US-European Policies in the Persian Gulf: Beyond the Friction … · in the Persian Gulf:Beyond the Friction ... Edward Chaplin, Head, Middle East Department, ... US-European Policies

US-European Policies in the Persian Gulf: Beyond

the Friction

Sponsored by

The Royal Institute of International Affairs and

The Stanley Foundation

September 11-12, 1997Chatham House, London, United Kingdom

http://www.riia.org

http://www.stanleyfdn.org

http://www.riia.org/who/chatham.html

Participants

CochairsRobert H. Pelletreau Jr., Partner, Afridi & Angell

Lord Wright of Richmond, Chairman, The RoyalInstitute of International Affairs

RapporteurJill Junnola, Freelance Editor

ParticipantsGraham Barr, Policy Adviser, Middle East andAfrica, The British Petroleum Company PLC

Nick Browne, Chargé d'Affaires of the UnitedKingdom to Tehran

Edward Chaplin, Head, Middle East Department,Foreign & Commonwealth Office, United Kingdom

Marta Dassù, Director, Centro Studi di PoliticaInternazionale

David J. Doerge, Vice President, The StanleyFoundation

Stephen C. Fairbanks, Analyst for Iran, Office ofAnalysis for Near East and South Asia, USDepartment of State

Philip Gordon, Editor, Survival, and Carol DeaneSenior Fellow for US Strategic Studies, InternationalInstitute for Strategic Studies

Joseph P. Hoar, President, J. P. Hoar & Associates

Rosemary Hollis, Head, Middle East Programme,The Royal Institute of International Affairs

Ibrahim Karawan, Senior Fellow for Middle EastSecurity, International Institute for StrategicStudies

Farhad Kazemi, Professor of Politics and MiddleEastern Studies, New York University

Geoffrey Kemp, Director, Regional SecurityPrograms, Nixon Center for Peace and Freedom

Hervé Magro, Second Counselor, Embassy ofFrance, Washington, DC

Phebe Marr, Senior Fellow, Institute for NationalStrategic Studies, National Defense University

David W. Martin, Ministry of Defence, UnitedKingdom

John Moberly, Associate Fellow, Middle EastProgramme, The Royal Institute of InternationalAffairs

Federica Moroni, Political Analyst, Agip Spa

Richard W. Murphy, Senior Fellow for the MiddleEast, Council on Foreign Relations

Giandomenico Picco, Chairman and ChiefExecutive Officer, GDP Associates, Inc.

1

US-European Policies in the Persian Gulf Project

Eric Rouleau, Writer and Former FrenchAmbassador-at-Large and to Turkey

Beverly J. Rudy, Partner, Sutherland, Asbill &Brennan, L.L.P.

Ailie Saunders, Head, Middle East Programme,Royal United Services, Institute for Defence Studies

Gary G. Sick, Executive Director, Gulf/2000, andAdjunct Professor of Political Science, ColumbiaUniversity

Richard H. Stanley, President, The StanleyFoundation

Paul Stevens, Associate Fellow, Middle EastProgramme, The Royal Institute of InternationalAffairs; Professor of Petroleum Policy andEconomics, Centre for Energy, Petroleum, MineralLaw and Policy, University of Dundee

Mehdi Varzi, Director, Oil and Gas Research,Dresdner Kleinwort Benson Securities

Paul von Maltzahn, Minister Counsellor, TheGerman Embassy, London, UK

P. R. A. Wells, Business Development Director,LASMO Ventures

A. Wildig, Vice President, Middle East and SouthAsia, Shell EP International Ventures B.V.

A.W. Wood, Senior Adviser, Middle East/SouthAsia, Shell International Limited

Vahan Zanoyan, President and Chief ExecutiveOfficer, Petroleum Finance Company, Ltd.

Royal Institute of International AffairsStaffValerie Grove, Administrator

Stanley Foundation StaffJeffrey G. Martin, Vice PresidentCarol Matthews, Conference Management Director

2


Affiliations are listed for identification purposes only. Participantsattended as individuals rather than as representatives of theirgovernments or organizations.

Conference Report

While Gulf experts in the United States andEurope largely agree on policy objectives

in the Persian Gulf, they differ in their choiceof strategies to achieve those objectives.Broadly, while the United States relies signifi-cantly on economic sanctions, Europe deemsthese counterproductive in the case of Iranand likely to store up problems in the case ofIraq. This clash in policies is driven mainly bydivergent assessments of the threats that Iranand Iraq pose to Gulf stability—with theUnited States, and to a large extent the UnitedKingdom, taking a more severe view of poten-tial dangers. Bridging both US-European differ-ences in policy prescriptions and threat per-ceptions will be difficult. These were the mainconclusions reached by a group of Gulfexperts—academics, policymakers, lawyers,and oil executives—who assembled to discussthese issues at a conference sponsored by theStanley Foundation and the Royal Institute ofInternational Affairs at Chatham House inLondon on September 11-12, 1997.

Participants also reviewed existing sanctionspolicies and nonproliferation regimes as theyapply to the region and discussed the policyimplications of current political, economic,and security trends in the Gulf.

3


Differences in US-European PoliciesToward the Gulf The United States and Europe agree on theneed to prevent Iran from achieving nuclearcapabilities and engaging in terrorist activi-ties, as well as on the importance of promotinghuman rights and the peace process in theregion.

US View of European PoliciesMost in the United States view European poli-cy toward Iran as somewhat weak-willed. The"critical dialogue" which European states pur-sue with Iran is held to be rather uncritical,achieving little impact, and trade concerns areseen to overshadow security considerations.Moreover, according to the US view, there hasbeen little effort on Europe's part to articulatethe relationship between trade and dialogue inclear terms, even though it forms the basis ofthe European Union's official policy towardIran and underlies the policies of mostEuropean states on Iraq.

While the United States recognizes thatEuropean states have different views, makingit difficult to forge a strong or cohesiveEuropean policy, it hoped that Europe wouldsee the German court decision on theMykonos case in April 1997, which incriminat-ed Iran, as impetus to pursue a tougher com-

mon policy on Iran, together with the UnitedStates. But this window of opportunity provedshort-lived, and there was no sustained effortto coordinate policy. In the eyes of the UnitedStates, Europe was soon back to putting tradeand economic interests first.

European View of US PoliciesEuropean participants agreed that Europe andthe United States share views on many basicpolicy objectives in the Gulf, but highlightedthe failure of US policies such as dual contain-ment, also noting the high failure rate of eco-nomic embargoes, which both inflict harm ondomestic populations and are often ineffectualor even counterproductive. In the case of Iraq,Saddam Hussein has strengthened his grip onthe Iraqi people, exploiting their frustration

with the Western embargo. In the case of Iran,the US embargo has encouraged Iran toexpand its regional ties, and it has developedrelations with Asia, Russia, the Caucasusstates, and the Arab Gulf. Iran's economy isimproving despite the embargo and, given itsnew ties to the East, would not likely suffermuch from an expanded embargo enforced byEurope.

Participants also cautioned that the UnitedStates runs the risk of alienating its Westernallies if it pursues a unilateral embargo of Iran,or of pushing Iran closer to undesirable stateslike China if the embargo expands. Militaryspending cuts resulting from the embargo mayalso push Iran toward developing weapons ofmass destruction (WMD), which are often saidto provide "more bang for the buck" relative toconventional weapons.

4


The rapporteur prepared this reportfollowing the conference whichwas then reviewed and edited bythe conference organizers. It con-tains their interpretation of the pro-ceedings and is not merely adescriptive, chronological account.Participants neither reviewed norapproved the report. Therefore, itshould not be assumed that everyparticipant subscribes to all recom-mendations, observations, and con-clusions.Rapporteur Jill Junnola.

Cochairs Robert H.Pelletreau Jr. and Lord Wright of Richmond.

Europe's policy of critical dialogue was held bysome participants to be no different from thedialogue the United States pursues with otherso-called "rogue" states such as China, NorthKorea, and Syria. Moreover, with a new admin-istration in Iran, a policy of critical dialogue wasseen as even more likely to be effective. Anotherparticipant explained that "critical dialogue,"the tactic adhered to by European states inorder to maintain contacts with a foe, was noth-ing but a convention of international diplomacy.All Western powers, the United States included,had embassies in Moscow at the height of theCold War. However, any US efforts at dialogue

with Iran while sanctions arestill in place will necessarilybe hindered. Such effortswould be further complicat-ed, according to another par-ticipant, by a clash in thenature of contacts desired byboth sides. The UnitedStates wishes to keep thingson an official, above-boardlevel, while anti-US rhetoricin Iran prevents officials

from taking such risks. Effective contacts inIran, at least initially, need to take advantage ofmore discreet channels.

The United States was also criticized for itspolicy of "moving the goalposts" on UN resolu-tions concerning Iraq, mainly US insistencethat UN resolutions remain in place untilSaddam Hussein leaves or is removed frompower. This was seen as damaging to theintegrity of the United Nations, and it waspointed out that sanctions could be removedgradually, while monitoring stations remain inplace. Sanctions are not likely to last indefi-nitely as they are currently enforced, as sup-port for them is eroding from within theSecurity Council and the coalition, as well aswithin the region. Participants warned that theUnited States needed to formulate a post-sanc-tions policy.

5


Saddam Hussein.

...one majorforce driving

US policy...is the

pressure ofpublic

opinion....

AP

/WID

E W

OR

LD P

HO

TO

As pointed out by one participant, however,some European criticisms of US policy areunfair in that they focus on what US policycannot do, such as eliminate a regime, andmay not be trying to do anyway. More effectivewould be a critique of what US policy is, notwhat it is not.

Sources of US-European PolicyDifferences Most participants agreed that one major forcedriving US policy in the Gulf, particularly vis-a-vis Iran, is the pressure of public opinion, com-bined with the US "psyche." According tosome participants, America has a greater ten-dency than Europe to simplify internationalrelations for its citizens, dividing countriesinto camps composed of friends or foes, and italso incorporates a moralizing aspect in itsforeign policy. As such, Iran is demonized inthe United States in a way that it is not inEurope, and the more stark policy options pur-sued by the United States are the result. Thisdemonization is a product both of America'srecent history with Iran, that is, the hostagecrisis of 1979, and the role of the Jewish lobbyin America or, more broadly, America's specialrelationship with Israel. Iran was described byone participant as another Vietnam for theUnited States, and the active role in the cur-rent administration of those involved in the

hostage crisis was seen as areal block in US policytoward Iran. Rivalriesbetween the US administra-tion and Congress also con-tribute to an escalation ofanti-Iranian rhetoric, as bothbodies try to cater to publicopinion by appearing morevigorously anti-Iran.

Other participants, more dis-missive of the "psyche" element behind US for-eign policy, stated that present US policy inthe Gulf is a result of rational policy assess-ment, based on the strategic realities of theregion. Having tried a carrot-and-stick policywith Iraqi President Saddam Hussein through-out the 1980s—thinking there could be a bal-ance of power in the region, only to see Iraqoccupy Kuwait in 1990—the United States wasdetermined to be tougher. Today's harder-linepolicy, notably dual containment, derives fromthe failure of US policy in the 1980s and anunwillingness to repeat the same mistake withIran.

Differences in US-European Perspectiveson the Security Situation in the Gulf One participant asserted that, when askedabout the major threats to security in the Gulf,

6


Europeans andAmericans differed on theperceived levelof threat posedby Iran andIraq....

Europeans and Americans together list: WMD,terrorism, political instability, political Islam.When questions became more nuanced, how-ever, splits appeared. Mainly, Europeans andAmericans differed on the perceived level ofthreat posed by Iran and Iraq to the Gulfregion. These variations in threat perceptionswere driven by differences in the leadershiproles played by the United States and Europein the region.

US Accountability To a large extent, US policy in the Gulf is dri-ven by the sense that the United States is ulti-mately responsible for international security,and that WMD proliferation is primarily anAmerican problem, not a European one. WhileUS-European cooperation has generally beenvery effective in the area of nonproliferation,disparities in policy arise over conflicting posi-tions on how broad or narrow nonproliferationefforts should be. While Europe sees trade anddiplomatic relations as a tool to help stem acountry's desire for WMD, the United Statessees nonmilitary trade as a source of revenuethat allows states to pursue WMD programsmore easily.

The US leadership role in the region, accordingto one participant, is manifested by its broadmilitary presence which includes some twentywarships and support vessels in the Gulf sincethe end of 1990, 40-50,000 military personnel,and over $1.2 billion of military equipment.Such a commitment points to the accountabil-ity of the United States if Gulf security isbreached.

US-European differences in perspectives onsecurity in the Gulf draw from this sense of USaccountability, according to various partici-pants. While both the United States and

7


US Navy aircraft carrier USS Nimitz in thePersian Gulf.

AP

/WID

E W

OR

LD P

HO

TO

Europe see Iranian military capabilities as athreat, the United States takes that threatmore seriously, an almost inevitable responsegiven the US role in the Gulf. Moreover, theUnited States has to be explicit about threats,if only to secure funding and domestic supportfor its presence there.

US-European Views of the Iranian Threat In the US view, as expressed by one partici-pant, every Gulf Cooperation Council (GCC)country views Iran as a long-term threat toGulf security and as a potential provocateur ofinternal instability. US military intelligenceemphasizes Iran's capability to close thestraits of Hormuz and catalogues the prepara-tory steps Iran has taken toward that end—namely, acquiring submarines that could beused to place mines in the strait and holdingexercises judged provocative by the UnitedStates—even though Iran itself would be mosthurt by the blocking of the oil lanes.

Most Europeans, on the other hand, did notconsider Iran to be a military threat at present,according to one participant. Agreeing, anoth-er participant pointed out that Iran actedresponsibly in some regional affairs, mediatingcivil wars in Tajikistan, Azerbaijan, andArmenia and trying to adopt a fair policy onthe Caspian. While some fear that Iran's desire

for a role in Gulf securitymeans that it expects the USpresence to disappear com-pletely, the participant statedthat Iran would be satisfiedwith a reduction in the levelof US forces in the Gulf, inconjunction with some rolefor itself in Gulf security, suchas in conducting joint exercis-es with GCC states. Europe was also more opti-mistic on the future of Iran than the UnitedStates, given the recent election of the moder-ate Mohammed Khatami as president of theIslamic Republic.

Moreover, political Islam was thought to beless of a "red-flag" issue with Europe, which,though wary of it, was aware of the need tolive with it given the proximity of SouthernEurope to the Maghreb states. Finally, dissimi-lar degrees of US-European concern about ter-rorism (and Iran's role in it) can be attributedto the high presence of US soldiers in theregion, who proved to be a target in theKhobar towers bombing. Additionally, it wasthought that US threat perceptions of theregion were colored by the US relationshipwith Israel.

8


US leadership...in the regionis manifestedby its broad military presence...

US-European Views of the Iraqi Threat A major point of departure between US andEuropean policy, according to one participant,concerned the threat posed by Iraq to theGulf. US policy is built around this threat,while Europe often fails even to discuss it.According to a US commentator, the UnitedStates feels that Europe has grown complacentabout the importance of weapons inspections.A European participant confirmed that theEuropean line on inspections needs to be morevigilant, while another felt that focusing Iraqpolicy around the figure of Saddam Husseinand attempts to remove him, as the UnitedStates does, was itself destabilizing.

Taking a longer-term view, another Europeanparticipant stated that Iraq, reflecting the

strategic reality of theregion as one of two bigpowers in the Gulf, willalways potentially be athreat. It was also noted thateven a change in regimewould not change its geo-graphical weakness—lack ofa sea outlet—or ameliorateambitions to reverse thatweakness.

Bridging the Gap on Threat Perceptions As US policy toward the Gulf is determinedlargely by defense and security issues, workneeds to be done to bridge US-European dif-ferences in threat perceptions in the Gulf.

An explanation of some of the key differencesin US-European approaches to analyzing theregion, which in turn affect threat perceptions,is an important first step toward bridging thegap. According to one participant, Europe'sanalysis of states' intentions focuses more oninternal developments within states and lesson outward assessments of states' militarycapabilities. The United States, on the otherhand, bases its assessment of states' inten-tions primarily on military capabilities andjudges more on external actions. Oil was seenas playing a more critical role in the formationof US policy toward the Gulf, as European con-cerns about access to oil were eased by asense that Gulf States, regardless of politicaldevelopments, will always need big marketsfor their oil.

Confirming that European views are indeedfractious, however, several participants notedthat there are no major distinctions in US-UKapproaches to Gulf security. Both the UnitedStates and the United Kingdom are largely con-cerned about an asymmetric response by Iran

9


The presentsecurity

arrangement inthe Gulf isunsustain-

able....

to any level of provocation, and the UnitedKingdom is generally considered to be a strongsupporter of US sanctions policies toward Iraq.

Military Burden-SharingBoth the United States and Europe reap advan-tages and suffer some disadvantages in theGulf as the current system presently stands.The United States has to bear significant mili-tary costs, even with the considerable subven-tions by regional rich oil states such as SaudiArabia and Kuwait, but it also enjoys benefitsto its domestic defense industry and gains aleading role in both oil and politics in theregion. Europe, on the other hand, sees muchof its oil interests protected under the extend-ed US security umbrella without having to paythe costs, but is at somewhat of a disadvantagewhen it comes to its role in the oil sector andinfluence in the politics of the region. Thequestion of the future of military burden-shar-ing in the region was raised by participants.Several participants claimed the United Stateswould welcome it and had even drawn upplans to structure it; however, others felt thatany increase in the level of European commit-ment in the Gulf was unlikely.

Nonetheless, the present security arrangementin the Gulf is unsustainable, according to atleast one member of the group: the costs are

too great for both the UnitedStates and the GCC states,and an effective alternativeneeds to be found. SomeEuropeans also argued for analternative security arrange-ment in the Gulf, although fordifferent reasons. They con-sidered the US presence inthe Gulf destabilizing, andfeared that the United Stateswould act unilaterally, with orwithout consulting Europe.

Nuclear IssueConclusions and assumptionson the status of Iran's nuclearprogram did not split alongUS-European lines. Instead, arguments took amore individual shape. Several participantsargued that Iran has perfectly legitimate rea-sons to wish to develop nuclear weapons.During the Iran-Iraq war, Iran saw its territoryinvaded and its army virtually destroyed, withnary a response from the United Nations.

Furthermore, it was acknowledged that itwould be difficult for Iran to discuss rollingback its nuclear program until regional issuesare resolved. Iran feels threatened by Iraq,Israel, India, and Pakistan—the latter three all

10


Any effectiveresolution of Iran'snuclear ambitionswould...need to be part of a...regionalsecurityarrangement....

possessing or pursuing nuclear programs. Anyeffective resolution of Iran's nuclear ambitionswould therefore need to be part of a concreteregional security arrangement that addressesthese concerns. Defining the region for pur-poses of regional security and arms control,however, is a complicated task, made more dif-ficult by the long reach of ballistic missilesheld by some states that widen "regional"threat perceptions.

Opinions were split about the priority thatIran accorded to its nuclear program. One par-ticipant argued that the West was too prone toimpose its own strategic logic on Iran. Initialestimates of Iran's rapid development ofnuclear weapons have had to be revised, andthere is evidence that the program is in somedisarray. The fact that Iran has appointed aformer energy and oil minister who was notnotable for his organizational skills to headIran's atomic energy program also indicatesthat the nuclear program is not accorded highmilitary priority.

Another participant agreed that Iran's nuclearprogram had stagnated, but argued that itsstagnation was proof that policies were work-ing. Restrictive sanctions policies, rather thanany independent, internal decision to down-grade nuclear efforts, had discouraged the

regime from putting still more money andeffort into it.

Less confrontational approaches to dissuadeIran from the nuclear path were also dis-cussed. One participant suggested that theUnited States and Europe could help Irandevelop gas for domestic purposes in order toalleviate Iran's need, or stated need, for anuclear reactor as a power source. Another,referring to the US-North Korean model of aidin exchange for a nuclear rollback, doubtedthat there was sufficient political will in theUnited States to pursue such a deal with Iran.More broadly, a third participant remarked

11


The UNSCOM team completes detailed inspection of Iraq’slargest chemical weapon facility.

UN

PH

OT

O

that Iran's ties to GCC states should beencouraged in order to benefit regional securi-ty, as an Iran with strong regional ties wouldnecessarily pose less of a threat.

A Review of Sanctions PoliciesParticipants reviewed the effectiveness of theunilateral and multilateral sanctions beingapplied to Iraq and Iran.

Existing Sanctions on IraqThe sanctions placed on Iraq at the end of thesecond Gulf War are the most effective andextensive ever imposed. Several participantsnoted that Iraq has not imported or upgradeda single new weapons system since the sanc-tions were imposed, although another wasmore skeptical, pointing to the unknowns thatcould be part of the flow of goods through theJordanian and Turkish borders.

If the UN Special Commission gives a positivereport affirming the destruction of Iraq's WMDprogram according to UN Resolution 687, theoil embargo is to be lifted. However, accordingto Article 22 of UN Resolution 686, an export-import control monitoring system is to beinstalled. There are strong suspicions thatwhatever the system, Iraq will do its best tosubvert it. Moreover, one participant claimedthat Article 22 was a nonstarter in the United

States, which has no inten-tions of allowing SaddamHussein to spend export rev-enues without the strictestof conditions attached.

In a commercial sense, themain beneficiaries of thechoke-off of Iraqi oil weredetermined to be Norwayand Venezuela, not the Gulf or the (largely US)oil companies based there.

Multilateral Sanctions That Apply to Iran(Waasenar Agreement, MTCR)The United States and Europe are largely inagreement on the specific effort to cut off theweapons trade in regions of instability, such asthe Gulf, and US-European cooperation hasgenerally been very effective in the area ofnonproliferation. The main problem has beenbringing states like Russia and China, mainsuppliers to so-called rogue states, into theseweapons control regimes. Russia is reportedlycooperating with Iran in plans to build a long-range missile.

One participant cautioned that it is importantnot to overestimate the abilities of supply-sideweapons control regimes, as a determinedcountry will always get what it wants. At best,

12


The sanctionsplaced onIraq...are themost effectiveand extensiveever....

what supply-side regimes like the MissileTechnology Control Regime (MTCR) can do isdelay the weapons programs of some coun-tries or dissuade a less-determined countryfrom making a purchase. The WaasenarAgreement, unlike other regimes which focuson one weapons system or country, has abroad mandate: to consider regional stabilityin making arms transfers. As no set meansexists to measure regional stability, it is diffi-cult to see how the principles of the WaasenarAgreement will be implemented.

Unilateral SanctionsParticipants also discussed the implications ofthe Iran-Libya Sanctions Act (ILSA). Passed bythe US Congress in August 1996, ILSA marks anew era in US sanctions by extending them toforeign companies which make a $20 millioninvestment to develop the petroleum sector in

Iran. The aim of the law is toforce companies to chooseto do business with eitherthe United States or Iran.Under ILSA, the US presidentmay impose two, from achoice of six, sanctions onsuch companies. Possiblesanctions include: denial ofUS export licenses, restric-tions on imports to the

United States, ban on US procurement, and aprohibition on loans by US financial institu-tions.

One year after its passage no sanctions haveyet been imposed, although three projects arebeing scrutinized: an offshore platform projectawarded to an Iranian company and financedby Germany, the development of the Balal oilfield by Canadian and Indonesian companies,and a deal with Total (finalized shortly afterthe conference) to develop the South Pars nat-ural gas field. Raising early questions abouthow consistently the law will be enforced, itappears that a pipeline project from Turkey toTurkmenistan via Iran will go ahead, as USSecretary of State Madeleine Albright has saidthat the project will benefit Turkey andTurkmenistan. The pipeline will initially carryonly Turkmen gas, but is expected to includeIranian gas after two years. However, one par-ticipant noted that it is inconceivable that Iranwill be exporting gas by 1999, given the highdegree of mismanagement in the gas sector inIran and heavy domestic demands.

In hearings in July 1997, the chairman of theHouse Committee on International Relations,Representative Gilman, led the argument toenforce ILSA, saying that it was an importantpart of dual containment and that it had

13


...whatever the[weapons

control] system, Iraq

will do its bestto subvert it.

cooled investment in Iran. One participantconfirmed that ILSA had prevented investmentbut also noted that it had not discouragedinterest: companies were actively cultivatingcontacts, preparing for the day when sanc-tions end. Gilman stated that before the UnitedStates changes its stance, Iran must be willingto declare an end to it's support for interna-tional terrorism, reduce its confrontationalarms buildup in the Gulf; and state clearly thatit is not trying to acquire or produce nuclearweapons or the means to deliver them (all ofwhich, however, it has done repeatedly,according to one participant). Lee Hamilton,the Democratic representative and formerhead of the House committee, argued that uni-lateral sanctions never work and called for acut in rhetoric, a narrowing of the embargo tocrucial items, and the opening of an unofficialdialogue.

It is not known what kind of effect the electionof the moderate Khatami in Iran will have onthe future of ILSA. One participant predictedthat any change in US policy would be drivenas much by a desire to play a role in develop-ing oil reserves in the Caspian, as by a truepolicy rethink.

Continuing a tendency toward unilateral sanc-tions, a second piece of US legislation, the

"Freedom from ReligiousPersecution Act," has somesupport, with over one-hun-dred sponsors in the House.The legislation would seek toimpose sanctions on coun-tries engaged in a campaign ofreligious persecution, target-ing Cuba, Vietnam, Laos,Sudan, North Korea, andIslamic countries in general.Ranges of sanctions to beimposed include banningexports there, ending US sup-port for multilateral assis-tance, ending support forWorld Trade Organization membership, andthe cancellation of visas.

A third piece of legislation, supported by USbusinesses, threatens to dampen the pro-sanctions movement in the US Congress,however. It would require that Congress andthe White House prepare a cost-benefit analy-sis before sanctions are imposed. But the billfaces considerable obstacles to its enact-ment.

The role of special interests in the formationof US foreign policy was seen as a major con-cern by many participants, who faulted the

14


One participantconfirmed that[the Iran-LibyaSanctions Act]had preventedinvestment but not discouragedinterest....

15


Participants mingle during break at the ChathamHouse conference.

CO

NF

ER

EN

CE

PH

OT

OS

BY

JEF

FR

EY

MA

RT

IN

Clinton administration for failing to opposesuch groups as AIPAC and the Christian Right.In their view, this was compounded by thedivision of authority between the DemocraticWhite House and the Republican Congress.They did not expect this situation to improvein the next few years as Vice President Goreprepares to run for president.

Energy Outlook in the Persian GulfThe impact of sanctions on the global energysupply was described by a participant astwofold: first, it can contain existing capacity;second, it can restrict the development of newcapacity. The effect on capacity is significant

when the countries under tar-get—Iran, Iraq, and Libya—account for one-quarter ofworld oil and gas reserves,and one, Iran, is considered amajor outlet for Central Asianenergy resources. The threatof sanctions on Iran andLibya has affected invest-ment, as most service compa-nies are American. However,the overall impact has notbeen particularly strong.There is no oil shortage or signs of one in thefuture. Sanctions have had the unintendedeffect, however, of making the oil market morecontrollable by lowering excess capacity andgranting OPEC, which has been losing marketshare, a stay of influence. Moreover, Iraq hasbeen prohibited from performing its role indetermining prices in a tight market.

A development to watch for on the energyfront is the future Asian demand for oil which,as one participant noted, has huge potentialbut remains an unknown. Relatedly, Japan,with its dependency on Gulf oil and its highlevel of investment in the United States, wouldbe among the countries most affected by sec-ondary US sanctions, as would then the UnitedKingdom.

16


It is notknown whateffect...the election of the moderateKhatami inIran will haveon...ILSA.

A Saudi oil official watches progress at a rig in the al-Howtaoil field.

AP

/WID

E W

OR

LD P

HO

TO

Business in the Gulf: Different US-European Perspectives?Most participants agreed that US and Europeancompanies have very similar perspectives ondoing business in the Gulf. If there are no legalbarriers, decisions on where to invest are gov-erned primarily by commercial interests.Political factors only play a role when commer-cial offerings are even. Participants also agreedthat there is a general misperception about thepolitical power that oil companies wield vis-a-vis their governments, as well as about thebacking oil companies receive from their gov-ernments. Both are overestimated. Countriessuch as Azerbaijan, which grants oil contractsto foreign companies based in leading Western

powers in hopes that they canlobby their governments toadopt pro-Azerbaijani policies,are likely to be disappointed.

Discussing the relative advan-tage or disadvantage to US orEuropean companies in theregion if and when embargoesare lifted, one participant stat-ed that Iran and Iraq will wantto diversify their investmentsources. As such, it would be acase of everyone getting aslice, only of a different size.

Political, Economic, and Social Trendsin the Gulf and Their Implications forFuture Policy With oil revenues lagging and budget deficitsand unemployment rising, the possibilities forinternal political and economic instability inthe GCC states are greater than they ever havebeen. Most participants agreed that rulingfamilies would manage to "muddle through."

Overall, participants seemed relatively opti-mistic about the future of Iran and possibilitiesfor positive developments in US-Iranian rela-tions, in light of the recent election of the mod-erate Khatami. Iraq's future was regarded withmuch more trepidation and considered muchmore of an unknown of varying extremes.

Saudi Arabia and the GCC: Can They MuddleThrough?GCC states are presently in a situation thatthey must "muddle through." Previously, Gulfleaders relied on financial largesse made pos-sible by enormous oil revenues to keepdomestic populations content and themselvesensconced in power. Economic prosperity,courtesy of the state, had always worked toassuage the desire for political power. At pre-sent, however, oil monies are no longer suffi-cient to sustain old-style rentier state policies,budget deficits are a new reality in the region,

17


...US andEuropean

companieshave very

similar perspectives

on doing business in

the Gulf.

and a growing labor force has not beenmatched by a growth in jobs.

Revitalizing the Private Sector. Working infavor of Gulf leaders' ability to "muddlethrough" this situation without invoking signif-icant political change is their sharpenedinstinct for retaining power, and the lack ofany acceptable alternative to the status quo.Any movement toward full-fledged Western-style democracies in the region is almostunthinkable, according to participants.

Working against a successful "muddlingthrough" policy, however, is the state of theeconomy. As things stand presently, the pri-vate sector is not dynamic enough to pick upwhere the state falters, or to absorb excesslabor. The state sector monopolies stiflerather than encourage economic growth, andmost states have a narrow export base and apoor rate of investment. Over time, Gulf Stateswill need to rely more on the private sector tobring in capital and employ labor, but this willrequire that the private sector be empoweredpolitically in return. For example, SaudiArabia's private sector, frustrated at having tocompete with royals for contracts, has invest-ed outside the country and will need someassurances of changes made to the political

system allowing them equalfooting before they return.

During the oil boom, the pri-vate sector exchanged blindloyalty to the government foruntold wealth. With the gov-ernment now unable to keepup its end of the bargain, andprivate-sector expatriate capital having grownto between $60-120 billion, the government isnow at the mercy of the private sector, depen-dent on the return of private-sector capital torevitalize the economy.

Absorbing Gulf labor poses a major challenge.Most of the local workforce are ill-prepared byan inadequate education system and virtuallyunemployable. Employers prefer foreign laborover locals, who are usually less-skilled as wellas more difficult to control. Despiteannounced policies of "Saudization" and"Omanization," states continue to rely on for-eign labor.

Quick fixes that remain within the govern-ments' purview, like temporary oil pricespikes, will not omit the need for Gulf leadersto address these fundamental issues, onlydelay it. Another problem with oil price spikes

18


GCC states are...in a situationthat they must "muddlethrough."

is that the lows often cause more economicpain than the highs benefit the economy.Significantly, one participant noted that fallingrevenues were not the only cause of instabili-ty, warning that rising, unmet expectations canbe just as dangerous, as was the case in Iran inthe 1970s.

The Political Future. Most participants agreedthat Gulf States would manage to muddlethrough, and that a revolution or revolt wassimply not in the cards, mainly due to theabsence of any viable political alternatives tothe status quo. Instead, growing disgruntle-ment and economic difficulties were seen aslikely to lead to change within the system,rather than of the system, perhaps under theguidance of a new, younger generation of kingsand sheiks.

Outside possibilities of polit-ical upheaval could not bedismissed entirely, however,and the following scenarioswere discussed: that of a mil-itary leader emerging, a reli-gious uprising, or change ofleadership from within oneof the royal families due tointernal disputes and rival-ries. One participant felt that

any uprising would probably stem from a com-bination of two of the above scenarios: a mili-tary leader working closely with a disgruntledmember of the royal family.

Participants also discussed options for futureGulf leaders as they seek to satisfy, at the low-est possible level, demands for some form ofincreased political representation. Govern-ments may alternate between clamping downon their populations to show who is boss andplacing more responsibilities, such as approv-ing budgets, in the hands of the Majlis al-Shura, effectively "passing the buck" on poten-tially contentious matters. Kuwait's NationalAssembly was held to be the most vigorouslyindependent institution of its kind in the Gulf.

19


Outside possibilities of

politicalupheaval

could not bedismissedentirely....

Khobar Towers—a mystery still unresolved.

AP

/WID

E W

OR

LD P

HO

TO

Though it was relatively vocal prior to Iraq'sinvasion and occupation, the crisis triggeredan even more vocal and demanding role forseveral reasons. First, the ruling family wasseen as having failed to protect Kuwait,despite its massive expenditures on weaponssystems, and second, Kuwaitis, having foughtfor their country, increased their demand fora role in running it.

Iran: Will the New Khatami GovernmentMake a Difference? The potential for change in policies towardIran, in light of the election of the moderateMohammad Khatami as president, is as greatas it has ever been.

One commentator assured the group thatKhatami's election has had an impact onWashington, noting that there is a new curios-ity about Iran, extending beyond Iran's war-making capabilities, and some interest in pur-suing dialogue. However, Congress's negativeattitude toward Iran, dominated by SenatorD'Amato, remains largely unchanged. Anotherparticipant confirmed this view, commentingthat Washington is beginning to recognizeboth that Iran is changing and that US policiesare not having the intended results, onedownside being the stifling of the develop-ment of energy resources in Central Asian

states. The United States wassaid by one participant notto be opposed to the idea ofengaging with Iran moreeffectively. Its main problemwith current efforts atengagement through the"critical dialogue" pursuedby many European states isthat it is not critical.According to this partici-pant, however, the changewill take time and will filter through the admin-istration rather than Congress. A recent news-paper account of contacts between Israel andIran was mentioned by one participant, whonoted that Israeli-Iranian rapprochement, if itoccurred, would likely accelerate a shift of USforeign policy on Iran.

It was also noted that with the new Khatamigovernment in place in Iran and little likeli-hood of any hard evidence emerging to impli-cate Iran in the Khobar Towers bombing, itwould be more difficult for the United States toconvince Europe that sanctions are neededagainst Iran, as well as more difficult for vehe-ment critics of Iran in the United States topush for sanctions against foreign companiesthat do business with Iran.

20


The potentialfor change in policiestoward Iran...is as great as it has ever been.

Participants agreed that rhetoric from bothsides—Iran and the United States—has beentoned down, although one warned that theWest should not become too optimistic aboutthe implications of Khatami's election, recall-ing that the West was originally encouragedabout the election of Rafsanjani, whose planswere thwarted by conservatives in Iran.Another member of the group cautioned thatthe Iranian government is not always able todeliver on its statements, and that thereforedifferent expectations of policy results may beneeded.

Internal Impact. Khatami's election wasdescribed as being almost of revolutionaryproportion. While Khatami did not say muchabout actual changes planned for the nature ofthe regime, he was, nonetheless, perceived asrepresenting a big change and appealed par-

ticularly to women andyoung people. Another par-ticipant confirmed that theKhatami election was a mas-sive vote for change andthought Khatami mostimpressed voters with hisemphasis on the rule of lawand his precedent-settingcomment in a speech thatthe supreme leader, while a

representative of God,also has responsibili-ties for his people.

While Khatami willcontinue the econom-ic programs of his pre-decessor, Rafsanjani,his choice to head theMinistry of Culture,known for his liberalviews, was controver-sial. Foreign policyconcerns will remainmuch the same, focus-ing on the US pres-

ence in the Gulf and improving ties with Europeand Russia, as well as relations with SaudiArabia and the Arab Gulf States. Several partic-ipants shared the view that Iran may be lookingfor ways of demoting or circumventing theUnited States in its foreign policy, placing moreemphasis on developing direct relations withArab Gulf neighbors. It was agreed that this tac-tic would probably not be successful, and thatIran was only delaying the time when it wouldhave to deal directly with the United States.

Though backed by leftist and clerical partiesalike, Khatami had no single political party sup-port behind him, and some of the expected

21


Rhetoric fromboth sides—Iran and the

United States—has been toned

down....

Mohammed Khatami.

AP

/WID

E W

OR

LD P

HO

TO

opposition to his candidacy failed to material-ize. Significantly, he received many votes fromthe army and a bloc in the Majlis dropped itsopposition to him, apparently deciding thatthe voters who elected Khatami are the votersthey will need to secure their own re-election.Opposition strongholds include the Council ofGuardians, the Intelligence Ministry, and theRevolutionary Guard. Some participantsfeared that Khatami's choice to head thecleanup of Iran's Intelligence Ministry, thesource of covert terrorism missions, may notbe strong enough to carry out this task.

Another participant described the new gov-ernment as a triangular internal power strug-gle among Khatami, Rafsanjani, andKhamene'i. Khatami has a mandate from thepeople, but Rafsanjani, as head of theExpediency Council where he can work behindthe scenes, has at least as much power as hedid previously, especially as roughly half ofKhatami's cabinet are Rafsanjani supporters.There is potential for friction betweenKhatami and Rafsanjani if the latter's plans foreconomic reform clash with the former's pro-motion of social reforms. Khamene'i sits at thethird point of the triangle, with somewhatreduced power, but waiting with other hard-liners to discredit Khatami at the earliestopportunity. Still another member of the

group stated that realpower in Iran continues tolie with the same conserva-tive institution—the Revo-lutionary Guard.

Overall, it was agreed thatIran was becoming moreconscious once again ofitself as a nation, withnational interests to pursueand protect, and less so ofitself as an Islamic Republic.It was also noted that the debate over thefuture role of the velayat-e-faqih was takingplace, significantly, within the clergy itself, notthe majlis.

Iraq: Is Saddam Hussein Here to Stay? Participants agreed that Hussein was likely tostay in power for the foreseeable future.Various scenarios were drawn on Iraq andSaddam Hussein's future, the first being thatSaddam Hussein remains in power for the nextdecade, more by default than his ability torevive Iraq, while cracks in sanctions appear.The second scenario involved his potentialreplacement, possibly as a result of assassina-tion, with a more pragmatic, less-threatening(to the West) figure. The third and least likelyscenario considered a collapse of government,

22


Iran may belooking forways of demoting or circumventingthe UnitedStates in its foreign policy....

accompanied by a period of violence. Raisedpreviously before a mixed US-European audi-ence, according to one participant, this sce-nario drew the biggest disagreement.Europeans apparently found it difficult to evenenvision a fragmented, noncentralized Iraq,while Americans did not.

The first scenario presents two major policydilemmas: how to keep consensus within thecoalition on enforcing sanctions and how toprevent the erosion of contacts with Iraqi soci-ety in preparation for a post-Saddam Iraq. Oneparticipant thought that Europe would notagree to an indefinite extension of sanctions,as the United States was likely to ask for, andthat support for sanctions would erode.Regarding the second scenario—SaddamHussein's overthrow—one participant thoughtit critical that a new Iraqi regime, faced with anear impossible economic situation, has theWest's assurances of quick aid. The third sce-

nario—collapse of govern-ment—presented the biggestpolicy challenge, as Turkey,Syria, and Iran would all beaffected by the disintegra-tion of Iraq. One participantworried that Iraq would notbe able to re-establish con-trol over Northern Iraq,

which has now had some experience of limitedself-government.

Conclusions Participants disagreed on how much commonground was held by the United States andEurope, with the pessimists outnumbering theoptimists. A more optimistic participantthought the gap could be bridged, and neededto be, lest frictions escalate. However, thesteps proposed did not seem guaranteed tobring about a resolution of differences. OnIran, the same participant stated that theUnited States needed to accept the use ofdiplomatic means, i.e., critical dialogue. OnIraq, it was felt that the US policy of enforcingsanctions until Saddam Hussein leaves officewas both counterproductive and illegal, andsure to frustrate Europeans.

A second participant felt less optimistic aboutbridging the gap. European policies of "dia-logue" continue to be interpreted by the USgovernment as doing nothing, while US-European positions on sanctions were still amajor area of contention, barring some align-ment between the United States and UnitedKingdom.

Both US and European participants agreedthat domestic pressures on foreign policy

23


Hussein [is]likely to stay in

power for theforeseeable

future.

formed a considerable barrier to reachingcommon ground on US-European policy, andthat the problem was perhaps more dauntingin the United States where members of theadministration regularly do battle with ele-ments in Congress over US foreign policy.

Several members of the group noted theimportance of the Middle East peace process,which, left unresolved, will continue to feedinsecurities in the Gulf. Even here, however,the United States, criticized for its Israeli bias,and Europe have their differences.

Steps Toward Reaching Common GroundCompromise. Ideas on compromises to bridgethe gap included the suggestion that theUnited States turn contentious D'Amato legis-lation into a bargaining chip, promising todrop it in exchange for pledges from Europe tosupport tough multilateral sanctions on armsand weapons, economic sanctions, and futuresanctions if behavior warrants them.

The concept of compromise was furthered byanother member of the group who advocateda change in the current good cop, bad coproles played by Europe and the United States,respectively. As good cop, Europe had to beprepared to use more sticks and fewer carrotswhen the situation merited it; while as bad

cop, the United States had tobe willing to use more car-rots. However, one partici-pant dismissed carrots andsticks as being too subtle oftools to use with Iran, whichhas only reacted to stickswhen it has been in dire eco-nomic straits.

It was also pointed out thatgiven Khatami's fragile posi-tion in Iran at present andthe relative strength of anti-US rhetoric, theUnited States and Europe may do well to waitfor things to settle before attempting to forge acommon US-European policy. Paradoxically,the United States in particular may best sup-port the new Khatami government by refrain-ing from praising it.

Forum for Dialogue. Participants discussedthe need for a better forum for US-Europeandialogue on the Gulf. One noted that discus-sions carried out with the troika and Canadaare hindered by revolving European represen-tation, which often leaves out major Europeanplayers and can lead to the misperception thatdifferences in US and European positions aregreater than they are. Another participantadded that effective discussions call for struc-

24


Participantsdisagreed onhow muchcommonground washeld by theUnited Statesand Europe....

ture and formality similar to those given totrade talks.

Others, while sympathetic to the need for amore structured US-European dialogue,described the idea for a forum as a nonstarterin the United States, which is notably sensitiveto anything it perceives as limiting its sover-eignty in national decision making. It was alsonoted that European countries have enoughdifficulty agreeing among themselves onissues of foreign policy and, already over-loaded with a vast array of European Union-related committees, are unlikely to beamenable to yet another forum for discussion.More beneficial, one participant suggested,would be to compose a list of unacceptablebehavior, and the type of response to follow,be it sanctions or something else. The confer-ence concluded with a consensus that morework is required to arrive at and promote spe-cific steps that could usefully be taken at offi-cial levels.

25


The Royal Institute ofInternational Affairs

The Royal Institute of InternationalAffairs, at Chatham House inLondon, is Europe's leading organi-

zation working to promote the understandingof key international issues.

Established in 1920, the institute is a researchand membership organization incorporatedunder Royal Charter. It functions independent-ly of government and is not tied to any vestedinterests. Its activities bring together people ofall nationalities, from government, politics,business, the academic world, and the media.

The Royal Institute of International AffairsChatham House 10 St James’s SquareLondon SW1Y 4LETelephone: 44 171 957 5700Fax: 44 171 957 5710Web site: http://www.riia.org

26

About the Project

The Stanley Foundation and the RoyalInstitute of International Affairs have joined toengage a diverse group of Europeans andAmericans from government, business, thinktanks, and academia in an informed, forward-looking, and constructive dialogue on thePersian Gulf. The project consists of a series ofcosponsored meetings and conferences whichbring together small, diverse, and selectgroups of Europeans, Americans, and othersto discuss mutual interests, current differ-ences, and opportunities for more coordinat-ed policies and strategies. The project is beingorganized by Rosemary Hollis, the RoyalInstitute of International Affairs; Gary Sick,Columbia University; and David Doerge, theStanley Foundation.

The Stanley Foundation encourages use of this report foreducational purposes. Any part of the material may beduplicated with proper acknowledgment. Additionalcopies are available.

Production: Amy Bakke and Margo Schneider

ISSN 0748-0571

http://www.riia.org

The Stanley Foundation

The Stanley Foundation is a private operatingfoundation that conducts varied programs andactivities designed to provoke thought andencourage dialogue on world affairs anddirected toward achieving a secure peace withfreedom and justice.

Programs engage policymakers, opinion lead-ers, and citizens interested in solving prob-lems and finding opportunities that presentthemselves in an increasingly interdependentworld. Areas of particular interest are: globalpeace and security, US international relations,sustainable development, human rights, theUnited Nations, global education, and theexpansion of policy deliberations to includewider public representation.

Activities include:• Round-table, off-the-record conferences and

meetings for policymakers and otherexperts

• Congressional programs• Citizen programs for educators, young peo-

ple, churches, professional associations,civic groups, and educational institutions—often held in collaboration with other non-profit organizations

• Production of Common Ground, a weeklypublic radio program on world affairs

• Publication of the monthly magazine WorldPress Review

• Publication of conference reports

The Stanley Foundation welcomes gifts from sup-portive friends. The foundation is not a grant-making institution.

Related PublicationsThe Future of US Persian Gulf Strategy.Report of the Thirty-Sixth Strategy for Peace,Conference, October 1995, 24pp.

Single copies are available free. There is a smallpostage and handling charge for multiple copiesor bulk orders. For more information contact thepublications manager.

The Stanley Foundation216 Sycamore Street, Suite 500Muscatine, IA 52761 USATelephone: (319) 264-1500Fax: (319) 264-0864E-mail: [email protected] site: http://www.stanleyfdn.org

27

http://commongroundradio.org

http://www.worldpress.org

http://www.worldpress.org

http://reports.stanleyfdn.org

mailto:[email protected]

http://www.stanleyfdn.org

Documents

US-European Policies in the Persian Gulf: Beyond the Friction … · in the Persian Gulf:Beyond the Friction ... Edward Chaplin, Head, Middle East Department, ... US-European Policies