Sanctions Against Iran Sting US Businesses More

Iran-bashing has been easy and popular in Washington for years, but unilateral American sanctions meant to punish Iran for alleged support of terrorism may be backfiring.

Iranians say that the US policy of isolating Iran - which includes two sets of sanctions imposed in 1995 and 1996 - is harming American business interests instead, and yielding no political change.

Sanctions have kept US companies from lucrative oil and gas contracts, meant giveaway losses to foreign competitors, and made Iran more self-reliant.

And sanctions that target foreign companies investing more than $40 million in Iran's energy sector - billed by President Clinton as an "antiterrorist" measure - have left even staunch US friends fuming.

Turkey, a NATO member and close ally, nevertheless signed a $20-billion gas deal with the Islamic Republic last year, and European allies maintain a "critical dialogue" and tight business links with Iran.

Iranians say that, except for higher prices on American goods smuggled in from the Persian Gulf port of Dubai, and the replacement of US capital investment with foreign cash, they have suffered little.

"Sanctions are an irritant, and no more," says a Western diplomat.

In fact, Iranian officials contend that Iran has gained from US efforts to isolate it. Iran has had little problem filling any gaps: It has won guarantees for $5 billion in government-backed loans from Europe and Japan in the last 20 months alone.

So far, Iran has experienced no fall in its oil exports, in part because a tight market has meant that when US companies turn elsewhere for crude, Iran can fulfill the needs of customers who had previously lost out to the Americans.

America's loss, Europe's gain

Though it will be several more years before the impact of the $40-million rule will be known, oil analysts say, Iran's energy industry is opening up.

"Now we talk more openly [with other countries] about joint operations, and Iran wants to show that it is able to go ahead without US help," says Faradoun Barkeshli, an oil expert with the Institute for International Energy Studies in Tehran.

"Sanctions have softened and liberalized Iran's oil outlook," Dr. Barkeshli says. Lessons of "crisis management" learned during the Iran-Iraq war of the 1980s, when oil facilities were primary targets, are paying off.

But American companies have been unable to take advantage of the opening. A $600-million contract awarded to the American Conoco company for an Iranian gas project in 1995 was nixed by Washington, then granted to a French company.

The resulting resentment among US businessmen prompted a policy review late last year that has yet to be revealed.

But the worldwide cost of sanctions has been high for the US, and had little effect on target countries, says a recent National Association of Manufacturers report to Congress. It estimated a $790 billion loss in potential exports so far because of attempts to punish or isolate 35 countries during the Clinton presidency.

In the Persian Gulf, the administration has focused on "dual containment," in which Iraq and Iran are considered the most likely regional troublemakers and kept in check with military and economic measures. Some 20,000 US troops in the region enforce this policy and "protect" the flow of oil from Gulf Arab allies.

Another study, by a British oil consultancy, warns US measures against Iran, Iraq, and Libya - which together account for nearly 25 percent of proven global oil reserves - could drive up oil prices.

Though Iranians bristle at being thrown in the same category as Saddam Hussein, they point out that in Iran's case US policy may be harming Americans more.

"The first embargo turned out to be detrimental to US companies, and it will be difficult for them to regain what they built here over 50 years," says Javad Zarif, the deputy foreign minister.

"This policy to isolate Iran has not worked, and was done at the expense of US allies," Dr. Zarif says. "For this reason, it will have to change."

The point of the sanctions, however, is not to "break the neck" of Iran, says one Western diplomat. "It means they [the US] are serious, that they are willing to hurt themselves to make Iran know that."

Learning from Caterpillar

Still, the case of one company illustrates the cost of sanctions to US business.

The Hamkar Machine Company in Tehran represents Caterpillar in Iran. Caterpillar returned here in 1988, nine years after the revolution ousted the Shah, and worked hard to garner 50 percent of the market in earth-moving equipment.

But that half of a $200 million per year business is now on hold. Precious original spare parts are parceled out to keep customers satisfied, but not one new machine has arrived since 1995.

Other foreign companies have asked Hamkar to represent them instead, but Hamkar has so far held firm.

"We set a new standard of service for customers, but now we are waiting," says Naim Badizadeh, the managing director. "We have a strategy and know how long we can wait. But people need the equipment, and if they can't get it from the US, they will get it from somewhere else."

Fallout from the sanctions has led many Iranians to speculate that Iran's ruling religious leaders, or mullahs, are eager to counter American pressure at any turn.

"It is both funny and sad," says one young Iranian. "Everything is much too politicized, so that if the US opposes something, people are eager to do just that.

"One joke goes that if the US said all women had to wear the Islamic head scarf (a religious requirement in Iran), then the mullahs would say no," he says.