Chairman and distinguished Members of the Subcommittee, thank you
invitation to me to provide testimony on behalf of Conoco, Inc.,
concerning an important piece of legislation that affects a region of
vital interest to the United States.
I am grateful that you have given me the opportunity to address this Subcommittee on the issue of the Iran-Libya Sanctions (ILSA) Extension Act, and that the Members are devoting such appropriate consideration to the contents and the consequences of this proposed legislation. Both this Congress and the new Administration have undertaken their responsibilities at a time of intensifying threats and appalling violence in the Middle East. These circumstances add urgency to the imperative of shaping a framework for U.S. policy in this region that protects and defends America’s national interests and those of our allies.
on behalf of Conoco and its employees and shareholders, I want to
emphasize the deep and abiding concerns that we in the business
community share with you in determining that policy and advancing U.S.
interests. We are, of course, private organizations with commercial
objectives. But first and foremost we are patriots, and we profoundly
believe that the American spirit of free enterprise has an integral
contribution to make towards promoting peace and prosperity around the
only do we uphold common values, but we also endorse common interests,
particularly in the critical area of the Middle East. The United
States has vital national interests in this part of the world: to
promote peace among all the people of the Middle East; to assure the
stability and security of the Persian Gulf; and to protect and expand
the world’s energy supplies. America’s private sector shares these
priorities, because we recognize that the advancement of U.S.
geostrategic objectives around the world will generate the most
advantageous environment for U.S. companies. Nowhere is this more true
than in the Middle East, where efforts to resolve historic tensions
can only enhance the climate for American capital and technology. Here
our vital national interests and our commercial interests go hand in
remarks will primarily address the subject at hand, the proposal to
extend ILSA. However, I want to highlight from the outset our profound
concerns about the broader problem of unilateral American sanctions on
trade and investment with these two countries. Through Executive Orders
issued by President Clinton with respect to Iran, and by President
Reagan with respect to Libya, U.S. companies are barred from any
meaningful involvement in the economies of either Iran or Libya, while
our foreign friends and competitors have become increasingly active
there, as I will describe below. This unilateral embargo is both
inequitable to our own citizens and ineffective in its impact on the
target countries. In the deliberations over this specific piece of
legislation, this context is critical. Our decision on the future of
ILSA can and should signify a renewed American readiness to work with
our allies, to engage with our adversaries, and to address the dilemmas
that Iran and Libya pose for U.S. national security.
The Power of Economic Diplomacy
American economic strength is a central factor in advancing our nation’s foreign policy. Commercial interactions among peoples help develop closer political and strategic ties, and they are even more powerful in cases where governments have long been estranged. In Russia and across the former Soviet Union, American businesses have strengthened fragile new democracies by transforming the controlled economy of the past into a free market of the future. As one of the first and one of the largest foreign investors in Russia’s oil industry, Conoco has played a valuable role in that transition. In Vietnam, U.S. companies helped pave the way for political normalization and the process of post-war reconciliation, and here again, Conoco is the largest foreign firm in the energy business. Commercial cooperation has been an essential instrument in America’s foreign policy arsenal throughout our history, and in today’s increasingly interdependent world, trade serves as a powerful force for inducing domestic liberalization and international moderation.
Six years ago, some envisioned such a future for the Islamic Republic of Iran. Conoco spent months negotiating a $600 million contract to participate in the development of the Sirri offshore oil and gas fields. We understood the sensitivity of the rift between Iran and the U.S., and so we were careful to keep the State Department informed every step of the way. Tehran’s decision to award Conoco this contract – Iran’s first exploration and production deal with a foreign company since the revolution – was specifically intended to signal the government’s willingness to chart a new course in its relationship with the U.S. Here in Washington, however, the decision produced the opposite effect, a campaign for the economic isolation of Iran. As a result, a series of Executive Orders and Congressional actions, including ILSA, severely restricted economic ties between our countries, and we were required to walk away from the Sirri contract.
U.S. policy has also required Conoco to sacrifice substantial business
in Libya as well as in Iran. With our two U.S. partner firms in the
Oasis Group, Marathon and Amerada-Hess, Conoco operated successfully in
Libya from the 1950’s until 1986, when an Executive Order issued by
President Reagan barred any further activity in that country. At that
time, the Libyan National Oil Company assumed control of our operations
and, of course, their revenues, although the Libyan government continues
to honor our claim to the properties. The embargo developed into a
multilateral effort in the aftermath of the 1988 Pan Am 103 tragedy, and
the cooperation of the world community with United Nations sanctions
helped secure Col. Qadhafi’s acquiescence to a judicial resolution.
Since the suspension of the UN embargo, however, virtually all our
international competitors resumed business with Libya, while American
companies alone remain sidelined by unilateral U.S. sanctions. Even more
incongruously, our foreign competitors are eyeing the properties owned
jointly by Conoco in the Oasis Group, and our continued absence makes
those attractive potential offerings for the Libyan government.
its inception, the Iran-Libya Sanctions Act appeared to provide a key
element of the intensified U.S. embargo – a means for persuading Iran
and Libya’s alternative trade partners to participate in a
multilateral effort via the threat of secondary sanctions.
Unfortunately, ILSA in practice has proved not to be the linchpin of a
successful strategy of economic pressure, but the fatal flaw in an
ineffective framework, one that has had a highly adverse impact on both
American national interests and commercial interests. ILSA has failed in
each of its primary objectives, and this failure has come at the expense
of American businesses, American workers, American farmers, and American
consumers. Even more dangerously, ILSA has proven to be a paper tiger in
combating the serious challenges, such as terrorism and proliferation of
weapons of mass destruction, that US interests face today in the Middle
East and around the world.
so while we in the business community wholeheartedly support American
policy, from our position on the front lines of the global marketplace,
we must voice our serious differences with the choice of ILSA, and
unilateral economic sanctions in general, as a tool to advance that
policy. Fortunately, the choice is not in fact between ILSA and nothing.
Rather, we have at our disposal an array of policy options, many of
which can be far more effective in contending with the menace of
terrorism and weapons proliferation. For these reasons, we strongly
oppose any extension to ILSA. In the place of this hollow threat, the
Congress should adopt smarter sanctions that target the perpetrators of
violence rather than the people of those countries, who we are
encouraging to embrace more democratic processes. Smarter sanctions
would provide much greater influence over the foreign policy
calculations of Tehran and Tripoli, and coupled with other measures that
directly address the roots of proliferation and political violence,
would send a much clearer message to these governments of American
determination and resolve. The U.S. has serious national interests at
stake, which can be better protected and advanced through engagement and
deterrence than through attempted isolation.
me address the specific ways in which ILSA has fallen short of the
objectives set out by its drafters and, in practice, has been
counterproductive. Deactivated by its own provisions and unenforceable
prescriptions, ILSA represents the worst of all possible policies – an
embargo that has backfired to punish not its target, but its sponsor.
The legislation sets out to punish and prevent any threat from Iran or
Libya, but its primary impact has been to place all American interests
at a severe disadvantage in an increasingly competitive and globally
integrated political economy.
ILSA Has Failed to Deter Investment in Iran and Libya
First and foremost, ILSA has failed in its most basic premise; it simply has not halted foreign investment in the energy sectors of Iran or Libya, nor reduced that investment in any material way. The Sirri contract in Iran, relinquished by Conoco in 1995 in compliance with U.S. policy, is an emblematic case in point. In the aftermath of our withdrawal from this project, the French company Total quickly stepped into our place. Total was undeterred by the limited likelihood that Washington would risk a major trans-Atlantic trade war over this project; in fact, the company was encouraged by the French government, which along with many of our friends and allies, took great exception to this perceived attempt by Washington to mandate a lockstep approach toward Iran. Total’s risk proved wise when in 1998 President Clinton issued a waiver, citing national security considerations, that freed Total of any fear of secondary sanctions against its much more substantial investment in the South Pars development project.
waiver effectively opened the floodgates for investment in Iran, and
since the passage of ILSA, foreign companies have committed $18 billion
of investments in Iran’s petroleum industry and have signed $13
billion in contracts. In not one of these cases has the US Government
chosen to implement the penalties mandated by ILSA. If it was intended
to shut off the lifeline of foreign exchange for these regimes, ILSA has
been a very leaky faucet.
of this investment has flowed from our friends and allies. The Europeans
– including our closest NATO partners – and now even the Japanese
have decisively broken ranks with Washington on this approach, and their
massive investments in Iran have repeatedly resulted in exemptions or
inaction by the U.S. Government rather than the implementation of the
ILSA-mandated penalties. They increasingly disregard the threat of these
punitive measures, because it is clear that our government will dismiss
a result, Total, the company that assumed the 1995 deal meant for Conoco,
has been joined in Iran’s congested energy sector by the Italians, the
Dutch, the Norwegians, the Austrians and the Canadians, and it is only a
matter of time before the British are awarded, and accept, a major new
contract. And it is not only our friends and allies who are investing
here; our strategic competitors in Russia and China, as well as emerging
regional powerhouses such as Malaysia, Indonesia, and South Korea, have
taken full advantage of the opportunities presented by ILSA and
America’s self-imposed absence to move into dominant positions in
only are they investing in development of Iran’s oil and gas
resources, the Europeans, the Japanese and a host of other countries
have also become heavily involved in other aspects of Iran’s energy
sector – extending trade insurance, expanding the petrochemical
industry, and building power plants. Meanwhile, despite the expectation
that ILSA would deny Iran opportunities to participate in the
establishment and expansion of regional energy infrastructure, deals
with Turkey, India, and several Persian Gulf states for natural gas
exports remain in various stages of negotiation.
has attracted a similar level of investor interest, although the
effective deterrent of multilateral United Nations sanctions –
principally the travel ban – deferred Tripoli’s opening until only
two years ago. But a host of firms, representing a veritable atlas of
the international oil industry including the UK, the Netherlands,
France, Italy, Germany, Spain, Sweden, Canada and South Korea, remain
active there. And the suspension of UN sanctions in 1999 has produced a
frenzy of international activity, with at least fifty companies at the
table and more than 130 blocks potentially on offer.
magnitude of actual investment and potential interest in Iran and Libya
since the enactment of ILSA and the accompanying U.S. embargo vividly
illustrates the inefficacy of unilateral American sanctions. U.S.
sanctions on their own have had no demonstrable effect on the income
available to these governments, and the effort implicit in ILSA to
extend the U.S. boycott to our allies as well as to our adversaries has
collapsed under the weight of our own waivers. The global nature of the
oil industry means unilateral sanctions have relatively little impact on
government coffers in Iran and Libya – in fact, far less than the
impact of a rise or fall in the price per barrel by single dollar, or
even one penny. Since we have not convinced or compelled the other major
industrial countries of the world to join us – and there is no way to
do so – American sanctions only constrain our own competitiveness.
They should be discarded without any further cost to American citizens.
proponents argue that while it has not curtailed all investment, ILSA
has had some modest impact in dissuading foreign companies from Iranian
and Libyan petroleum projects, citing as evidence the potential for both
countries to attract and absorb even greater amounts of capital. While
it is true that neither country lived up to its investment potential
over the past five years, it is misleading to attribute this shortfall
to the threat of secondary sanctions. The main deterrent to investment
has not been ILSA, but the near-term internal difficulties of both
governments to absorb the interest of major international energy
companies. Today, many of
these hurdles have been removed, and through improved contract terms and
important legal and regulatory enhancements to the overall climate for
foreign investment, Iran and Libya are poised to move much more quickly
and dramatically in securing international financing for energy
projects. In addition, the past five years have provided a generous
head-start for their potential trade partners in Europe, Asia and Russia
to build the relationships, acquire the data, and develop the intense
familiarity that is essential to the massive investments involved with
the energy sector. These factors, along with the currently high price of
oil, mean that the next five years will witness an intense amount of
economic activity in both countries, with projects worth tens of
billions of dollars on the offing. This will transform ILSA’s steady
leakage into a flood of new economic ties between Iran, Libya and our
allies and competitors.
friends recognize the power of economic links to transform security
relationships, and they understand that oil is fundamentally a strategic
commodity. As a result, senior government officials – indeed, heads of
state, foreign ministers, trade and commercial ministers from our
closest NATO allies – have provided energetic support to their
business communities in securing long-term contracts in Iran and Libya,
especially in the energy sector.
ILSA Has Failed to Promote A Multilateral Approach to Iran and Libya
addition to its failure to stem the flow of foreign capital into the
Iranian and Libyan energy sectors, ILSA has missed its mark in a second
key respect: it has not produced greater cooperation with our allies in
confronting the challenges posed by these two governments. The
legislation specifically calls for efforts to ensure multilateral
support for its provisions, but this has not occurred. In fact, rather
than assembling a united front, ILSA’s original enactment seriously
antagonized our friends and allies, who consider its secondary sanctions
to violate international law and the agreements to which we are party as
members of the World Trade Organization. Renewal would cause further
friction with the very governments whose cooperation is essential, both
for stemming the flow of proscribed technologies and combating terrorism
and for pressuring Iran and Libya to take responsibility and compensate
for their violent pasts.
ineffective sanctions such as ILSA erode America’s influence and
perceptions of our integrity around the world. When sanctions don't
work, it looks as though America has failed. And when America fails, it
loses its ability to influence, let alone lead. We risk isolating
ourselves rather than our targets, and not simply on the question of
engagement with Libya or Iran, but on the wider array of issues that
require coordination with our allies. As we mobilize a more cohesive
coalition against the enduring threat of Saddam Hussein’s Iraq, we can
ill afford greater tension with our allies, and we must not squander our
influence on economic threats against our friends that will never work.
that is of course the crux of the ILSA dilemma: this law has not been
effective because its penalties have never been applied, but these
penalties cannot be enforced because they would trigger a serious trade
war with our most important allies. We have a lot at stake with our
European partners, and such a dispute would be devastating, especially
coming at a time of economic uncertainties and changing strategic
priorities. A trade war would ripple throughout the U.S. economy,
hurting businesses, farmers, workers and consumers in every
Congressional district, and it would immensely complicate efforts to
build greater European support for critical cooperative security
arrangements, such as missile defense. ILSA renewal would jeopardize
these fundamental American interests.
ILSA Has Failed to Modify Iranian and Libyan Foreign Policy
Finally, perhaps the most tragic element of ILSA experience has been the failure of this legislation to produce any appreciable impact on the behavior that it is intended to halt. The increasing reintegration of both Iran and Libya into the world community and their massive resource wealth provide access to the sufficient benefits, irrespective of American restrictions. There is absolutely no evidence that the sanctions regime, or ILSA specifically, has brought about the slightest modifications in the conduct that is considered inimical to American interests abroad. We must identify and implement more effective measures for combating offensive policies, rather than relying on rhetorical threats or disengaging from the consensus of the world community.
Sanctions have also failed to contribute in any positive fashion to the uncertain political transformation that has taken place in both Iran and Libya in recent years. In fact, American efforts to apply economic pressure have worked to the advantage of those who hate the U.S. The ILSA threat of secondary sanctions plays into the hard-liners’ obsessive fears of international conspiracies against their government and arouses nationalist passions and anti-American mistrust. This serves the purposes of the small minority of Iran’s population who remain hostile to progress, and enables them to retain their dominant positions and enhance their considerable economic interests. But more than two-thirds of the Iranian population are under the age of 25, with little or no memories of the revolution itself. These young Iranians, along with so many of those from all generations whom I’ve met on my trips there, are eager to embark on a new phase of relations between our countries. Our sanctions disregard their aspirations for a government more responsive to its citizens and more responsible in the region, and enable those aspirations to be deferred for another day.
Iran-Libya Sanctions Act and our other unilateral sanctions have failed
to achieve any of their stated objectives. However, a full accounting of
this legislation must not only consider its negligible part in advancing
U.S. interests, but its high collateral costs to those interests.
ILSA Has Reduced U.S. Energy Security
ILSA has diminished American energy security at time of soaring demands
and shrinking supplies. Constraints on US investments in new production
have substantially reduced America’s
diversity of energy
supplies – while constraining no one else’s, making consumers
in the United States more dependent on fewer sources. Growing
demand in the U.S. and in developing economies has been met by an all
too inflexible supply of oil, resulting in shortages and skyrocketing
prices. Today, prices have doubled from their mid-1990s’ level that
facilitated the rapid economic growth of that period. Any disruption to
the worldwide supply of oil in this period of limited spare capacity and
regional tensions would have an immediate and severe impact on American
rolling blackouts that have darkened homes and offices in our nation’s
most populous state in recent months call needed attention to this
neglected priority. The government Task Force under the able leadership
of Vice President Cheney, as well as several independent studies
released in recent weeks, are calling for a more comprehensive U.S.
effort to ensure our nation’s energy security. These studies have
highlighted the need to tap into new sources of energy supply, both at
home and abroad.
simply cannot be accomplished if we cordon off major producing states.
Iran and Libya possess petroleum resources of a magnitude that makes
them impossible to eliminate from the global energy market. Iran alone
has proven oil reserves that are more than twice the size of those in
this country, and on par with the entire Central and South American
continent. As OPEC’s second largest producer, Iran boasts nine percent
of the world’s oil reserves and 15 percent of its gas resources –
percentages that could soon double with new discoveries that Iran is
making – on its own. Libya’s high-quality reserves and low-cost
transportation routes to Europe mean that Tripoli too is a key producer.
Both countries will expand their production capabilities substantially
over the next decade, and US participation in identifying and developing
these resources today will guarantee an adequate, diverse supply of
energy for future generations.
than to allow Iraq to produce flat-out, there is simply no single act
that will do more in the short term to increase energy supplies and
lower energy prices for Americans than to lift these sanctions, as soon
as possible. The energy business has an inherently long lead-time on
project developments, and investments in new production from either
Libya or Iran will not yield production on the market for at least three
years. The expanding American and world economies cannot afford any
further delay in new energy developments imposed by legislative fiat.
addition, investment in Iran and Libya can generate a more cooperative
approach on the part of OPEC. Iran, for example, now possesses little to
no spare capacity, and because it cannot benefit from the short-term
expansion of supply, the government tends to adopt hawkish positions
within OPEC on price and production policies. Development of new fields
and redevelopment of mature reservoirs will mitigate this pressure, and
make it easier for the oil producers to agree on increases in daily
output, which in turn will ease price pressure on consumers.
addition to impairing our interest in expanding and diversifying the
global supply of energy, ILSA sanctions have also come at the cost of
significant commercial opportunities for U.S. companies. This cost is
spiraling upward even more quickly today, and any extension of ILSA
would mean billions of dollars lost to American workers and industries.
A previous section of this testimony enumerated some of the investment that has already taken place despite the intended impediments of ILSA. But it is even more important to consider the future scope and scale of potential investment in Iran and Libya. In a survey of 85 multinational oil companies conducted just a few months ago, these two countries were ranked as the most attractive opportunities for new investment (Citation: Survey by Robertson Research, UK, published 3/27/01). The Iranians estimate that at least $60 billion is needed over the next decade to maintain their current petroleum production and to ensure even modest expansions in their output. In Libya, more than 70 percent of the known oil reserves have yet to be exploited. The ILSA waivers to date have granted our foreign competitors a tremendous advantage in terms of positioning, relationships, and accessibility in securing this new business.
Libya, the restrictions on American return – while the suspension of
multilateral sanctions invites the rest of the world back in – may
well lead to the appropriation of U.S. assets in favor of European
competitors. Iran offers different, but equally urgent, opportunities.
In Iran, recent discoveries are of strategic and historic magnitude –
the Azadegan field alone contains somewhere in the order of 26 billion
barrels of recoverable oil, meaning that production from this single
field alone could provide three to four hundred thousand (300-400,000)
additional barrels of oil per day. Billions of dollars will be spent on
its development, now under the leadership of a consortium of Japanese
Other reserves in Libya and particularly in Iran tend to be found in mature fields that have already experienced a long and productive history. This does not suggest that further investments are unnecessary or uneconomical; rather, it is quite the opposite. Older fields in both countries urgently need rehabilitation and secondary development to maximize their current output and future potential. This is an area where American expertise and technology offers a particular advantage. However, here, as in the case of the historic Azadegan field, ILSA extension would paradoxically provide an upper hand to non-American companies.
entails significant costs to our economic competitiveness, energy
security and alliance relationships, and yet it is has proven wholly
ineffective in deterring investment or modifying unacceptable behavior.
Still it remains on the books, and even with such a dismal record, some
support its extension.
Iran, Libya and US Security: Isolation vs. Engagement
understand the reason for this support, even if I do not agree with it.
Politicians and policymakers here in Washington are justifiably
frustrated by the rising tensions and enduring violence in this region.
We must be concerned about the degeneration of the Middle East peace
process, which has cost hundreds of lives on both sides of the conflict
between Israelis and Palestinians, as well as the decades of hope that
had been invested in pursuit of an enduring settlement. This violence
has generated an equally dangerous derivative trend, the partial
rehabilitation of Iraqi dictator Saddam Hussein on the streets and, even
more ominously, within some governments of the Arab world. Confronting
these two challenges rightly rank at the top of American priorities for
the Middle East.
These circumstances rightly dismay and outrage many here
in Washington, and I share that frustration. But such urgent and
intractable dilemmas demand real solutions, not rhetoric on sanctions
such as ILSA that can never be properly implemented. Real solutions
would entail more judicious use of economic pressure, as well as more
generous investments in the programs that have been successful in
combating the challenges that these governments pose through better
training, intelligence gathering and analysis, and technical
capabilities. The United States has
a remarkable set of military assets designed specifically to deal with
terrorists, and investing in those capabilities will do far more to
combat violence than any sanction can accomplish. We did not allow the
rash of airline hijackings in the 1980s to shut down international air
traffic. We should not allow a very small group of individuals involved
in supporting terrorist activities to keep us from developing better
relations with Iran, which will enhance our security in the region,
advance our commercial interests, and over time will do the most to
encourage positive changes in Iran’s government and political climate.
This is a period of subtle but significant changes in both Iran and Libya, as their young populations come of age and their developing economies come on line. Isolation is not the answer to the security dilemmas we face. Rather, we should pursue engagement with Iran and Libya and expand their dialogue with the world community through commerce, culture, and diplomacy. Building linkages with these governments will require flexibility and perseverance, but just as in Vietnam, Russia, and China, these linkages will provide a foundation for peace and prosperity. Economic incentives have a major contribution to make in creating common interests. The broader reintegration of these two countries into the world economy will invite moderation and balanced responsibility. Whether it is membership in the World Trade Organization, acceptance of international finance, or participation in the multinational oil business, today’s global market imposes stringent restrictions and eschews provocative actions. Any gains from this reintegration for the governments in question will only give them more to lose if they endeavor to upset the system.
Representatives of Conoco have spoken frequently on the issue of
unilateral trade sanctions. Our position reflects our proud corporate
history of blazing new trails, a history that began in the American
frontier states and today extends our activities throughout the global
market for energy. This history has provided us with a unique vantage
point on the challenges for the U.S. government in difficult parts of
the world, such as Iran and Libya. We look forward to the day when we
can once again serve as proud corporate diplomats, and help begin the
long, slow process of rapprochement between unnecessary adversaries.
Allowing ILSA to expire on schedule is the first step.
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