Since May, when the Clinton administration declared its trade embargo against Iran, U.S. diplomats have had little success in getting Europe and Japan to follow suit. Paris, Bonn and Tokyo rely heavily on Iranian oil and trade and do not agree that stopping high-tech exports will moderate Tehran’s behavior. A U.S. diplomatic official tells the Risk Report that the United States can only push its allies so far: “We don’t want to be undercut,” he says, “but we also don’t want to do things that are more damaging than trade with Iran.”
The U.S. sanctions ban virtually all trade with Tehran, including financial services and new investments. The main effect, however, is to stop U.S. companies from buying Iranian oil. By 1994, America had become Iran’s largest trading partner. U.S. companies were buying nearly one-third of Iran’s oil, worth over $4 billion, and selling it through overseas subsidiaries. That is now against U.S. law.
It is not illegal for European or Japanese companies, however. French, German and Japanese officials tell the Risk Report that they oppose a trade ban on Iran, and will not even bar Tehran from buying sensitive dual-use equipment. These countries all buy large amounts of Iranian oil, and some officials fear Iran would retaliate by defaulting on past loans.
In June, the White House scored a victory when the “Group of Seven” industrial nations agreed to prohibit major nuclear sales to Iran. The G-7 countries (Britain, Canada, France, Germany, Italy, Japan and the United States) plus Russia also vowed not to help Iran acquire nuclear weapons. “We call on all states to avoid any collaboration with Iran which might contribute to the acquisition of nuclear weapons capability,” the group said in a statement at the conclusion of the Halifax summit. Canadian Prime Minister Jean Chretien, who chaired the talks, emphasized that seven of the eight summit participants had banned transfers of nuclear reactors or associated technology to Iran out of “grave concern” that they could be used to build a bomb. Only Russia has agreed to supply reactors to Iran.
Germany does more high-tech trade with Iran than any other Western country, especially in machine tools and electronics. “An embargo is economic war, not export control. Iran may be a devil of a country, but it becomes a question of how you deal with the devil, not whether you deal with it,” says a German industry representative. While most German officials reject the U.S. embargo, they insist that almost no controlled goods are going from Germany to Iran. A German intelligence report leaked to the press in March, however, portrays the Iranian embassy in Bonn as the heart of Tehran’s European procurement efforts.
France does less high-tech trade with Iran than Germany does, but depends more on Iranian oil. “We don’t believe in unilateral embargoes,” says a French diplomatic official, “This is why we are holding, what we call among ourselves, a critical dialogue with Iran.” A French official argues that “France does not export much from the control list,” but like other European countries, France exports commodities such as computers (up to 260 MTOPs) to Iran without controls. A French official says France recently refused to sell Iran graphite and an isostatic press, both useful in developing nuclear weapons.
Japan, like Europe, relies heavily on Iranian oil, buying 400,000 barrels a day. A Japanese trade official tells the Risk Report that Tokyo plans “to keep its oil purchases flat from Iran, out of consideration for U.S. feelings,” but Tokyo argues that efforts to isolate Iran will only worsen Tehran’s behavior. And a Japanese diplomat adds: “Our policy is to engage critical engagement … to keep the channels for communication open.”
The White House believes that the more Iran is squeezed, the harder it will be for its clerical rulers to build the bomb, support terrorist groups and sabotage the Mideast peace process. But Iranian President Rafsanjani (above) doesn’t seem worried. In an August interview in Mideast Insight, he asks: “What can possibly happen? If they ban trade with us, it is the United States that is going to lose. The things that we are used to buying from the United States we’ll get from other countries …. These bans have had no impact on our economy, and they will not affect this country.”