Enlarge imageBy Ross Colvin and Caren Bohan
WASHINGTON (Reuters) - The White House is weighing sanctions targeting Iran's dependence on gasoline imports and insurance firms that underwrite the trade, even as they focus on diplomacy, including a meeting in Geneva on Thursday, to rein in Iran's nuclear program.
U.S. President Barack Obama warned Iran last week to come clean about the program, which Washington fears is a cover to build atomic weapons, or face "sanctions that bite." His warning followed the disclosure of a secret uranium enrichment facility near the holy Iranian city of Qom.
The United States will hold direct talks with Iran in Geneva, along with France, Britain, Germany, Russia and China. U.S. officials say they will demand that Iran allow U.N. nuclear inspectors unfettered access to the Qom site, as well as to documents and personnel.
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Despite Obama's comments, administration officials say that for now they hope Western powers can persuade Iran to address concerns about its nuclear program, which Tehran insists is for the peaceful generation of electricity.
Publicly, officials are reluctant to discuss the steps they are considering, wary of creating an impression they view diplomacy as merely a smokescreen for eventual sanctions.
But Obama's warning to Iran and the increased chatter about sanctions in Washington is very deliberate, Iran experts say.
"If the Iranians are not convinced that there is a persuasive amount of economic pressure that might be applied, then they are more likely to be recalcitrant on Thursday," said Suzanne Maloney from the Brookings Institution's Saban Centre.
DIPLOMACY IS 'PLAN A'
"I don't mean to suggest it is a bluff, but the sanctions talk is to set the stage for plan A, which is the diplomacy. Everything I have heard from the administration is that they genuinely understand the difficulty of sanctions," she said.
Sanctions "are not an instrument that can produce results with speed," said Ray Takeyh, a scholar at the Council on Foreign Relations, who was, until recently, an adviser to the Obama administration.
Mindful of the limitations of sanctions, the administration has consulted outside experts for their views on the most effective way to implement such measures.
The White House is being urged to consider a wide range of options, including choking off gasoline supplies, a popular idea among U.S. lawmakers, although experts stress it is no "silver bullet" and must be part of a battery of measures.
U.S. officials are considering ways to discourage big financial firms from providing insurance for shipments to Iran. Such moves could affect big European companies such as Lloyd's of London and Munich Re.
"The key fulcrum is the insurance and reinsurance companies," said Mark Dubowitz, of the Foundation for Defence of Democracies policy institute. "It's difficult to ship without insurance and reinsurance."
The U.N. Security Council has already imposed three sets of sanctions on Iran for refusing to freeze uranium enrichment but they have had only a limited impact and Tehran insists it be allowed to pursue its nuclear program.
OIL TRADERS SKEPTICAL
Many U.S. lawmakers believe gasoline sanctions could be particularly effective against Iran, which imports 40 percent of its gasoline. They hope that the ensuing economic hardship could drive a wedge between the Iranian people and their leaders, who they believe have been weakened by a recent disputed election.
"We can't assume a sanctions regime would be effective in physically reducing the supply of gasoline to Iran (but) it would probably have an impact in driving the price higher for Iranians," said Tim Evans, energy analyst for Citi Futures Perspective in New York.
U.S. Congressman Howard Berman, chairman of the House of Representatives Foreign Affairs Committee, plans to bring forward a bill in October that would impose sanctions on foreign companies that export refined petroleum products.
But oil traders are sceptical it would work.
"I know for a fact that the market will find a way to meet demand from Iran, regardless of sanctions," said an oil trader in the Gulf. "At a price, people will just do the deal."
Officials in Washington also acknowledge the difficulty of getting multilateral support for such sanctions. Russia and China, who have close trading ties with Iran, have expressed reluctance as has France's foreign minister, Bernard Kouchner.
Patrick Clawson, an Iran expert at the Washington Institute for Near East Policy, said Europeans were more likely to support actions aimed at investment in Iran's energy sector than those aiming to cut off gasoline supplies.
European oil companies have repeatedly said sanctions are a matter for governments and that they will abide by them.
"I have been warning people that if you want to cut off Iran's gasoline imports, then you have to cut off their supplies in every country in the world," Clawson said. He noted that Venezuelan President Hugo Chavez has indicated a willingness to provide Iran with ample supplies of gasoline.
A shipping source also pointed out Iran has its own fleet of oil tankers, limiting the effectiveness of any sanctions.
(Additional reporting by Jonathan Saul in London, and David Lawder and Timothy Gardner in Washington, Editing by David Storey)
