U.S. Studies the Imposition of Tougher Iran Sanctions

After weeks of debate within the Administration, President Clinton now begins the daunting task of crafting a tougher policy on Iran that would have significant impact on a rogue state without hurting long-term U.S. economic interests.

Clinton’s Cabinet is divided. An interagency summit Tuesday failed to reach consensus, and a National Security Council policy paper completed Wednesday outlines options ranging from mild steps eliminating loopholes in current economic sanctions to cutting off virtually all trade, according to Administration sources.

But officials admit that all of the options could affect U.S. businesses before they hurt Iran--if Iran ever feels a serious pinch.

“We have modest expectations on how any of these steps would affect Iran,” an Administration source said.

European and Asian businesses could pick up the slack if U.S. firms and subsidiaries are barred from exporting to Iran or acting as intermediaries on Iranian oil sales.

“Unilateral sanctions don’t have much impact on any country, especially one with oil,” another U.S. official conceded. “But it would have a symbolic effect, and it might strengthen our hand with the Europeans when we ask them to take tougher action against Iran.”

However, because European companies could benefit from a tougher U.S. policy, the Administration may end up finding it even harder to win European cooperation. The longstanding gap between Washington and its allies on Iran policy could become even wider, Middle East experts argue.

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Iran has long been ostracized as a leading sponsor of terrorism and a foe of Mideast peace efforts, and recent signs of a military buildup have heightened Western concerns. But the main pressure on the Administration is tied not to anything Iran has done recently but to pending legislation in the Republican-led Congress. Those laws would be even more punitive than U.S. restrictions during the 1979-81 hostage ordeal, when 52 Americans were held for 444 days.

Two bills introduced by Sen. Alfonse M. D’Amato (R-N.Y.), who believes that U.S. sanctions on Iran should be much harsher, call for measures so sweeping that an American buying a cup of coffee from an Iranian with a U.S. green card in Los Angeles would technically be violating the sanctions.

Both bills are popular and are likely to pass Congress unless the Administration preempts them, congressional sources say.

The handful of options forwarded to Clinton include new restrictions in three areas of U.S.-Iranian interaction:

* Selling Iranian oil. U.S. companies cannot import Iranian oil, but their subsidiaries abroad can buy and refine it and resell it to other countries. U.S. subsidiaries handle about 24% of Iran’s oil. The value of the oil involved totals about $4 billion annually, but subsidiary profits are small.

* U.S. exports to Iran. U.S. companies are not allowed to import Iranian goods, but Iran has been allowed to buy “non-sensitive” goods from U.S. companies. U.S. exports to Iran were about $750 million in 1992, $616 million in 1993 and $328 million in 1994, the Commerce Department reports. In the early 1990s, the United States was among the top four countries from which Iran imported oil equipment, foodstuffs, auto parts, high-tech items and other non-military goods. Now it ranks eighth, the State Department says.

* Potential U.S. investment, such as the recent Conoco deal with Iran. Houston-based Conoco proposed developing oil and gas projects for Iran in the Persian Gulf through a European subsidiary, a deal that did not violate U.S. law as written now. The deal was nixed by Clinton last month.

The two D’Amato bills would go much further.

One would ban all financial transactions not only with Iran but between all Iranians and Americans anywhere. The second, introduced last week, would provide that any foreign company that trades with Iran would be barred from importing goods from or doing any business in the United States.

Divisions within the Administration break down roughly into three categories.

First, the Commerce and Energy departments are wary about measures that go beyond tightening loopholes in current sanctions and oppose a comprehensive ban that could hurt U.S. industries.

U.S. exports to Iran are sufficiently dispersed so that no one company would be hard hit by a ban, U.S. officials say. But it would mean short-term losses, diverting business and possibly future profits to Europe and Asia.

Second, the Pentagon is concerned that new steps might trigger a backlash or deepen anti-American sentiment. Three U.S. warships and 11,500 troops are now in the Persian Gulf region.

Third, Secretary of State Warren Christopher favors far-reaching action. He said Tuesday the United States has a special responsibility to deal with Iran because it “is in a category all of its own. No other regime employs terror more systematically as an instrument of national policy than does Iran.”