Iranian President Mohammad Khatami's January 7 interview on CNN has raised hopes for a détente in Iranian-American relations. Close examination of Khatami's statements, however, reveals no evidence that the Iranian government is willing to halt the hostile policies that have generated bilateral tensions: Iran's support of terrorism, export of Islamic revolution, clandestine efforts to develop weapons of mass destruction, and violent opposition to Arab-Israeli peace efforts. Moreover, Khatami rejected government-to-government talks, advocating instead a vague dialogue between peoples. Such a "warm and fuzzy" dialogue, bereft of meaningful policy exchanges, would undermine long-standing American efforts to contain Iran and would advance Tehran's goal of obtaining European investment without ending its efforts to export terrorism and subversion. The Clinton Administration must not let Khatami's soothing words distract it from Iran's hostile policies, which continue unabated.

The United States cannot afford to undertake a one-sided détente with Iran that allows Tehran to benefit from Western aid, trade, and investment while continuing to subvert its neighbors, sponsor terrorism, and acquire weapons of mass destruction. If the Clinton Administration rewards cosmetic rhetorical changes in Tehran's foreign policy by relaxing U.S. economic sanctions against Iran, America's allies in Western Europe and Japan are likely to join Russia and China in a stampede to ingratiate themselves with Tehran and gain a share of Iran's import market and oil investment opportunities. Such an outcome would vindicate the views of the hard-liners who dominate Iranian foreign policy by allowing them to exploit Western loans and investment to bolster Iran's faltering economy and prop up their regime without abandoning their dangerously hostile policies.

The United States should not let down its guard in dealing with Iran. The Clinton Administration should not repeat the mistakes of the Carter and the Reagan Administrations, both of which sought to reach out to Iranian "moderates" who proved unwilling or unable to moderate Iran's rabidly anti-American foreign policy. This is not the time to relax economic pressure on Iran: Economic pressure helped to pave the way for Khatami's upset victory over the hard-line Speaker of Iran's Parliament, Ali Akbar Nateq-Nouri, in Iran's May 1997 presidential elections. And it undoubtedly was a motivating factor behind Khatami's call for a dialogue with the American people.

Some critics of the Clinton Administration's dual containment policy toward Iran and Iraq have jumped to the conclusion that the policy has failed and should be abandoned. Since Iraqi dictator Saddam Hussein has outmaneuvered the Clinton Administration repeatedly, they argue, the United States should drop its containment policy against Iran and seek to include Tehran in the anti-Iraq coalition. This ignores the fact that working out a modus vivendi with Iran will take years of effort, during which Tehran could not be considered a reliable ally against Baghdad. In the meantime, Iran will continue to build weapons of mass destruction and to pose subversive, terrorist, and military threats to the United States and its allies, particularly those in the Persian Gulf. And because Iran, unlike Iraq, is not constrained by United Nations sanctions, it will be better positioned to cause mischief and possibly destabilize one or more of the Arab Gulf states. Moreover, if the United States tilts toward Iran, many of these Arab emirates will be tempted to improve relations with Iraq as a counterweight to Iran, thereby weakening the coalition against Saddam Hussein.

Critics should not underestimate the benefits of the U.S. dual containment policy. Although containment has not compelled Iran and Iraq to abandon their hostile policies, it has deprived both of scarce hard currency, forced them to scale back their ambitious military buildups, and whittled away their ability to threaten their neighbors. Economic sanctions, moreover, have helped spark a debate in Iran about the need for an opening to the West and helped to prompt President Khatami's overture to the "Great American People." Washington should not discard its containment policy just when it appears to be on the brink of succeeding.

To respond prudently to President Khatami's peace offensive, therefore, the Clinton Administration should:

• Press Khatami to back his temperate words with concrete actions to prove that he is willing and able to end Iran's hostile policies. The United States has been disappointed by the abortive outcomes of several previous efforts to improve U.S.-Iran relations since the 1979 Islamic revolution. Washington should ask Khatami to prove his good faith by undertaking specific actions to reduce tensions. Three verifiable benchmarks that could be used to establish whether Khatami is serious about altering Iran's international behavior would be a halt to Iranian surveillance of U.S. officials overseas, an end to Iran's cooperation with Iraq in smuggling Iraqi oil in violation of United Nations economic sanctions against Iraq, and the public withdrawal of the death threats against British author Salman Rushdie, condemned by Ayatollah Ruhollah Khomeini in 1989 for allegedly writing a blasphemous novel.

• Reach out to the Iranian people. The rule of the ayatollahs is increasingly unpopular in Iran. The U.S. should emphasize the heavy price that Iranians pay for their rulers' anti-Western policies and support the development of a genuine democracy in Iran by moving quickly to establish a Radio Free Iran with the $4 million that Congress appropriated for that purpose in November 1997.

• Push patiently for government-to-government talks on outstanding issues. Iran has the only government in the world that refuses to talk to the U.S. government. The people-to-people dialogue advocated by Khatami advances Iran's goal of weakening international support for sanctions against Iran without requiring that Tehran give an inch on other issues. A genuine thaw in the Iran-U.S cold war requires official government contacts to discuss outstanding policy issues, not merely an exchange of "professors, writers, scholars, artists, journalists, and tourists" as Khatami has suggested.

• Maintain the strongest possible economic sanctions against Iran. This will give Tehran a powerful incentive to abandon its hostile foreign policy and give self-professed reformers like President Khatami strong political arguments against the radical policies advocated by their hard-line rivals. Khatami's interview with CNN is a sign that the American sanctions policy is working and should be maintained, not abandoned. The Clinton Administration should make it clear that the United States will not lift its economic sanctions against Iran until Tehran has halted (1) its support for terrorism, including its assassination campaign against Iranian exiles; (2) its violent attempts to overthrow secular and moderate Muslim governments; and (3) its clandestine efforts to obtain weapons of mass destruction.

Ayatollah Gorbachev?

President Khatami has been dubbed "Ayatollah Gorbachev" by the Western media, but this is misleading. Unlike Mikhail Gorbachev, who inherited supreme power in the Soviet Union when he succeeded Constantine Chernenko in 1985, Khatami is only Iran's second-ranked leader. Ayatollah Ali Khamanei, who succeeded Khomeini as Iran's supreme leader, continues to control Iran's foreign policy and remains implacably opposed to the United States. On January 16, Khamanei publicly rejected talks or relations with the United States, saying that this would be harmful to Iran's independence and to Islamic movements around the world. Ayatollah Khamanei is unlikely to permit Khatami to stray from Khomeini's anti-American policies. Khatami already has followed Khamanei's lead, vilifying the United States in a strident January 19 speech in which he declared that "We will not give up our principles and values from the revolution and will not sacrifice our national interest for political gain."

Khatami is better understood as Iran's Khrushchev. Like Soviet Premier Nikita Khrushchev, he probably will tinker with domestic reforms while continuing the broad outlines of his predecessor's foreign policy. He is likely to trim some of the worst excesses of Iran's political system to build a mullahcracy with a human face without substantially reforming the system itself. Khatami's reputation as a liberal reformer is vastly overrated. While he did reduce censorship while serving as Minister of Culture from 1982 to 1992, for example, he also repeatedly defended the 1989 fatwa (religious edict) issued by Ayatollah Khomeini that called for the killing of British author Salman Rushdie as punishment for writing The Satanic Verses, which Khomeini judged to be blasphemous.

Foreign policy issues did not figure in the 1997 presidential election campaign-a sign that there were few important differences between the candidates concerning Iranian foreign policy-and nothing Khatami has said since his election indicates that he is inclined to steer Iran away from either terrorism or subversion. In his CNN interview, Khatami denied that Iran supported terrorism and proclaimed that supporting national liberation struggles does not constitute support for terrorism. Khatami's focus on social welfare and economic reforms may make him a pragmatist regarding the need to maintain good relations with countries that could help Iran with loans and investment; but Ali Akbar Hashemi Rafsanjani, his predecessor as president, held similar views and was unable to prevail over Ayatollah Khamanei and hard-liners in the Iranian parliament.

Although Khatami may improve Iran's public relations image, no dramatic moderation in the substance of Iranian foreign policy is likely in the near future. At a minimum, President Khatami will be wary of taking risks in foreign policy that could jeopardize his domestic programs, which were the primary focus of his political candidacy. Absent foreign pressure, Iran probably will continue to foment subversion throughout the Muslim world; support terrorist attacks against a broad range of Muslim, Western, and Israeli targets; violently oppose the Arab-Israeli peace process; seek to acquire nuclear, chemical, and biological weapons of mass destruction; and violate the human rights of its people, particularly those who do not practice the state's official Shiite form of Islam.

A Prudent Response to
President Khatami's Peace Offensive

Although its rhetoric has cooled, Iran remains a volatile revolutionary state and the chief long-term threat to American interests in the Middle East.¹ While President Khatami has raised expectations of a more moderate Iran, he has yet to take concrete action to back up his soothing rhetoric. And even if Khatami is sincere in seeking to improve Iran-U.S. relations, he will be bitterly opposed in his efforts by Ayatollah Khamanei, Iran's supreme leader. Khamanei not only controls Iran's foreign policy, but also can count on the support of radical militants, who remain a potent force in Iran's Revolutionary Guard, intelligence agencies, internal security organs, and the bonyads (Islamic foundations) that were established with money confiscated from Shah Reza Pahlavi, who was overthrown in Iran's 1979 revolution.

The Clinton Administration should learn from the mistakes of the Carter Administration, which eagerly sought to improve relations with Iran's provisional government in the aftermath of the 1979 revolution. Carter's National Security Adviser, Zbigniew Brzezinski, met with Iranian Foreign Minister Ibrahim Yazdi² in Algeria on November 1, 1979, in a conciliatory effort to improve relations. Islamic militants, fearing a sellout that would enable the United States to reassert its influence inside Iran, seized the U.S. Embassy three days later and manipulated the ensuing 444-day hostage crisis to block an Iranian-American rapprochement, discredit and oust the provisional government of moderate Prime Minister Mehdi Bazargan, and gain a stranglehold on Iranian domestic politics.

If the Clinton Administration rushes to embrace Khatami diplomatically, it runs the risk of provoking radical diehards to undermine him, possibly by using covert terrorist attacks to block improved relations. Iranian Revolutionary Guards in the past have undertaken terrorist attacks that have disrupted their own government's efforts to improve relations with France and Saudi Arabia. An American effort to improve relations therefore could increase, rather than diminish, the short-run risks of Iranian terrorism.

The Clinton Administration also should not overestimate its ability to influence the course of Iran's complex factional struggles. It should learn from the Reagan Administration's mistake in trying to cooperate with and sell arms to Iranian moderates in the mid-1980s. Iranian factions are likely to pocket American concessions without reciprocating with a lasting quid pro quo that could become a political handicap in Iran's kaleidoscopic internal politics. The United States should avoid reaching out to Iranian factions, even if they appear to be less hostile than competing factions, because even if such factions did deliver promised concessions, this would only discredit them in Iran's supercharged political arena, where an American connection can be politically fatal. Instead of seeking fragile accommodations with Iranian moderates, the U.S. should work relentlessly to penalize Iran for policies that threaten American interests. This can help give relatively pragmatic Iranian leaders such as Khatami potent political ammunition against anti-American hard-liners.

In responding to President Khatami's charm offensive, the United States should:

• Press Khatami to back his temperate words with concrete actions to prove that he is willing and able to end Iran's hostile policies. U.S.-Iran bilateral tensions are not merely the result of the "wall of distrust" that Khatami spoke of in his January 7 interview. Bilateral tensions are a direct result of Iran's policies. Concrete Iranian actions, not just words, are needed to reduce these tensions. The Clinton Administration should press Khatami to back his ambiguous rhetoric with specific actions that demonstrate both the will and the ability to deliver what his predecessors could not: an Iranian foreign policy that rejects terrorism as a tool of statecraft and replaces ideological fanaticism with a commitment to the rule of law. The Clinton Administration should challenge President Khatami to demonstrate his good faith by immediately undertaking three verifiable actions to establish that he is serious about an opening to the "Great American People":

1. Stop the ongoing surveillance of American diplomats and government personnel overseas by Iranian intelligence personnel and their surrogates. This would signal that Iran is willing to halt its support of terrorism.

2. Halt Iran's cooperation with Iraq in smuggling Iraqi oil exports in violation of existing United Nations economic sanctions against Iraq. Iranian oil tankers have transported contraband Iraqi oil. Halting this illegal smuggling would signal that Iran is willing to observe the rule of law and, possibly, to cooperate with the United States in containing Saddam Hussein.

3. Withdraw the 1989 fatwa, issued by Ayatollah Ruhollah Khomeini, that called for the killing of British author Salman Rushdie as punishment for alleged blasphemy. This would demonstrate that President Khatami truly is different from his predecessors and that he actually has the power to reverse the past excesses of Iran's revolutionary policies.

• Reach out to the Iranian people. The rule of the ayatollahs is increasingly unpopular in Iran. The urban poor, who once formed the spearhead of Ayatollah Khomeini's revolutionary movement against the Shah, have grown increasingly disaffected with the economic mismanagement, corruption, and coercive nature of Iran's government bureaucracy. Their frustration with chronic housing shortages and falling living standards has triggered spontaneous riots in several Iranian cities in recent years. President Khatami currently enjoys broad popular support because he campaigned as an outsider against the excesses of Iran's clerical establishment. But Khatami's political popularity will fade quickly unless he can deliver on his promises of social reform and greater civil liberties.

The U.S. should support the development of a genuine democracy in Iran by moving quickly to establish a Radio Free Iran with the $4 million that Congress appropriated for that purpose in November. Such a broadcast facility should stress the high economic price that the Iranian people pay for the revolutionary excesses of their current leaders and increase the pressure on the Islamic regime to moderate its policies.

• Push patiently for government-to-government talks on outstanding issues. Iran has the only government in the world that refuses to talk to the U.S. government. The people-to-people dialogue advocated by Khatami advances Iran's goal of weakening international support for sanctions against Iran without requiring Tehran to give up anything. The Clinton Administration should make it clear that the United States will not relax its economic pressure until a clear understanding about the bounds of acceptable behavior has been reached with the Iranian government and Tehran has clearly demonstrated its compliance.

A political dialogue, however, is a means to an end, not an end in itself. In addition to addressing U.S. concerns about Iran's support of terrorism, military buildup, clandestine programs to develop weapons of mass destruction, and violent opposition to the Arab-Israeli peace negotiations, an official U.S.-Iranian dialogue could explore possible areas of cooperation, including:

1. Containing Iraq. Tehran and Washington share an interest in containing the threat of Saddam Hussein. Iran fought and lost a bloody eight-year war with Iraq and could be helpful in supporting the Iraqi opposition.

2. Building a stable Afghanistan. Iranian interests are threatened by the rise of the anti-Iranian ultra-fundamentalist Taliban militia in neighboring Afghanistan. The Taliban's support for drug smuggling and anti-American terrorists also is a cause for U.S. concern.

3. Developing "rules of the road" for avoiding naval incidents in the Persian Gulf. Iranian and American warships operate in close proximity in the crowded Persian Gulf. Both sides have an interest in avoiding tragic incidents such as the 1988 accidental downing of an Iranian airliner by a U.S. Navy warship that had just been attacked by Iranian naval vessels.

4. Establishing formal diplomatic relations. This is a distant prospect that the U.S. should consider only after a pragmatic faction has clearly consolidated its political power and can guarantee the safety of American personnel against attack from diehard Iranian radicals.

• Maintain the strongest possible economic sanctions against Iran. Economic sanctions penalize Iran's bad behavior, reduce its ability to finance terrorism, slow its military buildup, drive home to the Iranian people the costs of pursuing hostile policies, and give pragmatic Iranian leaders maximum incentives to rein in radicals.³ While unilateral U.S. sanctions by themselves cannot compel Tehran to end its hostility to the West, they can make a bad economic situation worse. U.S. sanctions underscore that Iran is a risky place in which to do business; they also reduce the willingness of foreign lenders and investors to ameliorate Iran's festering economic problems and lead Iranian businessman to send more of their money abroad-an additional drag on an economy already hamstrung by low prices for oil, its chief export. Iranians increasingly are disillusioned with ineffective government economic policies, endemic corruption, high unemployment, an annual inflation rate estimated at 30 percent, housing shortages, and a crumbling infrastructure. Worsening economic conditions and falling living standards threaten the political survival of the regime and give Iran's rulers greater incentive to rethink their policies.

An important test case for U.S. sanctions policy is the $2 billion investment deal that French, Russian, and Malaysian oil companies reached with Iran in October 1997. Under the terms of this agreement, the partners will reverse production declines in Iran's old oil fields by repressurizing them with natural gas pumped from Iran's huge South Pars offshore gas field in the Persian Gulf. This is a clear violation of the 1996 Iran-Libya Sanctions Act (ILSA), which calls for economic sanctions against firms that invest more than $40 million per year in Iran's oil industry. The Clinton Administration has been dragging its feet on enforcing the ILSA because of its desire to avoid additional tensions with Russia, France, and the European Union. If no action is taken on this deal, however, the floodgates will open as other countries rush to invest in Iran's limping oil industry.

Congress should press the Administration to enforce the ILSA by imposing the harshest possible sanctions on the consortium, whose investment will boost Iran's oil and gas export revenues and help Tehran finance its military buildup and terrorist network.⁴ There are disturbing reports that the Administration is considering a presidential waiver of sanctions for the deal. One provision of the ILSA allows the President to waive the imposition of sanctions if the company's national government has agreed to undertake substantial measures, including economic sanctions, against Iran. The Administration has sought to negotiate such a compromise with France, but the French have resisted. Such a waiver would severely undermine the intent of the ILSA. Moreover, it would put the Administration in the untenable position of permitting foreign oil companies to do what U.S. oil companies, under a 1995 Executive Order, are barred from doing. This would give the foreign companies a competitive advantage not only in Iran, but also in Qatar, which shares the giant South Pars field with Iran.

Congress also should press the Administration to reverse its July 1997 decision to withdraw its opposition to Iranian participation in a $1.6 billion, 2,000-mile pipeline that will transport natural gas from Turkmenistan through Iran to Turkey. Administration officials argued that the principal beneficiaries of this pipeline will be Turkey and Turkmenistan, but alternative pipeline routes that avoided Iran would have brought them the same benefits without rewarding the Islamic regime in Tehran. The Administration also maintained that the pipeline project technically does not violate ILSA because Iran would pay for building the 788-mile stretch of pipeline crossing its territory. If the pipeline does not break the letter of the law, however, it surely flouts its spirit. Iran will benefit economically from pipeline transit fees, the supply of natural gas to its energy-poor northern provinces, and the opportunity to use the pipeline to export its own natural gas, which Turkish officials have acknowledged as a future possibility. Congress should hold hearings on foreign investment in Iran's oil industry to publicize the actions of foreign companies that help subsidize Iran's military buildup and foreign policy goals.

The Clinton Administration should make it clear that U.S. economic sanctions will continue to be applied relentlessly until Iran (1) has ended its support of terrorism, including its assassination campaign against Iranian exiles; (2) has stopped its violent attempts to overthrow secular and moderate Muslim governments; and (3) has ended its clandestine attempts to obtain weapons of mass destruction, as called for by the Nuclear Non-Proliferation Treaty and Chemical Weapons Convention, both of which Iran has signed. Economic sanctions are not incompatible with a political dialogue. The United States, for example, maintained economic sanctions against the Soviet Union long after establishing official diplomatic relations in 1934.

It has become fashionable to argue that U.S. containment policy has failed with Iran and should be discarded. But while sanctions have not compelled Iran to abandon its hostile policies, they have made Tehran pay a considerable price for those policies. U.S. sanctions have made it harder for Iran to modernize its dated oil industry technology, have deprived it of hard currency, have forced it to scale back its ambitious plans for a military buildup, and have slowed the growth of Iran's military threat to its neighbors. President Khatami is aware of the costs imposed by U.S. sanctions and has noted that if Iran cannot boost its oil production, it could become a net oil importer within 15 years. Given the fall of international oil prices in 1997, and given Iran's heavy debt burden and high population growth rate, Tehran is likely to grow increasingly sensitive to international economic pressures in the near future. Relaxing economic sanctions against Iran before Tehran has moderated its ideological hostility would vindicate Iranian hard-liners and deprive President Khatami of one of his strongest arguments for improving relations with the West.

CONCLUSION

This is the third time an incoming Iranian president has raised hopes for improved U.S.-Iran relations. Twice before, after Abol-Hassan Bani-Sadr's election as Iran's president in 1980 and Ali Akbar Hashemi Rafsanjani's election in 1989, these hopes have been dashed by Tehran's ideological hostility and continued support for terrorism. The burden of proof regarding Iran's self-professed good intentions toward the American people rests with President Khatami.

In formulating a response to Khatami's charm offensive, the Clinton Administration must determine not only whether Khatami is willing to abandon Ayatollah Khomeini's hostile policies, but whether he can prevail over Iranian hard-liners opposed to discarding those policies. Washington should challenge Khatami to prove with concrete actions that he is different from past Iranian leaders and that he is serious about an opening to the United States.

The Clinton Administration should press for an official dialogue between governments rather than a vague dialogue between peoples. But a dialogue is a means to an end, not an end in itself. The United States must maintain firm and patient economic pressure until Tehran has clearly abandoned its support of terrorism, revolutionary subversion, and clandestine efforts to acquire weapons of mass destruction. This is unlikely until pragmatic forces have consolidated their political power in Tehran or until the regime is overthrown. Only then should the United States consider re-establishing diplomatic relations with this long-time adversary.

Endnotes

¹ For a brief summary of Iran's hostile policies, see James Phillips, "The Challenge of Revolutionary Iran," Heritage Foundation Committee Brief No. 24, March 29, 1996.

² Yazdi, now a dissident political leader barely tolerated by the regime, was imprisoned without charges on December 14-evidence that political tensions are heating up in Tehran.

³ See James Phillips, "Maintain International Pressure and Sanctions on Iran," Heritage Foundation Backgrounder No. 1135, September 5, 1997.

⁴ The Iran-Libya Sanctions Act requires the President to impose at least two sanctions on offending companies from a menu that includes prohibitions on Export-Import Bank assistance, loans from U.S. financial institutions, U.S. government purchases of goods from the company in question, export licenses, or serving as a repository of U.S. government funds.