Washington Report on Middle East Affairs, March 1998, Pages 49-50

Trade and Finance

Administration in Hot Seat Thanks to AIPAC-Drafted Iran-Libya Sanctions Act

By Colin MacKinnon

An uncomfortable Clinton administration may at long last have to enforce the Iran-Libya Sanctions Act. ILSA, also known as the D'Amato Bill after its principal proponent in the Senate, was ginned up by the America Israel Public Affairs Committee in 1995 and duly passed by Congress in 1996.

ILSA was aimed mainly at Iran (references to Libya were thrown in at the end of a congressional session by Senator Ted Kennedy as a kind of afterthought) and requires the administration to impose sanctions on foreign companies investing over a certain amount of capital in the Iranian and Libyan gas and oil industries.

ILSA has never been applied, but a crunch is coming. Over the past year Iran has closed a number of deals with foreign companies that look like just the thing ILSA was designed to prevent.

In July 1997, for example, Bow Valley Energy of Canada signed a $200 million contract to develop Iran's Balal offshore oil field. And last September France's Total, with its partners Gazprom, the Russian oil company, and Petronas of Malaysia, announced a mammoth $2 billion investment deal to develop Iran's South Pars gas field, just north of Qatar. Total, be it noted, is the company that took over another Iranian deal, a $600 million development of the Sirri Island offshore oil field, that had initially been awarded to the U.S. firm Conoco, but was nixed by Bill Clinton in 1995.

These deals, South Pars, Balal and others, present the Clinton administration with uncomfortable choices. Not to act will bring charges of being soft on Iran. It will also mean that ILSA is pretty much a dead letter: if you don't sanction the Total deal, what can you sanction?

But imposing sanctions on foreign companies will risk retaliation from those companies' governments, retaliation that might be more unpleasant than Senator D'Amato or AIPAC have anticipated. It also will muddy the American approach to other foreign policy problems.

ILSA requires the president to choose at least two out of six "options" to punish foreign companies investing more than $20 million in developing the Iranian oil industry. Among the possible sanctions are curbs on U.S. exports to the company in question and a ban on imports into the U.S. of the company's products.

Last fall, after Total signed the South Pars contract, the administration engaged in much huffing and puffing, with its spokesmen talking of "great frustration" in dealing with Europe and of a "massive step backwards" in European-American trade relations.

In October William Ramsay, who is in charge of sanctions at the State Department, assured the Senate Foreign Relations Committee that the administration was "moving expeditiously" to determine whether Total and partners deserved to be sanctioned.

Needless to say, Congress, ever alert to an AIPAC cause célèbre, is showing much interest in the affair. House International Relations Committee Chairman Ben Gilman (R-NY), Rep. Sam Gejdensen (D-CT) and 87 other members of Congress sent a letter to President Clinton in late November urging him to enforce sanctions on Total. Senator D'Amato has said that the French-led consortium should be given the stiffest punishment possible under ILSA.

But by mid-January, despite claims of "moving expeditiously," the administration still had not acted. (The law itself sets no time limit for the administration to make up its mind, but at some point somebody has to do something.)

If Secretary of State Madeleine Albright determines the Total deal falls under ILSA—and it's hard to see how she can get out of it—then the president has three choices. He can impose sanctions, waive them in the national interest, or negotiate for 90 days to try to persuade the French to back out of the deal. The last choice is unlikely.

Problematic Punishment

Three problems, at least, arise from trying to punish Total. First, the French company is a huge, state-owned agglomerate and is just too big and too independent to be much bothered by threats from the U.S. Total can put together financing on its own without recourse to American banks, sells little to this country and has little investment here. (Just by chance, the French say, shortly before its South Pars contract was announced, Total agreed to sell its U.S. refining and marketing operations, about $400 million worth, to an American firm.)

Secondly, Total is a symbol of the French and broader European inclination not to mix trade with politics. It is also a symbol of independence from the U.S. Total can expect full diplomatic and legal support, not just from the government of France, but from other major powers in the EU.

An action against Total is bound to open a nasty row with Europe. At a minimum, the EU will haul the U.S. before the World Trade Organization to challenge the Helms-Burton Act, yet another piece of U.S. legislation, this time aimed at Cuba, that tries to punish foreign companies. EU countries may also enact anti-boycott legislation that injures U.S. companies.

Thirdly, there is the Khatami factor. The new Iranian president won 70 percent of the vote in Iran's spring election. His cabinet appointments clearly signal changes in domestic policy. Khatami's January interview with CNN, and the remarkably conciliatory language he directed toward the U.S. in that interview, may indicate a shift in policy toward Washington as well. What is the administration to do? Stick its thumb in the man's eye by applying ILSA to Total?

The Total conundrum also demonstrates the contradictions in the U.S.'s "dual containment" policy toward Iraq and Iran. France and Russia, two key countries whose support for sanctions on Iraq has eroded seriously, may themselves get sanctioned under ILSA, a punishment that will surely make them even less likely to be cooperative over Iraq.

For all of the above, thank ILSA and thank AIPAC.

Proliferation of Sanctions

U.S. sanctions have proliferated recently like bunny rabbits in the springtime. According to the President's Export Council, an advisory group drawn largely from the private sector, the U.S. between 1993 and 1996 applied economic sanctions 61 times (the total since World War I is 115 times). More than 75 countries, from Angola to Zaire, are subject to or threatened by unilateral U.S. sanctions. This doesn't count state and local enthusiasm for punishing foreign miscreants: the State of California and New York City have each on their own decided to sanction Swiss banks for their alleged reluctance to deal honestly with the accounts of Holocaust survivors and their heirs; the State of Massachusetts has sanctioned Burma for its human rights record, as has the city of Takoma Park, MD.

Sanctions, unilateral or not, can be expensive. The Institute of International Economics, a free-trade group, estimates that in 1995 alone the U.S. lost $15-$19 billion in trade and up to 250,000 jobs, thanks to various sanctions we maintained on 26 foreign countries.

Besides ceding immediate business to foreign competitors, argues the President's Export Council, the American penchant for unilateral sanctions creates uncertainty about the availability of U.S. goods and services and technology and makes U.S. firms seem unreliable suppliers and business partners.

Total's capture of the Sirri oil field deal—and Conoco's loss of it—illustrate yet another problem with unilateral sanctions: the forswearing of valuable work experience. Developing Sirri Island would have given Conoco better understanding of the geology around the site, understanding that would have benefited the company in work elsewhere in the Gulf. Also, the drilling at Sirri will be deep and complicated. Expertise gained there could be applied outside the Gulf in areas with similar geological and engineering environments, such as parts of the U.S. and Colombia. But Conoco won't get these benefits. Total will.

Administration Unhappiness

The administration, to be sure, has never been happy with congressionally mandated sanctions, though it reluctantly went along with the original ILSA legislation. For some time now the administration has been arguing for a more nuanced approach to sanctions and has drawn back from sanctioning projects that, if it wanted to be hard-nosed, it might have.

Thus, in the summer of 1997 the administration decided ILSA did not apply to a $1.6 billion pipeline project that will carry Turkmen gas to Turkey via Iran.

In early January, without mentioning ILSA, the administration launched what amounted to an attack on the act. Stuart Eizenstat, undersecretary of state for economics, announced the creation of a "sanctions team" in the State Department. The team would, wonder of wonders, assess "the costs and benefits of potential sanctions." Evidently no one body at State had ever done this before. The need for such assessment seems not to have occurred to Congress, either.

The principles Eizenstat said would guide the team seem sensible enough and can be taken as administration policy in this area. They also signal administration dislike for ILSA and suggest upcoming conflict with Congress.

  • The U.S., Eizenstat said, should resort to sanctions only after all else fails.
  • Before taking unilateral actions, the U.S. should try to get other countries to cooperate. ("International or multilateral sanctions, even if not as severe as we would prefer, may actually prove more effective than a more stringent unilateral measure.")
  • The sanctions should be designed so that the target feels the pain, not innocent victims.
  • And sanctions should be "appropriate, coherent, domestically supported and able to attract international support."

Such common sense flies in the face of ILSA. The Iran-Libya Sanctions Act was crude, feel-good legislation, designed and pushed by the Israeli Lobby, and it gave grand scope for congressional posturing. But foreign policy problems as complex as those that Iran presents can't simply be shot at with a legal blunderbuss like ILSA. The act just doesn't work well in the real world, and the administration, which is supposed to enforce it, knows that.

Colin MacKinnon is contributing editor to the Washington-based Middle East Executive Reports.

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