As U.S.-Iran Trade Soars, A Clinton Administration Clampdown?

By Colin MacKinnon

Here's a dilemma: The administration of President Bill Clinton is talking tough on Iran and probably means it. At the same time, U.S.-Iran trade since the Islamic revolution has reached record levels. How is the administration going to square a get-tough policy toward Iran, particularly one that requires jawboning European allies, Russia and the People's Republic of China, with growing U.S. trade with the Islamic Republic?

U.S.-Iran Trade

Given the continuing animosity between the two countries—not to mention stringent U.S. Legal constraints on trade with Iran— it might seem surprising that any commerce between the two exists at all. Last year, however, the Iranians bought $748 million worth of goods directly from the U.S., up 42 percent from the year before. In 1991 they bought $527 million worth, up 217 percent from 1990. These relatively large Iranian purchases have put the U. S. into sixth place among Iran's trading partners.

Commerce Department officials say that most of the U.S. sales have been oil field equipment, followed by food and consumer goods. Until late last fall, department officials also were granting export licenses on a case-by-case basis for "dual-use" and "sensitive" items such as computers and scientific instruments. U.S. officials stopped the practice after passage of the tough "Iran-Iraq Non-Proliferation Act" last October, which forbids the sale of any such items.

Additional large quantities of U.S. goods not counted by the Commerce Department are going to Iran from subsidiaries of American companies in Europe and elsewhere, and via- traders in third countries such as the United Arab Emirates, where Dubai maintains its old entrepot function. The Commerce Department won't give estimates, but indirect U.S. sales to Iran must be at least as large as direct sales.

llrade's a One-Way Street

Trade between the two countries is almost entirely one-way, however. Americans sell, Iranians buy. U.S. law forbids all U.S. purchases from the Islamic Republic except newspapers, books, and other publications to be used for journalistic and educational ends. One theoretical exception is Iranian crude oil, which can be imported legally if the proceeds go to refill the security account at the Hague Tribunal, but none has entered the U.S. under this exemption since 1991.

Total U.S. imports from Iran last year therefore totaled a measly $800,000. In terms of trade balance, U.S.-Iran trade is a U.S. bureaucrat's dream.

U.S. Companies Top Buyers of Iranian Oil

American petroleum companies are more deeply involved with Iran, however, than these figures illustrate. Strange but true, U.S. firms have replaced their Japanese counterparts as the number one buyers of Iranian crude oil.

According to Ira Josephs of Petroleum Intelligence Weekly, current contracts allow U.S. companies to buy from $3.4 billion to $4.7 billion worth of Iranian oil annually (at $15 a barrel). If U.S. firms buy the maximum, they'll be supplying over a quarter of Iran's projected oil income this year.

None of this Iranian crude is imported directly into the U.S. Most, maybe all, is sold or refined in Western Europe and the Far East, though some may be refined in a convenient location outside the U.S.— say the Virgin Islands—and brought in legally.

The biggest U.S. purchaser of Iranian oil is Exxon, which has contracts for up to 300,000 barrels a day. Other U.S. companies buying from Iran are Coastal, Phibro, Bay Oil, Texaco, Cargil, Caltex, Chevron, and Mobil. Most of these have contracted for between 50,000 and 100,000 barrels per day.

The U.S. companies, of course, are not buying this much Iranian crude for sentimental reasons. Iran, Kuwait, and Saudi Arabia are openly warring over market share, and the Iranians, who need money, are presumably offering their petroleum at the right price.

New Administration, New Policy?

In May, newly appointed National Security Council adviser on the Middle East Martin Indyk delivered what was clearly intended to be a defining speech on administration Middle East policy. Aside from the troubling political implications, what Indyk had to say contained broad, if foggy, indications as to how the U.S. will deal with Iran commercially.

Indyk said that the U. S. would maintain the "sanctions and other measures" earlier administrations had put in place. He also promised jawboning against arms and nuclear sales. "We will work energetically to persuade European and Japanese allies, as well as Russia and China, that it is not [in] their interests to assist Iran to acquire nuclear weapons or the conventional means to pose a regional threat," he pledged.

The administration also will urge foreign governments to limit severely their export credits to Iran. "Nor do we believe it is in their interests to ease Iran's economic situation so that it can pursue normal commercial relations on one level while threatening our common interests on another level," Indyk explained.

What is new in Indyk's speech is a repeated linking of Iran and Iraq.

This also means U.S. pressure on international lending institutions, notably the World Bank, to limit credits to Iran. The U.S. may already have succeeded at the bank. Iran had been projected to receive as much as $4 billion over the next few years in loans from the bank. According to some World Bank sources, however, word has come down from top management to hold Iranian lending to $1.5 billion and restrict it to humanitarian projects.

So far not much is new here, except perhaps a greater focus on Iran. What is new in Indyk's speech is a repeated linking of Iran and Iraq and the implication that the two should be looked on as equals and treated as such.

"Iran does not yet face the kind of international regime that has been imposed on Iraq," Indyk said. Note the "not yet. " "To the extent that the international community . . . succeeds in containing Iraq but fails to contain Iran, it will have inadvertently allowed the balance of power in the Gulf to have tilted in favor of Iran, with very dangerous consequences."

Indyk then goes on to pledge "a more energetic effort to contain Iran and modify its behavior even as we maintain the sanctions regime against Iraq."

Indyk didn't spell out what sort of "effort," but he said containment involves persuading other countries that Iran is currently weak ("Iran's threatening intentions for the moment outstrip its capabilities ") and a poor credit risk ("It is $5 billion in arrears on its short-term international loans and this figure is growing in leaps and bounds").

Indyk certainly gave no explicit indication that the administration would go for a Libya-style export regime—that is, cut all U.S. exports to Iran and forbid U.S. oil companies to traffic in Iranian crude. But the option is open and the administration may well exercise it at some point.

How about international sanctions? Will the administration try to get some kind of multilateral regime put on Iran? Unlikely on the face of it. The administration sent up a trial balloon earlier this year by calling for further sanctions on Libya. There were no takers.

Attempts in the past to get the Europeans and others to stop selling Iran dual-use items haven't worked. Unless Iran is implicated in some major new outrage, getting the international community to impose sanctions on it will be a non-starter like the Libyan affair and the administration knows it.

Still, the administration is talking tough, and that "not yet" in Indyk's speech has an ominous ring for American firms planning to increase their exports of goods or services to Ali Akbar Hashemi Rafsanjani's Iran.