The Obama administration first urged Senate leaders to compromise on new legislation that would sanction the Central Bank of Iran (CBI) -- but then came out today against that very compromise, angering and alienating a key Democratic Senate ally.
Two senior administration officials testified Thursday morning that the current bipartisan amendment to impose new sanctions on the CBI and any other bank that does business with them is a bad idea that could alienate foreign countries, make it more difficult to pressure Iran, and raise oil prices, which could actually help the Iranian economy.
The administration's strategy of working behind the scenes to change what's become the Kirk-Menendez Iran sanctions amendment, only to publicly oppose it today, angered several senators, including Robert Menendez himself. The New Jersey Democrat took seven minutes at the Senate Foreign Relations Committee hearing to chastise Undersecretary of State Wendy Sherman and Treasury Undersecretary David Cohen at Thursday's Senate Foreign Relations Committee meeting for asking him to negotiate on their behalf, and then criticizing the compromise he struck with Sen. Mark Kirk (R-IL).
"At your request we engaged in an effort to come to a bipartisan agreement that I believe is fair and balanced. And now you come here and vitiate that agreement.... You should have said we want no amendment," Menendez said. "Everything that you have said in your testimony undermines your opposition to this amendment. The clock is ticking."
Menendez said he regretted working with the administration on the issue, and said that perhaps he should have just agreed to Kirk's original Iran sanctions amendment, which was more severe and provided the administration with less room to maneuver than the compromise amendment that is set to be voted on and passed in the Senate as early as tomorrow.
"This certainly undermines your relationship with me for the future," Menendez told the administration officials. He also urged for more drastic measures, such as a gasoline embargo on Iran. "If the Europeans are considering an embargo, we shouldn't be leading from behind, we should be leading forward."
The break between this Democratic senator, who is up for reelection next year, and the Obama administration comes two days after the administration sent three very senior officials to meet with senators to try to get them to scuttle the amendment. On the morning of Nov. 29, Treasury Deputy Secretary Neal Wolin, Deputy Secretary of State Bill Burns, and Deputy National Security Advisor Denis McDonough called an emergency meeting on Capitol Hill, multiple Hill sources told The Cable.
They sat down with Sens. Kirk, Menendez, and SFRC Chairman John Kerry (D-MA). The officials argued that the Kirk-Menendez would get in the way of their efforts to build a multilateral coalition designed to increase pressure on Iran, and they warned the amendment might cause severe disruptions to the world oil markets and therefore have negative effects on the U.S. economy. Kirk and Menendez flatly refused to back down, our sources said, while Kerry reportedly said exactly nothing in the meeting.
The officials' sentiments were echoed in a letter sent today to Senate leaders by Treasury Secretary Timothy Geithner, who we're told is personally invested in the administration effort to thwart the Kirk-Menendez amendment.
"I am writing to express the administration's strong opposition to this amendment because, in its current form, it threatens to undermine the effective, carefully phased, and sustainable approach we have taken to build strong international pressure against Iran," wrote Geithner. "In addition, the amendment would potentially yield a net economic benefit to the Iranian regime."
Geithner argued that because the Kirk-Menendez amendment would force foreign banks to choose between doing business with the U.S. or Iran, some might choose Iran and resist going along with American unilateral efforts, thereby helping the Iranian economy and hurting our own.
Menendez addressed that point by saying that the amendment allows the implementation of the sanctions to be waived if the president determines there's not enough supply in the world oil market, or if he determines a country is making progress in divesting itself from Iranian business relationships.
"So we basically say to financial institutions, do you want to deal with a $300 billion economy, or do you want to deal with a $14 trillion economy? I think that choice is pretty easy for them," Menendez said at the hearing. "So I find it pretty outrageous that when the clock is ticking, and when you ask us to engage in a more reasoned effort, and we produce such an effort in a bipartisan basis, that in fact you come here and say what you say."
One GOP Senate aide told The Cable today that while the amendment was crafted to avoid disrupting the world economy as much as possible, administration officials' warnings of economic consequences could have an effect of their own.
"The administration is going to spook the oil markets themselves in opposition to an amendment that would not," the aide said. "They could create their own self-fulfilling prophecy of driving up oil prices, so their strategy seems to be self defeating."
UPDATE: The Kirk-Menendez amendment passed the senate late Thursday by a unanimous vote of 100-0.
John Hudson reports on national security and foreign policy from the Pentagon to Foggy Bottom, the White House to Embassy Row, for The Cable.