No Sanctions for French Firm in Deal With Iran

Facing the clearest test so far of its commitment to punish foreign companies that invest in Iran, the Clinton administration has decided to hold off on sanctions against a French energy firm in an effort to avert a trade war with the European Union, administration officials said Friday.

Rather than impose sanctions on the Total firm for signing a $2-billion natural gas development contract with Iran, the administration is seeking an agreement with the EU in which Washington would scrap the threat of sanctions in exchange for increased European pressure on Iran to curb terrorism, senior officials said.

The approach is a shift in emphasis for the administration, which has held out the prospect of sanctions as a powerful deterrent to investments that U.S. officials say would give Iran funds to acquire weapons or promote terrorism. The administration endorsed the 1996 Iran-Libya Sanctions Act, which mandates punitive trade measures against any company that invests more than $40 million a year in Iran’s energy sector.

But allies in Europe and elsewhere have rejected any attempt to apply U.S. law to foreign companies. Under the agreement being proposed by the administration, a blanket exemption from sanctions would be granted to companies based in EU countries if Europe adopts measures aimed at demonstrating its support for other U.S. efforts to contain Iran.

A similar arrangement in April temporarily halted a trade conflict over application to Europe of a U.S. law designed to head off investment in Cuba. But that six-month truce expires Oct. 15 with no final agreement in place, and the Europeans have declared that failure to waive sanctions on Cuba and Iran by that date will lead them to reopen a formal complaint with the World Trade Organization.

The U.S. proposal, which would, in effect, exonerate a multinational company that defied U.S. law to make the biggest external investment in Iran since the 1979 revolution, is likely to be criticized by some members of Congress as an abandonment of U.S. policy. But senior officials said the decision is consistent with the U.S. commitment to deter Iranian-sponsored terrorism.

The objective of the Iran-Libya Sanctions Act was to encourage other countries to join the United States in trying to isolate Iran economically, administration officials said. If negotiations with the EU lead to more vigorous European measures to combat Iranian support for terrorism and limit Iran’s access to sophisticated weapons, the purpose of the law will have been fulfilled and sanctions will not be required, officials said.

“It’s important to bear in mind the reasons why we supported the legislation in the first place,” State Department spokesman James Rubin said this week. “The objective of the legislation is not to impose sanctions. The objective is to get other countries, in Europe in particular, to work with us on the subject of tightening up the pressure on Iran.”

He said U.S. negotiators will meet EU officials twice this month about “ways to ratchet up the pressure. That is a factor that will go into any decision-making because the law itself specifies the option of waiving a sanction if the governments have agreed to tighten up.”

After protracted negotiations, Total last weekend joined the Russian gas giant Gazprom and the Malaysian state oil company, Petronas, in the $2-billion deal to develop the Iranian offshore gas field known as South Pars.