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Copyright © 1994-99, by the Middle East Data Project, Inc. All rights reserved.
The State Department announced on April 28 that it was partially lifting the total embargo on trade with Iran to allow exports of food and medicine.
In announcing the move, Undersecretary of State Stuart Eizenstat said the State Department concluded that such trade "doesn't enhance a nation's military capability or ability to support terrorism," and would oblige Iran to spend money, not make money, as an easing of the ban on U.S. purchases of Iranian oil might have done. He was careful to insist that the decision was not meant as a gesture to Iran or the two other countries affected by the move, Libya and Sudan.
Niki Trading, a company set up specifically to sell U.S. grain to Iran by Washington, DC lawyer Richard Bliss and a group of Iranian partners, was lobbying hard for the exemption. However, Eizenstadt told reporters that lifting the ban "does not necessarily mean that license will be granted." He also made clear that no U.S. exports to Iran would be eligible for export credit guarantees or other forms of concessionary financing.
Backing up the administration's claim that it is maintaining pressure on the Iranian regime to change behavior the U.S. finds objectionable, the Treasury's Office of Foreign Assets Control (OFAC) announced the same day that it was rejecting a long-standing request by Mobil Oil to be exempted from sanctions in order to conduct oil swaps with Iran. Mobil has been in the forefront in lobbying against the Iran sanctions, and had recently taken out ads in national newspapers, favoring the food sales to Iran.
The oil swaps would have allowed Mobil to ship oil from its concessions in Turkmenistan to Iran for use in Iran's northern refineries, which are undersupplied. (Indeed, Iran has had to import refined oil products for several years to meet domestic demand). In exchange, Iran had agreed to supply Mobil with an equivalent amount of Iranian crude at its Persian Gulf export terminals. The swaps would have significantly expanded Iran's oil exports without cutting into its OPEC quotas, since the oil exports would technically belong to Mobil, while allowing Iran to decrease foreign currency expenditures for refined oil products. It was an attractive package for Iran, and denying it will be a blow to Iran's already depressed domestic economy. Mobil had hoped the swaps would reach between 2 and 3 million barrels of oil this year.
Deal supports hard-liners: Niki Trading received a contract last year to supply up to $500 million of U.S. grain to Iran from the Government Trading Corp. in Tehran. Initially, it appeared that the deal had been sanctioned by President Khatami and was being used as a political tool for prying open the door of U.S. sanctions. But Iranian sources close to Khatami told The Iran Brief that the Government Trading Corp. was in fact controlled by Majlis speaker Nateq-Nouri, a hard-liner opposed to warmer relations with the United States. Nateq-Nouri's faction, known as the "Resalatis," controls the Tehran Bazaar, which in turn has a stranglehold on most of Iran's non-oil foreign trade. The Resalati faction does not oppose trade with the United States, but does not seek to link trade to political or 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 to Iran. "When we started this effort, we called virtually every one of the household name (grain) companies," Bliss said "The best we got was 'well, if you get a license, give us a call'," he said. Bliss said he was surprised to learn that many U.S. grain exporters had foreign subsidiaries that were engaged in direct sales to Iran.
In Tehran, the food and medicine exemption was given a mixed reception, with only the opposition Iran Freedom Party of Ibrahim Yazdi calling for a change in Iranian policy toward the United States. In a statement, the party called for "immediate negotiations" with the United States, in view of restoring diplomatic and commercial relations.
The regime did not respond quite as warmly. Foreign Minister Kamal Kharrazi said in Tehran on April 30 that the U.S. move "serves only to protect the interests of American producers," since the ban on U.S. imports of Iranian goods remains in effect. He said the U.S. ban on Iranian goods such as caviar, pistachios, and carpets, would have to be lifted before the Iranian government would consider any change in its position. He did not mention Iran's desire to gain access to U.S. high-technology products, since Iran is gaining access to most of 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, as well as growing pressure from U.S. companies fighting for a share of international markets," the radio said in a commentary.
But radical Lebanese cleric Mohammad Hussein Fadlallah, the spiritual leader of the Iran-backed Hezbollah movement in Lebanon, called the U.S. move "a deceit," saying that the U.S. efforts to improve ties are "aimed at seizing the opportunity to penetrate Iran and dealing a blow on the Islamic system of government by getting a share in the investment process."
Bizaar White House remarks: President Clinton preceded the official 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. could promote better understanding among Muslims, Christians, and Jews, the President choose Iran "as an example," apparently to send a message to President Khatami and his supporters.
"It may be that the Iranian people have been taught to hate or distrust the United States or the West on the grounds that we are infidels and outside the faith," Clinton began. "I think it is important to recognize, however, that Iran, because of its enormous geopolitical importance over time, has been the subject of quite a lot of abuse from various Western nations. And I think sometimes it's quite important to tell people, look, you have a right to be angry at something my country or my culture or others that are generally allied with us today did to you 50 or 60 or 100 or 150 years ago.... So we have to find some way to get dialogue -- and going into total denial when you're in a conversation with somebody who's been your adversary, in a country like Iran that is often worried about its independence and its integrity, is not exactly the way to begin.... We have to listen for possible ways we can give people the legitimacy of some of their fears, or some of their angers, or some of their historic grievances, and then say they rest on 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 simplest is that Clinton was merely engaging in his well-known propensity for apologizing for America's past "errors" - something the Iranian regime has demanded. The second, is that he was sending a cue to corporate America, two weeks before he knew the sanctions on foods and medicines were to be lifted.
A more cynical explanation relates to the corporate sponsor of the event, identified by the White House as Sun Microsystems.
Sun Sparcservers and other high-powered computers are widely available in Iran today, despite the U.S. trade embargo. Indeed, Sun Sparcservers and Indigo machines power most Iranian universities, and their Internet and intranet connections (Cf. "Computer Smuggling," in our 7/6/95 issue). Sun is eager to re-enter the Iranian market directly, instead of having to rely on resellers in Dubai and in Europe, and may have used their sponsorship of the Millennium Dinner and campaign contributions to Democratic causes to influence Clinton in that direction.
Clinton and the DNC have also received substantial campaign donations from Fortune 500 companies of USA-Engage, the lobbying group set up solely for the purpose of rolling back sanctions legislation and opening trade to countries such as Iran (Cf. inter alia "Business Lobby Seeks to Lift Sanctions," TIB 6/2/97).
Petrochemicals loophole: In a little-noticed move, the Clinton administration had already relaxed the sanctions a notch on November 10, when it published a ruling in the Federal Register exempting the foreign affiliates of U.S. oil companies from reporting transactions involving Iranian-origin petrochemicals to the Treasury Department's Office of Foreign Assets Control.
Under the change, which took immediate effect, foreign affiliates of US companies were also exempted from reporting to OFAC the sale to Iran of oilfield supplies or equipment, or services including financing and insurance.
While the move was an attempt to assuage U.S. companies, who felt they were at a competitive disadvantage as a result of the administration's failure to apply ILSA sanctions to foreign oil companies investing in Iran, the State Department insisted at the time that it was "not intended as a signal to Iran."
U.S. oil companies and oil field service and equipment suppliers have so far not publicized new sales that have resulted from the new rule, although at least one major - ARCO - has announced it intends to break into the Iranian market in a big way and has sent teams of company officials, from geologists to corporate lawyers, to sound out the National Iranian Oil Company for future deals.
ARCO is a major contributor to USA-Engage, and was a corporate sponsor of several "outreach" events last October in New York during President Khatami's visit to the United Nations. (Cf. "Khatami's Oil Sponsors," TIB 10/5/98; and "More U.S. Gestures," TIB 3/8/99).