Iran and the US: In the Shadow of Containment

-Shebonti Ray Dadwal, Research Officer, IDSA



In May 1993, the US formally outlined the "dual containment" policy introduced by Martin Indyk, the National Security Council senior Director for Near East and South Asian affairs. The policy was targetted at both Iran and Iraq as the two Gulf states were perceived to be the main threats to US interests in the Persian Gulf. Though the US regarded Iraq to be the immediate short-term threat, especially since it had rebuilt its armed forces to 23 divisions, and now had the strongest Army in the region once again, and had also started training its Air Force on a daily basis, it was Iran that the US believed had the potential to be a longer-term threat.1

In March 1995, President Clinton issued orders forbidding US companies to buy and sell Iranian products, even to third countries, and this became law a year later, imposing penalties on even foreign companies doing business with Iran.2 The policy was also widened to cover Libya. It allowed the US President to choose two penalties from a number of options, including a ban on exports to the US, on finance assistance to companies doing business with these countries from Exim Bank and on export licences for technology. The President could also bar these companies from receiving loans of more than $10 million by the financial institutions and prohibit access to US federal government contracts.3

Despite the US' tremendous clout as the only global superpower, it was disappointed with the reaction to its dual containment policy, especially by its allies in the European Union (EU) as well as the Gulf and Asian states, including Japan, sparking off a debate about whether the policy was successful in containing the states it was directed at. The policy was especially targetted at Iran, as it was perceived by the Clinton Administration as the chief perpetrator of Muslim fundamentalist terrorism worldwide, and worse still, was, according to Israeli intelligence reports, nearing success in its quest for weapons of mass destruction.

Therefore, on April 10, when a Berlin court implicated the leaders of the Iranian regime--the Supreme leader Ayatollah Syed Ali Khamenei, President Hojatoleslam Ali Akbar Hashemi Rafsanjani and Intelligence Minister Ali Fallahian--for the 1992 assassination of Iranian Kurdish leader Sadiq Sarafkindi and his three colleagues, in Germany, and, in a knee-jerk reaction, most of the EU member states decided to recall their Ambassadors from Tehran for "consultations" the next day, the US was overjoyed. The Clinton Administration welcomed the EU's stand and even sent the Assistant Secretary of State, Peter Tarnoff, to various EU capitals to work out a common strategy and to strengthen their resolve against Iran. But the US was soon disappointed when barring some half-hearted political measures, the EU did not impose any economic sanctions against Iran.4

EU's Stand on the Verdict

On April 29, the EU Foreign Ministers meeting in Luxembourg agreed to suspend all ministerial meetings with Iran and called on Tehran to respect international law in the wake of the German court verdict. Though they agreed to allow their Ambassadors to return to Tehran, they put Tehran on notice that they would not support "business as usual" after the verdict. They called on Iran to respect basic human rights, asked it to sign the newly agreed Chemical Weapons Convention (CWC) and abide by pledges to stop proliferation of weapons of mass destruction. They also reaffirmed their policy not to grant visas to Iranian intelligence agents, but stopped short of accepting a British-led effort to secure a commitment to expel or exclude these agents. The declaration also reconfirmed the long-standing EU arms embargo.5

The Iranian Intelligence Minister Ali Fallahian accused the US and Israel of applying pressure on Germany to implicate Iran. Under pressure from the former countries to get information from Iran regarding the whereabouts of Israeli pilot Ron Arad whose plane was shot down over South Lebanon in 1986, and who was supposedly now in the custody of the Shia militant group Hizbollah, Germany had asked Iran for help. When Iran had denied knowledge of Arad's whereabouts, Germany had implicated the Iranian government in the Mykonos murder trial. According to Fallahian, "The US and Israel aimed at securing the release of the Israeli pilot, preventing Iran's aid to the Lebanese Hizbollah, bringing (Iran) into agreement with the Middle East peace process and establishing links and negotiations with Iran...In order to achieve the above objectives, the US, Israel and Europe, in a concerted move, levelled unfounded accusations against Iran, and based on the testimony of some counter-revolutionary figures who have committed acts of terrorism in Iran, launched a smear campaign against (Iran). It is evident that the Berlin court has been prompted by political motives to deal with the Mykonos case and conduct the trial. Thus we attach no validity to it."6

But what was probably more damaging for Iran was the fact that the Luxembourg declaration emphasised that "under present circumstances there is no basis" for the continuation of the "critical dialogue" which the EU member states, under the leadership of the French and the Germans, had been conducting for the last four years with Iran, despite strident US objections.7

However, the verdict also showed up the schisms within the EU member states, which had to struggle to come up with a common agenda against Iran as well as the difference in policies between the US and its Western allies. While Britain and Germany took the lead in pushing for something more than words, supported by Denmark, the Netherlands and Sweden, France, which has of late shown a marked unwillingness to submit to US leadership in the Middle East, emphasised the need to maintain contact with Iran, pointing out that it is a key regional power. Greece, which was the only EU country not to withdraw its Ambassador after the verdict, and Italy also support the French position, which led an EU diplomat to comment, "There is a lot of noise about the need for action, but in the end the economic relationship is what counts."8

And with good reason. In 1995, the EU exported $11.5 billion worth of goods to Iran. Germany was in the lead ($1.5 billion), while France ($500 million), Italy and the UK ($400 million each) also exported substantial amounts.

Iranian exports to the EU stood at $17.5 billion, consisting mainly of oil and gas. The state-wise break-up was as follows: Italy imported goods worth $1.35 billion, France--$1.1 billion, Germany--$600 million and the UKó$200 million over the same period.9

The EU decision not to impose sanctions on Iran has been treated with contempt by the Iranian government. A week after the verdict, President Rafsanjani had said that the EU member states would soon go back to doing business with Iran and this was vindicated by the fact that the European states chose the least painful of the options they could have exercised. Iran had banked on the fact that its own internal dynamics are at such a stage that no state doing business with it would break off an engagement at this time. With Iran heading for what is probably the most crucial presidential election since 1979, no country with diplomatic ties with Iran would like to break off just at this moment, especially with the Majlis Speaker and the most favoured candidate for the premiership, Ali Akbar Nateq-Nouri expected to win the election, which in turn is expected to mark the beginning of a phase where Iran could make radical political changes.10

Therefore, in the absence of any strong measures against Iran, the EU's position continues to be at variance with that of the US. Also, though the EU has also decided to extend its arms embargo on Iran, and has said that it will refuse visas to Iranian intelligence or security officials, it has also given its members the freedom to send back their emissaries who had been "recalled." In the Iranian assessment, this relatively mild response by the EU has been conditioned by the recognition that there will not be just one loser if diplomatic ties are cut off. The Iranian media has pointed out that while the EU accounts for half of Iran's international trade, it could easily shift its focus of trade to Asia.11

It is no secret that European governments have not been comfortable with the US' self-imposed hegemony on issues related to the EU's future trading and political relations with Iran, Libya and Cuba. They view Iran as a prosperous, growing market which has made impressive economic progress in recent months and believe that Iranians are economically better off today than the earlier generation, and that overall there is a growing quest for better living standards and consumer goods, which makes it a tempting prosperous market for goods and services. They argue that Iran's 18-year-old Islamic revolution may be running out of steam as pragmatism takes over, and many in European industry feel convinced that Iran could soon emerge as one of the most attractive markets in West Asia.

Before the verdict, besides EU states like France, Greece and Italy, even countries like Australia and Japan had refused to cut off trade ties with Iran. Now, post-verdict, the Australian Trade and Deputy Prime Minister, Tim Fischer, insisted that his government was not considering trade sanctions against Iran and rejected fears that up to $390 million of grain export to Iran could be threatened. Japan too announced on April 16 that though it was suspending high level exchanges with Iran, it would not recall its Ambassador from Tehran. The Hashimoto government is keen on taking an independent position on Asia-related matters, and Japanese Foreign Minister Yukihiko Ikeda said that though Japan in essence agreed that Iran should cut its ties with terrorism, "the method of bringing this about differs from country to country," and it has constantly been Japan's stated policy to keep the channels of communication open with Iran.12

Japan has also taken note of the fact that beyond the measures adopted at Luxembourg, none of the EU members have declared any intention to adopt sanctions against Tehran despite pressure from the Clinton Administration. Japan too had refused to support the US law requiring sanctions against companies that invest $40 million or more in any project in Iran, even though no Japanese company intends to pump in that much money into Iran. In fact, for the past three years, Japan has suspended the disbursement of follow-on tranches of a loan to Iran for the Karun dam project.13

Are the US Sanctions Hurting Iran?

When Iran came out of the debilitating eight-year war with Iraq from 1980 to 1988, the situation was grim and its economic woes far worse than those of its Arab neighbours. Though President Rafsanjani tried to open up the economy by attracting foreign investments and technology, he has not met with much success, partly because of the US policy and partly because of internal opposition from anti-West radicals who consider themselves Ayatollah Rohullah Khomeini's true heirs. Therefore, the power struggle that has ensued ever since Khomeini's death in 1989 has tended to paralyse the government between orthodoxy and reform.14

Therefore, when Iran embarked on a rearmament programme, despite its poor economic condition, it somewhat vindicated the stand of the US and Israel that Iran's effort to develop long-range missiles was a clear indication of its aggressive intent. But independent observers believe that it was a sense of vulnerability following the devastating eight-year war with Iraq and the damaging US sanctions which was leading Iran to develop this capability and they believe that at least at present, these weapons are only capable of being used for defensive or counter-strike purposes.

In fact, there are as yet few takers for the US and Israeli view that Iran's nuclear weapons programme is in an advanced stage, though its biological and especially its chemical weapons programmes are at a more developed stage. International Atomic Energy Agency (IAEA) inspectors have visited sites where Iran's nuclear programme is being conducted and are even said to have visited sites which the Iranian Opposition had claimed were being used for clandestine weapons programmes. So far, the IAEA and almost every other neutral body says that there is no hard evidence that Iran has progressed in the weaponisation of its nuclear programme or has even embarked on one. But critics say that the IAEA had not discovered Iraq's weaponisation programme till its defeat in 1991.15

Ever since the Islamic revolution ousted the pro-US Shah in 1979, Iran and the US have been in political conflict, and more so after militant students seized the US Embassy and its diplomats. The US argues that Iran's acquisition of submarines, long-range combat aircraft and a whole range of missiles along with armour and artillery go far beyond the needs of defensive planning. The tension and mutual distrust is heightened by US military presence in the region and constant round of exercises with regional forces. Perhaps the following statement of Colin Powell, former Chairman of the US Joint Chiefs of Staff, puts the US' perception of Iran in a nutshell: "In the Middle East and South West Asia, radical politicised Islam and a politically and militarily resurgent Iran threaten regional stability and directly challenge a number of US interests, including access to Gulf oil, political reform and democratic development and settlement of the Arab-Israeli dispute."

For their part, the Iranians point to the vast sales of arms to US allies in the Gulf, which far outstrips Tehran's arms spending. Between August 1990 and September 1992, the US sold arms worth $32 billion to its Gulf allies, justifying Tehran's perception that it is being targetted by the US to avenge the humiliation of the US hostage crisis in 1979-80, the killing of 250 US Marines in Beirut in 1983, and the subsequent years of hostage crisis and last, but not the least, the political havoc wreaked by the Irangate scandal. And after the bomb blast at the US base in Dhahran in Saudi Arabia last June, which killed 19 US servicemen, conservative politicians in the US are demanding that the government takes unilateral military action against Tehran if it is found to have been involved. So far, there has been no evidence that Iran was indeed responsible, directly or indirectly.

Nevertheless, externally, Iran has come up against hurdles in investments and acquisition of technology for its various programmes, including defence, because of the US sanctions and has had to resort to its own efforts to build up an indigenous capability for key items.

But it is in the economic sphere that Iran has been hit hardest. Despite denials by the government, according to Mohsen Yahyavi, Deputy Chairman of the oil sub-committee of Iran's Parliament, the US sanctions were succeeding in preventing foreign companies from responding to tenders for oil exploration and development and consequently a lack of investment was hindering the country's oil production. In August 1995, Iran had brought out tenders for 12 projects. Though Oil Minister Gholamreza Aghazadeh said that about 130 companies from 19 countries had responded positively to the tender by October 1996, only two big contracts for Sirri and South Pars had gone to a foreign company, Total of France. A third, the 60,000 barrels per day (b/d) Soroush oil field is expected to be awarded to the Iranian Offshore Engineering and Construction Co (IOEC), a joint venture between the state-owned National Iranian Oil Co and the Heavy Industries Ministry. However, IOEC will need international financial backing if it is to fulfill the contract, after a German company backed out because of the recent diplomatic problem with Iran. Washington is also examining agreements signed by Turkey and Turkmenistan to build a pipeline to Iran, to see if they merit sanctions.16

However, analysts say that it is not so much fear of US sanctions that restricts countries from investing in Iran as an apathy to invest in a country which faces tremendous operating problems in its oil and gas industries. Also Iran's rampant inflation and perceived political instability frightens off potential foreign investors. As a result, official export credit agencies offer only slender facilities for investment in the country. Coface of France ranks Iran along with Syria as the West Asian countries where the political risk is highest for investors in the short and medium term. Also foreign investors are wary of IOEC as the company is yet to complete a major venture. If the Total venture is a success, then it is likely that foreign companies will flock to Iran in the numbers forecast by Aghazadeh.17

Rethinking of US Policy?

Of late, there has been a noticeable shift, especially among influential members of the foreign policy establishment, that the US should adopt a more open-minded approach towards Iran--one that holds the possibility of better relations and even cooperation in the area of energy in Central Asia. Almost everybody agrees that the policy of "dual containment" has failed to bring tangible results, as far from softening their anti-Western stance, both Iran and Iraq--the countries towards whom the policy was targetted--are doing their best to build up their military strength. On April 22, Iran conducted three-day amphibious military exercises called Tariq-al-Qods in which 200,000 Basij and Revolutionary Guards (IRGC) forces took part. The aim was to enhance the fighting capability of the IRGC and display its might and defence capability.18

Advocates of a more open policy towards Iran also cite Iran's growing relations with both Russia and China as a possible counter-balance to its isolation as another reason for dropping the dual containment policy. In fact, as the EU was downgrading its relations with Tehran, the Iranian Speaker Nateq-Nouri was cordially received by Russian President Boris Yeltsin, who said Russia enjoyed "good positive cooperation with Iran which shows a tendency to improve," and the Chairman of the Russian Duma even denounced the latest EU moves.

The Chinese Foreign Minister, Qian Qichen, also announced that his country would maintain close ties with Tehran despite the verdict and said that Iran and China "share a tradition of friendship" and that China is "ready to work with Iran to further develop bilateral relations."19

It is generally believed that China will ignore US complaints and continue to sell conventional weapons to Iran, which include cruise missiles. The US acknowledged that China had become the largest seller of conventional arms to Iran and that it had information of talks between Iran and China about additional conventional weapons sales.20

The US is alarmed over the latest signs of Russian and Chinese military cooperation with Iran and have accused China of supplying Tehran with anti-ship missiles and the material for chemical weapons while Russia has been accused of providing anti-aircraft missiles. They argue that in courting Iran, Moscow is trying to cultivate its traditional partners in the east, perhaps even as a reaction and counterweight to the expansion of the North Atlantic Treaty Organisation (NATO) which it is against. Iran is an important commercial and defence partner for Moscow. Tehran already buys most of its defence equipment from Russia and there is speculation that it may also buy the famous Russian S-300 anti-missile system to protect the four nuclear reactors that Russia is building in Iran despite US objections.21

Russia and Iran also have a common view on sharing the Caspian Sea's resources, opposing their unilateral exploitation by Azerbaijan and Kazakhstan. Some analysts have even gone as far as to suggest that Moscow is trying to build a political axis with Armenia, Iran, India and China to counter-balance US expansion in the region and point to then Indian Prime Minister Deve Gowda's visit just prior to Nateq-Nouri's followed by the Chinese Premier's historic visit to Moscow.

Advocates of the anti-dual containment policy cite the forthcoming Iranian elections which may propel Nateq-Nouri to the presidency and could lead to a change in Tehran's foreign policy, as a reason for changing their stance, and point out the fact that isolating Iran has damaged US efforts to gain access to energy resources in Central Asia. Iran is the geographical key to exporting large amounts of oil and gas from the region and they say that US policy has only succeeded in hampering efforts to wean the new Central Asian Republics away from Russian influence. They say that by forcing the cancellation of a $1 billion oil deal between Iran and Conoco in 1995, the Administration has "served no one's interest except those of the French company, Total" which stepped into the gap, and also put US oil companies at a disadvantage in their efforts to secure access to the offshore Iranian energy reserves which have been opened to foreign investment.

In a recent article in Foreign Affairs, two former US National Security Advisors, Zbigniew Brzezinski and Brent Scowcroft, have argued against the dual containment policy and have called for a differentiation in treatment towards Iran and Iraq. According to them, while Saddam Hussein's regime poses a "clear and relatively simple immediate threat", Iran, they say is a more complex geo-political factor and, therefore, has to be handled more carefully.

Experts on Iran say that the US has already begun the process of maintaining or renewing contacts with Iran. According to a former Iranian Premier till 1981 and a leading witness at the recent Berlin trial, Abolhasan Bani-Sadr, the US, like its European allies, has been conducting talks with Iran but secretly and through mediators to study the possibility of normalising relations with Tehran, on condition that Iran stops terrorism and its nuclear weapons programme. He said that his sources are informants in the Iranian government and he even goes so far as saying that discussions on those issues and others have taken place in the German cities of Hamburg and Frankfurt.

India's Relations With Iran in the Nineties

Till the Shah's fall in 1979, Iran was close to Pakistan and, therefore, somewhat inimical to India. But after the Islamic revolution, and especially since the 1990s, both Iran and India seem to have taken a concerted step towards forming warmer bilateral relations. For India, with its large Muslim minority, the advantages of sharing warm relations with a theocratic state like Iran are obvious and its policy towards Iran has more or less been consistent. But for Iran, there has been a distinct change in attitude, especially since the last couple of years or so.

Till 1992, Iran seemed to have more or less backed Pakistan, especially on its stand on Kashmir, but from 1993 onwards, especially since the then Prime Minister, P.V. Narasimha Rao's visit, when he was treated with elaborate hospitality, there has been a change, and Iran has even openly said that it recognises Kashmir as a political issue within India's internal jurisdiction. The Iranians are unhappy with Pakistan mainly over its Afghanistan policy as well as the recent outbreak of sectarian violence in Pakistan. Another point of overriding concern for both is the competition for influence in the newly independent, energy-rich but underdeveloped states of Central Asia.

The US view of Iran and its policy of containment does not really affect India, as both countries have their own reasons for moving towards each other. Where India is concerned, its interest in Iran is more economic than political. Iran's large energy reserves--both oil and natural gas--makes it a very attractive trade partner, given India's large energy deficiency.

On the other hand, India's industrial and managerial strengths and the huge market potential is of great value and interest to Iran. As an Iran expert recently pointed out, "India is significant for Iran in the Asian and Central Asian perspective, much more than China which is a lot less reliable."22 The recently signed tripartite agreement between Iran, India and Turkmenistan, providing India with a gate- way to Central Asia and giving Iran a powerful regional ally at a time when it finds itself getting more isolated internationally, is beneficial for both.


The new direction in Iran's foreign and economic policy towards Russia, China and India is seen as a move to counter the US bid to isolate it. As far as these countries are concerned, as well as many countries in Europe and West Asia, Iran has not shown any indication of becoming the expansionist regional threat that the US had predicted it would. On the other hand, since the end of the Iran-Iraq war, Tehran's efforts to rebuild its armed forces and develop its nuclear weapons programme have not been compulsive. According to US intelligence estimates, Iran probably spends less than $1 billion a year on its military--less than half of what it announced in 1992 that it would spend.23

However, what is probably even more worrisome to the US than Iran's alleged nuclear weapons programme is its development of its Navy, which has greatly expanded its capability in the last decade. Tehran makes no secret of the fact that it considers itself to be the predominant force in the Gulf and that it regards the US as an unwelcome intruder. Its Navy has the ability to threaten or even briefly stop shipping of oil out of the Gulf.

On April 22, Iran staged one of its largest ever exercises in the waters of the Persian Gulf and the Straits of Hormuz. Half of Iran's 400,000-strong force of Revolutionary Guards, took part in exercises which had an emphasis on the naval aspect. During these exercises, Iranian commanders had said that though they were not intended as a threat to anyone, it was a warning that Iran possessed the capability to choke off the Gulf by closing the straits. Iran is known to have stationed missile batteries along its coast as well as on the islands of Qeshm, Abu Musa and Sirri. For some time now, Iran has also been acquiring fast attack missile boats and is building up its submarine arm through acquisition of three Kilo-class submarines from Russia.

Of late, many incidents have also taken place between the US and Iranian Navies which show the potential for conflict these two Navies with different military perspectives and interests have, and who regard each other as competitors for the hegemony over a strategic body of water like the Straits of Hormuz and, in fact, the entire Persian Gulf area.24

Those in the US Administration and analysts who realise Iran's potential for damage, call for a different approach towards Iran as well as handling Tehran differently from Iraq. They advocate a clear differentiation between the regime of Saddam Hussein which poses a "clear and relatively simple immediate threat" and Iran, which they describe as a more complex geo-political factor. While they agree that Iran's sponsorship of terrorism and its nuclear ambitions pose a threat, they advise that these problems "can be addressed by specific policy instruments rather than by current crude and counterproductive attempts to cordon off the entire country." Worse still, they say that isolating Iran has hurt the US' efforts to gain access to energy resources in Central Asia. Iran is the geographical key to exporting large amounts of oil from the region and the US policy of isolation has only succeeded in hampering efforts to wean the new Central Asian Republics away from Russian influence.25



1. The Hindu, May 12, 1997.

2. Harvey Sicherman, "The Strange Death of Dual Containment," Orbis, vol. 41, no. 2, Spring 1997.

3. The Muslim, August 13, 1997.

4. Financial Times, April 29, 1997.

5. Financial Times, April 30, 1997.

6. Public Opinion Trends and Analyses and News Service, Iran Series, vol. II, no. 47, May 9, 1997.

7. Financial Times, April 30, 1997.

8. Financial Times, April 29, 1997.

9. Ibid.

10. The Hindu, May 1, 1997.

11. Ibid.

12. The Hindu, April 17, 1997.

13. Ibid.

14. Jane's Defence Weekly, July 30, 1994.

15. The Hindu, February 17, 1997.

16. Petroleum Economist, March 1997.

17. Ibid.

18. BBC, Summary of World Broadcasts (SWB)/Middle East (ME) vol. 2900, April 23, 1997.

19. Public Opinion Trends Analyses and News Service, Iran Series, vol. II, no. 45, May 5, 1997.

20. Times of India, April 12, 1997.

21. The Hindu, April 13, 1997.

22. Pioneer, February 26, 1997.

23. International Herald Tribune, April 21, 1997.

24. The Hindu, May 12, 1997.

25. Financial Times, April 14, 1997.