[Note: The following paper was presented by FDI Executive Director Kenneth R. Timmerman aon May 2, 1996 at "Iran in Transition," a 2-day seminar organized jointly by the Institute for the Study of Earth and Man at Southern Methodist University and Petro-Hunt Corporation, that was heldin Dallas, Texas.]
President Clinton's policy of increasing economic pressure on Iran as a means of getting the Tehran regime to moderate its behavior has been greeted with mixed reviews. On one side of the debate, free-trade advocates, industry lobbyists, and elements who support the Islamic Republic have forged a tactical alliance to oppose the U.S. trade embargo on Iran.
Iran's ideological supporters argue that the embargo will embitter the current regime and make it even more radical; moderate elements still exist, they contend, and the U.S. should reach out to them if it hopes for change.
Industry lobbyists, seeking to sell electric power generation equipment, telecommunications gear, and to build lucrative oil and gas pipelines through Iran from the Central Asian republics of the former Soviet Union, argue that the United States has a strategic interest in strong economic ties to Iran. Poisoning the political well will ruin good business opportunities, and ultimately cost jobs here in the United States, their argument runs. Better to make a strategic bargain with the regime that defangs the radicals and positions the United States to dominate the economic development of Central Asia, from the Caspian shelf to the Tenghiz oil fields and beyond, right down to the Persian Gulf.
I am going to take a contrarian's view here today. First, I will suggest that factual basis behind the economic argument may be fatally flawed, and that an increasing number of government and industry analysts now acknowledge this. Iran has become a dead-beat debtor, and was only saved from default this March by a fortuitous rise in oil prices, which the futures market has already begun to discount . With a badly damaged oil industry, suffering from years of neglect, and uncertain prospects for attracting the massive amounts of capital needed to repair existing fields and develop offshore production, Iran may not succeed in emerging from its current economic malaise. Highlighting this view in a dramatic way is a recent CIA study that concludes Iran will become a net oil importer by the year 2005.
I will also argue, however, that economic sanctions alone are not enough, and that a real window of opportunity exists today to foster meaningful change in Iran, that could transform today's enemy into tomorrow's friend.
By imposing a total U.S. trade embargo on Iran on April 30, 1995 President Clinton crossed his Rubicon. Sanctions are the economic equivalent of war; once they are declared, there is no turning back. The question now becomes: how does the United States craft a comprehensive policy toward Iran that will succeed. And more fundamentally: what should be the goals of U.S. policy?
President Clinton has gone out of his way to dispel any doubts that might have lingered in the mind of Tehran's rulers as to his intentions. Both the President and Secretary of State Christopher have been unrelenting in their public criticism of Iran's support for international terrorism, its violent opposition to the Middle East peace process, its grotesque violations of human rights, and its suspected development of a clandestine nuclear weapons capability. The President is clearly hoping that increased economic pressure will force Tehran to change its ways.
While this makes good common sense to a Western way of thinking - if you feel pain, the normal response is to try to find out how to relieve the pain - it does not seem to have had much effect on the Iranian regime. Indeed, I would argue that Iran's unrelenting support for international terrorism is the clearest sign yet that the sanctions have left the regime unphased, despite the clear economic pain the sanctions have caused. Witness the particularly brazen way in which Foreign Minister Velayati told the European "troika" visiting Tehran in early April that Iran considered Hamas suicide bombers who blew themselves up on public buses in Israel to be "freedom fighters," not terrorists.
Economics alone is unlikely to change Iranian policy. The U.S. trade embargo on Iran has had real but limited effects. Although there are some real chokepoints, Iran can simply go elsewhere to acquire most of the technology it needs, for the embargo has hardly tempered the desire of Iran's major trading partners to do business. There have been some successes, though. An investigation we at The Iran Brief conducted in January shows that the sanctions appear to have reduced Iran's oil exports by roughly 100,000 b/d during the second half of 1995, leading to a direct hard currency loss of over $350 million. Iran also had to spend heavily to charter additional tankers to bring the oil to market. And if the damage done to Iran's economy through the devaluation of the Iranian currency, which has become virtually inconvertible as a result of the embargo, and the chill the U.S. sanctions have put on foreign investment in Iran are taken into account, then Iran's losses due to the embargo must be reckoned in the billions of dollars . (And I will have more to say about foreign investment later on.)
But Iran's ruling clergy has never shown great concern for economic hardship. This outlook was summarized by Ayatollah Khomeini right at the start, when he argued that his revolution was "not about the price of melons." It remains unclear whether damaging Tehran's economy will have any impact on the ruling clergy's anti-American ardor or their sponsorship of terrorism. This is a regime that wilfully ransacked its only source of hard currency - the oil industry - in its revolutionary fervor in 1978-1979, and which has so thoroughly neglected basic investment in oil field maintenance over the past 17 years that even the most optomistic estimates by the International Energy Agency bode ill for the future of the Iranian oil industry .
But the regime leaders have shown themselves to be extremely sensitive to perceived threats from the United States. By imposing economic sanctions and seeking to diplomatically isolate Tehran, the Clinton administration has thrown down the gauntlet and excited the paranoia of Tehran's leaders. They believe the United States has been on a mission for the past 17 years to put an end to their revolution. If past practice is any teacher, the more Tehran feels it is under pressure from the United States, the more it will lash back at U.S. interests across the globe, including through terrorist attacks. Dual containment - or even some form of "enhanced" containment - is therefore not a policy without risk. And its chances of succeeding in even its limited goals of changing the regime's behavior are small.
Given this background, I see two possible futures as a result of our current policy:
The first I call the Rafsanjani shuffle. Faced with increasing pressure from radical anti-Western forces in Iran's new parliament, and growing tension with Supreme Leader Ali Khamene'i, President Rafsanjani resorts to the strategy that has served him well in the past: pre-empting his enemies by adopting their policies. This means: more support for international terrorism, more disastrous economic centralism, and continued hostility toward the Middle East peace process and the United States. As new export credits from Europe and Japan become rare (because of U.S. sanctions and Iran's bad credit rating), Iran's oil industry enters a state of advanced decay. There are occasional bread riots and demonstrations of popular discontent, but these are readily repressed. Frustrated with their failure to rebuild Iran, Rafsanjani and his allies consider nuclear weapons as the only credible option of breaking out of their isolation, and look toward a "rogues' alignment" with North Korea, Pakistan, and China. In this scenario, no U.S. policy goals are met.
The second possible future I call the Russian gambit. In this scenario, Iran heeds to siren calls of Russia when confronted with intensifying U.S. sanctions and increasingly reluctant trade partners in Europe and Japan. Moscow agrees to massive new arms sales to Iran, and builds a series of nuclear facilities which help Iran to develop an indigenous nuclear weapons capability using natural uranium mined in Iran. In return for Moscow's help, Tehran agrees to refrain from troublemaking in the Caucuses, and to cooperate with Russia to control the oil and gas export routes from Central Asia and the Caspian Sea. This in turn gives Moscow increased leverage over the price of oil, and encourages Communist hard-liners seeking a new competition with the United States. In a radical, anti-Western Iran they see a strategic partner who can increase Russian oil revenues, challenge U.S. interests in the Persian Gulf, and enhance Moscow's image with the GCC states as potential "protector" against radical Islam. On its side, an increasingly confident Iranian leadership begins to challenge the U.S. more brazenly in the region, both militarily and through subversion of friendly regimes. Once again, the risks of U.S. inaction are high.
So if risk be inherent in any U.S. approach toward Iran, I would argue that we should shoot higher and seek to encourage democratic change. By helping the Iranian people to realize their democratic aspirations, the U.S. would contribute to regional stability and economic development. Conversely, by maintaining the status quo, or by turning back the clock to our pre-sanctions policy, the U.S. exposes itself and its allies to continued terrorist attacks, regional instability, and the mid-term threat of a major conventional or even nuclear conflict.
I believe we need to craft a more comprehensive policy toward Iran, that takes into consideration all of our political, economic, and strategic interests in the region.
Such a policy, I believe, would start by tightening the existing sanctions. As I argued before the Senate Banking Committee in March 1995, Congress can give the administration the additional tool of import sanctions aimed at foreign companies that continue to make significant new investments in Iran or that sell technology to Iran that is of proliferation concern . I know all the arguments against such a step - and the State Department has opposed import sanctions with rare vigor. But U.S. diplomats have also used the threat of sanctions to win important concessions from some of Iran's largest trading partners. It was this type of "power diplomacy," aided by a strong Congressional stick wielded by Senator Alfonse D'Amato, that compelled Australia's Broken Hill Proprietary Corporation to withdraw from a pipeline project from Iran to Pakistan worth close to $4 billion, and the JGC Corporation of Japan to reconsider its participation in several natural gas projects. Following the passage of the D'Amato bill in the Senate, Royal Dutch Shell indicated it would not participate in any of Iran's 11 new oil and gas field development projects; and even CFP-Total has come into the State Department pledging not to invest in any projects in Iran beyond its existing commitment on Sirri, which it signed once Conoco was forced to withdraw but before Congress began seriously to consider import sanctions. I tend to agree with Senator D'Amato when he states that import sanctions will force foreign companies to choose between trading with Iran, or trading with the United States. Without such measures, your competitors overseas will continue to provide a lifeline to the Tehran regime, thus ensuring the failure of U.S. policy and putting in jeopardy long-term U.S. interests.
The administration also has to address the increasingly thorny issue of Russia's growing influence in Iran, which our current policy does not. The new "strategic" relationship announced jointly by Iran and Russia in December bodes ill for U.S. interests in the region, since Russia has shown no restraint either in its sales of conventional weaponry to Iran, or in its readiness to transfer sensitive nuclear technology. As I have just suggested, both could easily spin out of control unless more vigorous measures are taken by Washington.
Beyond increased economic and diplomatic pressure, a comprehensive policy toward Iran would include four additional measures that have so far been absent from the policy debate:
The administration can take several steps to encourage democrats inside Iran. First, the administration should put an end to statements that the U.S. accepts the Islamic Republic as "deeply rooted" and "a permanent feature."  Instead, the U.S. should acknowledge the right of the Iranian people to choose their own government through democratic means - and not through the simulacrum of democracy which current exists in Iran.
In this regard, the March-April 1996 parliamentary elections can not be considered "democratic" by any yardstick. Iran's Council of Guardians, which screens potential candidates, banned all opposition candidates, including those close to the regime such as former foreign minister Ibrahim Yazdi. Even so, in 50 circumscriptions candidates won in the first round who displeased the clergy, and found their election "annulled" with no explanation. And only last week, a leading "conservative" cleric in Parliament declared that the authorities would "review the case of each every one" of its rivals who won Parliamentary seats in the elections, hinting darkly that if the deputies didn't tow the clerics' line, they might find themselves out of a job - or even worse . Iran's parliament is still largely dominated by the clergy, who comprise less than one-half of one percent of Iran's population. That we still talk of "factions" in Iran is either a remarkable statement about our own sophistication, or our incredible gullibility. Huge segments of the population have no representation whatsoever.
Statements in support of democracy by U.S. officials, broadcast over the Farsi-language service of Voice of America and elsewhere, could have a tremendous impact on democratic forces inside Iran, who feel they have been forsaken in favor of clandestine operators and intriguers. Until now, the U.S. has preferred dealing arms for hostages or pipelines for influence, instead of using the only currency the we should recognize: free-trade among partners in democracy who play by the same rules.
The U.S. should increase Farsi-language broadcasting into Iran, instead of cutting it back, as the CIA has done. Senator D'Amato has proposed establishing a "Radio Free Iran," modeled on Radio Free Europe, which at very low cost could have a tremendous impact on domestic politics inside Iran. The U.S. could also explore funding a variety of new technologies for reaching audiences inside Iran, including satellite television broadcasts and the Internet.
Congress need not foot the bill for all of the measures I believe we should adopt. U.S. diplomats should hold consultations with U.S. friends and allies in the region who share our concerns about the Iranian regime. If encouraged by a more active U.S. approach toward the Tehran regime, it is reasonable to expect countries in the Gulf to contribute financially to these efforts of public diplomacy. Certainly a less hostile and ideological regime in Tehran would be in their interests.
While any democratic alternative to the current regime will obviously have to originate inside Iran, work should also be done on the outside.
You heard yesterday from Dr. Manoucher Gandji, a very able and courageous Iranian intellectual who has sacrificed the past ten years of his life, at very great personal risk, to the cause of freedom in Iran. Dr. Gandji and others have been working to forge a consensus among Iranian exile groups dedicated to democratic ideals and human rights. This is a vein that should be worked much more actively by the U.S. government and by private individuals. I believe an alternative to the current regime is not far to be found. But it must be actively and responsibly encouraged.
In conclusion, let me reiterate my belief that the current clerical regime, which has murdered its political opponents overseas and slaughtered over 10,000 opponents at home, is not eternal. The longevity of the mullahs who took U.S. diplomats hostage in Tehran in 1979 is largely up to you. President Rafsanjani's record in office since 1989 has shown that even the most "moderate" of Iran's clerics is incapable of shedding the revolution's radical messianic mission, and could, in the long run, threaten the access of free peoples to Middle Eastern oil. In fact, such a plan is already under study, if we believe recent public statements by Iran's Supreme Leader and government ministers .
If we in the West choose, through legal and open means, to work on behalf of the Iranian people, I believe the results will be repaid one thousand fold. A democratic Iran, respectful of human rights, will be a worthy partner for the United States and for the world community, by contributing to regional stability, economic development, and understanding among this region's ancient and warring tribes.
1. Iran made a last minute, $600 million debt repayment in the last days of their fiscal year that ended March 20, 1996 - thanks to rising oil prices - that otherwise would have plunged them into arrears. 2. "Currency rules cut Iran's exports, official says," Reuters, Nov. 30, 1995 3. See the current issue of The Iran Brief, dated May 6, 1996. 4. Testimony before the Senate Banking Committee, March 16, 1995. 5. A step it appears the administration took early this year. 6. Comment attributed to Ali Movahhedi Savoji, a member of the majority Combatant Clergy Association, by the Tehran daily Akhbar, April 24, 1996. 7. "Iran Prepares Plans for Oil Export Embargo," The Iran Brief, May 6, 1996, quoting Resalat, 3/25/96.