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Issue Number 58, dated 5/3/99

U.S. partially lifts sanctions (Serial 5801)

The State Department announced on April 28 that it was partiallylifting the total embargo on trade with Iran to allow exports of foodand medicine.

In announcing the move, Undersecretary of State Stuart Eizenstatsaid the State Department concluded that such trade "doesn't enhancea nation's military capability or ability to support terrorism," andwould oblige Iran to spend money, not make money, as an easing of theban on U.S. purchases of Iranian oil might have done. He was carefulto insist that the decision was not meant as a gesture to Iran or thetwo other countries affected by the move, Libya and Sudan.

Niki Trading, a company set up specifically to sell U.S. grain toIran by Washington, DC lawyer Richard Bliss and a group of Iranianpartners, was lobbying hard for the exemption. However, Eizenstadttold reporters that lifting the ban "does not necessarily mean thatlicense will be granted." He also made clear that no U.S. exports toIran would be eligible for export credit guarantees or other forms ofconcessionary financing.

Backing up the administration's claim that it is maintainingpressure on the Iranian regime to change behavior the U.S. findsobjectionable, the Treasury's Office of Foreign Assets Control (OFAC)announced the same day that it was rejecting a long-standing requestby Mobil Oil to be exempted from sanctions in order to conduct oilswaps with Iran. Mobil has been in the forefront in lobbying againstthe Iran sanctions, and had recently taken out ads in nationalnewspapers, favoring the food sales to Iran.

The oil swaps would have allowed Mobil to ship oil from itsconcessions in Turkmenistan to Iran for use in Iran's northernrefineries, which are undersupplied. (Indeed, Iran has had to importrefined oil products for several years to meet domestic demand). Inexchange, Iran had agreed to supply Mobil with an equivalent amountof Iranian crude at its Persian Gulf export terminals. The swapswould have significantly expanded Iran's oil exports without cuttinginto its OPEC quotas, since the oil exports would technically belongto Mobil, while allowing Iran to decrease foreign currencyexpenditures for refined oil products. It was an attractive packagefor Iran, and denying it will be a blow to Iran's already depresseddomestic economy. Mobil had hoped the swaps would reach between 2 and3 million barrels of oil this year.

Deal supports hard-liners: Niki Trading received a contractlast year to supply up to $500 million of U.S. grain to Iran from theGovernment Trading Corp. in Tehran. Initially, it appeared that thedeal had been sanctioned by President Khatami and was being used as apolitical tool for prying open the door of U.S. sanctions. ButIranian sources close to Khatami told The Iran Brief that theGovernment Trading Corp. was in fact controlled by Majlis speakerNateq-Nouri, a hard-liner opposed to warmer relations with the UnitedStates. Nateq-Nouri's faction, known as the "Resalatis," controls theTehran Bazaar, which in turn has a stranglehold on most of Iran'snon-oil foreign trade. The Resalati faction does not oppose tradewith the United States, but does not seek to link trade to politicalor diplomatic ties.

At a conference in Washington on April 30, Bliss said he wanted to"set the record straight" after reading that grain companies had"furiously" lobbied the Clinton administration to allow sales toIran. "When we started this effort, we called virtually every one ofthe household name (grain) companies," Bliss said "The best we gotwas 'well, if you get a license, give us a call'," he said. Blisssaid he was surprised to learn that many U.S. grain exporters hadforeign subsidiaries that were engaged in direct sales to Iran.

In Tehran, the food and medicine exemption was given a mixedreception, with only the opposition Iran Freedom Party of IbrahimYazdi calling for a change in Iranian policy toward the UnitedStates. In a statement, the party called for "immediate negotiations"with the United States, in view of restoring diplomatic andcommercial relations.

The regime did not respond quite as warmly. Foreign Minister KamalKharrazi said in Tehran on April 30 that the U.S. move "serves onlyto protect the interests of American producers," since the ban onU.S. imports of Iranian goods remains in effect. He said the U.S. banon Iranian goods such as caviar, pistachios, and carpets, would haveto be lifted before the Iranian government would consider any changein its position. He did not mention Iran's desire to gain access toU.S. high-technology products, since Iran is gaining access to mostof the goods it wants from other suppliers.

Tehran radio said the move by Washington was the product of U.S.corporate lobbying, which has been strongly encouraged by Tehran."This decision is a response to widespread international pressure, aswell as growing pressure from U.S. companies fighting for a share ofinternational markets," the radio said in a commentary.

But radical Lebanese cleric Mohammad Hussein Fadlallah, thespiritual leader of the Iran-backed Hezbollah movement in Lebanon,called the U.S. move "a deceit," saying that the U.S. efforts toimprove ties are "aimed at seizing the opportunity to penetrate Iranand dealing a blow on the Islamic system of government by getting ashare in the investment process."

Bizaar White House remarks: President Clinton preceded theofficial relaxation of sanctions with some bizaar remarks of his own,uttered at a White House "Millennium Dinner" on April 12.

In a scripted dialogue with the First Lady on how the U.S. couldpromote better understanding among Muslims, Christians, and Jews, thePresident choose Iran "as an example," apparently to send a messageto President Khatami and his supporters.

"It may be that the Iranian people have been taught to hate ordistrust the United States or the West on the grounds that we areinfidels and outside the faith," Clinton began. "I think it isimportant to recognize, however, that Iran, because of its enormousgeopolitical importance over time, has been the subject of quite alot of abuse from various Western nations. And I think sometimesit's quite important to tell people, look, you have a right to beangry at something my country or my culture or others that aregenerally allied with us today did to you 50 or 60 or 100 or 150years ago.... So we have to find some way to get dialogue -- andgoing into total denial when you're in a conversation with somebodywho's been your adversary, in a country like Iran that is oftenworried about its independence and its integrity, is not exactly theway to begin.... We have to listen for possible ways we can givepeople the legitimacy of some of their fears, or some of theirangers, or some of their historic grievances, and then say they reston other grounds; now, can we build a common future?"

There are several possible explanations for Clinton's remarks,according to administration and White House officials. The simplestis that Clinton was merely engaging in his well-known propensity forapologizing for America's past "errors" - something the Iranianregime has demanded. The second, is that he was sending a cue tocorporate America, two weeks before he knew the sanctions on foodsand medicines were to be lifted.

A more cynical explanation relates to the corporate sponsor of theevent, identified by the White House as Sun Microsystems.

Sun Sparcservers and other high-powered computers are widelyavailable in Iran today, despite the U.S. trade embargo. Indeed, SunSparcservers and Indigo machines power most Iranian universities, andtheir Internet and intranet connections (Cf. "Computer Smuggling," inour 7/6/95 issue). Sun is eager to re-enter the Iranian marketdirectly, instead of having to rely on resellers in Dubai and inEurope, and may have used their sponsorship of the Millennium Dinnerand campaign contributions to Democratic causes to influence Clintonin that direction.

Clinton and the DNC have also received substantial campaigndonations from Fortune 500 companies of USA-Engage, the lobbyinggroup set up solely for the purpose of rolling back sanctionslegislation and opening trade to countries such as Iran (Cf. interalia "Business Lobby Seeks to Lift Sanctions," TIB 6/2/97).

Petrochemicals loophole: In a little-noticed move, theClinton administration had already relaxed the sanctions a notch onNovember 10, when it published a ruling in the Federal Registerexempting the foreign affiliates of U.S. oil companies from reportingtransactions involving Iranian-origin petrochemicals to the TreasuryDepartment's Office of Foreign Assets Control.

Under the change, which took immediate effect, foreign affiliatesof US companies were also exempted from reporting to OFAC the sale toIran of oilfield supplies or equipment, or services includingfinancing and insurance.

While the move was an attempt to assuage U.S. companies, who feltthey were at a competitive disadvantage as a result of theadministration's failure to apply ILSA sanctions to foreign oilcompanies investing in Iran, the State Department insisted at thetime that it was "not intended as a signal to Iran."

U.S. oil companies and oil field service and equipment suppliershave so far not publicized new sales that have resulted from the newrule, although at least one major - ARCO - has announced it intendsto break into the Iranian market in a big way and has sent teams ofcompany officials, from geologists to corporate lawyers, to sound outthe National Iranian Oil Company for future deals.

ARCO is a major contributor to USA-Engage, and was a corporatesponsor of several "outreach" events last October in New York duringPresident Khatami's visit to the United Nations. (Cf. "Khatami's OilSponsors," TIB 10/5/98; and "More U.S. Gestures," TIB 3/8/99).