House bill aims its sights at Iran's energy sector

Iran's 50000 Rials with a portrait of Ayatollah Ruhollah Khomeini.
Behrouz Mehri | AFP | Getty Images
Iran's 50000 Rials with a portrait of Ayatollah Ruhollah Khomeini.

The House of Representatives is poised to vote on greatly increasing the economic pressure on Iran over its nuclear program through sanctions that could cripple that country's energy sector.

HR-850, the Nuclear Iran Prevention Act of 2013, would seek to slash Iran's oil sales to 250,000 barrels a day by the end of 2014, from the current 1.25 million barrels. Iran's oil production has already been halved over the last two years, according to the International Energy Agency.

A vote is expected on Wednesday or Thursday of this week.

The bill calls for tightening the exemptions now granted by the United States to several countries that still buy Iranian oil. It also calls for further sanctions against Iran's auto sector and its mining industry, and it seeks to punish companies that work with Iran's financial system, including its central bank.

"The oil provisions in the bill will be seriously injurious to Iran if countries continue to cut back on deliveries from Iran," said Kenneth Katzman, who analyzes sanctions on Iran for the Congressional Research Service.

The bill would also designate Iran's powerful Revolutionary Guard a "Foreign Terrorist Organization."

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Currently, 374 of the 435 members of Congress have signed on as co-sponsors of the bill, making passage almost certain. However, Congressional insiders told CNBC that the bill will likely face changes in the Senate, and that senators will likely face White House pressure to delay a vote.

The New York Times reported last week that officials from Iran have approached the government of Iraq to communicate to the United States that Iran is willing to have one-on-one negotiations over its nuclear program.

Iran's new President, Hassan Rouhani, was elected in June and is scheduled to begin his term on August 3. Some in the Obama administration and in Europe hope to delay further economic sanctions, saying the election of the less combative Rouhani could lead to a breakthrough on the nuclear front and that new sanctions will hurt chances for a deal. Others argue that Iranian hardliner Ayatollah Khameini controls the nuclear program, and that no change in policy is likely.

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According to the International Energy Agency, China buys about 435,000 barrels of oil from Iran daily, while India takes in 225,000 barrels. Japan, South Korea and Turkey each buy about 150,000 barrels a day from Iran. Oil provides almost half of the Iranian government's revenue.

Broad effect on oil prices?

Taking Iran's oil off the market "would put a strain on the system to replace the balance of Iran's supply," said John Kilduff, founding partner of Again Capital. "If it appeared likely that [the] remaining output would be lost rapidly, $125 for Brent crude would likely become the new floor for prices."

Oil trader Ray Carbone of Paramount Options said he sees less of an impact. "The escalation of Iran sanctions will not result in any significant price move on its own," he said, "but it will add further support and perhaps some slight upward pressure to an already tight market."

A congressional staffer who helped craft the new sanctions said the bill is designed to gradually reduce Iran's oil exports in six month intervals.

The bill calls for a variety of punishments for companies found in violation of the sanctions, ranging from disqualifying firms from competing for U.S. government contracts to preventing companies' executives from entering the United States.