U.S. Targets Iran’s Central Bank

President Barack Obama signed into law on Saturday sanctions against Iran’s central bank, marking the sharpest economic confrontation between Washington and Tehran yet and potentially stoking tensions in the Persian Gulf.

The measure, which Congress passed as part of the 2012 National Defense Authorization Act, penalizes foreign financial institutions that do business with Iran’s central bank, Bank Markazi.

Mr. Obama has some flexibility in determining the strength and scope of the sanctions, which are intended to make it more difficult for Iran to sell its oil. But the administration intends to move forward with implementing the law in a way that doesn’t damage the global economy, senior administration officials said.

“We believe we can do this,” a senior administration official said. “The president will consider his options, but our intent-our absolute intent-is to in a timed and phased way implement this legislation so it can have the impact that Congress intended and the president agrees with.”

Some U.S. officials believe that Tehran will view the bill signing itself as an act of war. The move could push Iran to take drastic measures, including an attempt to close the Strait of Hormuz, the world’s most important channel for shipping crude oil. But while Iran’s navy could theoretically disrupt tanker traffic there, which would send oil prices skyrocketing, in reality it would be almost impossible for Iran to block the waterway.

The mammoth defense bill includes, among many other controversial measures, the toughest sanctions yet to pressure Iran over its alleged development of a nuclear weapon. The bill specifically targets anyone doing business with Iran’s central bank, an attempt to force other countries to choose between buying oil from Iran or being blocked from any dealings with the U.S. economy.

Certain sanctions would begin to take effect in 60 days, including purchases not related to petroleum and the sale of petroleum products to Iran through private banks. The toughest measures won’t take effect for at least six months, including transactions from governments purchasing Iranian oil and selling petroleum products.

U.S. officials have been holding discussions with foreign governments on details of the law since Congress passed the legislation in mid-December, and on Saturday the administration sent instructions to its embassies across the world on how to implement the law.

Mr. Obama has the option of granting waivers based on the price of alternatives to Iranian oil, or if he determines a waiver is “vital to the national security of the United States.”

The president said in a signing statement Saturday that the Iran section of the bill, as well as several others, “would interfere with my constitutional authority to conduct foreign relations” because it forces him “to take certain positions in negotiations or discussions with foreign governments.” He said that “should any application of these provisions conflict with my constitutional authorities, I will treat the provisions as nonbinding.”

Nevertheless, Iranian officials view the possible sanctions as a serious assault on the country’s economic lifeline and have vowed to retaliate if Mr. Obama signed them into law. Iran’s vice president said this week that “not a drop of oil” will pass through the Strait if tougher sanctions are imposed. Pentagon officials said they wouldn’t tolerate any disruption in the strait.

The $662 billion National Defense Authorization Act, which Mr. Obama signed while on vacation in Hawaii, also includes several controversial provisions regarding the detention of suspected terrorists. The White House raised strong objections to some of the provisions that could allow terrorism suspects to be held in detention indefinitely without a trial, including American citizens.

Mr. Obama sought to clarify his interpretation of the law in his signing statement, saying his administration “will not authorize the indefinite military detention without trial of American citizens.” A senior administration official further clarified that Mr. Obama “is not saying that a U.S. citizen can never be held in military custody.”

The legislation also includes limits on counterinsurgency funds for Pakistan, requiring the administration to report on the effectiveness of the spending.

“The fact that I support this bill as a whole does not mean I agree with everything in it,” Mr. Obama said in his signing statement.

The sanctions on Iran’s central bank will have the most widespread repercussions. A senior administration official said Saturday that additional sanctions are in the works.

“This isn’t the end of the road,” the official said. “There are many other sanctions we can put in place and that our multilateral partners around the world can put in place and will be.”

The Obama administration has been reluctant to sanction Iran’s oil exports or central bank because of concerns about driving up global energy prices. But Congress forced Mr. Obama’s hand when it tucked a provision sanctioning the central bank into the defense bill.

Administration officials played down the notion that the sanctions may escalate tensions in the region. One official said the situation “will probably be up and down, and there will be some volatility in comments.” But the official said the administration isn’t backing down.

Iran has long threatened to close the Strait of Hormuz because of its huge importance to the global economy: About 20% of the world’s oil supply passes through the channel every day, or more than 17 million barrels of oil. There is simply not enough capacity in pipelines in Saudi Arabia to move crude oil from the Persian Gulf to the Red Sea to make an end run around the strait.

Such a closure could send oil prices skyrocketing. Even the threat of closure could hurt the global economy by sending oil prices higher, sending shipping insurance premiums higher, and diverting some tanker traffic from the strait.

But today, Iran’s threats are seen as largely bluster. The surest way for Iran to close the strait would be to heavily mine the narrow channel, even though double-hulled, compartmentalized oil tankers are quite resilient to mines. Narrow waterways are particularly vulnerable to mines; while the Strait of Hormuz is relatively wide, shipping lines are restricted to two-mile channels in each direction.

Iran is believed to have at least 2,000 mines, a mix of bottom-moored mines and more advanced acoustic mines. U.S. defense analysts say Iran also has three Soviet-built submarines, which can deploy mines, plus at least five mine-laying vessels, and other small craft that could set up mines.

If they were able to lay hundreds of mines without being detected, it would require a major effort by the U.S. Navy to clear the strait. The U.S. would have to disable land-based antiship missiles that Iran maintains on the small islands in the strait and on Iran’s southern coast. Then it would take about a month for U.S. mine-clearing vessels to locate and remove the mines, based on how long it took U.S. forces to clear mined waterways in prior conflicts.

“Any serious mining effort would take more than a couple of days to clear,” said Caitlin Talmadge, a professor at George Washington University who’s studied the issue for years.

But that’s an unlikely scenario. The U.S. Navy has been carefully watching Iranian naval forces as they carry out a 10-day maneuver near the strait.

“It seems unlikely any mining effort would go undetected-by making these threats, it’s hard to imagine how the world could be more attuned” to what Iranian submarines and mine-laying vessels are doing in the crucial waterway, Ms. Talmadge said.

Iran could alternatively seek to disrupt traffic by using surface ships and aircraft to harass or attack tankers that pass through the strait, though that would bring an immediate response from U.S. Navy ships. Two decades ago, during the “tanker wars,” the U.S. Navy intervened to keep the waterway open when Iran and Iraq were at war.

{The Wall Street Journal/Matzav.com Newscenter}