Congress to China: 'Take your pick. Do business with us or with Iran'

A bill being sponsored by 360 of the 435 members of the US House seeks to cut Iran's remaining oil exports to zero. The bill seems certain to pass and the Senate is likely to pass a similar bill when it returns from its August recess. A bill with that many co-sponsors would presumably be veto-proof.

The bill would also prevent the Obama administration from handing out exemptions from the sanctions by September 2014. Congress has apparently had it with the President on Iran.

The sanctions bill requests that the US president, under his authority provided by the International Emergency Economic Powers Act, come up with a strategy within two months to cut Iran’s remaining export sales of roughly a million barrels a day.

After a year, exemptions granted to countries such as China, Japan, Turkey and South Korea – which continue to import Iranian oil – will no longer be granted. Companies in those countries doing business with Iran previously given a pass will be cut off from the US economy.

American officials are confident there is spare capacity in the global market to replace Iran’s exports. Libya is back to producing oil since its revolution ended in 2011, and Saudi Arabia is prepared to accommodate Iran’s customers, with spare production capacity of 2 million to 2.5 million barrels a day.

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China stands the most to lose: Iran remains its third-largest source of oil after Saudi Arabia and Angola, and the companies that facilitate that trade have major assets in the United States. PetroChina, China’s largest oil producer, is one such company listed on the New York Stock Exchange.

These Chinese firms, vocally opposed to extraterritorial sanctions and to taking orders from the United States, will have to decide within 14 months whether to have a business relationship with Iran or the US.

The House bill also targets other loopholes in the current sanctions regimen, including foreign exchange reserves that have allowed Iran to deal in euros. These exchanges over the past year have been primarily facilitated by Chinese banks. The bill attempts to strangle the banks’ ability to operate with foreign partners of the US. It also targets Iranian shipping with stricter inspection and flagging regulations.

The bill is a significant response to the election of incoming Iranian President Hassan Rouhani, who campaigned on a platform of reconciliation with the West. US officials and experts have questioned the authenticity of Rouhani’s intentions, and his ability to deliver, as Supreme Leader Ayatollah Ali Khamenei is still firmly in charge of decision- making on the country’s nuclear program.

There's just one small problem: If Iran goes full speed ahead, it can almost certainly have one or more nuclear bombs ready by September 2014. What could go wrong?