TO politicians in Washington, it's a way of pressuring Iran to steer clear of terrorist activity and nuclear weapons.
But to many outside the United States, a bill moving through Congress and supported by President Clinton is an affront to international law.
The Iran Foreign Oil Sanctions bill would prevent companies that have invested more than $40 million in Iran's oil and gas sector from trading with the US. Export licenses for goods or services sold to a sanctioned company would be denied, and US banks barred from loaning more than $10 million to such a company.
European governments say the application of US jurisdiction outside America violates international law. Diplomats in Tehran accuse the US of a heavy-handed attempt to force other countries to accept Washington's policy toward Iran. Moreover, Middle East analysts note that the US government declared a similar boycott - the Arab League pact banning commerce with companies trading with Israel - illegal.
European oil companies are considering legal action against the US government if the bill becomes law. The European Union has already filed a formal complaint with the State Department.
The bill, already passed by the Senate and now before the House of Representatives, expands President Clinton's executive order last May, which banned all US-Iran trade. The new legislation aims to force non-American businesses to give up plans for major investment in Iran's offshore oil development program.
European firms such as Royal Dutch/Shell and British Gas, which have already signed preliminary investment agreements with the Iranians, would be forced to choose between honoring their business deals with Tehran or protecting their far larger interests in the US.
Washington accuses Iran of seeking to obtain nuclear weapons, sponsoring terrorist groups, and opposing the Middle East peace process.
"Washington is trying to impose its own policies and ideas on other countries," says one Western diplomat in Tehran. "We're irritated, annoyed, and angry, but what can we do? It's election year in the States and Iran is hardly a vote winner."
Some European diplomats are so angry that they have threatened to respond with a trade war. European companies employ many thousands of Americans through their US subsidiaries; senior businessmen say these jobs could be shed if companies were forced to abandon their interests in the United States. "The Americans are also vulnerable," muttered one frustrated European executive in Tehran.
Despite executives' outrage at what they see as American meddling in their legitimate business interests, most will be forced to delay investment in Iran if the bill becomes law. "In the end, the companies will think only in terms of their best economic interests," the Western diplomat says. "The larger multinational companies will not sign agreements with Iran now. They realize that if they go ahead with their Iran projects, their business in the US will suffer."
The threat of third-party sanctions has come at a bad time for Iran. Although the nation has the fourth-largest oil reserves in the Mideast, it has had trouble maintaining production levels over the last two years. To boost production, Iran has sought foreign help for the first time since the 1978-79 Islamic revolution. In November, Iran's oil minister Gholamreza Aghazadeh outlined 11 new oil development projects open to foreign involvement worth about $6 billion. Despite heavy US pressure, approximately 40 European and Asian companies sent representatives to the conference.
But even companies affected indirectly by sanctions fear the psychological effects of a third-party ban. "Many companies fear the damage that a press campaign could do in the United States," another Western diplomat says.
US pressure on foreign oil companies began when the US giant Conoco Inc. signed a $600 million development deal with Tehran in March 1995. Conoco was forced to pull out in May when Mr. Clinton issued an executive order banning all US-Iran commercial links. In July, the French oil firm Total S.A. snapped up the abandoned contract. Since then, Washington has pressured its European allies to take a firmer line on Iran.
European governments say they agree with Washington's concern about Iranian behavior, but argue that attempting to isolate it will only strengthen the hand of the extremists in the country. "We share the Americans' concern about possible Iranian involvement in terrorism, but there is no real evidence of it," says a European ambassador in Tehran. "If we had evidence, then we would all change our position. So we prefer a different approach, a critical dialogue which includes normal trade and business relations."
The US government argues that critical dialogue has failed to modify Iranian behavior. But European diplomats respond that Iran has started to change its ways. "There is progress," says one. "Iran in 1996 is not the same as Iran in 1986. They have agreed to repay their debts to the West, issues of human rights are being discussed in public, and they have taken a very strong line on drug trafficking."
Senior Iranian officials have been putting a brave face on the latest US sanctions. "We are happy with the US sanctions, because they make us think of options other than oil," says Mustafa Mirsalim, Iran's minister of culture and Islamic guidance. Since sanctions were first imposed in 1995, Tehran has concentrated on building up non-oil industries such as steel and petrochemicals.
In private, however, officials admit the impact of US sanctions such as the embargo. Says one senior Iranian official: "Everywhere we try to go, we see the Americans there first, trying to convince people not to deal with us."