A dangerous season in Iran

Wall Street Journal-Europe (editorialpage),

December 11, 1998

© Copyright 1998 by Kenneth R. Timmerman



Box: The Americans on board the bus were not spies, but neither were they tourists.

Several weeks ago, in an upscale neighborhood of north Tehran,Iranian radicals stormed a tourist bus carrying 13 Americans, pounding on its sides with iron bars and smashing the windows.Although the attackers backed off without seriously harming anyone,the Americans feared they were about to be kidnapped in a deadlyrepeat of the 1979-1981 hostage crisis. The attack was adumbratedseveral hours before it occurred in a pro-regime Tehran daily,Jomhouri Eslami, which announced the arrival in Iran of a U.S.government delegation full of CIA "spies."

As it turns out, the Americans on board the bus were not spies,but neither were they tourists: they were American businessmen comein search of new commercial opportunities in the Islamic Republic ofIran. They had been invited by a former head of the Iranian InterestsSection in Washington, DC, Ali Sabzalian, who for the past five yearshas run a series of entities in New York aimed at promotingU.S.-Iranian trade. Since the imposition of a unilateral tradeembargo on Iran by President Clinton in 1995, and the Iran-LibyaSanctions Act (ILSA) signed into law in 1996, Mr. Sabzalian has beenforced to work somewhat less openly - at least, in the U.S. In aletter to a Tehran newspaper explaining why he had sponsored theAmerican businessmen and had introduced them to top-ranking Iraniangovernment officials, Sabzalian claimed they were part of a group of500 U.S. companies "taking measures against U.S. economic sanctions.They have even had some success in this field."

This was by no means the first trip to Iran by Americanbusinessmen. Representatives from major oil companies, includingMobil, Amoco, and CONOCO, attended an oil and gas conference inIsfahan last year, and have had periodic discussions with Iraniangovernment officials on future investment projects. "They go there tokeep their contacts warm," said Dan O'Flaherty, a spokesman for theWashington, DC-based lobbying group, USA*Engage, which includes allthree among its more than 500 corporate members. "But they know theycannot conduct any actual business."

What's new is not the interest of U.S. oil companies in Iran, ortheir willingness to lobby the U.S. government against the sanctions;but the reaction of the Iranian government. According to pressaccounts in Tehran, the November 21 attack was carried out by theFedayeen Eslam, a terrorist group that is closely tied to thedominant government faction led by the Supreme Leader, Ayatollah AliKhamene'i. By attacking the Americans, they were attempting toembarrass the rival faction of President Mohammad Khatami, who hasadvocated a limited opening of Iran to foreign investment and foreigninfluence.

According to the Kayhan daily, which is published by Mr.Khamene'i's office, the Americans met with President Khatami and withother high-level officials. "The Americans were moved around the citywith a full official escort," the paper claimed. This version wasgiven credence by Foreign Ministry spokesman Hamid Reza Asefi, whoacknowledged that the Foreign Ministry had granted visas to theAmericans in an effort to increase pressure against U.S. tradesanctions. "Iran will use all possible means to increase publicawareness, as it welcomes the activities of foreign companies,including American companies, against the U.S. sanctions," Asefi toldthe official Islamic Republic News Agency six days after theattack.

Mr. Khatami has made abundantly clear that he has no intention ofrenewing diplomatic relations with the United States at any time inthe future. Instead, he remains narrowly focused on getting U.S.economic sanctions lifted, and until that happens, he has encouragedU.S. companies to skirt them through oil swaps and trade throughthird countries, such as Dubai. After years of dismissing thesanctions for having "isolated the United States, not Iran," Iranianofficials now admit that the sanctions have done serious damage totheir economy, already weakened by low oil prices and widespreadgovernment mismanagement. Just last month, the Islamic Republiclodged an official complaint with the United Nations, claiming thatU.S. sanctions have "led to the disruption of Iran's economy... adecline in the growth of the country's gross national product...[and] a scarcity of essential goods needed for theimprovement of the nutritional and health care standards of theIranian people." Officials at the National Iranian Oil Company, NIOC,now admit publicly that they are finding no takers for scores of oiland gas investment projects they have put out for tender on theinternational market. While some Western companies might have beenwilling to risk U.S. sanctions, given that President Clinton haswaived them for Total CFP of France and Russia's Gazprom, few aretempted by Iran's commercial terms, which oil industry sources sayoffer a maximum rate of return of 15% on their investment - far toolow, given the risks involved.

Without massive foreign investment, Iran will become a netimporter of oil by 2005, the CIA predicts, as production declinesfrom Iran's on-shore oil fields. Iranian government economistsforecast recently that with continued low oil prices GDP wouldcontinue to contract by several percentage points a year for the nextfive years, with unemployment reaching twenty million - fully onethird of the population. Just last month, Iran was offering topre-sell oil at $5.80 per barrel - half the market price today -because it desperately needed $3 billion in cash to avoid defaultingon its foreign debt.

For Mr. Khatami, getting the U.S. economic sanctions repealed hasbecome a top priority - indeed, his only real hope for reviving amoribund economy. But for his rivals, attracting foreign investmentpresents the risk of opening Iranian society to foreign influence,and in turn, allowing young Iranians, who comprise more than 60% ofthe population, to gain first-hand experience of alternativelife-styles to the austere, closed society of the Islamic Republic.This is why the radicals in Parliament continue to reject legislationthat would provide legal guarantees to foreign investment in Iran.Without such guarantees, foreign firms face potential expropriation,summary legal action, extortion, and kidnapping, as several Europeanbusinessmen have discovered recently to their surprise.

If the bus attack against the American businessmen were anisolated event, one might be tempted to dismiss it as a rear-guardaction aimed at protecting a radical breed of Islamic fundamentalismthat is otherwise on the verge of extinction. Some analysts makeprecisely this claim. Former CIA case officer Rueul Gerecht, who haswritten a book about a brief, clandestine trip he made to Iran in theearly 1990s, has argued in these pages that the U.S. should abandonsanctions and allow U.S. businessmen to "undermine cherished tenetsand myths of the revolution." ["The Iranian-AmericanConfrontation," WSJ 5/23/97]. After a trip to Tehran in June ofthis year, Stanley A. Weiss, the chairman of Business Executives forNational Security, chimed in, saying the Iranian officials he metwere all geared up to do business with the U.S.

But there is much more going on than meets the eye. The same groupthat attacked the American businessmen on November 21 threatened tokill any American who visited Iran one week later. Earlier in themonth, they vowed to kill any former U.S. hostages who accepted arecent invitation from their former captors to visit Iran.

Inside Iran, the radical faction within the ruling clergy hastaken off its gloves. On November 24, the leading secular opponent tothe regime, Darioush Forouhar, was brutally murdered inside hisheavily-guarded Tehran home, along with his wife, ParvanehEskandiari, a well-known feminist and political leader in her ownright. Since then, dissidents in Tehran say an opposition journalist,Majid Sharif, has been killed under mysterious circumstances, whilethree other well-known dissidents have disappeared withoutexplanation.

A battle royal for the future of Iran is under way. The partiesinclude the radical faction led by Mr. Khamene'i, which seeks torevive the revolutionary fervor of the late 1970s, and the reformistwing of the clergy led by President Khatami, who seeks to strengthenthe Islamic Republic with an infusion of Western cash and Westerntechnology, so it can become the dominant military and politicalpower in the Middle East. Even more important, in the long run, aretheir secular opponents who would like to see an end to clericalrule. Although they remain virtual outlaws under today's system, theyare steadily gaining in strength. As Iran's domestic politicalbattles heat up, the risk of increased violence is great. With nocompelling economic need for Iranian oil, it seems a curious time forWestern firms to wade into Iran's dangerous domestic scene.

Mr. Timmerman is an investigative reporter for the Reader'sDigest, and publishes The Iran Brief, a monthly investigativenewsletter in Washington, DC