. William Colglazier, and a new Office of the Chief Economist, which will be led by someone who hasn't been hired yet - interviews are ongoing.
Hormats could have as many as 150 to 200 new people under his leadership, but the changes are basically cost neutral. The idea is to combine these three bureaus into a cohesive team, which can take advantage of the increasing overlap between energy policy, environmental policy, and the economy.
"If this was only moving the bureaucratic boxes around it wouldn't be worth the effort," Hormats told The Cable in an interview. "This really responds to Secretary Clinton's challenge to break down silos and to create greater efficiencies within the State Department and focus attention in developing economic statecraft."
The changes in the State Department's bureaucracy were spelled out in the Quadrennial Diplomacy and Development Review, which was released last year, but also fits perfectly into Secretary of State Hillary Clinton's new favorite initiative, "Economic Statecraft," as laid out in her speech in October.
"America's economic strength and our global leadership are a package deal," Clinton said. "A strong economy has been a quiet pillar of American power in the world. It gives us the leverage we need to exert influence and advance our interests. It gives other countries confidence in our leadership and a greater stake in partnering with us."
Hormats said the State Department was currently evaluating several ways in which the new offices could work together. For example, the United States could use economic strategies to promote access for U.S. energy technology companies in Africa, he said. The environmental experts could also chip in to make sure development in the African energy sector is ecologically sound.
Another initiative State is thinking about, Hormats said, is an effort to strengthen science and technology cooperation with the European Union in areas such as nanotechnology, smart grids, and electric cars. The idea is to play a role in setting industry-wide standards for new green technologies, helping U.S. businesses establish an international foothold in these emerging industries.
The conventional wisdom is that environmental and business objectives are at odds with each other, but Hormats is aiming to disprove that. He made the case that environmentally conscious companies are more energy efficient, and therefore more economically successful. President Barack Obama's Energy and Climate Partnership of the Americas is an existing example of this type of thinking, and a project that will be managed in his shop.
Hormats has also been meeting over several months with environmental groups to assure them that their concerns will not be made subservient to the overwhelming drive to seek economic gains and greater energy independence.
"The last thing we want to do is make the environmental bureau a subsidiary of the economic or energy bureaus," Hormats said. "The goal is to find synergies among co-equals. That's the key."
Thirty-seven Republican senators have co-sponsored a new bill aimed at forcing the Obama administration to move forward with the Keystone XL U.S.-Canada oil pipeline project.
"Jobs will be created right away and billions of dollars in investment will be unleashed through legislation introduced to permit the $7 billion Keystone XL pipeline, the largest infrastructure project ready in the United States, to commence construction," said Sen. Dick Lugar (R-IN), the lead sponsor of the "North American Energy Security Act," introduced Wednesday, in a release. "This is no time for delay."
Lugar is leading the drive to move the project forward along with Sens. John Hoeven (R-ND) and David Vitter (R-LA).
The White House announced a delay in moving forward with the project on Nov. 10, saying that it needed time to explore alternative routes for the pipeline, which would bring crude oil from Canadian oil sands deposits to refineries in the southern United States. The delay announcement came right in the middle of the State Department's own review of the project. In a statement, State said it was particularly sensitive to concerns about running the pipeline through the environmentally sensitive Sand Hills region of Nebraska.
The main builder of the pipeline, TransCanada Keystone Pipeline, LP, applied for a permit to build the pipeline in 2008. The State Department is in charge of doing the Environmental Impact Study on the project, but has been criticized for outsourcing that work to a company called Cardno Entrix, which has deep financial ties to TransCanada.
Despite that, the pipeline's environmental impact review is ongoing, and the 37 GOP senators want the permit issued within the next 60 days. They are accusing the White House of delaying the project for political reasons.
"President Obama has the opportunity of creating 20,000 new jobs NOW. Incredibly, he has delayed a decision until after the 2012 election apparently in fear of offending a part of his political base and even risking the ire of construction unions who support the pipeline," Lugar said.
Specifically, the bill would require the Secretary of State to issue the permit within 60 days unless the president determines it is not in the national interest. The legislation would also require the permit to contain provisions for environmental protection and would specify that the state of Nebraska would have the right to make sure the pipeline route does not impact the Sands Hills area.
Lugar is promising to press for quick consideration of the bill in the Senate Foreign Relations Committee.
The other sponsors are: Lisa Murkowski (R-AK), Mitch McConnell (R-KY), Mike Johanns (R-NE), Johnny Isakson (R-GA), John Cornyn (R-TX), Roger Wicker (R-MS), Pat Roberts (R-KS), John Barrasso (R-WY), Dan Coats (R-IN), Marco Rubio (R-FL), Jim Inhofe (R-OK), Jerry Moran (R-KS), John Thune (R-SD), Ron Johnson (R-WI), Mike Crapo (R-ID), Lindsey Graham (R-SC), Roy Blunt (R-MO), Jeff Sessions (R-AL), Mike Enzi (R-WY), Lamar Alexander (R-TN), Kay Bailey Hutchison (R-TX), Jim Risch (R-ID), Saxby Chambliss (R-GA), Mark Kirk (R-IL), Rob Portman (R-OH), Richard Burr (R-NC), Richard Shelby (R-AL), John Boozman (R-AR), Tom Coburn (R-OK), Mike Lee (R-UT), Thad Cochran (R-MS), Chuck Grassley (R-IA), Dean Heller (R-NV), and Bob Corker (R-TN).
Sen. Mark Kirk (R-IL) has lifted his hold on the nomination of David Cohen to be the top sanctions official at the Treasury Department following the administration's announcement of several targeted sanctions against Iran.
Cohen, whose nomination to replace Stuart Levey as undersecretary for terrorism and financial intelligence had been stalled in the Senate, now could be confirmed as early as this week. Kirk, who had issued the hold late last month due to concerns over the administration's lack of enforcement of sanctions against Iran, released his hold late last week after Treasury designated Iranian companies such as Iran Air and Tidewater Middle East for sanctions under the Comprehensive Iran Sanction, Accountability, and Divestment Act of 2010 (CISADA).
"I applaud Acting Under Secretary David Cohen for moving decisively to designate Iran Air and a major Iranian port operator responsible for facilitating Iran's illicit transfer of weapons and other proliferation activities. Both designations will significantly restrict shipping to and from Iran and put even more pressure on the Iranian economy," Kirk said in a June 23 statement. "Under Secretary Cohen has proven himself to be a worthy successor to former Under Secretary Levey. He has my confidence."
A Kirk aide confirmed to The Cable that this statement was an acknowledgement that Kirk had removed his hold on Cohen's nomination. The aide said that Kirk, Cohen, and Sen. Jon Kyl (R-AZ), had a series of meetings and exchanged letters over the last month. Kirk was also reassured by their most recent meeting about two weeks ago.
"After their last meeting, Sen. Kirk lifted his hold and decided to back the nomination," the Kirk aide said. "[The nomination] has already gone through Finance and Banking so it could be hotlined for Senate confirmation before the Fourth of July recess."
"Hotlined" is shorthand for a Senate practice wherein the Senate majority leader sends around a message notifying all senators that a nomination is coming to the floor forthwith. If nobody objects, the nomination can quickly be confirmed by voice vote.
In fact, one Senate source told The Cable that the Cohen nomination could reach the Senate floor as soon as Tuesday, as part of a large nominations package the Senate leadership is preparing now.
Last week's Treasury Department action against Iran Air and Tidewater is just the latest in a series of administration moves to use the tools under CISADA to increase pressure on various parts of the Iranian government and the Iranian economy.
On May 24, the State Department rolled out sanctions against seven companies accused of doing business with Iran's energy sector. Those designations came one day after the Senate unveiled an entirely new Iran sanctions bill -- though that legislation doesn't appear to have the administration's support, as then Deputy Secretary of State Jim Steinberg told The Cable it was totally unnecessary.
Steinberg also announced on May 24 that the administration had separately decided to impose sanctions on 16 additional foreign firms and individuals, including three Chinese firms, under the Iran, North Korea, and Syria Nonproliferation Act (INKSNA), which prohibits involvement of foreign companies in those countries' missile and WMD programs..
Then, on June 9, State announced sanctions on three Iranian government entities involved in human rights abuses, the Islamic Revolutionary Guard Corps (IRGC), the Basij Resistance Force, and Iran's Law Enforcement Forces (LEF) -- as well as LEF Commander Ismail Ahmadi Moghadam.
The June 23 action against Iran Air and Tidewater was a joint State/Treasury effort. It was significant because it targeted the IRGC's main shipping companies, and because the administration also promised to continue imposing more sanctions.
"The steps we have taken this week seek to limit Iran's ability to use the global financial system to pursue illicit activities. We have made important progress in isolating Iran, but we cannot waver," State and Treasury said in a joint statement. "Our efforts must be unrelenting to sharpen the choice for Iran's leaders to abandon their dangerous course."
One issue Kirk has been pushing in recent days concerns the huge contracts between the Defense Department and Kuwait and Gulf Link Transport Company (KGL), which may have ties to the Islamic Republic of Iran Shipping Lines (IRISL), an entity long accused of operating a web of shell companies to evade sanctions, and three other Iranian companies already on the banned list of Treasury's Office of Foreign Assets Control (OFAC).
KGL was recently awarded a nearly $750 million contract by the U.S. Army and another $42 million sole-source contract by the Defense Logistics Agency. Kirk now wants to know if the U.S. military is indirectly putting money into Iranian government coffers.
"I am certain you agree that a prompt investigation is warranted due to the sensitive nature of the contracting work conducted by KGL for our men and women in uniform," Kirk wrote in a June 21 letter to OFAC Director Adam Szubin.
That letter was a follow-up to another letter Kirk sent May 26 to Defense Secretary Robert Gates, where he pointed out that KGL helped operate the ports used for Iran's nuclear program and also has influence and control over U.S. military supply lines. Gates has yet to respond to Kirk.
Kirk's research staff has also compiled an extensive file on KGL's suspicious activities and associations, which can be found here.
One senior GOP senate aide said it was ironic that the Obama administration has designated for sanctions the Israeli firm Ofer Brothers Group for doing business with Iranian entities that are suspicious but not designated as banned by OFAC, while allowing the U.S. military to do business with similarly suspect firms.
"We're now at a place where the Defense Department is holding itself to a lower threshold of due diligence for military contracts than the standard applied to foreign governments and foreign corporations in business dealings with regard to Iran sanctions legislation," the aide said.
One day after the Senate unveiled its wide ranging new Iran sanctions legislation and on the same day 10,000 AIPAC supporters are on the Hill, the Obama administration announced it would enforce penalties on seven companies doing business with Iran.
Outgoing Deputy Secretary of State Jim Steinberg briefed the press on Tuesday on the administration's move to sanction seven companies under the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), passed and signed into law last July. For those keeping count, that's a total of nine sanctioned firms since the law has been in place. The companies are: Petrochemical Commercial Company International (PCCI), UK and Iran; Royal Oyster Group, UAE; Speedy Ship, UAE, Iran; Tanker Pacific, Singapore; Ofer Brothers Group, Israel; Associated Shipbroking, Monaco; and Petroleos de Venezuela, sometimes known as PDVSA, in Venezuela.
All of the companies have been involved in the supply of refined petroleum products to Iran, Steinberg said.
"In its struggle to secure the resources it needs for its energy sector, Iran repeatedly has resorted to deceptive practices to evade sanctions... Today's actions add further pressure on Iran to comply with its international obligations," he said. "By imposing these sanctions, we're sending a clear message to companies around the world: Those who continue to irresponsibly support Iran's energy sector or help facilitate Iran's efforts to evade U.S. sanctions will face significant consequences."
Not all the companies were sanctioned in all the same way. For example, PDVSA will no longer have access to U.S. government contracts and U.S. Export-Import Bank financing and technology licenses, but the company can still sell oil to the United States and their subsidiaries are exempt from the sanctions.
Many in Congress are increasingly unhappy with the Obama administration for failing to enforce penalties on companies from countries who are not part of the sanctions team that do business with Iran. CISADA directs the administration to punish all these companies. Last October, the Government Accountability Office (GAO) released a report that identified 16 companies as having sold petroleum products to Iran between Jan. 1, 2009, and June 30, 2010. Of those 16, the GAO reported that five have shown no signs of curtailing business with Iran. Three of those companies are based in China.
But no Chinese companies have been sanctioned by the Obama administration to date for aiding Iran's energy sector.
"I worry that the Obama administration has given Chinese banks and companies a get out of jail free card when it comes to sanctions law and they should not," Sen. Mark Kirk (R-IL) said Monday at the AIPAC conference.
Steinberg also noted that the administration has separately decided to impose sactions on 16 more foreign firms and individuals for their misbehavior on missile programs or WMD under the Iran, North Korea, and Syria Nonproliferation Act (INKSNA), three of which are from China.
Initial reaction to the administration's Tuesday announcement was mixed, with some praise and some skepticism that the new sanctions won't go far enough to transform the intent of the legislation into results.
"This sanction is a good first step and shows the importance of deeds, not only words. This step should send ripples of fear throughout the energy sector that Iran sanctions will be enforced," said Mark Dubowitz, executive director and head of the Iran Energy Program at the Foundation for the Defense of Democracies.
But multiple Senate aides told The Cable that they would continue to press the administration to enforce energy industry sanctions against third-party countries such as China and Russia.
"The question is, how does this appear to the international community? Do they look at these sanctions and say that the Americans aren't serious about stopping what's going on in the market? Sadly, I think the answer is yes," said one senior GOP Senate aide.
"It's always good when they sanction somebody, but the devil is in the details."
Both the House and Senate are preparing new legislation to increase pressure on Iran, but the House fired the opening salvo on Monday with a new bill authored by both heads of the Foreign Affairs Committee.
"U.S. policy towards Iran has offered a lot of bark, but not enough bite. This new bipartisan legislation would bring to bear the full weight of the U.S. by seeking to close the loopholes in existing energy and financial sanctions laws, while increasing the type and number of sanctions to be imposed," committee chairwoman Ileana Ros-Lehtinen (R-FL) said in a statement unveiling the Iran Threat Reduction Act (ITRA).
The bill is meant to close loopholes that Ros-Lehtinen and others believe the administration is using to avoid enforcement of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), which was signed into law by President Barack Obama in July 2010.
"Given the grave nature of the Iranian threat, it is my hope that my colleagues will support further strengthening the bill as it moves through the legislative process and not fall into the trap of enabling the Executive Branch to ignore U.S. law," she said.
To date, only two companies have been sanctioned under provisions in CISADA that were designed to clamp down on Iran's energy sector -- one Iranian state-owned corporation, and one corporation from Belarus. The new bill eliminates some of the waivers available to the president, raises the bar for other waivers, and expands the list of targeted Iranian officials and entities.
Other original co-sponsors are committee ranking Democrat Howard Berman (D-CA), Dan Burton (R-IN), Edward R. Royce (R-CA), Brad Sherman (D-CA), Steve Chabot (R-OH), Gary Ackerman (D-NY), and Ted Deutch (D-FL).
"We must use every economic tool available to force Iran to end its pursuit of nuclear weapons," Berman said in his own statement. "As we await vigorous enforcement by the Obama Administration under CISADA, we must continually look ahead and examine additional means to pressure Iran, and that is exactly what this new legislation is intended to do."
Over in the Senate, top lawmakers are also preparing new Iran sanctions legislation, which could be unveiled as early as this month. Like the House bill, the Senate's version will incorporate ideas from a range of individual lawmakers on how to increase pressure on Iran. However, the Senate bill will likely focus on expanding sanctions rather than tightening enforcement of existing sanctions, as the House has done.
The Senate effort is being led by Sens. Jon Kyl (R-AZ), Joe Lieberman (I-CT), and Mark Kirk (R-IL), but will likely incorporate ideas from others, such as Robert Casey (D-PA) and Kirstin Gillibrand (D-NY).
"The new legislation for the first time targets Iran's crude oil exports and the dominant role played by the Iranian Revolutionary Guard Corps (IRGC) in the development, production, and distribution of Iran's oil," said Mark Dubowitz, the executive director of the Foundation for the Defense of Democracies, who helped develop the House bill. "With the introduction of this new legislation, companies now are on notice that ‘buyer beware': If you're buying crude from Iran, you're buying it from the IRGC, and that's bad for business, bad for your reputation and could make you the target of U.S. sanctions."
You can find the bill text here.
For the third time in two years, hundreds of Chinese officials are meeting with hundreds of their U.S. counterparts to discuss dozens of bilateral topics in dozens of meetings. After the first day of the two-day event, there aren't any new bilateral agreements to announce, and officials say there aren't any expected soon.
"Now more than ever, with two years of dialogues behind us, success depends on our ability to translate good words into concrete actions on the issues that matter most to our people. So as we begin this third round, we will keep that goal in clear focus," Secretary of State Hillary Clinton said in her Monday morning remarks at the opening of the U.S.-China Strategic and Economic Dialogue, which is being held at various locations in downtown Washington.
She praised the new high level participation of senior officials from China's People's Liberation Army and rattled off a long list of issues that would be discussed, including: military-to-military relations, the situation in the Middle East, the need to rebalance the global economy, Iran sanctions, the North Korean nuclear crisis, and human rights.
Vice President Joseph Biden delivered the strongest message on Chinese human rights practices in his Monday morning remarks, when he said, "We have vigorous disagreement in the area of human rights."
"We've noted our concerns about the recent crackdown in China, including attacks, arrests and the disappearance of journalists, lawyers, bloggers and artists," Biden said. "I recognize that some in China see our advocacy [on] human rights as an intrusion and Lord only knows what else. But President Obama and I believe strongly, as does the secretary, that protecting fundamental rights and freedoms such as those enshrined in China's international commitments, as well as in China's own constitution, is the best way to promote long-term stability and prosperity of any society."
Jeffrey Bader, the recently departed senior director for Asia at the National Security Council, wrote in a Brookings Institution policy brief that the dialogue "was not conceived as a mechanism to deal with bilateral crises or to produce specific ‘deliverables,' but to develop a richer, more intensive dialogue between senior officials on the two sides than would be possible in the usual quick in-and-out visits, and to break down bureaucratic stovepipes among agencies, particularly on the Chinese side, not accustomed to coordinating effectively with each other."
On Sunday, Clinton awarded Bader the Secretary's Distinguished Service Award, standing alongside Chinese State Councilor Dai Bingguo.
Critics of the Obama administration's China policy see the event as yet another example of the administration placing style over substance, and raising expectations of progress in the U.S.-China relationship without delivering results.
"By far the most important economic issue for America and China is the related imbalances in our economies," wrote the Heritage Foundation's Derek Scissors. "The U.S. recognized this several years ago and has repeatedly raised the matter. Result: Both economies are now more imbalanced than when the dialogue began. The main reason is simple: Neither country wants to bear the pain of rebalancing. Instead, they take to telling the other side why it should rebalance."
A senior administration official, speaking to reporters after the conclusion of the first day's meetings, said that the primary discussion of tough economic issues will be held on Tuesday.
"Tomorrow the focus is on how the U.S. and China can rebalance our economies so we can strengthen our recoveries. Monetary and exchange rate policies are certainly be a focus of those discussions," the official said. But he warned not expect any major announcements. "[The Chinese currency] is not moving enough and no one's satisfied, but it's appreciated more than 5 percent against the dollar [over the last year]," he noted.
Undersecretary of State for Economic, Energy, and Agricultural Affairs Robert Hormats took the Chinese to task for their policy of giving regulatory, financial, and legislative support to state-owned enterprises.
"The biggest challenge in addressing these issues effectively is forging a common understanding that state-controlled competition is not competition, and that competitiveness cannot be bestowed by decree. The trade distortions created by the ‘China Model' are disadvantageous to our U.S. companies trying to compete for opportunities around the world, and a direct threat to U.S. jobs and competitiveness," Hormats said.
And Deputy Secretary of State James Steinberg told an audience at the Center for Strategic and International Studies on Monday afternoon that climate change, specifically short-term climate change forces, was a major topic of discussion between Energy Secretary Stephen Chu and his Chinese counterparts.
As for the military component of the talks, Assistant Secretary of State Kurt Campbell told reporters last week that the United States intends to engage "not just traditional players in the Foreign Ministry but also other players in the Chinese government, including the military."
Dan Blumenthal, a former China desk officer at the Pentagon and now a senior fellow at the American Enterprise Institute, said that while increased military dialogue and the building of relationships is good, the administration must not depend on such dialogue to halt the growing tension in the bilateral security relationship.
"The Chinese are moving very cautiously, the political leadership in China is very adverse to making any bold decisions, and the PLA has very little interest in talking to us about anything of substance," he said. "The summits matter less than what we are doing on the ground in response to what China is doing."
The State Department announced on Tuesday that it has decided to apply the recently passed Iran sanctions legislation to the Belarusian company Belorusneft. But GOP senators monitoring the implementation of the law said the move was marginal and unsatisfactory.
The action prevents Belorusneft, a subsidiary of the government-owned conglomerate Belneftekhim, from seeking any loans or doing any business in U.S. financial markets. The sanction was implemented under the Iran Sanctions Act (ISA) of 1996 as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010. In a press release, the State Department focused on Belorusneft's 2007 $500 million contract with the NaftIran Intertrade Company (NICO), which is also being punished under U.S. sanctions.
"Since President Barack Obama signed CISADA into law on July 1, 2010, Iran's ability to attract new investment to develop its oil and natural gas resources, and to produce or import refined petroleum products, has been severely limited," the release said. "The State Department's direct engagement with companies and governments to enforce CISADA is raising the pressure on the Government of Iran."
State Department spokesman Mark Toner said on Wednesday that, in practical terms, the action prohibits Belorusneft from seeking assistance from the Export-Import Bank of the United States, obtaining U.S. government export licenses, obtaining private U.S. bank loans exceeding $10 million, and securing any procurement contracts with the U.S. government.
Belarusneft, the largest oil company in Belarus, hasn't actually tried to apply for any of those things, but Toner explained that the new announcement "also sends a message to our partners in Europe as well that this is a company that we've decided to sanction. And I'm sure they have access or would seek access into European markets." Toner didn't say if State was pushing the EU to follow suit.
Three senior senators who have been intimately involved in the Iran sanctions law and its implementation immediately shot off a letter to Secretary of State Hillary Clinton, obtained by The Cable, criticizing today's announcement as too weak.
"We are writing to express our disappointment with today's announcement that the administration designated only one additional entity for violating U.S. sanctions with regard to Iran," wrote Sens. Jon Kyl (R-AZ), Mark Kirk (R-IL), and Joe Lieberman (I-CT). "We do not believe this represents full compliance with the sanctions regime put in place by Congress."
"It appears that Chinese firms in the energy and banking sectors have conducted significant activity in violation of U.S. law," ten senators wrote to Clinton on March 10. "We cannot afford to create the impression that China will be given free rein to conduct economic activity in Iran when more responsible nations have chosen to follow the course we have asked of them. We are sure you agree."
The State Department's Bob Einhorn briefed senators on Capitol Hill on this very issue on March 11, but a senior GOP senate aide told The Cable that the meeting was disappointing.
The GOP senate offices in question see today's designation as marginal, especially as the parent company, Belneftekhim, was already sanctioned by the U.S. government in 2007 through Executive Order 13405, which targeted firms connected to President Alexander Lukashenko for human rights violations, and three other subsidiaries were sanctioned in 2008.
"It's a complete disappointment," one senior GOP aide told The Cable. "You would have thought they had already found a way to only designate the lowest hanging fruit when they sanctioned NICO. Alas, they found a lower hanging fruit."
A different senior GOP aide said the move sends the signal that the Obama administration only has the willingness to punish Iranian companies such as NICO and companies from other states that doesn't have close or critical relations with, such as Belarus.
"While the administration is patting itself on the back for its empty action today with Belarus, we can hear the sighs of relief coming from Tehran, Beijing, Ankara and Geneva where bankers, gasoline traders, and oil and natural gas financiers just realized that the Obama administration isn't serious about stopping Iran's nuclear weapons program," the aide said.
Dubowitz, executive director and head of the Iran Energy
Program at the Foundation for the Defense of Democracies, told The Cable that today's announcement "is a step in the
right direction for both human rights and national security, but it's only a small
and incremental one."
"The administration should be praised for moving against the energy lifeblood of both Belarus and Iran, two regimes which savagely repress their own people," he said. "But this was only a borderline meaningful designation since Belneftekhim and three other subsidiaries are already subject to designations. While a designation against this fourth subsidiary is helpful, the time for incrementalism is long past as Iran drives towards a nuclear weapon."
The State Department has found a way to save energy, save money, and rehabilitate federal prisoners all in one fell swoop. Soon, a portion of the energy that keeps the lights on in Foggy Bottom will come from solar panels built by prison inmates in New Jersey
"Yesterday, the Department of State had a signing ceremony that basically contracted the State Department with Baltimore's Constellation Energy, to enter into an agreement to procure renewable electricity from Constellation Energy through the Federal Prison Industry's contracting expertise," said Marguerite Coffey, director of the State Department's Office of Management Policy, Rightsizing and Innovation. "It was a very, very well attended event."
Coffey, who is also executive secretary of the department's "Greening Council," said the goal was to advance President Barack Obama's pledge to reduce federal greenhouse gas emissions 28 percent by 2020.
Bloomberg Government (subscription required) broke the news of the deal on Thursday afternoon. (Full disclosure: the journalist has a personal relationship with The Cable reporter.)
The project will speed development of a 17.5-megawatt wind farm in Pennsylvania and a 5-megawatt solar project in New Jersey. There will be 10 State Department facilities partially powered by the new renewable sources, including the State Department's headquarters on C Street. The total energy purchased will make up 65 to 70 percent of the energy needs of those 10 facilities.
The State Department has signed a 20-year contract with Constellation Energy, and the renewable sources will comprise about 45 percent of the energy being purchased. State is partnering with Federal Prison Industries, a corporation wholly owned by the federal government, on the contract. The contract is between State and Constellation but FPI managed the competition.
No new funds need to be appropriated for the project. The deal is an "energy savings performance contract," so the company figures out how much the government will save, and State pays them that amount each year until the costs of developing the project are paid off.
"This innovative agreement serves as a model for federal agency energy management with a cost-effective, public-private effort that will create jobs through the development of clean energy resources," said Mayo Shattuck, chairman, president and CEO of Constellation Energy, in a press release about the deal. "We especially appreciate this opportunity to work with the State Department on an energy contract that supports President Obama's clean energy goals for the nation."
Will Congress follow State's cost-cutting, energy-saving example and start buying renewable power created through prison labor?
The wide-ranging sanctions law passed by Congress and signed into law by President Barack Obama last July calls for the administration to punish companies from third-party countries that are still doing business in Iran. However, U.S. senators still aren't sure whether the administration will follow through with this punishment, especially when it comes to companies in China.
A bipartisan group of 10 U.S. senators, led by Sens. Jon Kyl (R-KY) and Robert Menendez (D-NJ), wrote to Secretary of State Hillary Clinton on Thursday to demand an update on the State Department's investigation into these companies' ongoing business with the Iranian regime. Their letter was subsequently obtained by The Cable. Deputy Secretary of State James Steinberg announced that State's investigation began on Sept. 29, which means that law requires the results to arrive by March 29, the senators wrote.
"It appears that Chinese firms in the energy and banking sectors have conducted significant activity in violation of U.S. law," the senators stated. "We cannot afford to create the impression that China will be given free rein to conduct economic activity in Iran when more responsible nations have chosen to follow the course we have asked of them. We are sure you agree."
The State Department's Bob Einhorn is briefing senators on Capitol Hill on this very issue on Friday, a senior GOP Senate aide told The Cable.
In remarks at the Carnegie Endowment for International Peace on Wednesday, Einhorn addressed the issue directly, saying that "we continue to have concerns about the transfer of proliferation-sensitive equipment and materials to Iran by Chinese companies, there is substantial evidence that Beijing has taken a cautious, go-slow approach toward its energy cooperation with Iran."
That explanation won't be enough to satisfy the senators' demands for more active confrontation if Chinese companies are indeed flouting sanctions.
One of the main concerns on Capitol Hill is that as countries pull out from Iran, other countries will take over contracts, thereby nullifying the effect of the sanctions -- a practice known as "backfilling."
For example, the administration and Congress worked hard to convince Japan and South Korea to impose unilateral measures against Iran. However, there's particular concern that China firms will simply come in and take over those contracts.
Kyl and Sen. Chuck Schumer (D-NY) sent a letter to Clinton last October on this very issue, noting reports that China National Petroleum Company (CNPC) replaced the Japanese firm Inpex and agreed to invest around $2 billion to develop Iran's South Azadegan oil fields last year.
One week later, the Government Accountability Office (GAO) released a report that identified 16 companies that sold petroleum products to Iran between Jan. 1, 2009, and June 30, 2010. Of those 16, the GAO reported that five have shown no signs of curtailing business with Iran. Three of those companies are based in China, one in Singapore, and one in the UAE.
Other lawmakers who have pressed the administration to enforce Iran sanctions against China include Sens. Joe Lieberman (I-CT), Susan Collins (R-ME), Mark Kirk (R-IL), and Rep. Howard Berman (D-CA).
"Clearly, Congress -- on both sides of the aisle -- is losing patience and expects the administration to act," said Josh Block, a senior fellow at the Progressive Policy Institute and former spokesman for AIPAC. "If not, what kind of message are we sending to these companies in China and Venezuela and Turkey and elsewhere -- and their governments -- that are helping Iran break international isolation?"
The State Department has been stepping up both its rhetorical and punitive actions against Iran, but the question still remains whether the administration will go as far as to sanction companies based in countries where relations are delicate, especially China.
Last week, the United States announced two steps to increase pressure on Iran: President Obama signed an executive order on Sept. 29 targeting eight Iranian individuals for serious human rights abuses, and the State Department announced on Sept. 30 that it was imposing sanctions on the Switzerland-based Naftiran Intertrade Company (NICO) due to its involvement in the Iranian petroleum sector. These actions are based on the Iran sanctions legislation passed overwhelmingly by Congress and signed into law by President Obama last June.
On Monday, the Government Accountability Office (GAO) released a new report that identified 16 companies as having sold petroleum products to Iran between Jan. 1, 2009, and June 30, 2010. Of those 16, the GAO reported that five have shown no signs of curtailing business with Iran. Three of those companies are based in China, one in Singapore, and one in the UAE.
There are some positive signs, however, that international pressure is having an effect on companies' willingness to do business in Iran. Several firms -- hailing from Switzerland, the Netherlands, France, India, and the United Kingdom -- told the GAO that they are halting their refined petroleum business with Iran.
But leading senators aren't convinced that the holdouts are planning to follow suit. They are pressing the Obama administration to use the new sanctions law to punish those who won't go along -- especially if they are from China.
"The GAO report released today provides encouraging evidence that the comprehensive sanctions legislation passed by Congress earlier this year is indeed persuading many companies to stop selling gasoline and other refined petroleum products to Iran. We applaud those firms that have taken this responsible and important step," said Sens. Joseph Lieberman (I-CT), Susan Collins (R-ME), and Jon Kyl (R-AZ) joint statement. Lieberman and Collins had requested the GAO report in July.
However, the success of sanctions legislation has only made it "even more imperative" that the Obama administration pressure countries that have maintained their ties in Iran, the senators stated. "We are particularly concerned that the majority of the companies that GAO identifies as still selling gasoline to Iran are in China. We urge the Administration to complete its own investigations swiftly and enforce the sanctions law, comprehensively and aggressively, against any violators," the statement read.
Deputy Secretary of State Jim Steinberg told reporters last week that the State Department was looking at additional firms' business in Iran and would consider more direct sanctions through a two-step process that takes up to 180 days. But he added that the administration was first trying to negotiate with foreign governments to stop the companies' activities in advance of imposing penalties.
"We are following the process outlined in the statute," said Steinberg. "If we find credible evidence [of firms violating the sanctions], then we go to the next stage, which is to conduct an investigation ... and then we would make a decision," Steinberg said.
One of the main concerns on Capitol Hill is that, as countries pull out from Iran, other countries will take over contracts, thereby nullifying the effect of the sanctions and enriching themselves at other countries' expense -- a practice known as "backfilling."
The administration and Congress worked hard to convince Japan and South Korea to impose unilateral measures against Iran, which they did, but there's particular concern that China will simply come in and take over those contracts.
Kyl and Sen. Chuck Schumer (D-NY) sent a letter to Secretary of State Hillary Clinton last week on this very issue, pointing out reports that China National Petroleum Company (CNPC) replaced the Japanese firm Inpex and agreed to invest around $2 billion to develop Iran's South Azadegan oil fields last year.
"The Administration, by continuing to ignore blatant violations of our sanctions laws by Chinese companies, has undermined our sanctions regime on Iran. It has sent the message to our friends and allies -- many of which have taken the difficult steps to reduce their economic ties with Iran -- that others will be let off the hook," Kyl said Sept. 30.
"If President Obama genuinely believes that a nuclear-armed Iran is not acceptable, he must stand by those words and apply the authority Congress has given him to punish all who are violating U.S. sanctions laws, particularly China," said Kyl. "Time is of the essence."
Steinberg addressed the issue of backfilling in his briefing, saying that such activity would provoke actions under the sanctions legislation. "We've made clear to all our international partners that we are strongly discouraging substitution. And of course, were there to be substitution that came within the ambit of the act, it would raise questions under the act," he said.
Bob Einhorn¸ State's senior advisor on Iran and North Korea sanctions, is the man responsible for delivering that message and he traveled to Beijing last week to press the Chinese not to undermine the sanctions. It's not clear yet if he was successful.
In a July 29 hearing, Einhorn referenced a previous GAO report that identified 41 foreign firms with a petroleum interest in Iran. "There are a number of entities that are very problematic. I have to say that a number of them have been engaged in sanctionable activity," he said in testimony to the House Oversight and Government Reform committee.
Complicating matters are the persistent rumors that China may have secured some type of immunity from additional sanctions as part of their agreement to support U.N. Security Council Resolution 1929, which established relatively benign sanctions against Iran as punishment for its continued pursuit of nuclear weapons capability.
Undersecretary of State William Burns said at an Oct. 1 hearing of the Senate Foreign Relations Committee that the State Department had competed an internal review of the companies noted in the GAO report and would make more determinations soon, but he cautioned not to expect too many companies to be singled out for punishment.
"There are probably -- there are a number of cases, less than 10, in which it appears that there may have been violations of the Iran Sanctions Act. Most of those appear to involve activities that have stopped, in other words, involving companies that have pulled out of business in Iran, but there are a couple that appear to be ongoing," he said.
Capitol Hill observers have been encouraged by the administration's recent moves -- but are still not convinced they constitute enough of a commitment to increasing pressure on Iran. Staffers say that the administration's new forceful tone and rhetoric are a marked improvement, even if they are only fulfilling the actions required by the sanctions legislation.
What's clear is that the administration is not yet finished implementing sanctions against firms doing business with Iran, and Congress will be pressing it not to back down from punishing companies from countries that may take retaliatory measures.
"Many in Congress are worried that the administration will fall for Iran's latest bid to buy a reprieve from sanctions by appearing interested in negotiations," said one senior GOP senate aide. "Congress will not let up on the pressure on the administration to go after Iran and those who are supporting it, namely, the Chinese."
The South Korean government announced a series of sanctions against Iran on Tuesday after intensive lobbying from the Obama administration.
The new measures, which target Iran's energy and banking sectors as well as specific Iranian bad actors, follow similar moves by Japan last week. They are also in line with measures imposed by the European Union last month, though not quite as extensive as the administration had proposed to Seoul.
Regardless, the administration and members of Congress who are pushing for countries to put more pressure on Iran hailed the announcement, noting that South Korea moved forward despite the potential cost to its domestic industries.
"I know that this was not an easy or cost-free decision for the ROK government, either politically or economically. But it is precisely Seoul's willingness to shoulder rather than shirk its international responsibilities that confirms the Republic of Korea's emergence as a global leader," said Sen. Joseph Lieberman, I-CT, in a statement.
Japan has the third largest economy in the world, South Korea ranks as the eleventh largest, and both countries have major business interests in Iran -- especially in the energy sector. The new measures would prevent the initiation of any new joint business ventures but allow existing projects to continue.
For the administration and its allies in Congress, the South Korean and Japanese sanctions announcements reaffirm their strategy of using the U.N. Security Council resolution against Iran, which was passed on June 9, as a framework for taking additional steps aimed at convincing Iran to address the international community's concerns about its nuclear program.
The coordination is a positive sign of cooperation between Washington and its two most important East Asian allies. At the same time, Iran watchers note that Beijing stands to profit if Chinese companies move to fill the demand gap created by the South Korean and Japanese sanctions.
Lieberman is warning that if Beijing undermines the new sanctions, Congress will move to enforce sanctions against Chinese companies using authorities provided in the recent U.S. sanctions legislation.
"Chinese companies have unfortunately in the past been allowed by their government to pursue their commercial self-interest in Iran, exploiting the restraint of other countries," Lieberman said. "If this trend continues, China will isolate itself from the responsible international community in Asia and around the world."
Behind the scenes, State Department and Treasury officials had been working hard to encourage the South Korean and Japanese governments to adoptthe strongest measures possible. This effort has been led by Stuart Levey, the under secretary of the Treasury for terrorism and financial intelligence, and Robert Einhorn, the State Department's special advisor for nonproliferation and arms control.
Einhorn and the NSC's Daniel Glaser traveled to Tokyo and Seoul last month, and a Congressional staff delegation visiting Seoul and Tokyo last week also was partially focused on the push for strong sanctions language.
National Economic Council chairman Larry Summers, the NSC's Tom Donilon, Asia Senior Director Jeffrey Bader, and Assistant Secretary of State Kurt Campbell were in Beijing last weekend and the topic of Iran sanctions was also on their agenda.
The main hub of Iranian financial activity in South Korea is the Seoul branch of Bank Mellat, a Tehran-based bank that has already been targeted by both the United States and the European Union. South Korea only agreed to a 60-day suspension of Korean dealings with Bank Mellat Seoul, with a promise to reevaluate after. Washington had wanted a total freeze.
Iran watchers on Capitol Hill said the temporary suspension would have the desired effect by making it clear to investors they should not do business with Bank Mellat in Seoul.
"The fact is they are taking action against Bank Mellat and they are embedding this action within a broad framework of other actions," said one GOP Senate aide. "It's very possible that everybody and their brother is going to run for the exits... that bank is going to be kryptonite."
Levey and Einhorn have also been working hard on the recently announced new U.S. sanctions on North Korea, a topic in which both Japan and South Korea have a vital interest. Aides said that, while the two efforts weren't directly linked, there are indirect links in that Iran and North Korea are involved in some of the same illicit activities.
"There is a tie in the sense that North Korea and Iran actively cooperate on a range of illicit proliferation-related activities," said one Congressional staffer close to the issue. "That's a linkage that both the Koreans and the Japanese recognize and appreciate."
UPDATE: Sen. John McCain (R-AZ) also praised the new sanctions and saw them as a message to China. He tweeted, "Korea adopted strong new sanctions on Iran today. Japan did the same last week. China should follow their good example of global leadership."
If the Kyrgyz opposition is able to maintain control after toppling the government, the Pentagon and State Department may have to renegotiate the U.S.-Kyrgyz agreement on a crucial U.S. air base there, experts warn.
It's only been a few months since the now-deposed Kyrgyz president, Kurmanbak Bakiyev, signed a new deal upping the rent on the Air Force Transit Center at Manas, which the U.S. depends on for critical supplies en route to Afghanistan.
Last February, there was a vote in the Kyrgyz parliament to end the arrangement, egged on by a Russia wary of the growing U.S. military presence in its near abroad. The man who led the opposition to the base in the legislature was former parliamentary speaker and opposition leader Omurbek Tekebaev, who now seems to be in control of the country, after being arrested and then released on Wednesday.
"We have to probably renegotiate the Manas basing agreement, because it was the opposition that pressured Bakiyev into renegotiating in the first place," said Alexandros Petersen, senior fellow with the Eurasia Center at the Atlantic Council. "The leading opposition figures are not anti-American or more pro-Russian than anyone else in Kyrgyzstan, but because they led the drive to raise the rents they might have to reopen negotiations for political reasons."
And where there is a negotiation in Central Asia, there is a U.S.-Russia angle to worry about as well.
"This could be a relatively friendly negotiation, but the Russians could very well take the opportunity to meddle again," Petersen said.
Although Russia would have an interest in getting back at Bakiyev for finally striking a deal with the U.S., Prime Minister Vladimir Putin has condemned the violence and denied any Russian role in today's events.
Meanwhile, it's still "business as usual" at Manas, according to a U.S. military spokesman.
"As of right now the air base is still open, the unrest has not impact operations on the base," said Shawn Turner, Pentagon public affairs officer. "It's getting a little tense."
Turner said he had no information that Bakiyev, who took over from Askar Akayev during the 2005 "Tulip Revolution," was holing up at the U.S. base, despite some rumors in the capital city of Bishkek to that effect.
"Folks at Manas tell us that business as usual and if he was there, that would be something that we would be aware of," Turner said.
Petersen said he was hearing Bakiyev has taken refuge in his home turf of Osh, a city in southern Kyrgyzstan where he still has a power base. If he hasn't actually left the country, that could indicate the power struggle isn't over, he added.
The broader implication for the international community is the realization that the era of popular revolutions in Eurasia toppling unpopular government is still ongoing, and even democratic governments that don't live up to their ideals are vulnerable.
Although this latest unrest was sparked by the government's decision to raise utility prices by 200 percent, Bakiyev has been moving toward cronyism and corruption for some time, Petersen said.
"Color revolutions are not dead in this part of the world," he said, noting that what's going on in Kyrgyzstan has implications for Ukraine and Georgia. "If a color revolution goes authoritarian, you can have another revolution right on top of it."
Does President Obama's decision today to open up parts of the U.S. outer-continental shelf to offshore drilling have any implications for foreign policy? Yes, according to David Pumphrey, deputy director of the CSIS Energy and National Security Program and former deputy assistant secretary for international energy cooperation at the U.S. Department of Energy.
The U.S. position has been to encourage a range of countries to open up their newly discovered offshore reserves to exploration, especially by western companies. But that didn't wash with several countries who rightly pointed out that the U.S. was telling them, "Do as I say, not as I do."
But now that the Obama administration is showing movement, albeit cautiously, on that front, the U.S argument that other countries do the same is strengthened, Pumphrey said.
"Your credibility is enhanced by the stance that somehow your offshore areas are not more protected and special than theirs," he said. "In many ways, the policy choice that had been made to keep our offshore out of bounds for oil development weakened our ability to go out and tell countries to make choices that might impact them negatively."
Some countries that have recently discovered large potential reserves but haven't yet moved to fully explore them include Brazil and Angola, both of which are being told by the U.S. to move faster.
"We're saying, yes, develop those new reserves and use western countries to do that," Pumphrey said, arguing that message will now seem more in line with U.S. actions.
"It helps to close the gap between the domestic and foreign policy."
So often in Washington, the findings of a major commission are released, discussed, and then tossed aside. Not so with the Commission on the Prevention of WMD Proliferation and Terrorism, whose recommendations are finding their way into legislation this fall.
One of the key recommendations moving in Congress this week is the idea of creating a capability inside the U.S. government to help developing countries find alternatives to nuclear and petroleum-based energy that are environmentally and fiscally sustainable.
Senator Daniel Akaka, D-HI, added a mirror of the Energy Development Program Implementation Act, which requires the State and Energy Departments to create strategic and implementation plans to carry out this effort, to a larger WMD-related bill moving through the committee process now.
"This bill will create an alternative energy Peace Corps, as called for 31 years ago by the Nuclear Nonproliferation Act of 1978," former senators Bob Graham and Jim Talent, the chairs of the WMD commission, testified before the Senate Homeland Security committee last month, "As our report recommended, this bill would help reduce the further spread of nuclear technologies ostensibly for civilian purposes."
The energy development legislation has widespread support in Congress and the nonproliferation community. Congressman Jeff Fortenberry, R-NE, has a companion measure in the House.
"This is an idea whose time has come," said Christopher Paine, director of the nuclear program and the Natural Resources Defense Council, "Environmentally sustainable energy supply should be a central pillar of U.S. foreign policy. This bill just makes good sense."
The overall bill, entitled the WMD Prevention and Preparedness Act, is led by committee heads Joseph Lieberman, I-CT, and Susan Collins, R-ME. The markup of that bill continues next week.
John Hudson reports on national security and foreign policy from the Pentagon to Foggy Bottom, the White House to Embassy Row, for The Cable.