(Experts split over proposed Iran-Libya bill)  (940)
By Bruce Odessey
USIA Staff Writer

Washington -- Comprehensive U.S. sanctions against Iran have been far
more effective than anyone expected, one analyst says.

Patrick Clawson, a senior fellow at the U.S. Defense Department's
Institute for National Strategic Studies, said that a plausible
estimate was that sanctions cost Iran $2,000 million in the first
year, or 10 percent of its foreign-exchange receipts.

Clawson made the remarks at an April 29 Washington conference on the
effects of economic sanctions sponsored by the Petroleum Industry
Research Foundation and the Middle East Institute.

The U.S. ban on Iranian oil sales to U.S.-owned companies cost Iran
$100-200 million during the first three months they took effect,
May-July 1995, he said. Even later, when Iran had found markets for
all its oil, it had to sell at a discount, he said.

"The most important impact over time is that Iran has not been able to
attract foreign investment into its oil industry -- investment Iran
had counted on to increase its oil earnings," Clawson said.

As foreign banks and government export-credit agencies have become
more cautious about lending to Iran because of the sanctions, he said,
Iran will not likely raise the $2,000 million in foreign investment it
was counting on for 1996.

The sanctions triggered a collapse of the Iranian currency, making
exports generally less valuable, Clawson said. Iranian non-oil exports
have dropped by nearly three fourths from their pre-sanctions level,
making the foreign-exchange shortage even worse, he said.

Facing uncertain access to foreign capital, he said, Iran has used its
limited foreign reserves to pay off foreign debt, making less money
available for imports of equipment and materials and forcing factories
to cut production.

In fact, as Iran has gone from net borrowing of about $5,000 million
in 1992-93 to net repaying of about $5,000 million in 1995-96, Clawson
said, it has cut annual imports by half from about $24,000 million to
about $12,000 million.

While sanctions have not resulted in the overthrow of the Islamic
Republic or forced Iran to alter its radical foreign policy, he said,
sanctions combined with mismanagement of the economy have weakened
Iran's ability to buy weapons and accomplish its aims.

He predicted successful results also from legislation pending in the
U.S. Congress to impose sanctions against foreign companies that make
investments in or sell equipment for Iranian oil projects.

"While European and Asian governments will undoubtedly complain about
what they see as a secondary boycott," Clawson said, "few firms are
likely to want to risk the legal consequences in the vast U.S. market
in order to invest in Iran," given that its economy is only 1.5
percent that of the United States.

In a keynote address, Gary Hufbauer of the Institute for International
Economics differed with Clawson, viewing as failures the sanctions
against Iraq, as well as those against Iran and Libya, because they
brought about no desired change in behavior.

Generally critical of sanctions as having limited usefulness, Hufbauer
said his study of 116 cases since 1914 indicated better success for
sanctions with modest and clear objectives, broad international
support and fast implementation aimed at somewhat friendly targets. He
said Middle East sanctions did not meet those criteria.

"Efforts that would extend U.S. law to punish third countries will
almost certainly strain U.S. ties with its allies in Europe and Asia,"
Hufbauer said. "If this line of policy is pushed hard, it will
ultimately undermine the global trading system."

Petroleum industry consultant Suleiman Bengharsa told the conference
said the proposed legislation, aimed also at Libya, could succeed in
preventing that country from expanding oil-production capacity.

Any effect would come only after years, though, he said, because the
Qadhafi regime has created a stockpile of oil-industry equipment.

Existing unilateral U.S. sanctions against Libya imposed since 1981
have not measurably hurt that country's economy, he said.

"A unilateral sanctions regime cannot work if what has been sanctioned
by one country can be purchased from another or a variety of other
countries," Bengharsa said.

Perversely, he said, the sanctions may have actually had long-term
political and economic benefits for Libya: The Qadhafi regime reacted
with a successful campaign to lure investments by European national
oil companies in Libya and to buy a majority interest in several
European refineries.

"It is not unlikely that the loss of the U.S. market for Libyan crude
provided the Qadhafi regime with the incentive to buy some control
over its only market -- Europe," Bengharsa said.

If the international community ever agreed on an embargo against
imports of Libyan oil, he said, the Qadhafi regime would likely
collapse within months.

In the case of Iraq, the United Nations embargo combined with economic
mismanagement and damage from the Iran-Iraq and Gulf wars have
devastated Iraq without ending the regime of Saddam Hussein, according
to Ahmed Hashim, a senior fellow at the Center of Strategic and
International Studies.

Iraq's per-capita income has dropped from $8,161 in 1979 to $2,408 in
1989 and about $600 in 1992-95, he told the conference.

The Saddam regime's elite have protected themselves so well from the
sanctions, however, they boast they can withstand them 10-20 years
more, he said. Hardest hit by the sanctions are Iraq's poor,
especially the urban poor unable to grow their own food, he said.