Iran Booted From Azerbaijan Oil Venture : Industry: Tehran had held 5% share. Ouster followed pressure from U.S., which seeks to isolate Islamic nation.

Bowing to U.S. pressure, the former Soviet republic of Azerbaijan has canceled Iran’s 5% share in a Western-led consortium to develop vast offshore oil deposits in the Caspian Sea.

The decision is a victory for the Clinton Administration in its campaign to isolate Iran, which it accuses of sponsoring terrorism, opposing Middle East peace efforts, staging an arms buildup and trying to develop nuclear weapons.

Administration officials have been struggling to draft tougher economic sanctions against Iran without inflicting greater pain on U.S. companies that would lose business under such sanctions. At the same time, the United States is leaning hard on vulnerable third countries, including Russia, to stop doing business with the Islamic state.

Iran’s exclusion from the biggest joint energy venture in the former Soviet Union--one committed to spend $7.4 billion over 30 years to develop reserves of about 4 billion barrels of oil--came after intense U.S. lobbying of the Azerbaijani government and some of its 10 foreign partners.

In return, Exxon Corp.--a new, 11th partner--and the Turkish Petroleum Co., whose government views Iran as a rival for regional influence, agreed to finance cash-poor Azerbaijan’s share of the project.

The decision was first reported with angry commentary by the official Iranian news agency late Sunday and confirmed Monday by Azerbaijani officials.

Azerbaijan, a war-weary, politically unstable land whose people share Muslim faith, a border and a web of mutual interests with Iran, agreed in November to sell the Iranians a quarter of its own 20% stake in the consortium.

U.S. officials began speaking out publicly against the intended sale a month later. They warned that four American companies holding 40% of the consortium’s shares, while not legally bound to pull out of the deal, would by law be ineligible for tax credits for their investments or for needed loan guarantees from official U.S. agencies if Iran stayed in.

“That in itself wouldn’t have killed the project, but would have made it tougher,” an Administration official said in Washington, noting the need for government-backed loans for the politically risky venture. “We worked to persuade them not to allow Iran in, but it was Azerbaijan’s and the companies’ choice.”

Oil industry analysts said Azerbaijan welcomed U.S. involvement in the deal to counterbalance Russian influence in the Caspian region and would have had trouble replacing capital put up by the American companies--Unocal, Amoco, McDermott and Ramco--had they pulled out. Other partners include British Petroleum and Russia’s Lukoil.

Eventually, the Azerbaijanis turned to the consortium for a formal vote on keeping Iran in. The vote was reportedly divided, but, under the consortium’s rules, such decisions must be unanimous, so Iran was out.

Azerbaijani officials took full responsibility for canceling the deal.

“Taking into account all this terrible outcry from America, we made the decision to call off the contract with Iran,” said Farkhat Agamaliyev, the Azerbaijani Embassy spokesman in Moscow. “Azerbaijan was guided by the principle of utmost expediency. . . . Participation by the United States was preferable to that of Iran because American know-how is incomparable.”

A week ago the Azerbaijanis sold half their 20% share in equal portions to Turkish Petroleum, already a member of the consortium, and Exxon. Azerbaijani officials said Monday that the two companies would finance Azerbaijan’s remaining share, allowing the host country a free ride until it can start collecting profits.

Tehran Radio called the Azerbaijani decision a breach of contract and a “strategic blunder.” Iranian media speculated that the Azerbaijanis had either taken bribes from U.S. oil companies or acted to ensure U.S. support in their war with Armenian separatists in the disputed enclave of Nagorno-Karabakh.

U.S. officials are also trying to get Russia to cancel a nuclear reactor sale to Iran. The pressure is intensifying as President Clinton prepares to visit Moscow next month and faces mounting criticism on Iran from the Republican-led Congress.

Days after Russian leaders rebuffed Defense Secretary William J. Perry’s appeal to stop the sale, an advance team led by Deputy Secretary of State Strobe Talbott pressed the issue in Moscow last week. They argued that it is not in Russia’s interest to transfer technology that might help Iran make nuclear weapons.

Vice President Al Gore hinted Sunday that the United States might withhold nuclear energy cooperation from Russia if the sale goes ahead. “There are some things that will not be available to them unless we have the kind of developing relationship that we’ve asked for,” Gore said on NBC-TV’s “Meet the Press.”

On Monday, Talbott was in Ukraine, raising questions about that country’s day-old agreement to sell Iran fertilizer, metal goods and machinery and to service Iranian metallurgy plants in return for financing of deliveries of natural gas from Turkmenistan. Neither U.S. nor Ukrainian officials would say whether Talbott voiced opposition to the deal.