Watching Government Evaluating sanctions

With Patrick Crow
from Washington, D.C.

Oil industry analysts agreed last week that unilateral trade sanctions are ineffective and usually counterproductive.

Lawrence Goldstein, president of the Petroleum Industry Research Foundation Inc. (Pirinc), New York, said, "What is surprising is that this still comes as a surprise to anyone."

Pirinc and the Middle East Institute sponsored a seminar on the subject in Washington.

An everday weapon

Goldstein said sanctions appear to have worked against Iraq-but only because the Persian Gulf war destroyed much of Iraq's infrastructure and gained access for outside inspectors.

He said, "A cornerstone of U.S. energy policy is diversity of supply. Yet, we now have embargoes on Iraq, Iran, and Libya. Who's next?

"Oil projects in newly emerging areas are very capital intensive and take 5-10 years before substantial oil or gas starts to flow. Yet it is impossible to know over this time frame who your government's friends or enemies will be.

"Unfortunately, our government is showing an increasing propensity to use embargoes and sanctions as an everyday weapon in our foreign policy arsenal."

Pirinc Chairman John Lichtblau said if the U.S. succeeded in persuading other nations to boycott Iran and Libya, which together export 4 million b/d, it would take most of the Organization of Petroleum Exporting Countries' remaining spare productive capacity to offset the loss, and oil prices would jump.

He said if a multilateral embargo were levied against Nigeria, and if it were effective, the result would be sharp worldwide price increases for a long time because of the high quality of Nigerian crude.

Gary Hufbauer of the Institute for International Economics has analyzed 116 instances of economic sanctions since 1914. He said the successful ones had modest goals, wide international support, and targeted friendly countries.

J. Michael Stinson, a Conoco Inc. vice-president, reviewed the Clinton administration's action last year to block Conoco's development of an Iranian field.

He said with overseas projects "Most of our political risk has arisen in this country, in Washington. We can't see that unilateral sanctions work, except against U.S. companies."

Defense

But sanctions also had persuasive defenders at the seminar.

David Welch, a U.S. State Department official, said they are a better tool than military action, and "exact a price for unacceptable behavior, even from pariah states."

He said sanctions worked against Iraq, Libya has halted most support for terrorists, and European banks and oil companies are avoiding Iran.

Gregg Wickman, an aide to Sen. Alfonse D'Amato (R-N.Y.), said Iran invited 123 energy companies to an investment conference last November, but only 40-60 attended.

"There can still be a chance of convincing Iran that its aggressive policies are entirely counterproductive. We must avoid, at all costs, another case like that of Iraq. We cannot allow Iran to grow into a monster we will one day have to fight."

Wickman predicted Congress will pass a bill by July 4 banning foreign companies active in Iran or Libya from doing business in the U.S.