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Chambers Prepare for Another Round of Iran Sanctions

After a temporary lull, Congress is gearing up to try to pass new Iran sanctions legislation in the coming months that could severely restrict whole segments of Iranian commerce, including oil. The aim is to have votes in both chambers as early as June, with a consensus bill moving to the president’s desk before the August recess.

By then, Iran will have completed its presidential election and transfer of power, although most observers expect little change in Tehran’s stance on its nuclear program, given that Iran’s supreme leader, Ayatollah Ali Khamenei, is the ultimate arbiter of those decisions.

Capitol Hill gave the Obama administration a bit of leeway during the last round of multilateral negotiations with Iran, which took place in April. Little progress was made.

Now the House Foreign Affairs Committee is poised to mark up a bipartisan sanctions bill on May 22, and the Senate is likely not to be far behind, with lawmakers working to draft a companion measure that is expected to be released in the coming weeks.

Both the House Foreign Affairs and Senate Foreign Relations panels have hearings on Iran scheduled this week with senior Obama administration officials — Undersecretary of State for Political Affairs Wendy Sherman and Undersecretary of Treasury for Terrorism and Financial Intelligence David S. Cohen.

The House legislation is sponsored by Foreign Affairs Chairman Ed Royce, R-Calif., and ranking Democrat Eliot L. Engel, D-N.Y.,and is co-sponsored by virtually every other member of the panel. It has 324 sponsors altogether.

Royce’s and Engel’s bill (HR 850) authorizes the president to sanction foreign entities that engage in “significant financial transactions” with a long list of blacklisted Iranian banks, which would effectively make it difficult for foreign companies to conduct most forms of commerce with Iran.

Under the Royce-Engel bill, countries that reduce their trade with Iran to a significant degree would be exempt from the sanctions, much in the same way that existing U.S. laws exempt countries from oil sanctions if they significantly reduce their Iranian oil purchases.

The goal is to create a sort of de facto commercial embargo, the same way that the West has created a partial oil embargo on Iran.

The bill also aims to close several loopholes in existing sanctions that target Iranian state-own companies.

And it requires the president to report every 60 days on Iran’s latest nuclear capabilities, including an estimated timeline for when it could develop a nuclear explosive device and build a nuclear weapon, also known as “breakout capacity.” Further provisions are expected to be added in the markup, including a measure that goes after Iran’s foreign currency reserves.

“The basic idea is that foreign exchange reserves are their principle hedge against a severe balance of payments crisis,” said Mark Dubowitz, executive director of the pro-sanctions Foundation for Defense of Democracies, which has played an active role in coming up with ways to target the Iranian regime. Foreign currencies, said Dubowitz, are Tehran’s “backstop” in preventing their currency, the rial, from dropping further in value, which could create a huge domestic backlash.

Thanks to previous rounds of U.S. sanctions, Tehran has had increasingly limited access to dollars, leading it to shift much of its reserves into euros. Earlier this spring, Congress began pressuring the European Union to cut off Iran’s access to euros, as well. Since then, Dubowitz, said, Iran has begun looking to expand its holdings in a range of other foreign currencies.

That led Sen. Mark S. Kirk, R-Ill., along with four other senators of both parties, to introduce a bill that would require the president to impose sanctions on foreign banks that engage in transactions with blacklisted Iranian companies or sectors in any non-local currency.

The bill, which is expected to be added to the Royce-Engel bill as an amendment during the markup, would be effective retroactively as of May 9, the day after it was introduced.

The senators decided to spin that off from a more comprehensive draft that is still in the works because, according to one aide, it is more “time sensitive.” By summer, Iran may have successfully diversified its foreign currency reserves away from euros and dollars.

In a May 9 statement, Royce and Engel said they “will carefully review” the Kirk currency bill “with an eye toward incorporating this approach into our own legislation.”

Dubowitz called that an important statement because it “signals to banks to stop the activity ASAP because this will become law.”

A congressional aide involved in Iran sanctions policy decisions said other, stronger measures are also likely to come up as amendments in the House markup.

That includes more language on counterproliferation and even, potentially, an outright prohibition of the purchase of Iranian crude oil.

The Senate bill, which sources say Kirk and other key players are still negotiating, is likely go after many of the same elements of the Iranian economy, as well as a broader range of Iranian human rights violators and regime actors.

It remains to be seen what role Senate Foreign Relations Chairman Robert Menendez, D-N.J., will play in the legislative process on sanctions. A staunch supporter of past sanctions bills, Menendez is now in a different position as head of a key committee and with his predecessor, John Kerry, serving as secretary of State. Menendez aides indicated May 10 that he aims to have major input in the next round of sanctions legislation, as well.

“Chairman Menendez is looking forward to Wednesday’s hearing, is reviewing the Kirk-Manchin bill, but is also considering new legislative measures that will dramatically reduce Iranian revenue, including compelling further reductions in purchases of petroleum from Iran, as well as related products,” said committee spokesman Adam Sharon.

According to a source off the Hill who is monitoring sanctions legislation, “it’s better for him to let these bills get worked on by various senators” until a “decision gets made to bring it to the Senate Foreign Relations Committee.” Then, the source said, it is likely to “get rolled into a Menendez bill that he will then push through.”

The Senate Banking Committee has also traditionally played a role in shepherding sanctions legislation, given the restrictions the laws place on financial transactions.

Those jurisdictional issues are expected to be sorted out in the coming weeks, as both chambers make a push to hold votes this summer.

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