FILE ID:97072302.NNE

(House International Relations Committee assesses policy) (800)
By Joanne L. Nix
USIA Staff Writer

Washington -- Unless Iran is ready to forswear international
terrorism, renounce arms buildup, and stop trying to acquire or
produce nuclear weapons, "we should not alter our stance toward this
country and we should vigorously enforce the Iran Libya Sanctions Act
as an important component of our overall dual containment strategy
toward both Iran and Iraq," says Benjamin A. Gilman, head of the House
International Relations Committee.

In a July 23 hearing by the Committee on Capitol Hill, administration
and private sector panelists discussed the effects of the Iran Libya
Sanctions Act (ILSA) which was enacted nearly one year ago.

ILSA was enacted on August 5, 1996. It requires Washington to punish
any foreigner who invested $40 million or more a year in oil or gas
production in Iran or Libya. According to Gilman, no sanctions have
been imposed since the passage of the act, although a few deals have
tested the law.

Gilman reported that the only oil development contract that Iran has
signed with a foreign firm since the imposition of U.S. sanctions -- a
deal to develop the Balal oil field -- is "on the brink of falling
apart" because the Canadian and British firms involved in the bidding
have been unable to arrange financing.

Gilman warned that one potential firm waiting in the wings for this
particular deal to fall through is the China National Petroleum
Corporation. "If this report turns out to have some validity," he
said, "this could be a potential flash point in U.S.-China relations
particularly in light of increasing Chinese support for Iran's
military build-up."

He also said that the Committee planned to question the German
government about a loan from the Westdeutsche Landesbank to finance an
Iranian engineering firm's work to develop an oil field, and a $2
billion natural gas project under negotiation with French oil giant

Gilman acknowledged that at the present time there is "heightened
debate within the administration and within Washington policy circles
over the future direction of U.S. policy toward Iran and other
terrorist nations." He reported that prominent outside observers are
calling for a dialogue and more "moderation" in U.S. policy toward
Iran as part of a review of a broader strategy of "dual containment"
of both Iran and Iraq. The debate thus far, he said, "centers around
the question of whether the U.S. should offer incentives (for Iran) to
moderate its behavior toward its neighbors in the Gulf and in the
Middle East region as a whole.

Following the May 23 election of Mohammad Khatemi as President of
Iran, he said, the debate over America's Iran policy "has only

Gilman commended the administration as acting with "justifiable
caution" given Iran's record of support for international terrorism in
the Middle East. "I believe that there should be no change in U.S.
policy unless Iran takes clear steps to improve its international
behavior," he said.

He said that these steps should include:

-- a declared end to Iran's support for international terrorism;

-- a reduction in its confrontational arms build-up in the Gulf;

-- and a clear statement by Iran that it is not trying to acquire or
produce nuclear weapons or the means to deliver them.

Also testifying were Alan Larson, assistant secretary of the Bureau of
Economic and Business Affairs at the State Department and David Welch,
acting assistant secretary of State's Bureau of Near East Affairs.

Larson testified that ILSA has had "a chilling effect" on foreign
investment in Iran's oil and gas fields and that the law has made it
more difficult for Iran to buy arms. Although Iran had tried to
attract interest in 11 oil and gas projects over the last year, Larson
reported that it has yet to sign any contracts to develop the fields.
"It is notable that during the first year of ILSA there has not been
any activity that we have been able to learn about or identify that
would be sanctionable under ILSA," he said. But he admitted that
European allies were not cooperating enough to isolate Tehran.

David Welsh called for increased multilateral diplomatic efforts to
encourage a comprehensive approach toward Iran by the U.S. and its
allies saying: "We would have better success were we not acting
unilaterally." He also argued that the European approach of engaging
Iran had failed as much as U.S. policy to change Tehran's behavior.

Others testifying at the hearing included Patrick Clawson, senior
research professor at the National Defense University; Sara Miller,
editor of Petroleum Intelligence, and Ayatollah Dr. Mehdi Haeri
Khorshidi, of the Iranian National Conference.