U.S. Expected to Waive Sanctions for Iran Trade

To signal interest in rapprochement with Iran and to avert a trade war with Europe, President Clinton is likely to announce within days that the United States will waive economic sanctions against a Russian, French and Malaysian consortium for the biggest foreign investment in Iran since its 1979 revolution, according to U.S. and European officials.

Final details of a compromise are still being worked out with European allies in talks in Brussels. And Russian help with Iran’s missile program remains a delicate sticking point.

But the Clinton administration is now seeking a course that would coordinate Iran policy with Europe, prevent new friction with Russia and send a tangible message to the new, reformist government in Tehran that Washington genuinely seeks better relations, European officials say.

The highly controversial move could set off a firestorm in Congress as well as with the pro-Israeli lobby. It follows months of agonizing over a 1996 law that sanctions foreign firms investing in Iran or Libya by cutting them off from doing business with the United States.

With some reluctance, the administration backed the sanctions as a deterrent to foreign investment that might provide funds for Tehran to develop weapons of mass destruction. But imposing sanctions, as mandated by Congress, in turn threatened a trade war with European allies deeply opposed to the U.S. policy. Allies had threatened to file a formal complaint with the World Trade Organization.

Two critical new components since 1996 have opened the way for a policy shift: First, Iran last year elected President Mohammad Khatami, who in January called for critical people-to-people exchanges to “crack the wall of mistrust” with the United States.

The $2-billion investment to develop offshore Iranian gas fields by the consortium is a badly needed boost to Iran’s economy, hard-hit by sagging oil prices.

“To sanction these companies would certainly hurt President Khatami’s efforts at political openings and economic reforms and also kill any chance for Washington to engage with Tehran any time soon,” said a source familiar with U.S. thinking.

Iran turned to the European consortium only after offering the deal to Conoco, an American multinational. But that deal was nixed by the White House under congressional pressure.

Second, the United States and its allies for months have been exploring common ground on issues such as Iran’s unconventional weapons programs and support of extremist groups. The European Union next week begins talks with Iran, which will provide a vehicle for discussion of many long-standing problem areas.

“The issues that worry us are the same that worry the United States and will be on the agenda,” said a French official. “The United States is happy with what we’re doing.”

The consortium deal--by France’s Total, Russia’s Gazprom and Malaysia’s Petronas--violates the Iran-Libya Sanctions Act, which mandates sanctions on any foreign company that invests more than $20 million in Iran’s energy sector.

But the act also has some built-in flexibility. Sanctions against specific companies or projects can be waived on national security grounds. And waivers are possible for countries that undertake “substantial measures, including economic sanctions” to block Iran’s unconventional weapons program and other unacceptable behavior.

European sources said Thursday that they expected an announcement as soon as this weekend, depending on details of the U.S.-EU meeting in Brussels. And during testimony before a Senate Foreign Relations subcommittee Thursday, Sen. Sam Brownback (R-Kan.) said he heard “pretty reliable rumors” that the waiver was imminent.

At the hearing, Assistant Secretary of State for Near East Affairs Martin Indyk pledged that the administration intends to uphold the purpose of the law.

Indyk also emphasized the potential for changing a generation of hostility. “If . . . Khatami is able to turn his constructive rhetoric into real changes in these areas . . . that would lay the foundation for an appropriate response on our side, including better relations between our two countries.”

Meanwhile, U.S. officials are also looking into two other modest steps on visa requirements that would ease a long-standing Iranian complaint while also facilitating the kind of cultural exchanges Khatami called for in his groundbreaking interview with CNN in January.