U.S. AND IRAN: AN OFFER THEY CAN'T REFUSE?

FOREIGN POLICY MAGAZINE
Fall 1997 Issue 108

By Robin Wright and Shaul Bakhash
Last May, Iranians went to the polls and elected a new president. In a stunning upset, former minister of culture Mohammed Khatami swept almost 70 percent of the vote in a poll that produced a 90 percent turnout, the highest since the Islamic Republic's earliest elections. He defeated front-runner and Speaker of Parliament Ali Akbar Nateq-Nouri, who had strong backing from the regime's top clergy. President Khatami campaigned on a platform stressing pluralism and the rule of law, and his victory represented an unmistakable and overwhelming mandate for change, underlining the desire of Iranians from all classes for an easing of state restrictions on social and cultural life, for a greater say in political affairs, and for a better economy.

Given the history of U.S.-Iran relations, the idea that Khatami's election might lead to a rapprochement between Washington and Tehran is understandably being treated with skepticism. The election of Ali Akbar Hashemi Rafsanjani as president in 1989 was greeted with similar expectations of improved relations. "Moderate is no longer a dirty word in Iran," declared a headline in Business Week, while the New York Times quoted a long list of experts who predicted that Tehran's new leader would pursue "more pragmatic domestic and foreign policies" and seek to "normalize Iran's relations with the West."

In fact, Rafsanjani succeeded in tempering Iran's policies both at home and abroad. But his success has been limited, and on the issues of greatest importance to the United States, he has little altered the course of Iranian policy. However, Khatami comes to office with a resounding public man' date. He has put together a team of advisers who understand that Iran needs to break out of its fitful isolation and attract foreign investment. In August, he convinced the Iranian parliament to approve all 22 of his cabinet ministers, including Ataollah Mohajerani, his choice for culture minister, who had provoked the wrath of hardliners when he proposed direct negotiations with Washington six years ago. Khatami's election provides a window of opportunity; the opening is not large, but it is worth pursuing.

Besides, Iran is a country that the United States can no longer afford to ignore. There are simply too many vital interests at stake. Economically, Iran's gas reserves are second in the world, and its significant oil resources make it a pivotal player in the energy markets. Before the 1979 revolution, the United States was one of the Islamic Republic's top three trading partners--a relationship that supported thousands of U.S. jobs and $2.7 billion in annual export revenues for America. Up until the early 1990s, the United States was still among the top five purchasers of Iranian oil. Today, Iran represents a potentially important market for American goods and technology, particularly in the oil, aviation, and computer industries, which could again produce billions of dollars of income. Iran also offers some of the most economically viable transit routes for oil and gas pipelines from Central Asia and the Caucasus, now freed from Soviet control.

Strategically, Iran straddles the crossroads of three vital and often volatile regions--the Middle East, South Asia, and the former Soviet republics of Central Asia. Almost one-third of these countries have, or are developing, nuclear weapons. Outside of the Western powers, this arena accounts for the largest array of countries with weapons of mass destruction in the world. In more favorable circumstances, the Islamic Republic could help underwrite Persian Gulf security, as it did during the reign of Shah Mohammed Reza Pahlavi, and assist in advancing a peaceful solution to the Afghanistan conflict. It has already played a constructive role in containing Iraqi president Saddam Hussein during the Gulf War, and it recently helped negotiate an end to the Tajik civil war.

Despite Khatami's election, obstacles to U.S.-Iran dialogue remain formidable. Both the new Khatami team and the Clinton administration face the common problem of conservative and recalcitrant legislatures. In Washington, Congress now sets the pace on Iran policy. President Bill Clinton sought to head off more extensive congressional measures when he imposed a comprehensive ban on all U.S. trade with Iran in May 1995. Last year, Congress passed and Clinton signed a bill requiring the president to impose secondary sanctions on foreign companies investing more than $40 million annually in Iran's oil and gas industry. Proof of Iranian involvement in the 1996 Khobar bombing in Saudi Arabia. which killed 19 Americans, could also preempt or destroy efforts to better relations, and could spark demands from Congress and other key quarters to retaliate either overtly or covertly.

In Tehran, a significant bloc of deputies in the unicameral Majlis is hostile to the "Great Satan" and is bound to try to stymie attempts to improve relations between the United States and Iran. Khatami has the added problem of not being Iran's highest authority, a role reserved for Ayatollah Ali Khamenei, the Supreme Leader. Khamenei, who believes his legitimacy derives in part from his anti-American stance, and who has often set the tone for Iran's anti-American rhetoric, is likely to be suspicious of U.S. motives. He has also taken the lead in opposing the Arab-Israeli peace process and in defining Israel as an "illegitimate" state. If there is to be any change in Iran's policy toward the United States, Khamenei must be brought on board.
Both countries are also prisoners of a generation of threatening rhetoric that has often been as useful for advancing domestic political purposes as it has been for confronting each other.

Undoing the damage will be difficult. Previous attempts have backfired, beginning with the disastrous 1985-86 arms-for-hostage swap that burned both sides. Tehran was also angered when two subsequent overtures--helping to free hostages in Lebanon in response to President George Bush's inaugural pledge that "goodwill begets goodwill") and a deal to allow the Texas-based company Conoco to develop offshore oil and gas fields--were spumed by Washington. In other words, for these two countries, changing minds at home could be as difficult as convincing each other that the moment has come for cooperation.

Yet Iran's election surprise comes at a time of the most extensive policy rethinking on both sides since the 1979-81 hostage crisis--an event that has subsequently clouded every aspect of U.S.-Iran relations. Several former senior U.S. officials--both Republican and Democrat--from the National Security Council, the State Department, and the Central Intelligence Agency have publicly urged Washington to test the waters of constructive engagement through either European allies or direct dialogue. A growing consensus now argues that containment of any nation, especially one with petrodollars, is increasingly difficult in an era of globalization when borders are more porous and competition for markets unprecedented. Sanctions have had limited success in blocking Tehran's access to foreign investment or technology: France's Total SA quickly agreed to develop the oil and gas fields that America's Conoco was forced by presidential order to refuse, and Russia and China both stepped in to develop nuclear reactors when Germany declined to finish a facility started during the reign of the shah. Meanwhile, containment has had no appreciable effect on Iranian behavior in the areas Washington deems most critical--weapons of mass destruction, the Arab-Israeli peace process, and support for extremist Islamic movements.

In a speech two weeks after his election, Khatami called for "removing tensions" with other countries and establishing relations of "peace and tranquillity" that safeguard the rights, interests, and independence of all nations. Khatami is expected to work closely with Rafsanjani, who in the past has appeared to favor dialogue with Washington. The outgoing president still retains considerable clout in Iranian politics, having been appointed to head the Expediency Council, which has been entrusted with the new responsibility of setting the broad policies of the Islamic Republic. In the meantime, officials from neighboring Arab states, who once felt more vulnerable to Iranian mischief, have launched their own rapprochement with Tehran. Saudi Arabia is high on the list. In May, Rafsanjani and Saudi Crown Prince Abdullah agreed to exchange visits. In this context, a series of specific steps over the next four years--during Khatami's first four-year term and Clinton's final term--could begin the process of reengagement.

PHASE ONE: THE OPENING ROUND
Both parties in this impasse have indicated that they are waiting for the other side to make a meaningful first move. During his first postelection press conference, Khatami argued that when it came to improved relations with the United States, the "key to the problem is in their hands, not ours." And the State Department duly noted that now "the ball is in Iran's court."
For the process to work, both sides will have to take difficult steps that break down roughly into four phases. Simply laying out these measures underscores the enormity of the task. The first phase would almost certainly have to be informal, with the focus on building confidence and establishing bonafides to lay the groundwork for addressing more substantive issues. To get the process going, leaders on both sides should implement three steps:

Lower the decibel level and frequency of rhetoric.
Tehran should end references to the "Great Satan" and other cliched accusations about the United States that appear in the speeches of its top officials and its daily press. And in referring to Iran, Washington should stop using terms such as "outlaw" or "rogue" state and should also discourage the tendency to link acts of violence or even accidents, such as the explosion of TWA 800, to Iran before solid evidence is available.

Ease restrictions on travel and contacts.
Contacts between Iranians and Americans can help establish "track two" diplomacy to create an informal dialogue. Both sides could indirectly facilitate contacts by allowing visits or exchanges by scholars; representatives of cultural, professional, and nongovernmental organizations; and individuals with government contacts. American visa restrictions remain particularly severe, requiring a four-to-six-week waiting period and two trips to an American consulate abroad. "Track two" can never replace real talks, but such contacts could help change public opinion and improve the general atmosphere.

Differentiate between threats and unacceptable actions.
Both sides need to distinguish between actions that are genuinely threatening and policies that are merely uncomfortable or disagreeable. Iran may object to the American military presence in the Persian Gulf, but it must recognize that the United States has legitimate interests to protect--most notably, safeguarding the flow of oil and enforcing sanctions against Saddam Hussein. The United States may have just cause to be concerned about Iranian efforts to develop weapons of mass destruction, but must acknowledge Iran's valid need for conventional weapons, especially after losing 40 percent of its war materiel in the eight-year Iran-Iraq war. (Despite Iraq's subsequent conflict over Kuwait, it remains better armed today than Iran.)

PHASE TWO: THE HURDLES
A second phase should begin with an agreement--negotiated either through third parties or directly--on a structure that encompasses a series of steps and countersteps to deal with the practices and policies most offensive to the other country. The Clinton administration has stated that it would enter into direct talks with Iran, so long as the Islamic Republic is prepared to address three "areas of concern": the development of weapons of mass destruction, the sponsorship of terrorism, and the sabotage of the Arab-Israeli peace process. But so far the United States has offered little in return, other than a vague promise to restore diplomatic and economic relations. The U.S. approach is all stick but no carrot. Moreover, linking these issues together and seeking to address them simultaneously allows little room for maneuverability on either side. Iran has not indicated that it will respond in a meaningful way to engagement or to easing of sanctions, for which Europe has repeatedly lobbied Washington.

A framework of reciprocal measures would provide a road map, however roughly sketched, of engagement's ultimate goals. It would allow each side to test the other's good intentions before proceeding and would provide incentives to continue. Such an approach would embody a valuable lesson learned from the Oslo peace process--if both parties are truly committed to rapprochement, then implementing gradual confidence-building measures offers a better chance of success than tackling difficult, divisive issues all at once. This strategy would avoid the kind of confusion generated by Iran's proposed Conoco deal, which Tehran did not describe as an overture to Washington until after the White House had rejected it. Both sides need to understand that these actions would be part of an ongoing process rather than isolated gestures. Phase two, which could stretch for as long as two years, would be the hardest phase, for neither side is likely to change easily. Yet nothing will happen unless these steps are taken.

Iran
End support and sponsorship of terrorism. Iran has long denied its involvement in extremist activities, despite the recent conviction in Thailand of an Iranian agent who intended to bomb the Israeli embassy in Bangkok, and strong intelligence data on other cases. The Khatami regime will have to erase even the perception that it is involved in targeting and sabotaging foreign governments and personnel. Tehran will also need to block terrorist acts by surrogates, stop training Arab dissidents who seek to harm the United States and Western allies, and bring its security agencies under control. Iran's behavior, in other words, should begin conforming to international standards and the rule of law. This process includes ending the assassination of its own dissidents abroad, the kind of act for which a German court recently implicated the regime's highest officials. Likewise, Tehran will have to do more than reassure European officials that it will not send a hit squad to murder novelist Salman Rushdie. It must also deal with a small religious foundation that has pledged a $2.5 million reward for his death.

Stop sabotaging the Arab-Israeli peace process. Tehran is unlikely to return to the kind of close cooperation with Israel that prevailed during the reign of the shah, nor is it likely to change its opposition to the current detente between Israel and the Arab world. But it must end attempts to undo the peace process by training, equipping, or financing--directly or indirectly--organizations such as Islamic Jihad, which has claimed responsibility for suicide bombings of Israeli civilian targets. Iran will also have to distance itself from extremist groups targeting Arab governments that have begun to engage with Israel.

The United States
In exchange for these steps by Iran, the United States will need to take simultaneous actions. These will be the incentives for Iran to continue the process, although the Islamic Republic will not be rewarded for its actions until U.S. intelligence can verify that Tehran's behavior has changed significantly.

Expedite closure on Iran's frozen assets. Returning assets frozen by the United States since the hostage crisis has long been a key Iranian condition for bettering relations and a yardstick by which Tehran says it will judge American intentions. A joint U.S.-Iran tribunal that meets in the Hague has resolved most of the 4,000 financial claims and counterclaims, but a major, multibillion-dollar dispute remains over the value and billing of arms that Tehran paid for before the revolution, most of which were never delivered.

Support a European Union offer to promote constructive engagement. Washington should accept a bid by its European allies to prove that constructive engagement is a more effective tool for changing Iranian behavior. The initiative should be tied to a specified time frame, perhaps coinciding with Khatami's consolidation of his government. As progress is made during this roughly two-year period, the United States should suspend pressure on Europe and Japan to isolate Iran, and it should at least temporarily end opposition to Western economic credits designed to boost Iranian development. Washington should also promote diplomatic ministerial contact between its allies and Tehran. In exchange, the European Union should meet Washington halfway. The EU could be urged to respond to verified acts of Iranian misbehavior by implementing limited, punitive sanctions. Europe might favor such an approach for two reasons. First, it is part of a broad, earnest campaign to engage Iran. Second, it represents a strategy of "proportional response," which would involve limited and selective sanctions as opposed to the comprehensive penalties that U.S. policymakers advocate.

Regain control of U.S. policy on Iran. To have any flexibility in dealing with Tehran, the administration needs to bring Congress and public opinion along from an early stage. Clinton could build bipartisan consensus for these policies by mustering the public support of Republican heavy-hitters like former national security advisor Brent Scowcroft, who recently pushed for a new approach to U.S.-Iran relations. Such a tactic served the president well during his tough battle with Senate hardliners over ratification of the Chemical Weapons Convention. Likewise, the growing backlash against sanctions by American business leaders could give the administration considerable clout when dealing with Congress, as was made apparent during the recent debate over granting most-favored-nation trading status to China. Whenever possible, the administration should emphasize that America stands to reap substantial benefits from engagement, both in terms of creating jobs at home and guaranteeing security abroad.

PHASE THREE: DIRECT ENGAGEMENT
The third stage would allow a series of contacts on issues of mutual concern over perhaps a year or two. It would amount to phased engagement.

Direct contact on neutral turf. American and Iranian officials should make a concerted effort to discuss and emphasize areas of common ground at international forums and at meetings with representatives of financial institutions and regional bodies. Many issues, from regional environmental problems and drug proliferation, to Afghanistan's instability and Bosnia's future, would benefit from direct U.S.-Iran contact. Some of these problems are becoming increasingly urgent. With NATO troops expected to withdraw from Bosnia in less than a year, the United States can no longer ignore the fact that Tehran's ties to Bosnian Muslims will make it a long-term player in the politics of that troubled region. The United States and Iran could design engagement so as to address less problematic issues first and more contentious ones later. Despite the enormous changes in Iran's political system, many of its foreign policy goals have not changed since the era of the shah. Defusing regional conflicts, attracting foreign investment, and gaining access to Western markets are as much priorities today as they were 20 years ago.

Tentative commercial contacts. As contacts expand, commercial links between Iran and the United States could begin again, albeit gradually. For example, the U.S. government could lift legal restraints to allow U.S. companies to transship Iranian oil to Europe, help to develop Iran's oil and gas facilities, or sell oil-drilling equipment to Iran--projects that generate jobs and income for Americans. Other constraints on importing handicrafts and rugs, which primarily helps Iran's economy, could also be lifted eventually. But restoration of full U.S.-Iran commercial ties would need to await more significant diplomatic progress.

Opening talks on security issues. Last but not least, Iranian and U.S. Officials will need to address in bilateral talks a range of security concerns, from broad issues in the Pesian Gulf to arms proliferation throughout the Middle East and South Asia. Iran will not even discuss its conventional arms buildup or its pursuit of unconventional weapons unless its own legitimate defense and security concerns--including endemic instability along several borders, regional arms proliferation, and America's significant military presence in the Gulf--are also addressed. At this stage, both sides should strive for common ground, such as containing Saddam Hussein or securing the free flow of oil. The two sides could reassure each other about their long-term intentions and craft a broader context for eventually resolving their differences on, for instance, the spread of weapons of mass destruction. Tehran would be more likely to abandon its pursuit of a nuclear capability if it felt secure about the United States, Iraq, and other neighbors. Washington, in turn, might find Iran's conventional weapons acquisition more tolerable if it felt more confident that Iran did not intend to use them against the United States or its allies.

THE ENDGAME
Given the history of tensions between Iran and the United States, this deliberately paced sequence of steps may be the best that either side can hope to achieve over the next four years. Yet the current confluence of factors--Iran's pivotal election, growing American skepticism about U.S. policy on Iran, the Gulf monarchies' rapprochement with Tehran, Secretary of State Madeleine Albright's declaration this year that Washington will not deal with Iraq as long as Saddam Hussein stays in power--offers the best opportunity for a major policy change by both sides in many years. Clinton is also the first U.S. president since Iran's revolution not to have American hostages held either by Iranians or pro-Iranian extremists in Lebanon. In the past, the two governments were generally out of sync on everything from regional goals to leadership cycles. The next four years, in contrast, represent a unique juncture.

Tehran will have to launch the process. Khatami must create the conditions for change by performing these specific steps, by cleaning up Iran's human rights record, and by removing the perpetrators of Iranian mischief--a process he has begun by changing the ministers of intelligence and interior. Initially, he will almost certainly have to begin by taking small steps, but Washington will have to be alert to these shifts and help to accelerate them by responding appropriately. In the past the United States has failed to acknowledge such changes, as in the early 1990s when Rafsanjani squeezed from power several high-ranking radicals associated with hostage seizures and anti-American attacks. The United States may not be able to bend dramatically at first either, but it will need to extend a hand. Now in his final term, Clinton also has more leverage to act and perhaps even more interest as he seeks to create a legacy.
The final issues--restoring full commercial ties and diplomatic relations--will probably have to wait until Khatami's second term, pending his reelection, and a new U.S. administration. Somewhat like his counterpart in the Oval Office, Khatami's first order of business will be to build a viable political coalition that will allow him to implement the ambitious domestic platform upon which he was elected. Bringing Khamenei along, in particular, is likely to require time, heavy persuasion, and verification on the Iranian side that the cost-benefit ratio of a dramatic policy shift is worth the adjustment. Khatami will strengthen his argument if he can show the Supreme Leader that a shift in Iran's foreign policy will produce the desirable response, including the access to Western technology, credit, and investment that Tehran needs, particularly for its oil and gas industries.

During the endgame--which will also be the time to deal with the thorny problem of weapons of mass destruction--Iran and the United States should at least attempt to reach specific understandings over security issues so that there is no need or threat that leads to acquisition or use of the deadliest weapons. Throughout the engagement process, the obstacles are enormous; the chances of a new impasse or of the effort's collapse are high. But as daunting as the risks in changing course may seem, the bigger risk is to make no effort to defuse one of the world's most volatile relationships--or prevent it from getting worse.