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Iran: Khatami Builds Bridges With Europe

Prague, 8 March 1999 (RFE/RL) -- Iranian President Mohammad Khatami's groundbreaking visit to Italy this week highlights Iran's recent success in building bridges to Europe even as Washington has tried to keep Tehran isolated.

Khatami, who is due to arrive in Rome on Tuesday, will be the first Iranian head of state to visit Europe since the Islamic Revolution 20 years ago. While in Italy, he is scheduled to hold talks with Italian political leaders and meet on Thursday with Pope John Paul in Vatican City before returning to Iran. He is due to visit France early in April for bilateral talks.

The state visits mark an ever-increasing tempo of high-level contacts between Tehran and European Union states. Last year saw visits to Iran by the Italian and French foreign ministers. At the same time, Britain promised to restore full diplomatic relations after Tehran said it would not enforce a long-standing religious death edict against British writer Salman Rushdie.

Analysts say that a key factor in the quickening rapprochement is oil. The Islamic Republic, which once sought to rid Iran of foreign interests, is hard hit by economic problems and wants foreign investment to revitalize its oil sector. And Europeans are eager to gain a foothold in Irans' oil and gas fields.

Iran's deputy oil minister, Mehdi Hosseini, has said that oil and technical cooperation will be among the main topics in President Khatami's upcoming trip to Italy. The state visit comes in the wake of Tehran signing a $540 million oil deal with Italy's ENI and France's Elf-Aquitaine early this week to boost output from Iran's offshore Dorud oilfield in the northern Gulf.

Oksana Antonenko, an energy expert at the International Institute for Strategic Studies in London, says that the talks are likely to focus on possibilities for joint projects to develop Iran's existing energy infrastructure and to open up new fields. Antonenko says:

"What he possibly can discuss is some sort of joint projects where both Iranian companies and European companies would be involved and here there are plenty of opportunities starting from developing possibly perspective oil fields and particularly gas fields, in south Iran and developing the whole Caspian infrastructure."

The Europeans' interest in Iranian offers has irritated Washington, which continues to maintain a ban on large investments in Iran's energy sector under its 1996 Iran-Libya Sanctions Act. That ban imposes penalties on any U.S. or foreign firm which invests more than $20 million in the oil and gas sectors of Iran, which Washington accuses of sponsoring international terrorism.

Washington said earlier this week that it is disappointed and concerned about the recent French and Italian deal with Tehran and will examine it closely.

But Washington's criticisms are doing little to halt European oil companies from increasingly moving into Iran. The Europeans dramatically flouted the U.S. sanctions last year when France's Total, in conjunction with Russia's Gazprom and Malaysia's Petronas, signed a $2 billion gas deal with Tehran.

The United States also criticized that contract but later decided to waive any sanctions so long as the European Union cooperates with Washington on keeping Iran from gaining nuclear weapons and on counter-terrorism efforts. Washington has since said that waivers are not automatic and European energy deals will be considered on a case by case basis.

Antonenko says that many European governments now regard Washington's sanctions policy as an anachronism which they can safely ignore.

"There are divisions within Europe, but the French and Italians are the most strongly criticizing the sanctions and willing to go forward to violate them ... If the Europeans demonstrate quite consistently that they do not recognize those sanctions, it is very unlikely that the United States is going to go into some significant sort of worsening of [their] relationship or, in fact, imposing of the sanctions."

She says that since the election two years ago of the relatively moderate Khatami, many European strategists have come to reject Washington's policy of containment toward Iran in hopes of influencing Iran through closer contact. Some European commentators have even called the sanctions an overly emotional reaction to Iran's taking of U.S. diplomats hostage in 1979 at the start of the Islamic Revolution. Washington broke diplomatic ties with Tehran over the hostage taking and has never restored them.

The Europeans' criticism of the sanctions is shared by many U.S. oil companies. They have called the sanctions an ineffective political tool given the absence of international agreement on their use. They also say the sanctions' only result has been to force American oil companies to lose business to European rivals.

The Iran-Libya Sanctions Act expires in 2001 when it will have to be renewed by Congress to order to continue. One top oil executive, Lance Johnson, president of new exploration ventures for Mobil Corporation, told an oil industry meeting in New York this week that U.S. oil companies will continue to lobby hard in Washington to scrap the ban.

The Islamic Republic's opening to foreign investors comes as it faces serious problems after its initial revolutionary efforts to build a centralized and self-sufficient economy free of foreign influence. The economy has yet to recover from an early mass exodus of professionals followed by a costly 1980-88 war with Iraq. Since last year, the economic problems have sharpened with a precipitous drop in global oil prices which has cost the Iranian government some 40 percent of its hard currency revenues.

Analysts say Tehran now hopes to rapidly expand its oil sector as a motor for the rest of its economy in hopes of controlling double-digit inflation and unemployment. Tehran is under pressure to immediately expand its economy because nearly half the Iranian population is under the age of 15 and must find jobs in the coming years.