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WSWS : News & Analysis : Middle East
As it orients towards the Caspian, Washington modifies sanctions against
Iran
By James Brookfield
3 May 1999
The Clinton Administration made two diplomatic overtures towards Iran last
week. First, on Wednesday, April 28, it decided to allow US firms to sell
food and medicine to the country, along with Libya and Sudan. Though the
State Department continues to denote all three states as "terrorist," and to
maintain other economic restrictions against each of them, it will now
permit the sale of "human necessities" on a case-by-case basis rather than
continue the existing blanket trade embargo on all products.
Then on Friday, the State Department dropped its designation of Iran as the
world's chief terrorist nation. The New York Times quoted an unnamed
government official as saying, "If the Iranians read this as a signal for
better ties, fine."
Little official explanation was given for these changes. This is remarkable
in that only last August the US bombed a pharmaceutical plant in Khartoum,
Sudan and less than two years ago William C. Ramsay, the Deputy Assistant
Secretary for Energy, Sanctions and Commodities, claimed that "no nation's
behavior poses a greater threat to US political and security interests than
that of Iran."
What accounts for the new approach from Washington?
Some cast the sanctions policy change as a humanitarian gesture. "The use of
food as a weapon is wrong," said Senator Larry Craig of Idaho. That Congress
has yet to drop embargoes against Iraq and Cuba indicates, however, that Mr.
Craig's principle is honored more often in the breach than in the observance
by US policy makers.
Other government officials pointed to less noble motivations. "For America's
farmers, this policy means opening up new markets and reviving old ones that
had been off-limits, giving them a chance to boost their bottom line." If
one reads "big agribusiness" for "America's farmers" one gets closer to the
truth. The first deal awaiting approval from the US Treasury Department is a
$500 million shipment of grain and sugar from the US-based Niki Trading
Company to Iran. In addition to the Niki deal, US companies now expect to
sell $500 million worth of commodities to Iran each year.
More significant than the expected windfall for US agriculture, however, is
the strategic shift in US policy that is being initiated via these two
diplomatic steps.
The Clinton Administration and the Iranian government of Mohammad Khatami
have been seeking, each for their own reasons, a diplomatic rapprochement of
sorts, described by US officials as a "dialogue," since the latter's 1997
election.
In the preceding four years, Washington, hostile to Tehran since the Iranian
revolution and wary of its status as a regional power, had sought to pummel
the country economically. In the spring of 1995 it ratcheted up its existing
trade sanctions. This move prompted a sharp fall in the rial and increases
in Iranian unemployment and inflation. The US followed up the next year with
the Iran-Libya Sanctions Act which threatened penalties for foreign firms
that did business with either of the two countries.
Even prior to the 1995-96 sanctions the Iranian economy was in severe
difficulty. The country had been largely bankrupted by its eight-year war
with Iraq in the 1980s. Then falling commodity prices hit. Export oil
earnings fell from $19 billion in 1986 to $10 billion in 1998. With little
capital to invest in the modernization of industry, substantial sections of
Iranian policymakers began to debate proposals for "reform" including
cutbacks on domestic gasoline subsidies and the opening of the oil industry
to private ownership and at least partial foreign control. By 1995 the
government had signed a contract with Total, the French oil company, to
develop the Sirri oil field. In 1996 Iran was reported to have launched a
secret bid to join the World Trade Organization, which would have required
the further undoing of restrictions on foreign trade. This setting served as
the backdrop to the coming to power of the Khatami government.
The new administration continued the turn toward Western investment, trade,
and diplomatic relations. Last month, for example, the parliament passed a
law allowing up to 49 percent foreign ownership of Iranian oil refineries.
The government also signed a $1 billion deal with Elf Aquitaine of France
and ENI of Italy to modernize an offshore oil field in the Persian Gulf.
Khatami also actively courted US policymakers, taking the step,
unprecedented since 1979, of granting an interview to US television in 1998.
The new Iranian orientation coincided with a foreign policy debate among US
officials and business executives about relations with Tehran. Oil
companies, effectively locked out of investing in Iran, found themselves at
a competitive disadvantage vis-�-vis their European rivals. At the same
time, Iran acquired newfound importance to these circles by virtue of the
discovery of significant petroleum reserves in the Caspian Sea basin
countries to its north, particularly in Turkmenistan and Kazakhstan.
In the estimation of one oil executive, Terry Koonce of Exxon, these
countries may contain 100-200 billion barrels of oil equivalent (BOE-oil
plus gas expressed in "barrels"). Western companies have set up joint
ventures with local governments to exploit these reserves. They are expected
to invest 300-500 billion dollars in the region over the next twenty years.
Iran's importance in this new oil rush is two-fold. First, it is a possible
export conduit. Second, it is a military and strategic factor in the
calculations of US policy makers and oil companies.
Some of the big firms have expressed interest in creating pipelines through
Iran to export oil and gas. Total, for example, had proposed a $2.5 billion
pipeline to bring natural gas from Turkmenistan, through Iran, to Turkey,
where it would be sold. A trans-Iranian pipeline, a "southern route," for
oil export to the Persian Gulf has also been discussed. This proposal has
the advantage of being relatively cheap (less than $2 billion), though it is
opposed by the US State Department, which continues to threaten sanctions
against companies that would invest in such a pipeline.
Instead, the US has argued for a "east-west route" for the export of Caspian
oil, beginning at Baku (Azerbaijan), passing through Georgia and Turkey, and
terminating at the Mediterranean port of Ceyhan (Turkey). Such a pipeline
would cost roughly $4 billion to construct, a price tag that has the oil
companies balking. If a US-Iran rapprochement were reached, and business
confidence established in the safety of investing in Iran, the "southern
route" would be the favored path.
Even without a "southern route" however, Iran takes on a new significance.
It is now a regional power lying adjacent to smaller, newly independent
countries in which Western business is making substantial investment. New
diplomatic alignments are being weighed. In the eyes of some US officials
and oil executives, it may be possible to see Iran transformed from a "rogue
state" into, if not a US client, then at least an effective counterweight to
the other regional powers, particularly Russia, China, and, to a lesser
extent, Turkey.
One analyst, S. Frederick Starr of the Central Asia-Caspian Institute at
Johns Hopkins University, has argued that insofar as the US cannot police
the region alone, its geopolitical interests might best be served by
ensuring that no one country "acquires a dominant voice in the region." He
has even suggested that Iran be one member of a proposed "Cooperation
Council for Central Asian Security."
The US government is looking for a small shift in relations with Iran at
this point. It does not favor a dramatic strengthening of the country's
position. A stated objective of US policymakers is to deny Iran leverage
over the economies of the neighboring Caspian states, with whom Iran
competes in the export of oil and natural gas.
The ambivalence of the US position was indicated when the State Department
denied, also on Wednesday, a request by Mobil for a "swap" with Iran, a
request to deliver to Iran oil produced from its operation in Turkmenistan
in exchange for Iranian oil delivered to Mobil at the Gulf. This deal would
have allowed Iran to use the oil for its domestic consumption and Mobil
would in effect be able to bring oil from Turkmenistan to the world market.
Immediate political dilemmas facing the Clinton Administration likely
contributed in part to the timing of US diplomacy this week. While leading
the NATO attack on Yugoslavia, the US has been forced to reduce the
frequency of its ongoing bombing raids on Iraq. With less official attention
in Washington being given to the Persian Gulf, US policymakers would likely
regard the present as an inopportune moment for worsening relations with
Iran.
See Also:
New Caspian oil interests fuel US war drive against Iraq
[16 November 1998]
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