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Iran: Bush Administration May Reconsider Its Energy Policy

In recent years, European and other energy companies have ignored U.S. sanctions to win oil field contracts in Iran. But American companies have refrained from competing for fear of punishment by Washington. Now, as a new administration with strong ties to the U.S. oil industry takes office, some analysts say Washington and Iran may find ways to cooperate over energy even as they remain far apart on other issues. RFE/RL correspondent Charles Recknagel reports.

Washington, 31 January 2001 (RFE/RL) -- Much was made during the recent U.S. elections of the fact that both Republican presidential candidate George W. Bush and his running-mate Richard Cheney have strong ties to America's oil industry.

Many commentators recalled that in his life outside politics, George W. Bush was once a partner in a company searching for oil in the American Southwest. And Cheney, immediately prior to being chosen as Bush's number two, headed the world's largest oil field services company, Halliburton.

That has led to speculation that the new Bush administration will be more open to American oil and gas companies doing business with Iran than was the outgoing team under former President Bill Clinton. Several companies, including Halliburton -- which Cheney has now left -- have repeatedly called for Washington to drop its unilateral sanctions on doing energy business with Iran. Those sanctions, in place since the mid-1990s, are designed to punish Iran as a state sponsor of terrorism.

One mainstay of the sanctions is the 1996 Iran-Libya Sanctions Act (ILSA), which threatens punitive measures against any foreign company investing more than $20 million in Iran's energy sector. U.S. oil companies are furious that the Clinton administration routinely chose to waive ILSA's provisions rather than punish the oil companies of major European allies which violated it. The American companies say the waivers caused them unfair competition because the existence of the act continues to have a chilling effect on any U.S. firms which might want to seek Iranian contracts.

Many analysts predict that ILSA, now due to expire in August, will not be renewed by Congress unless there is a major crisis with Tehran. And some say the Bush administration may regard that as an opportunity to look for ways the U.S. and Iran can cooperate over energy even while they remain far apart on most issues.

Ted Carpenter, a regional expert at the Cato Institute in Washington, says oil could play a role in encouraging at least a partial rapprochement with Iran.

"Both President Bush and Vice President Cheney, because of their backgrounds, have a great many friends in the oil industry [and] these friends are going to have access to the White House in a way that they did not with the Clinton administration. Oil could be a factor in encouraging at least a partial rapprochement with Iran but it simply is one factor among many considerations. By itself it is not going to drive the relationship."

One consideration is how Iranian officials -- who might or might not welcome obtaining U.S. oil technology and expertise -- react to any U.S. overtures. Still another is how quickly Washington would move to lift other restrictions on US oil firms -- such as on buying and selling Iranian oil -- and what America might demand from Iran for doing so.

If oil does become a reason for rapprochement, the U.S. and Iran could find that their interests also overlap in getting energy out of the Caspian Basin. During the Clinton administration, Washington pushed hard for a large pipeline to export the energy through Turkey, excluding alternative routes through Russia and Iran. But investors have shown little enthusiasm for building the pipeline, saying the quantities of energy available from the basin so far do not warrant the expense.

Geoffrey Kemp, a regional analyst at the Nixon Center for Peace in Washington, says that could give the Bush administration reason to take a new look at swap arrangements for Central Asian energy through Iran.

Under a swap arrangement, a Caspian Basin state exports energy for use in northern Iran while Iran would export a complimentary amount of its own energy to western markets, repaying the basin state from the proceeds. Such deals have already been done by Turkmenistan but were discouraged by the Clinton administration.

Kemp says the Bush administration might consider the economics of cooperating with Iran over Caspian Basin energy as more important than trying to continue to regionally isolate Tehran.

"There is no doubt that tight energy markets are going to mean that this administration will be very focused on assuring access to reasonably priced oil from the Persian Gulf and elsewhere. And it may well be that in this context a review of the Clinton administration's Caspian policy will lead to modifications. The Clinton administration put enormous emphasis on the so-called trans-Caspian gas and oil pipelines bringing energy out of the Caspian region. Now, this was a geopolitical decision to cut Iran out of the pipeline game and to minimize Russian participation."

He continues:

"You may see the Bush administration focus more on the economics of oil and gas distribution rather than the geopolitics. Permitting oil to go out in multiple directions, including oil swaps between the Caspian countries and Iran, these are all ways that could achieve the most important economic goal, which is multiple energy egress routes in case one is shut down."

Several U.S. oil companies have argued for multiple routes for Caspian energy, saying that cheaper and shorter routes for exporting oil and gas need to be found until the amounts justify a new trans-Caspian and trans-Caucasus pipeline.

Such a pipeline -- linking Central Asia and Baku via Georgia to the Turkish Mediterranean port of Ceyhan -- is strongly supported by Turkey but opposed by Russia and Iran. Moscow has existing alternate pipelines, while Tehran favors swap deals or a short pipeline across Iran to link Central Asia with its ports in the Gulf.