Money in US-Iran Relations

In his first press conference as Iran's president-elect on May 27, Mohammed Khatemi made an interesting omission. He placed the onus on the United States for the current impasse between the two nations, repeating Tehran's charge that the US remains hostile to Iran's revolution. He did not, however, repeat a common Iranian demand - that the US release Iran's frozen assets.

By contrast, in a "60 Minutes" interview, broadcast in March, Mr. Khatemi's predecessor, Hashemi Rafsanjani, repeated an Iranian theme, mentioning the "return of Iranian frozen assets in the United States" as a possible "gesture" that would permit Iran to engage in discussions with the US.

Money has been a significant issue in US-Iran tensions since the 1979 hostage crisis. The US froze Iranian assets in US banks and their overseas subsidiaries as measures of retaliation and pressure. Of four conditions for the release of the hostages set by Iran on Sept. 12, 1980, three related to money: release of the frozen assets, cancellation of US claims against Iran, and return of the deposed shah's assets believed to be in US banks.

The negotiations in Algiers in early 1981 dealt with each of the three Iranian demands. The final agreement determined the disposition of the frozen assets and established a US-Iran Claims Tribunal to adjudicate US citizen claims against the Iranian regime. Of the $10 billion, $1 billion was set aside to pay awards to US nationals and the US government; $5 billion was designated to meet debts to US banks; and the remaining $4 billion was transferred to Iran. Though not all cases have been settled, the US-Iran Tribunal, located in The Hague, has proceeded in a quiet, orderly fashion to implement the Algiers decisions.

The question of the shah's wealth was more difficult. The Iranians were sure the shah had $25 billion deposited in US banks. Lengthy discussions were required to convince Iranian negotiators that the US government could neither locate nor effect the release of private bank accounts.

Given the generally satisfactory implementation of the Algiers agreement, the Iranian demand for the US to release the frozen assets has been puzzling. In further conversation with interviewer Mike Wallace, however, Rafsanjani clarified the point by saying he was referring to funds related to the purchase of military equipment under the shah.

Those claims arose from the financing of Iranian purchases of US military equipment during the shah's regime. Tehran had paid into a revolving trust fund, from which disbursements to US suppliers and contractors could be made. At the time of the 1979 revolution, the fund covered 2,800 sales and services contracts valued at more than $20 billion. The US was authorized to divert equipment contracted to Iran to other suppliers and thus reduce the US obligations under the trust fund. Iran has since filed claims for the remaining balance, for compensation for equipment purchased but not exported from the US, and for alleged overcharges. These problems are being arbitrated at The Hague.

The political issues that stand in the way of better US-Tehran relations are serious and complex. Many in Iran's leadership remain opposed to improved relations. Each new revelation of Iranian activities relating to terrorism, the peace process, or weapons of mass destruction makes any ultimate rapprochement by the US even more remote.

The financial issues, though complex, are being resolved within a legal framework. If the Iranian president's omission of reference to the frozen assets suggests he is prepared to leave the resolution of such issues to The Hague, this could remove at least one contentious issue from future diplomatic efforts to resolve more sensitive political problems.

* David D. Newsom, former undersecretary of state, is Cumming Memorial Professor of International Affairs at the University of Virginia.

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