By Roberta Rampton
WASHINGTON (Reuters) - The Senate is set to vote on a tough new round of economic sanctions on Iran's oil sector on Thursday, including measures meant to shut down any financial deals with the country's powerful state oil and tanker enterprises.
The proposed penalties would increase pressure on Tehran to abandon its nuclear program ahead of key talks next week, building on penalties signed into law by President Barack Obama in December that threatened sanctions against any foreign institutions that trades with Iran's central bank.
The United States says Iran's nuclear program is a cover for developing the capability to build atomic bombs, while Iran says it is for civilian purposes.
Major importers of Iranian crude oil have already cut their purchases in order to win waivers from those sanctions.
The new package would extend sanctions to cover dealings with the National Iranian Oil Co and National Iranian Tanker Co, aiming to close a potential loophole that could have allowed Tehran, the world's third-largest petroleum exporter, to continue selling some of its oil.
While the new limits would be a symbolic step in effectively putting Iran's entire energy sector off-limits, it is unclear what practical effect this would have on oil flows since most trade has to be processed through the central bank.
Passing the bill in the Senate before May 23 negotiations in Baghdad with Iran and world powers will send a strong message that the United States will impose further sanctions unless Iran backs down from its nuclear plan, said Democratic Senator Robert Menendez.
"Iran must either willfully commit to terminating its nuclear program or we will force their hand through crippling sanctions," said Menendez, who helped craft the package.
TOUGHER HOUSE VERSION
The House of Representatives passed a version of the bill in December that is tougher than the Senate's in several areas, including banning ships from U.S. ports that have recently visited Iranian ports.
A new sanction package could prompt Tehran's negotiators to make concessions, said Anthony Skinner, London-based head of Middle East and North Africa with risk analysis firm Maplecroft.
"While Iran does not want to give up its nuclear program, the economic squeeze will force the authorities to at least give the impression that it is negotiating in earnest," Skinner said.
Senate Majority Leader Harry Reid will ask the chamber to give the package "unanimous consent," in which senators agree to the bill without requiring a roll-call vote, a Senate Democratic leadership aide said.
Reid tried to move a sanctions bill in March, but failed because some Republicans wanted to add provisions such as sanctioning companies that insure trade with Iran.
The revised package to be considered on Thursday includes sanctions on European satellite companies that provide service to the Iranian government, targeting Iran's jamming of satellite communications.
It also includes non-binding recommendations to the administration on enforcement and monitoring of sanctions evasion efforts by Iran, and urges the president to consider sanctions on insurers of Iranian oil shipments and on shipping companies.
The American Israel Public Affairs Committee, a powerful pro-Israel lobby group, endorsed the package in a letter to Senate leaders on Thursday, and said it could be strengthened when the Senate and House square their versions of the bill
Representative Ileana Ros-Lehtinen, chairman of the House Foreign Affairs Committee, said more sanctions would help cripple Iran's oil revenues and criticized the upcoming negotiations with Iran..
"I'm deeply concerned that the administration's foolish embrace of yet another round of negotiations will only embolden the regime," Ros-Lehtinen said at a hearing on Thursday.
"The administration has already made concession after concession only to come up empty-handed," she said.
(Additional reporting by Timothy Gardner in Washington and Jonathan Saul in London; Editing by Russell Blinch and Vicki Allen)