Sanctions showdown

Patrick Crow
Washington, D.C.
[email protected]

The Clinton administration wants to avoid a confrontation with three international firms that have signed a $2 billion deal to help Iran develop South Pars field in the Persian Gulf.

France's Total, Russia's Gazprom, and Indonesia's Petronas sparked the controversy when they signed the contract with Iranian National Oil Co. (OGJ, Oct. 6, 1997, p. 31).

The deal appears to violate the 1996 Iran-Libya Sanctions Act (ILSA), which requires the U.S. to apply sanctions against domestic or foreign firms that invest more than $40 million/year in either nation's energy sector. ILSA's goal is to discourage Iran and Libya from sponsoring international terrorism.

Although the Total deal appears to give the administration no choice but to impose sanctions, the State Department took a typically cautious approach and said that only an investigation will determine ILSA was violated.

EU talks

It's clear the administration wants to avoid a confrontation over sanctions, and it may be able to.

ILSA also allows the U.S. to impose sanctions but suspend them in the interest of national security. Or it could forego sanctions against a firm based in a country that is working to pacify the Iranian and Libyan governments.

The administration has been negotiating for 6 months with the European Union regarding a blanket exemption for EU-based companies if the EU adopts policies that meet ILSA's objectives.

Those talks began after the EU postponed until Oct. 15 a World Trade Organization complaint against a U.S. law that blocked investments in Cuba. The talks have been broadened to include Iran and Libya as well.

Meanwhile, Sen. Alfonse D'Amato (R-N.Y.), principal author of ILSA, and Rep. Ben Gilman (R-N.Y.) House International Relations Committee chairman, warned Clinton, "Dozens of foreign companies are watching our reaction to the Total deal. If we do not sanction Total as an ILSA violator, it is likely that foreign investment will pour into Iran's oil and gas fields."

Damage seen

Coincidentally, after the Total deal broke, the European-American Business Council released a report attacking sanctions.

The study, which the European Commission helped fund, surveyed 42 U.S. and European companies. Of them, 80% said U.S. sanctions have hurt their global operations, and 44% said sanctions forced them to forego business deals. They cited 18 instances where U.S. sanctions forced them to lose a total of $1.9 billion in business opportunities.

The study said, for U.S. firms, the sanctions most commonly block joint ventures overseas. For European firms, they usually reduce investment and employment in the U.S.

Council President Willard Berry said, "Congress, the Clinton administration, and state and local governments should think long and hard about the costs to business before they impose economic sanctions.

"Although the intent of these measures is laudable, almost all economic sanctions have failed to achieve their goals. The most likely effects are damage to U.S. companies and fewer jobs for U.S. workers."