Bush's Iran Policy Falters Amid Futile Sanctions, Diplomacy

Bloomberg:

Nov. 7 (Bloomberg) -- In mid-September, U.S. Senator Gordon Smith wrote a letter to Hiroshi Okuda, chairman of Toyota Motor Corp., chastising him for what he called the company's ``immoral'' decision to expand its business in Iran.

``Seeking business advantages at the expense of America's security is antithetical to the values for which our country stands,'' the Oregon Republican wrote to the head of Japan's largest automaker.

Smith's colleagues in Congress, Democrats and Republicans alike, share his anger. They've concluded that unilateral U.S. sanctions for most of the past 25 years on OPEC's second-largest oil producer have done little more than keep U.S. businesses out of a growing market; they're now pressing legislation that would penalize foreign companies making new investments in Iran's oil sector. Companies with existing investments include Royal Dutch Shell PLC and Total SA.

The legislation stands a good chance of passage; it has 31 co-sponsors in the Senate and 326 in the House. At the same time, officials in President George W. Bush's administration have expressed concern about some provisions. There is no sentiment in either Congress or the administration for relaxing the sanctions.

The lawmakers' frustration reflects a central dilemma: U.S. policy on Iran contains few good options. With economic pressure largely ineffective and no credible military option because U.S. troops are tied down in an unpopular war in Iraq, the Bush administration has little direct leverage over Iran. Instead, it's relying on European-managed diplomacy to curb Iran's pursuit of nuclear technology and support for terrorism.

No Winner

Kenneth Pollack, who directed Iran policy in the White House under President Bill Clinton, says the administration ``recognized that neither the military option nor regime change is a winner.''

Ted Galen Carpenter of the Cato Institute, a Washington- based policy research group, says it's widely known the U.S. ``can't invade and occupy the country,'' undermining any threat of military action on the part of administration policy makers.

``They have become so beleaguered and so besieged and so confronted with challenges that they've made a conscious decision that diplomacy will now be the most turned-to tool of power,'' Larry Wilkerson, chief of staff to former Secretary of State Colin Powell, says of the Bush team's approach to Iran.

The diplomatic route has proven bumpy. The Europeans offered economic incentives and security guarantees if Iran abandoned its nuclear program, only to have Iran reject the offer and resume work on uranium conversion. That's a possible prelude to uranium enrichment, which in turn could lead to production of nuclear weapons.

Guarantee Sought

Some analysts say negotiations will prove futile because Iran has no interest in abandoning its nuclear program. Others say the European offers have not been enticing enough and that Iran needs a U.S. guarantee that it will not attack Iran as part of a nuclear deal.

Pollack says there won't be any diplomatic progress ``unless there's some form of engagement'' between the U.S. and Iran. Senator Chuck Hagel, a Nebraska Republican, agrees, saying the administration must open direct talks with Iran if it's to achieve ``any lasting solution to Iran's nuclear program.''

``The United States is capable of engaging Iran in direct dialogue without sacrificing any of its interests or objectives,'' Hagel said in a speech Oct. 30 at Iowa State University in Ames.

The Bush administration says it's seeking ways to do that. Secretary of State Condoleezza Rice, testifying before the Senate Foreign Relations Committee on Oct. 19, said the U.S. is making ``new efforts'' to communicate with the Iranians.

Sanctions Sought

At the same time, the U.S. is hoping for United Nations sanctions against Iran if it remains recalcitrant. Opposition is likely from two veto-wielding Security Council members, Russia and China. Russia is helping Iran build its nuclear power plant at Bushehr, and China gets 14 percent of its energy from Iran.

While the diplomatic maneuvering continues, Congress is moving forward with the legislation that may penalize companies based in countries that are U.S. diplomatic partners. The House version of the Iran Freedom Support Act would force the president to rule within 90 days on whether a foreign company has invested more than $20 million in Iran's energy sector, a violation of existing sanctions law.

The current law doesn't force the president to cite violators. Numerous companies, including Paris-based Total, Rome-based ENI SpA and The Hague-based Royal Dutch Shell, have invested more than $20 million without being penalized, according to an April 19 report by the Congressional Research Service.

New Investments

The proposed legislation -- sponsored by Senator Rick Santorum, a Pennsylvania Republican, and Representative Ileana Ros-Lehtinen, a Florida Republican -- would not affect existing investments. Both the House and Senate versions would make it harder for the president to waive sanctions against new investments. Potential sanctions include denial of loans, credits, or licenses for exports to sanctioned companies. The House version would also ask U.S. government and private-sector fund managers to divest voluntarily investments in entities that invest in Iran's energy sector.

Nicholas Burns, the undersecretary of state for policy, wrote to Santorum Oct. 13, saying the administration worried the new rules ``would impair our ability to continue working closely and successfully with our allies'' on the Iranian issue. Toyota wouldn't be affected by the sanctions legislation because its investment isn't energy-related. Toyota spokeswoman Martha Voss denied Smith's charge that the company was expanding its business in Iran, while acknowledging that its 70 dealerships in the country had sold 4,000 vehicles during the first nine months of this year compared with 327 during all of 2004.

`Fundamentalist' in Charge

Tensions between the U.S. and Iran have intensified with the election in June of President Mahmoud Ahmadinejad, a self- proclaimed ``fundamentalist'' and a founder of the group that stormed the U.S. embassy in Tehran in 1979. The U.S. suspects he participated in the hostage seizure that led the U.S. to break off relations and impose sanctions.

Ahmadinejad in September offered to share nuclear technology with Arab nations and on Oct. 26 suggested violence against Israel was justified, telling an audience in Tehran there was ``no doubt the new wave in Palestine will soon wipe off this disgraceful blot from the face of the Islamic world.''

``Anybody who recognizes Israel will burn in the fire of the Islamic nation's fury,'' he said.

Designs on Iraq

Ahmadinejad's vision of an Islamic nation includes its neighbor, Iraq. Iran's population is 89 percent Shiite Muslim, and the Iraqi government that emerged after the overthrow of Saddam Hussein is dominated by Shiites. The U.S. hopes that government will include Sunnis and Kurds as well as Shiites, and will preserve religious freedom and the rights of women.

``Iran wants a friendly government in Iraq, one that is amenable to Iran's desire to be the No. 1 power in the whole Persian Gulf region,'' Carpenter said. ``Iran sees itself as a model for other Islamic states.''