Europe Resists U.S. Push to Curb Iran Ties


Richard Moore

Original source URL:

January 30, 2007

Europe Resists U.S. Push to Curb Iran Ties

WASHINGTON, Jan. 29 ‹ European governments are resisting Bush administration 
demands that they curtail support for exports to Iran and that they block 
transactions and freeze assets of some Iranian companies, officials on both 
sides say. The resistance threatens to open a new rift between Europe and the 
United States over Iran.

Administration officials say a new American drive to reduce exports to Iran and 
cut off its financial transactions is intended to further isolate Iran 
commercially amid the first signs that global pressure has hurt Iran¹s oil 
production and its economy. There are also reports of rising political dissent 
in Iran.

In December, Iran¹s refusal to give up its nuclear program led the United 
Nations Security Council to impose economic sanctions. Iran¹s rebuff is based on
its contention that its nuclear program is civilian in nature, while the United 
States and other countries believe Iran plans to make weapons.

At issue now is how the resolution is to be carried out, with Europeans 
resisting American appeals for quick action, citing technical and political 
problems related to the heavy European economic ties to Iran and its oil 

³We are telling the Europeans that they need to go way beyond what they¹ve done 
to maximize pressure on Iran,² said a senior administration official. ³The 
European response on the economic side has been pretty weak.² The American 
demands and European responses were provided by 10 different officials, 
including both supporters and critics of the American approach.

One irony of the latest pressure, European and American officials say, is that 
on their own, many European banks have begun to cut back their transactions with
Iran, partly because of a Treasury Department ban on using dollars in deals 
involving two leading Iranian banks.

American pressure on European governments, as opposed to banks, has been less 
successful, administration and European officials say.

The main targets are Italy, Germany, France, Spain, Austria, the Netherlands, 
Sweden and Britain, all with extensive business dealings with Iran, particularly
in energy. Administration officials say, however, that Chancellor Angela Merkel 
of Germany, the current head of the European Union, has been responsive.

Europe has more commercial and economic ties with Iran than does the United 
States, which severed relations with Iran after the revolution and seizure of 
hostages in 1979.

The administration says that European governments provided $18 billion in 
government loan guarantees for Iran in 2005. The numbers have gone down in the 
last year, but not by much, American and European officials say.

American officials say that European governments may have facilitated illicit 
business and that European governments must do more to stop such transactions. 
Treasury Secretary Henry M. Paulson Jr. has said the United States has shared 
with Europeans the names of at least 30 front companies involved in terrorism or
weapons programs.

³They¹ve told us they don¹t have the tools,² said a senior American official. 
³Our answer is: get them.²

³We want to squeeze the Iranians,² said a European official. ³But there are 
varying degrees of political will in Europe about turning the thumbscrews. It¹s 
not straightforward for the European Union to do what the United States wants.²

Another European official said: ³We are going to be very cautious about what the
Treasury Department wants us to do. We can see that banks are slowing their 
business with Iran. But because there are huge European business interests 
involved, we have to be very careful.²

European officials argue that beyond the political and business interests in 
Europe are legal problems, because European governments lack the tools used by 
the Treasury Department under various American statutes to freeze assets or 
block transactions based on secret intelligence information.

A week ago, on Jan. 22, European foreign ministers met in Brussels and adopted a
measure that might lead to laws similar to the economic sanctions, laws and 
presidential directives used in the United States, various officials say. But it
is not clear how far those laws will reach once they are adopted.

The American effort to press Iran economically is of a piece with its other 
forms of pressure on Iran, including the arrest of Iranian operatives in Iraq 
and sending American naval vessels to the Persian Gulf.

American officials refuse to rule out military action. On Monday, President Bush
said in an interview with National Public Radio that the United States would 
³respond firmly² if Iran engages in violence in Iraq, but that he did not mean 
³that we¹re going to invade Iran.²

Several European officials said in interviews that they believe that the United 
States and Saudi Arabia have an unwritten deal to keep oil production up, and 
prices down, to further squeeze Iran, which is dependent on oil for its economic
solvency. No official has confirmed that such a deal exists.

The Bush administration has called on Europe to do more economically as part of 
a two-year-old trans-Atlantic agreement in which the United States agreed to 
support European efforts to negotiate a resolution of the crisis over Iran¹s 
nuclear program.

Typically, American officials say, European companies that do business with Iran
get loans from European banks and then get European government guarantees for 
the loans on the ground that such transactions are risky in nature.

According to a document used in the discussions between Europe and the United 
States, which cites the International Union of Credit and Investment Insurers, 
the largest providers of such credits in Europe in 2005 were Italy, at $6.2 
billion; Germany, at $5.4 billion; France, at $1.4 billion; and Spain and 
Austria, at $1 billion each.

In addition to buying oil from Iran, European countries export machinery, 
industrial equipment and commodities, which they say have no military 
application. Europeans also say that courts have overturned past efforts to stop
business dealings based on secret information.

At least five Iranian banks have branches in Europe that have engaged in 
transactions with European banks, American and European officials say.

The five include Bank Saderat, cited last year by the United States as being 
involved in financing terrorism by Hezbollah and others, and Bank Sepah, cited 
this month as involved in ballistic missile programs.

A directory of the American Bankers Association lists Bank Sepah as having $10 
billion in assets and equity of $1 billion in 2004. It has branches in 
Frankfurt, Paris, London and Rome. The United States Embassy in Rome has called 
it the preferred bank of Iran¹s ballistic missile program, with a record of 
transactions involving Italian and other banks.

Bank Saderat had assets of $18 billion and equity of $1 billion in 2004, 
according to the American Bankers directory. Three other Iranian banks ‹ Bank 
Mellat, Bank Melli and Bank Tejarat ‹ have not been cited as involved in any 
illicit activities, but many European officials say they expect the Treasury 
Department to move against them eventually.

European officials say that the European Commission will meet in mid-February 
and approve a measure paving the way for freezing assets and blocking bank 
transactions for the 10 Iranian companies and 12 individuals cited in an 
appendix of Security Council Resolution 1737, adopted in December.

Copyright 2007 The New York Times Company

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