Iran sanctions in U.S. Senate delayed before Geneva talks

(Reuters) - Under pressure not to squeeze Iran too hard, the U.S. Senate is unlikely to impose a fresh round of sanctions on the Islamic Republic until after Tehran holds nuclear talks with world powers later this month, lawmakers and congressional aides said.

The Senate Banking Committee had been due in September to look at a new package of sanctions passed in July by the House of Representatives, but now it will not do so for at least a few more weeks, an aide said.

That could create a better atmosphere at talks between Iran and six major nations in Geneva on October 15-16, the first such encounter since President Barack Obama and new Iranian President Hassan Rouhani held a historic phone call last week.

While the sanctions issue has been slowed by congressional wrangling over the U.S. government shutdown, lawmakers acknowledged that the idea had come up of deliberately delaying new sanctions to improve the mood at the Geneva talks.

"There's been some discussion about whether it's best right now, while the negotiations are occurring, just to keep the existing ones in place," Senator Bob Corker, the senior Republican on the Senate Foreign Relations Committee and a member of the Banking Committee, told Reuters.

He stressed that Congress generally remains deeply suspicious of Iran and supportive of tougher sanctions.

Catherine Ashton, the European Union's foreign policy chief, made clear on Monday she would prefer U.S. lawmakers and others not to impose additional sanctions before the nuclear talks.

"I would like to get to Geneva with the best possible atmosphere to really have these negotiations," she said.

Congressional aides familiar with the issue said some Obama administration officials have been quietly pressing for Congress to hold off.

"We will continue to consult with Congress on all Iran-related legislation as we have long before last week. Iran has an imperative to improve its economy, because every single economic indicator is negative for them," said State Department spokeswoman Jen Psaki.

The House passed a new package of sanctions by a vote of 400 to 20 at the end of July. That bill seeks to cut Iran's oil exports by another 1 million barrels per day over a year to near zero, to try to reduce the flow of funds to the nuclear program.

SQUEEZING IRAN

Sanctions on Iran's oil sales, shipping and insurance businesses have led to losses of billions of dollars in revenue each month as well as crippling inflation and high unemployment.

The Senate bill will likely be less tough than the House's measure in targeting Iran's oil exports, which already have been halved by existing European and U.S. sanctions. The Obama administration has noted that it has concerns about the House legislation.

Administration officials declined to elaborate, but analysts and congressional aides said the White House fears that if sanctions are too hard on Iran's customers they may stop cooperating with the United States.

Existing sanctions - which push countries including China, India and Japan to reduce their imports of Iranian oil by threatening to cut off their banks from the U.S. financial system - may have already gone as far as they can without antagonizing these countries.

"It's hard to get Iran's main customers in Asia to cut their (oil) purchases too much more, so seeking to cut oil exports even further could be counterproductive and the sanctions coalition could unravel," said Jeffrey Schott, an expert in sanctions at the Peterson Institute for International Economics.

An eventual sanctions package from the Senate could include new measures to pressure Iran's natural gas exports and other businesses.

Corker said there is strong support among lawmakers for adding more sanctions on Iran and making them even stricter although lawmakers were still undecided.

"I don't think that that's a resolved issue at this time," he said.

Aides said last month that senators from both parties had considered closing loopholes in existing sanctions and forcing reductions in Iran's oil sales at a faster pace than that set out in the House bill.

Israeli Prime Minister Benjamin Netanyahu told the United Nations on Tuesday that a charm offensive by Iran's new president is a ruse concocted by a "wolf in sheep's clothing," and declared that Israel was ready to stand alone to deny Tehran an atomic weapon. Iran says its nuclear research is only for peaceful purposes.

Obama has the right under existing sanctions legislation to temporarily waive the Iran sanctions packages already passed by Congress.

However, he is unlikely to do so until Tehran demonstrates what Washington would see as tangible progress on the nuclear program, such as mothballing centrifuges or sending enriched uranium out of the country.