WASHINGTON - The United States and Europe are considering unprecedented punishment against Iran that could immediately cripple the country's financial lifeline. But it's an extreme option in the banking world that would come with its own costs.
The Obama administration wants Iran evicted from SWIFT, an independent financial clearinghouse that is crucial to the country's overseas oil sales. That would leapfrog the current slow-pressure campaign of sanctions aimed at persuading Iran to drop what the U.S. and its allies contend is a drive toward developing and building nuclear weapons. It also perhaps would buy time for the U.S. to persuade Israel not to launch a pre-emptive military strike on Iran this spring.
The last-resort financial effort suggests the U.S. and Europe are grasping for ways to show immediate results because economic sanctions have so far failed to force Iran back to nuclear talks
But such a penalty could send oil prices soaring when many of the world's economies are still frail. It also could hurt ordinary Iranians and undercut the reputation of SWIFT, a banking hub used by virtually every nation and corporation around the world. The organization's full name is the Society for Worldwide Interbank Financial Telecommunications.
Meanwhile, Iran. A semiofficial Iranian news outlet reported that the country started using new, fourth-generation domestically made centrifuges at its Natanz uranium enrichment site. Iran revealed several other nuclear advances, including the production of its first domestically engineered fuel rods, or plates, for the nuclear research reactor in Tehran.
But Western experts Wednesday morning cast doubt on Iran's claims that its centrifuges have reached the fourth-generation capabilities, saying that the Iranians have been struggling to reach second- or third-generation centrifuges. At any rate, the Iranians claim the centrifuges have a higher speed and production capacity.
There was also a report from Iran's state-controlled Press TV Wednesday that Iran was cutting oil exports to six European countries the Netherlands, Spain, Italy, France, Greece and Portugal in response to recent new European Union sanctions.
However, a spokesman for Iran's Oil Ministry denied the report, telling Reuters that "if such a decision is made, it will be announced by Iran's Supreme National Security Council."
Recent violence has also inflamed tensions between Iran and the West. Explosions in Bangkok on Tuesday Israel's defense minister labeled them an "attempted terrorist attack" came the day after Israel accused Iran of trying to kill its diplomats in India and Georgia. Those attacks followed the recent killings of Iranian scientists.
In the financial world, the United States can't order SWIFT to kick Iran out. But it has leverage in that it can punish the Brussels-based organization's board of directors. Talks are focused now on having Europe make the first move.
Short of total expulsion, Washington and representatives of several European nations are in talks over ways to restrict Iran's use of the banking consortium to collect oil profits.
The Obama administration is divided over whether the possible gain is worth the risk in trying to threaten SWIFT into kicking out a member country, in part because of concern that it would set back the global financial recovery. Iran remains a global financial player despite years of banking sanctions, and blocking it from using the respected transfer system would be a black mark like no other.
More than 40 Iranian banks and institutions use SWIFT to process financial transactions, and losing access to that flow of international funds could badly damage the Islamic republic's economy. It would also probably hurt average Iranians more than the welter of existing banking sanctions already in place since prices for household goods would rise while the value of Iranian currency would drop.
Lawyers for SWIFT are holding meetings in Washington. People familiar with the talks say a compromise is possible in which SWIFT would voluntarily bar or restrict Iranian transfers.
But if SWIFT fails to act on its own, the U.S. expects Europe to require it to terminate services for Iranian banks, one Obama administration official said.
David Cohen, the Treasury Department's undersecretary for terrorism and financial intelligence, delivered that message to European Union officials in Brussels earlier this month, said the official, who was not authorized to speak publicly and thus spoke only on the condition of anonymity.
Mark Dubowitz, a sanctions expert advising the White House on Iran, said the Obama administration is having detailed discussions on the merits and consequences of forcing SWIFT to block Iranian transactions.
Some in the administration also prefer to give time for new sanctions on Iran's Central Bank, officially enforced starting just this month, to take hold before layering on a round of even more draconian penalties.
SWIFT was involved in a separate controversy when it was revealed in 2006 that it had skirted the EU's strict privacy laws after the Sept. 11, 2001, attacks by transferring millions of pieces of personal information from its U.S. offices to American authorities as part of the US Terrorist Finance Tracking Program.
"It is an essential cog in the wheel, if not the wheel itself, in international financial transactions and trade," said David Aufhauser, former general counsel at the Treasury Department who worked with SWIFT to set up that information transfer.