Janus-faced US in brisk business with Iran

The US federal government has awarded more than $107 billion in contract payments, grants and loans over the past decade to foreign and multinational American companies while they were doing business in Iran, despite Washington’s efforts to discourage investment there, records show.

That includes nearly $15 billion in benefits paid to companies that defied American sanctions law by making large investments that helped Iran develop its vast oil and gas reserves.

For years, the United States has been pressing other nations to join its efforts to squeeze the Iranian economy, in hopes of reining in Tehran’s nuclear ambitions. Now, with the nuclear standoff hardening and Iran rebuffing US diplomatic outreach, the Obama administration is trying to win a tough new round of UN sanctions.

But a ‘New York Times’ analysis of federal records, company reports and other documents shows that both the Obama and Bush administrations have sent mixed messages to the corporate world when it comes to doing business in Iran, rewarding companies whose commercial interests conflict with US security goals.

Many of those companies are enmeshed in the most vital elements of Iran’s economy. More than two-thirds of the government money went to companies doing business in Iran’s energy industry — a huge source of revenue for the Iranian government and a stronghold of the increasingly powerful Islamic Revolutionary Guards Corps, a primary focus of the Obama administration’s proposed sanctions because it oversees Iran’s nuclear and missile programmes.

Other companies are involved in auto manufacturing and distribution, another important sector of the Iranian economy with links to the Revolutionary Guards. One supplied container ship motors to IRISL, a government-owned shipping line that was subsequently blacklisted by the US for concealing arms shipments.

Varied benefits

Beyond $102 billion in US government contract payments since 2000 the companies and their subsidiaries have reaped a variety of benefits. They include nearly $4.5 billion in loans and loan guarantees from the Export-Import Bank, a federal agency that underwrites the export of American goods and services, and more than $500 million in grants for work that includes cancer research and the turning of agricultural byproducts into fuel.

In addition, oil and gas companies that have done business in Iran have over the years won lucrative drilling leases for close to 14 million acres of offshore and onshore federal land.

Indeed, of the 74 companies ‘The Times’ identified as doing business with both the US government and Iran, 49 continue to do business there with no announced plans to leave.

Now, though, frustration over Iran’s intransigence has spawned a growing, if still piecemeal, movement to more effectively use the power of the government purse to turn companies away from investing there.

Nineteen states have rules that bar or discourage their pension funds from investing in companies that do certain types of business in Iran. Congress is considering legislation that would have the federal government follow suit, by mandating that companies that invest in Iran’s energy industry be denied federal contracts. The provision is modelled on an existing law dealing with war-torn Sudan.

Obama administration officials, while indicating that they were open to the idea, called it only one variable in a complex equation.

From the beginning, though, the law proved difficult to enforce. European allies howled that it constituted an improper attempt to apply US law in other countries. Exercising an option to waive the law in the name of national security, the Clinton administration in 1998 declined to penalise the first violator.

In 1999, for instance, Royal Dutch Shell signed an $800 million deal to develop two Iranian oil fields. Since then, Shell has won federal contract payments and grants totalling more than $11 billion, mostly for providing fuel to the US military, as well as $200 million in Export-Import loan guarantee and drilling rights to federal lands, records show.

Shell has a second Iranian development deal pending, but officials say they are awaiting the results of a feasibility study. Meanwhile, the company continues to receive payments from Iran for its 1999 investment and sells gasoline and lubricants there. Records show Shell is one of seven companies that challenged the Iran Sanctions Act and received federal benefits.

John R Bolton, who dealt with Iran as an undersecretary of state and UN ambassador in the Bush administration, said failing to enforce the law by punishing such companies both sent ‘a signal to the Iranians that we’re not serious’ and undercut Washington’s credibility when it did threaten action.

Tricky issue

Recently, after 50 lawmakers from both parties complained to President Barack Obama about the lack of enforcement and sent him a list of companies that apparently violated the law, the State Department announced a preliminary investigation. Officials said that they were looking at 27 deals, and that while some appeared to have been ‘carefully constructed’ to get around the letter of the law, they had identified a number of problematic cases and were focusing on companies still active in Iran.

For all the US rules and focus, there is still plenty of room for companies to profit in crucial areas of Iran’s economy without fear of reprisal or loss of US government business.
Auto companies doing business in Iran, for instance, received $7.3 billion in federal contracts over the past 10 years. Among them was Mazda, whose cars in Iran are assembled by a company called the Bahman Group. A 45 per cent share in Bahman is held by the Sepah Cooperative Foundation, a large investment fund linked to the Revolutionary Guards, according to Iranian news accounts and a 2009 RAND Corp report prepared for the Defence Department.

Even companies based in the US, including some of the biggest federal contractors, can invest in Iran through foreign subsidiaries run independently by non-Americans.

Honeywell, the aviation and aerospace company, has received nearly $13 billion in federal contracts since 2005. That year it acquired Universal Oil Products, whose British subsidiary is working on a project to expand gasoline production at the Arak refinery in Iran. Universal recently received a $25 million federal grant for a clean-energy project in Hawaii.

William A Reinsch, president of the National Foreign Trade Council, lobbied against Dorgan’s bill and has opposed other unilateral sanctions. He argues that their futility can be seen in the intransigence of the Iranian government and the way US oil companies have simply been replaced by foreign competitors.

Moreover, many foreign companies with business interests in Iran are also large US employers; deny them federal contracts and other benefits, Reinsch said, “and it’s those workers who will pay the price.”