An Expensive Exercise

By Kiernan, Peter | The Middle East, July-August 1999 | Go to article overview

An Expensive Exercise


Kiernan, Peter, The Middle East


Discussions on US sanctions against Iran continue but, in the meantime US business is counting the cost.

United States economic sanctions against Iran are likely to continue into the near future, despite strengthened opposition from American business and lack of support from US allies, particularly in Europe. Although the unilateral nature of the sanctions has rendered them largely ineffective, Washington wants to see changes in Iran's policies before they are revoked.

As a result, the thaw in US-Iranian relations will be painstakingly slow as Washington steadfastly holds to its position that Iran is pursuing capability in weapons of mass destruction, supports terrorism and violently opposes the Israeli-Palestinian peace process.

There have been US sanctions against Iran since the 1979 revolution. However, the most comprehensive range of measures has been in force since 1995. In that year President Clinton signed two executive orders, the first banning US investment in Iran's energy sector and the second banning all trade and investments in other sectors.

Then in 1996 congress passed the Iran Libya Sanctions Act (ILSA), which penalises non-US energy firms if they invest over $20 million in Iran's oil and gas industries. Penalties include restricting imports from those firms and preventing them borrowing funds from US banks. Despite Iran's international isolation over the last two decades, there have never been any UN-mandated multilateral sanctions placed against that country.

While the prospect for immediate change in US policy is unlikely, this has not stopped the issue from becoming a hot topic in Middle East policy circles or business lobby groups. Gary Sick, scholar at Columbia University's Gulf 2000 project wrote in The Washington Post that "sanctions are increasingly irrelevant and blind us to the truth about how much Iran has changed", and that "US policy continues to be driven by inertia and old political habits". His thoughts echo the views of Lee Hamilton, a Democrat representative on the congressional International Relations Committee, who believes that efforts to isolate Iran have been counterproductive because they have caused strains between the US and its European and Arab allies.

US energy companies have also stepped up the pressure to reassess the sanctions policy against Iran. They have been increasingly frustrated at being sidelined while European firms are taking advantage of Iran's biggest effort in over 20 years to seek foreign investment to develop its energy sector. Last year Iran invited bids for 47 oil and gas projects that received considerable international interest.

In 1997, oil companies Conoco and Mobil were part of a core group that formed USA Engage, a coalition of private sector firms that want to limit the use of unilateral economic sanctions as a US foreign policy tool.

The group argue that in an increasingly globalised economy, such measures serve only to punish US business by preventing it from competing in international markets. Although primarily concerned with minimising future sanctions, the coalition regards the current trade restrictions against Iran as an important issue in need of review. USA Engage is supporting a proposed Sanctions Reform Act, designed to establish "rules of the game" for unilateral sanctions. However even if the legislation is passed, it will only apply to new sanction proposals.

The act presents a dilemma for US energy firms. While under its terms they are barred from investing in Iran, presidential waivers exempting non-US firms from punishment under the terms of ILSA place them at an enormous disadvantage. In principle, USA Engage and firms such as Mobil support the use of waivers, while recognising that the practice doesn't help their cause. A USA Engage spokesman lamented that the waivers present a no-win situation for US oil companies. …

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