US oil companies are hoping the US will seek to repair frayed diplomatic relations with European allies by updating its own economic sanction policy against the petroleum-rich countries of Iran and Libya.
The Iran Libya Sanctions Act (ILSA), which seeks to punish non-US oil companies that invest $20 million in either country, is a particular source of rancor for key US allies, including France, Germany, Russia, and the UK.
The issue was expected to come up as soon as last week when world leaders from the European Union and the US met in France as part of a "Group of Eight" economic summit. What role the United Nations will play in rebuilding war-torn Iraq will be a key discussion point, although ILSA is expected to be discussed as leaders hold talks regarding free trade and general sanctions policy, US government sources said. Also of interest to industry are talks on anticorruption; the UK is leading an effort to improve transparency in resource-rich countries.
Window of opportunity
The White House has signaled it wants to repair war-related rifts between itself and some of its closest allies. France, Germany, and Russia took an important first step when they agreed to a US-UK proposal that led to a UN vote lifting 13 years of international sanctions against Iraq. The countries also backed a related US-UK plan to phase out the oil-for-aid program, although a US-controlled bank will have to show its books to international auditors to prove oil revenue is being spent wisely.
Now some industry officials are suggesting it may be time for the US to reevaluate its own controversial policies concerning Iran and Libya. US President George W. Bush signed an updated ILSA law in August 2001. It includes a nonbinding provision that calls on Congress to consider rescinding the law before it officially sunsets in August 2006 pending the outcome of a White House sanctions report. That White House report is due to Congress before March 2004.
What that report will recommend is a source of debate within the administration as policymakers continue to struggle with the US's conflicted relationship with Iran. Some policy hawks, mainly installed in the Pentagon, want to actively seek a regime change in Tehran that would remove supreme leader Ayatollah Khamenei from power allowing reform-minded clerics, like the elected president Mohammad Khatemi, to have a stronger voice.
But the US Department of State doesn't share this view, preferring to actively engage the current government regarding issues of critical interest to both countries, such as deterring terrorism and eliminating weapons of mass destruction.
White House ILSA report
Under ILSA, the White House report to Congress must offer a recommendation on whether the law is working. ILSA supporters argue that the law has helped discourage billions of dollars in investment, thereby blocking money that could have been used by terrorists allegedly supported by the highest levels of the Iranian government.
ILSA supporters say that since 1996, Iran has sought foreign investment for 55 petroleum development projects with only 8 receiving financial backing.
"Most foreign petroleum industries have significant business in the United States and fear US sanctions under ILSA," according to the American Israel Public Affairs Committee.
ILSA opponents acknowledge the law initially did discourage investment. But since it was first enacted, the EU later was given the impression by the administration of then-President Bill Clinton that it could move forward with any deal it chooses by receiving a waiver or exemption under the law, ILSA opponents say.
No one disputes industry's interest in making investments in places like Iran and Libya, especially given delays in other Middle Eastern countries such as Kuwait and Saudi Arabia. Iraq, a viable competitor to both Iran and Libya for investment dollars, remains problematic because no one knows for sure when that country's legal and political future will be settled.
But in the interest of open trade and to resolve lingering diplomatic concerns, oil companies are aggressively lobbying to wipe ILSA off the books, or at a minimum to get the White House interested in disposing of presidential executive orders that block US investment in either country. The current policy continues to be a deep area of concern for US-based multinational companies that say the US restrictions make them less competitive and give non-US businesses an unfair advantage.
Oil interests both within and outside the US are hoping that the recent effort by the US and the EU to repair diplomatic tensions spurred by the Iraq war may give US policymakers the window they need to make policy changes. But timing is critical. Softening or removing sanctions against either country is unlikely to happen next year when the presidential reelection campaign accelerates forward, US officials said.
Libya more likely
US government sources, speaking on condition of anonymity, said even with strenuous lobbying by the UK it is likely the White House may agree only to remove unilateral sanctions against Libya because of that country's cooperation on the war against terrorism. Efforts to reach a settlement with the families of the 1988 PanAm 103 bombing over Lockerbie, Scotland, may also help trigger a US reaction, possibly before yearend, US government sources said. The US also is keenly aware that the UN wants to formally remove largely suspended international sanctions against Libya.
Unlike ILSA, President Bush does not need action by Congress to remove existing US sanctions on either Libya or Iran. It is possible, however, that a White House action to remove unilateral sanctions against one or both countries may trigger enough congressional ire for lawmakers to pass a law reversing White House policy.
On Capitol Hill, there is growing support to remove just the Libyan sanctions. Lawmakers are aware of a tentative agreement made in March between Libya and the US and the UK to accept civil responsibility for the 1988 bombing, and to pay the families of the 270 victims $5-10 million each, depending on how fast the US and the UN lift commercial sanctions (OGJ, Mar. 17, 2003, p. 33).
Helping to push the issue forward is the Atlantic Council, a policy think tank that includes a wide bipartisan array of former policymakers including former Sec. of State James Baker III and former President Gerald R. Ford. The council said this month that, given the suspension of UN sanctions, the US's own measures on Libya are "increasingly counterproductive" in that they tend to isolate the US and US businesses, rather than Libya. Report authors also argued that Libya has changed its policy on terrorism and by removing sanctions the US could help secure another important policy objective—energy security.
Past and future
Early in Bush's presidency, multinational oil companies were hopeful that his administration would try to reform sanction policies incurred by both the past Democratic administration and the Republican-led Congress. Vice-President Dick Cheney, as then-chairman of Halliburton Co., opposed ILSA, for example. And Sec. of State Colin Powell made encouraging statements early in his tenure that indicated he was open to reconsidering the way economic sanctions are used in general.
But even before the geopolitical realities of the Sept. 11, 2001, attacks on the US, it became clear that the White House wasn't ready to soften its stance on either country, according to oil companies looking to invest in either or both countries. And now, almost 2 years later, US Iran policy remains as cloudy as ever, although the future for Libya may be getting clearer.
