Reports of multibillion-dollar oil talks between Iran and Russia are emerging as the latest obstacle to a comprehensive pact eliminating the threat of an Iranian nuclear arsenal. The Obama administration is weighing potentially deal-breaking sanctions if a contract is completed.
The Russian business daily Kommersant has reported Russia plans to buy 500,000 barrels of Iranian oil a day, shattering an export limit under the interim nuclear agreement world powers and Iran reached last year. Moscow and Tehran are far from finalizing the contract, the newspaper said, but the U.S. has expressed alarm.
A senior U.S. official said the administration had no information suggesting the oil-for-goods contract had been reached.
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The arrangement would break the interim agreement reached in November in Geneva and potentially trigger U.S. sanctions, said the official, who was not authorized to be quoted by name and briefed reporters on condition of anonymity. But the official didn't say the deal would force the U.S. to slap new economic sanctions on Iran — a move that would likely wreck the entire diplomatic process with Tehran.
Critics of the Obama administration's outreach to Iran want a clear marker outlined.
In a letter to the president Monday, Congress' leading sanctions drafters said the U.S. must re-impose all penalties on Iran suspended under the interim pact if Russia and Iran move forward. "We urge you to put Iran on notice," said Sens. Bob Menendez, D-N.J., and Mark Kirk, R-Ill.
Tennessee Sen. Bob Corker, the Senate Foreign Relations Committee's top Republican, said Iran and Russia were testing America's resolve. "The administration must be prepared to restore all sanctions if Iran cheats," he said.
The six-month interim agreement, which went into effect in January and expires in July, allows Iran to continue exporting a total of 1 million barrels a day of oil to six countries: China, India, Japan, South Korea, Taiwan and Turkey. Washington pledged no financial penalties against them as long as they weren't boosting purchases.
But the promise didn't apply to Russia, which wasn't an existing customer of Iran's petroleum industry. And the Obama administration has been raising its concern with Moscow for months about any moves that would lessen the economic pressure on Iran, including in discussions between Secretary of State John Kerry and Russian Foreign Minister Sergey Lavrov.
Any concrete progress on the oil-for-goods proposal would put President Barack Obama in a bind. If he publicly threatens too forceful a response, he risks opening up a new rift with Russia at a time the two countries are trying to maintain cooperation on nuclear and other matters even as they go through one of the worst crises in decades related to Russia's takeover of Ukraine's Crimean Peninsula.
But if the president and his administration fail to dissuade Russia and Iran from moving forward, the interim agreement that forms the basis of America's ongoing diplomacy with Iran would be undermined. The U.S. and the United Nations say Iran is living up to its commitments thus far, and officials have expressed increased belief a final deal may be taking shape, averting the possibility of a future military confrontation.
The Russian-Iranian oil deal could provide Tehran with billions of dollars, according to experts, softening the blow of years of U.S. and international sanctions that have crippled Iran's economy and helped end more than a decade of deadlock in nuclear negotiations. Iran insists its program is solely for peaceful power production.
Mark Dubowitz, a leading sanctions proponent with the Washington-based Foundation for Defense of Democracies, said the barter should trigger immediate U.S. sanctions against Russia and Iran.
Dubowitz said his understanding was that Russian President Vladimir Putin agreed earlier this year not to move on the deal until August, after the interim agreement would in theory be replaced by a final accord. But he said Putin's assurance came before the Crimean crisis and may no longer hold.
If the Obama administration were to unblock suspended sanctions or adopt new ones, nuclear diplomacy with Iran likely would fall apart. For that reason it opposed an effort earlier this year by Menendez, Kirk and other senators to adopt new, conditional sanctions on Iran to go into effect if Iran violated the interim agreement or let it expire without a follow-up accord.
U.S., Iranian and international negotiators will start drafting a final agreement next month, the senior U.S. official said last week in a surprisingly optimistic assessment. The official said negotiators hoped to clinch the pact before July 20, without need for a further six-month extension of the interim agreement, as many had envisioned.
Citing unidentified sources close to the Russian government, Kommersant said a Russian-registered oil trader without an international presence would be tasked with purchasing the Iranian oil. The objective would be to limit Russia's exposure to U.S. economic pressure that could be applied to a global player like state-controlled oil giant Rosneft.
Still, it would be difficult for Russia to gain immediate access to the petroleum since most Iranian oilfields are far from the Caspian Sea through which the oil could be shipped, and lack the infrastructure to ensure deliveries.