Sanctions Update

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

On Aug. 5, 1996, the U.S. government enacted a law setting penalties on domestic and foreign companies that help Iran or Libya develop their oil and gas resources.

A year later, there still is disagreement on whether the Iran-Libya Sanctions Act, intended to deter the two nations from supporting terrorism, is working.

At a recent House international relations committee hearing, Chairman Benjamin Gilman (R-N.Y.), said debate over U.S. policy toward Iran has accelerated following Mohammed Khatami's election as Iranian president (OGJ, June 16, 1997, p. 33).

Gilman said Germany should clarify its position on financial support for Iran. He noted Westdeutsche Landesbank plans to provide $160 million to help finance development of Iran's Soroush field.

"More troubling are recurrent reports that the French oil company Total might be on the verge of signing contracts with Iran to develop the large South Pars gas project off Iran, which is expected to require more than $2 billion in capital.

"We need an immediate high-level dialogue with France to ensure that it is aware of the implications of (the U.S.) imposing sanctions on its leading oil exploration and development firm."

Administration view

Alan Larsen, assistant secretary of state for business affairs, said, "We believe the act has had a significant deterrent effect on petroleum investments in Iraq and Libya. We will take appropriate action if we find sanctionable activities have occurred."

He said the state department has contacted several oil firms in the last year and "so far, none have finalized an investment in Iranian oil."

David Welch, assistant secretary for Near East affairs, said, "Many of our allies have been reluctant to grant Iran extensive credits and guarantees."

He said, "Sanctions on Iran and Libya are not ends in themselves. The administration's goal is to see that these states abandon objectionable international behavior."

But Rep. Lee Hamilton (D-Ind.) was skeptical. He told Larsen and Welch, "I can't see that the policy has changed Iran's behavior in any way, so how can you say it's successful?"

Welch replied Iran has been unable to find partners for 11 major oil projects, and so, "We have succeeded in raising the cost (of its actions) to Iran."

Other views

Jeffrey Schott, of the Institute for International Economics, said the sanctions have been costly to both Iran and the U.S. and have generated few concrete benefits.

He said they have delayed some new investment in Iranian oil and gas fields and imposed modest costs on the Iranian economy, but they have also imposed costs on U.S. firms that would normally do business with Iran.

Schott stressed the sanctions have not induced significant change in Iranian policy: "Iran seems to be continuing to pursue its terrorist adventures and its efforts to procure military hardware and materials for the development of nonconventional weapons.

"The recent election results seem to reflect (public) dissatisfaction with domestic policies, but do not necessarily portend significant changes in foreign and defense policies."

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