Sanctions decision on South Pars imminent

A decision on third-party sanctions against a gas field development off Iran will "come to a head sooner rather than later," a senior U.S. State Department official said this month.

April 13, 1998

5 min read

A decision on third-party sanctions against a gas field development off Iran will "come to a head sooner rather than later," a senior U.S. State Department official said this month.

The department is studying applicability of the Iran-Libya Sanctions Act (ILSA) to a $2 billion deal that France's Total, Russia's Gazprom, and Malaysia's Petronas signed last year with National Iranian Oil Co. to develop part of South Pars gas field (OGJ, Feb. 9, 1998, p. 28). In a press conference following a speech at the James A. Baker Institute for Public Policy in Houston, Stuart E. Eizenstat, a key figure in U.S. sanctions policy, said the State Department will decide soon whether the South Pars deal is subject to ILSA's provisions for commercial retaliation against non-U.S. companies not honoring U.S. sanctions against Iran and Libya. If it decides the law applies, the U.S. can either impose sanctions immediately against companies in the South Pars deal, decide immediately to waive sanctions, or delay action for a 90-day "consultative" period.

Eizenstat, undersecretary of state for economic, business, and agricultural affairs, told the institute that his department is studying ways to increase the effectiveness of sanctions, which he described to reporters afterward as a "least worst alternative" when diplomacy falls between doing nothing in response to international misbehavior and resorting to military force.

He was the second State Department official in less than a month to speak in Houston on issues involving Iran and other Caspian Sea nations. Earlier, Andrew Dowdy, an economics officer in the Office of International Energy and Commodities, asserted that decisions involving transportation of oil and gas produced in the Caspian region "will have an impact on U.S. strategic interests."

He and Eizenstat both emphasized U.S. support for an oil pipeline from the Caspian to Turkey's Mediterranean port of Ceyhan and for a trans-Caspian gas pipeline from Turkmenistan. The government of Turkmenistan has shown interest in exporting its natural gas through a pipeline across Iran. Dowdy and Eizenstat spoke against that option and said a trans-Iranian route for Caspian oil wouldn't serve U.S. policy objectives.

Pipeline issues

In a talk to the World Policy Institute's Eurasia Group, Dowdy said the U.S. wants to:

Keep any Caspian country from monopolizing regional hydrocarbon transportation.
Ensure that Caspian production diversifies sources of worldwide energy supply.
Avoid aggravating shipping congestion in the Bosporus Straits through Istanbul.

Dowdy said the U.S. doesn't oppose any specific oil pipeline route. But an Iranian route for Caspian oil "makes no sense" because it would add to volumes having to pass through the Strait of Hormuz between the Persian Gulf and Arabian Sea and thus wouldn't diversify worldwide energy sources. And new pipelines ending at the Black Sea ports of Georgia or Russia would increase Bosporus tanker traffic. Only an oil pipeline from Baku, Azerbaijan, to Ceyhan would serve all of the U.S. policy priorities, he said.

For Turkmen gas, Dowdy said, a pipeline crossing the Caspian and the Caucasus Mountains to Turkey could be shorter than an Iranian route and serve growing Turkish markets. The pipeline also could carry production from non-Turkmen sources and thus give the affected countries an interest in political stability. A pipeline from Turkmenistan through Iran would "strand" Azeri gas, Dowdy said.

At the Baker Institute, Eizenstat repeated the U.S. parameters for Caspian pipeline preferences and elaborated on his government's support for a Caspian-Caucasus route for Turkmen gas. Countries served by such a pipeline, he said, could include Russia, "providing an important Russian role in the transportation corridor." It also would help solve energy shortages in Georgia and Armenia and give Russia and Armenia interests in pipeline security.

Eizenstat reaffirmed U.S. opposition to "any pipelines across Iran due to Iran's support for terrorism and drive to acquire weapons of mass destruction and missile technology." He added that the U.S. hopes to deny the Islamic republic pipeline transit revenues and "undue influence" over development of regional resources.

Stance on Iran

Eizenstat's strong words against Iran surprised some audience members, who said they had expected the U.S. to soften its stance against Iran.

He acknowledged "a potentially different voice coming out of Iran" under President Mohammad Khatami, who in elections last year defeated a candidate supported by the Islamic republic's hard-line clerical leaders. Khatami in January appeared on U.S. television to call for a cultural exchange with the U.S. The U.S. government responded by seeking government-to-government relations, to which Tehran hasn't responded.

"We think the ball is in their court now," Eizenstat said. He complained that Khatami's conciliatory overture hasn't been accompanied by change in Iran's international conduct and said the U.S. sees no evidence that the new president holds influence in Tehran's foreign policy regime.

The U.S., he said, awaits "something more than a change in mood music."

Growth in the use of sanctions in general, Eizenstat said, results naturally from "heightened political and economic global integration." But he said sanctions must be applied properly.

President Bill Clinton's Export Council recently estimated that the direct costs of sanctions to the U.S. economy in 1995 included $15-19 billion in lost export sales and as many as 250,000 jobs. Noting that most sanctions since 1993 have come from outside the administration, Eizenstat regretted the proliferation of initiatives that automatically impose sanctions. He cited the Freedom from Religious Persecution Bill now in Congress, which he said could force sanctions on 75 countries.