Mixed signals on sanctions

Industry hopes that the Bush administration would be able to convince Congress to move forward with sanction reforms this summer are fading fast.

Industry hopes that the Bush administration would be able to convince Congress to move forward with sanction reforms this summer are fading fast.

The administration is still planning to offer its own revamped "smart sanctions" next month on Iraq, but a more comprehensive review of existing sanctions on other oil-rich countries, most notably Iran, may not be complete as soon as oil companies would like.

"Notwithstanding the prevailing view of many in the administration that economic sanctions don't work and simply disadvantage US corporations in international markets, it seems unlikely that the political climate would favor lifting sanctions at this time," notes Ed Garlich, senior managing director of the Washington Research Group of Schwab Capital Markets LP.

Political tides shift

Reports from the Federal Bureau of Investigation and the State Department are largely to blame for the impasse. Both agencies this spring told Congress that Iran was seen as the "the most active" among seven state sponsors of international terrorism, followed by Iraq, Cuba, Libya, North Korea, Sudan, and Syria.

Yet as recently as March, oil companies and analysts had been cautiously optimistic the political tides were turning. This past winter, an impressive bipartisan coalition of lawmakers and policymakers said investments in Iran and Libya were needed to meet US demand. "If global oil demand estimated for 2020 is reasonably correct and is to be satisfied, Iran, Iraq, and Libya should by then be producing at their full potential if other supplies have not been developed," the Center for Strategic &International Studies said. That report was supported by Senate Committee on Energy and Natural Resources Chairman Frank Murkowski (R-Alas.) as well as Sen. Joe Lieberman (D-Conn.), the Democratic vice-presidential contender.

The White House seemed amenable, too. When he was chairman of Halliburton Co., Vice-Pres. Dick Cheney was an outspoken critic of the Iran Libya Sanctions Act, saying the law was counterproductive: it did not change Iran's behavior and did not discourage foreign companies from investing. President George W. Bush had stayed clear of the issue, although when he was running for president, he endorsed the removal of "trade barriers." Also encouraging to industry was the fact President George H.W. Bush, in the waning days of his administration, approved the idea of US companies investing in Iran. His successor, Bill Clinton, in 1995 was prepared to allow at least one deal, Conoco Inc.'s investment in Iran's huge Sirri offshore gas fields, to go forward, but he was thwarted, in an ironic twist of political fate, by the Congressional Republican leadership.

Investments interrupted

Those new terrorism reports may have effectively killed any opportunity US companies thought they had for doing business with Tehran in the short term. But US competitors are still clearly interested, despite the threat of US sanctions under ILSA, Garlich notes. He says it is noteworthy that Iran and Libya also topped the list of the most-promising countries for investment in new exploration in a recent poll of 85 international oil companies conducted by the UK-based Robertson Research-Saudi Arabia, Kuwait, and Mexico were not included, because they only permit limited investment (OGJ, Apr. 23, 2001, Newsletter, p. 7). How and when the White House may act is still uncertain, though.

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