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Background Briefing by Senior Administration Official

April 30, 1995

The West Wing

4:08 P.M. EDT

SENIOR ADMINISTRATION OFFICIAL: Thank you for coming in on a rainy Sunday afternoon. I wanted to give you some background with respect to an announcement the President is going to make tonight in his speech to the World Jewish Congress as it relates to further sanctions on Iran.

As you know, from the very beginning of this administration it has been among our highest priorities to seek to contain and control the threat that we see from Iran and the unacceptable Iranian behavior which manifests itself in several ways. Number one, its support for terrorism. It is the number one state sponsor of terrorism. Number two, its efforts to disrupt the peace process which, if anything, have increased through its support of terrorism. And third, its efforts to acquire nuclear weapons. Clearly, as I've indicated, it is in our judgment and the judgment of the President, one of the most serious threats that we face both in regional terms and beyond.

We have acted over the last two years both unilaterally and multilaterally to try to contain Iranian behavior. We have had some successes with respect to cooperation. We've agreed with our G- 7 allies not to sell arms to Iran, to restrain the transfer of sensitive military and nuclear technology to Iran within the G-7. We have influenced and limited at least the pace of the rescheduling of Iranian foreign debt, and we have limited some of the concessional financing that our allies have considered with respect to Iran. But as I have indicated, Iran's behavior has not improved. In some areas it has worsened.

We have been engaged, as you all know, in a review for the last few months of our policy with respect to Iran. The President concluded on Friday that further steps were necessary, further pressure on Iran to demonstrate and to manifest America's leadership on this issue.

We already limit imports from Iran, and the exports of sensitive goods. The President will announce tonight further economic sanctions, essentially comprehensive economic sanctions with respect to trade and investment with Iran. This will prohibit all trade with Iran by U.S. persons or companies or their branches overseas. It will prohibit new U.S. investment in Iran. We will call upon our allies to exercise further restraint in their dealings with Iran.

The President is taking these steps for a number of reasons. He believes that these further actions are commensurate with the seriousness of the threat that we perceive from Iran. He believes that it will enhance our ability to exercise leadership with our allies in seeking to gain further restraint on their part. The fact that we have continued to trade with Iran has sent some have argued a mixed message both to Iran and to our allies of the seriousness of our purpose. And finally, we seek to maintain what has been a strong domestic consensus in the United States with respect to Iranian policy, and we believe these actions can help to do that.

These steps will have some adverse impact on American business. Last year U.S. exports to Iran were $326 million -- industrial machinery, industrial equipment. We can give you a further breakdown. In addition, U.S. oil companies and their branches abroad bought about 20 percent of Iranian crude oil exports, which, as I say again, would not be permitted under the executive order that the President will sign sometime this week.

But the President believes --

Q: Excuse me. Is that 20 percent on track with the $4 billion figure?

SENIOR ADMINISTRATION OFFICIAL: That's correct -- $3 billion to $4 billion.

Q: That's 20 percent of $3 billion to $4 billion?

SENIOR ADMINISTRATION OFFICIAL: The 20 percent equals $3 billion to $4 billion a year. But the President believes that, notwithstanding these adverse consequences, there is a larger purpose to be served here. The executive order will have a 30-day transition period for existing contracts, and then there will be a licensing provision that will be administered by the Treasury Department to enable companies with existing contracts to wind down in an orderly way with -- under license by the Treasury Department. So to the extent that we can mitigate the adverse impact to American companies, consistent with the purposes of this executive order, we will do so.

Q: How long will the wind-down be?

SENIOR ADMINISTRATION OFFICIAL: It will be a 30-day transition, and then thereafter will require a specific license from the Treasury Department.

Q: It could be weeks, months, or beyond that?

SENIOR TREASURY OFFICIAL: Sixty days thereafter.

SENIOR ADMINISTRATION OFFICIAL: Let me just conclude by saying that Iran can and we hope will choose to modify its behavior and come back into more normal relations with the international community. But the President's message here is clear, that it cannot -- Iran cannot enjoy normal relations with the United States or the international community so long as its unacceptable behavior continues.

Q: You talked about U.S. companies and their branches. Can you give us a little more detail? Does that include foreign subsidiaries that are not registered in the United States, number one? And can you tell us if you know what percentage of the oil that's now lifted by U.S. companies is lifted by other than U.S. persons U.S. companies, using the formula you used?

SENIOR ADMINISTRATION OFFICIAL: The answer to the first question is this will cover U.S. branches abroad, but not foreign subsidiaries of U.S. firms abroad. The reason, as you know, our allies have strenuously consistently objected to extraterritorial application of American law to companies in foreign countries. And a judgment was made here that we did not want to engage in a diversionary battle with our allies over their efforts to then counter our extraterritorial assertion of jurisdiction, but rather keep the focus on Iran. This will cover a very large percentage of the activities.

Q: Can you define that percentage?

SENIOR ADMINISTRATION OFFICIAL: The market apparently is very fluid and we cannot say for sure, the Commerce Department does not know. And if you talk to oil companies you'd have to take a snapshot at a given time of what exactly is happening by branches and subsidiaries as one fixed percentage.

Q: Did you asked the oil companies? Ask the oil companies, and if so, why not, how much they pull through branches that apparently would not be covered by this?

SENIOR ADMINISTRATION OFFICIAL: Our impression is that this covers most of the oil --

Q: And how much of the $326 million in trade will be affected by this?

SENIOR ADMINISTRATION OFFICIAL: The $326 million is the total 1994 trade from the United States to Iran of the oil --

Q: Administration officials have said in the past that unilateral action against Iran has limited impact. Realistically, what difference do you think this is going to make to Iran, and won't it in the end have more impact on U.S. companies than on Iran?

SENIOR ADMINISTRATION OFFICIAL: I think, number one, we will call upon our allies to exercise similar restraint. Number two, I think that this will unquestionably enhance our credibility with our allies as we seek to have them engage in the maximum restraint possible with respect to Iran -- with respect to concessional loans to Iran, debt rescheduling, and a range of activities. The fact that we are prepared to take this action I think will make it far more difficult for our allies to take --

Q: But you're not answering my question.

Q: involved in fact not a real effect?

SENIOR ADMINISTRATION OFFICIAL: No, I think it is -- it will have a real effect as well as an expression of the seriousness of our purpose.

Q: Do you have any indication from any of our allies that they are prepared to take firmer action as a result of our steps?

SENIOR ADMINISTRATION OFFICIAL: Well, we have seen from the allies over the past several months uneasiness about dealings with Iran. Clearly, they have been victims of Iranian-sponsored terrorism as well. Part of our obligation is to demonstrate American leadership with respect to clarifying the extent of the threat here so that it is something that our allies feel more compelled to act on as well as we do. But whether it is the Karam Dam project, which the Japanese have delayed, or steps that the Germans or other Europeans have had under consideration with respect to export financing, we believe they have paused in their consideration of some of those actions and that this step will enhance our credibility in pressing for that kind of restraint.

Q: Would you be disappointed and shocked if European and Japanese and other Asian countries that we consider close allies pick up the business that we are going to cut off?

SENIOR ADMINISTRATION OFFICIAL: Well, we will urge them, as I say to exercise -- to join us in these steps and to see the threat that Iran poses to not only the Middle East peace process, but to security around the world. And by taking this action it is, I think, a reflection of our view of the seriousness of the threat and we hope that will resonate in their own populations as well.

Q: Has this been discussed with Senator D'Amato in advance? And do you think that this action by the President will head off the bill that Senator D'Amato and Congressman Peter King are proposing, which, as you know, goes much, much further in the area of extraterritoriality?

SENIOR ADMINISTRATION OFFICIAL: I think this addresses the same objectives that Senator D'Amato has in his bill -- that is, to demonstrate the seriousness of America's purpose here and to increase the pressure on Iran. I think it may make that bill of less compelling interest on the Hill.

Q: How much more persuasive will this make your case with Russia to halt its nuclear program?

SENIOR ADMINISTRATION OFFICIAL: I think that it is -- certainly strengthens our credibility in saying to the Russians and saying to the Japanese and saying to the Germans and others that we believe that strong steps have to be taken with respect to Iran if we ourselves are in the position of having taken strong steps ourselves. So I think it will enhance our position with respect to that.

Q: Would this have blocked the kind of Conoco kind of thing had this been in effect? It would have.

Q: Is the Conoco language regarding foreign subsidiaries broader than this language, or is it the same regarding the extraterritoriality issue again?


Q: It's the same language.

Q: What prompted the President to decide to do this now?

SENIOR ADMINISTRATION OFFICIAL: This review, as I know most of you know because you've asked about it frequently -- this review has been going on for the last six weeks or two months of our Iranian policy. Recommendations went to the President last week; he reviewed those recommendations; he decided this on Friday. And we felt it was important to make that decision known as soon as possible.

There's obviously interest in Congress in this issue, and I think that we do not need -- I think it would not be useful to have a really divisive debate over Iranian policy. There has been a remarkable degree of consensus in the United States about the strength of our conviction and purpose with respect to Iran. And I think to the extent that we can continue to proceed with that domestic consensus it sends a very clear message to Iran that Americans are basically united on this issue, even though we may have difference with respect to some particular provisions.

Q: You said that in some areas Iran had gotten worse. In what areas, in what ways, specifically?

SENIOR ADMINISTRATION OFFICIAL: Well, certainly, with respect to the sponsorship of terrorism directed at sabotaging the Middle East peace process.

Q: Can you be a little more specific than that?

SENIOR ADMINISTRATION OFFICIAL: Its support of groups like the Hezbollah and Hamas and other organizations whose actions over the past several months have been directly with the intent and motivation of sabotaging the Middle East peace process.

Q: Are you suggesting that Iran had a role, for example, in the bombing of the ports of Beit Lid, bombings and things like that?

SENIOR ADMINISTRATION OFFICIAL: I don't want to get into any particular incident except to say that there clearly has been intensification of terrorist activity directed at the Middle East peace process, directed at the essence of that process, and Iran is certainly a sponsor of some of these organizations.

Q: But do you consider Iran the mastermind of all this, or just because it supports financially and so forth the various groups?

SENIOR ADMINISTRATION OFFICIAL: It is the number one state sponsor of international terrorism.

Q: Would it be helpful if D'Amato and King withdrew their bill now?

SENIOR ADMINISTRATION OFFICIAL: Well, I think we will consult with Senator D'Amato and Congressman King. And I think that this, as I say, addresses the essence, I think, of his proposal. As I say, there is here a difference in view with respect to some aspects of his legislation which, in effect, would impose a secondary boycott on companies from -- non-U.S. companies who trade with Iran who then would be prohibited from trading with the United States.

Our concern with those provisions as with our concern about extraterritorial -- overextending extraterritorial jurisdiction here is that we don't want to change the subject here from Iran, which is what this is about, to an argument about U.S. application of extraterritorial jurisdiction. This is about Iran. This is about increasing pressure about Iran. It's about trying to work to the extent we can with our allies, not getting into an unnecessary dispute with our allies.

Q: So you haven't talked to them yet? D'Amato or King.


Q: the allies, have there been any discussions in the last --

SENIOR ADMINISTRATION OFFICIAL: We talk to our allies continually about this and will be talking about them. There is not -- there is hardly a meeting that the President has or the Secretary has that deals with global security issues or certainly deals with the Middle East in which this issue was not raised.

Q: I just wanted to know if you've briefed them about this within the last 48 hours.

SENIOR ADMINISTRATION OFFICIAL: We are in the course of doing that.

Q: When I asked before how much of the oil is lifted by foreign subsidiaries that wouldn't be covered, I think your colleague said we don't know and you said not very much.

SENIOR ADMINISTRATION OFFICIAL: I think -- and tell me if I'm wrong -- I think our understanding is that this would cover the vast bulk of --

SENIOR TREASURY OFFICIAL: I can't give an exact answer with reference to the quantity, but it would apply to all U.S. persons, even if employed in a foreign subsidiary.

Q: That's not my question. My question is, it does not apply to foreign subsidiaries that are not American incorporated, and I want to know what percentage of the $4 billion is represented by purchases by those entities.


Q: We don't know.

Q: Well, then, why do you have that 90 percent of them still getting through?

Q: That's my question.

Q: I thought these were all -- most of this was through foreign subsidiaries, not through branches of U.S. companies, if I'm incorrect. I also thought that the executive order barred, in terms of development for Iran, barred subsidiaries, not just branches.

SENIOR TREASURY OFFICIAL: The ban on the application to subsidiaries goes to companies that are owned by U.S. companies, incorporated in foreign jurisdictions, but where decision-making, risk-taking deals are put together, they have to be totally independent from the U.S. parent in terms of any kind of business activity.

Q: So the standard is not necessarily where they're incorporated?

SENIOR TREASURY OFFICIAL: The standard is, they cannot be controlled from the United States. Where they're incorporated takes them out of U.S. jurisdiction so long as business decision-making, risk-taking, decision-making all resides where that company's oil is -- and no U.S. person is --

Q: Excuse me -- it's confusing, and it's an important point, because it means that, you know, five percent, 20 percent, 50 percent of the current sales are not covered --

SENIOR ADMINISTRATION OFFICIAL: Let's be clear about what -- this does cover all exports from the United States. You're now focusing only on the oil piece of this.

Q: That's $4 billion.

Q: Versus $300 million.

Q: No, but it -- in fact, it isn't, because once you sell it, I mean, it's only part of that, right?

Q: Can the oil pass through other hands? Say BP is owned by the British, Shell is owned by the Dutch -- can it come through BP in Britain and then be transshipped to BP and sold to the United States?


Q: So let's say Shell is a Dutch company, originally BP is British, and they have operations in the United States. Can Iranian oil turn into gasoline sold in Americans' cars by passing through, internally, from one part of BP to another?

SENIOR ADMINISTRATION OFFICIAL: You're asking two questions.


Q: Likewise, could Esso in Germany, which is owned by Exxon, buy the oil in Germany and then transship it from Hanover to --

SENIOR TREASURY OFFICIAL: As with all executive orders like this, there is an avoidance in evasion prohibition. So steps taken to engage in this kind of transaction, which would somehow avoid what the executive order says, is prohibited.

The second question goes to substantial transformation, where Iranian origin crude is refined in a third country. As in the case of Libya, or at least in the case of Libya, third country refined Libyan crude is permitted to be imported under substantial transformation rule.

SENIOR ADMINISTRATION OFFICIAL: But in the case of Iranian crude that gets refined overseas, we think a very, very small amount of it ever comes into the U.S. market because most of the Iranian crude gets refined in Asian refineries or in European refineries, and is actually consumed there. So we don't think there is a big problem with how much original Iranian crude comes into the U.S. as a refined product. That's not what we were focusing on. What we were focusing on is the ability of U.S. companies to purchase Iranian crude in the international market, sell it overseas. That's the business that we're stopping, and it is true that we cannot say that we know for sure we're going to stop 100 percent of it, because --

Q: It's confusing. You have no estimate?


Q: I'm confused about what your colleague said about where they're incorporated, too. I'm --

SENIOR ADMINISTRATION OFFICIAL: What my colleague said, which was a new point that hadn't yet been made in my other colleague's remarks is that the EO applies to U.S. companies and to its branches. It will apply to foreign subsidiaries in one circumstance, and that is if the U.S. parent company controls or coordinates the decision-making, the risk-taking, the business decisions of a foreign sub, then the U.S. persons in the parent company would be obliged to stop that activity.

So in that sense --

Q: So even if that subsidiary --


Q: So how would it affect Exxon, Texaco, Mobil, Conoco -- surely you must have had some look at the impact --

SENIOR ADMINISTRATION OFFICIAL: U.S. companies are not obliged to report to the U.S. government on which of their affiliates overseas, whether they're subs or branches, that information is not readily reported to us. So there will be some clarification of this, I think, as the companies determine how much it's going to affect --

Q: I guess I wanted to ask you or your colleague, do you think that Exxon Corporation, now through any subsidiaries, is not going to be allowed to purchase Iranian crude oil or Iranian oil in any form?

SENIOR TREASURY OFFICIAL: Taking it out of the specific of one company or another, it would depend on the extent to which control is exercised over that subsidiary from the United States. And when control is rendered from the United States in terms of how they do their trades, how they make their decisions, how they make their investment decisions and so forth, then that would be prohibited. Only a foreign subsidiary acting independently and on its own.

Q: So, based on your read, the major U.S. oil companies -- Mobil here, although I'm not sure actually Mobil does huge purchasing -- Exxon, Texaco, no matter how it was incorporated, this would prevent their purchase of Iranian oil?

SENIOR TREASURY OFFICIAL: It would depend, company to company, how they were structured and how they essentially handled their reporting relationships in that company itself.

Q: From your Libyan experience, do you see any companies that would be granted an exemption from this rule?

SENIOR TREASURY OFFICIAL: There are companies that truly are independent in terms of those standards that would be able to continue that activity.

SENIOR ADMINISTRATION OFFICIAL: But this is modeled after the Libyan --


Q: Is it fair to say that the total economic effect on Iran is less important than the -- sort of the diplomatic, the rallying of the Allies effect and so on? Because oil is pretty fungible in any event --

SENIOR ADMINISTRATION OFFICIAL: I think the fundamental purpose here is to demonstrate to Iran and to our allies the seriousness with which we view the Iranian threat, to enhance our credibility with our allies, to gain their restraint, particularly with respect not only to these kinds of transactions, but particularly subsidized credit transactions, other transactions that strengthen the Iranian regime, and I think these steps do that in a very significant way.

Q: You hope to get changed Iranian behavior. How will you communicate this desire to them -- indirectly through the Swiss, just through the media, how?

SENIOR ADMINISTRATION OFFICIAL: Well, I think we've made that clear. The President will speak to it tonight. It is the subject of our speeches and other statements that we make to the Iranians, that we make publicly. The behavior here is very clear: it is a program of developing nuclear weapons, it is the sponsorship of terrorism, it is efforts to sabotage the peace process. I don't think there's any confusion on the part of Iran with respect to what behavior we're talking about here.

Q: Can I ask you one more question about the specifics on oil? I'm a little confused. The $3 billion to $4 billion in which U.S. companies are involved -- that represents the total volume of trade, not the profit to those companies, correct?


Q: And what percentage of that do they make off this?

SENIOR ADMINISTRATION OFFICIAL: In terms of profits, it's a very -- it's pennies on the barrel, as far as I understand.

Q: So we're talking millions, not billions?

Q: Is that a yes -- millions, not billions?


Q: In a sort of broader sense, there was much talk perhaps peaking a year ago about moderates in the Iranian regime perhaps trying to make overtures to Washington, overtures to the West. Skeptics said there really aren't any moderates in Iran, just sort of different levels of fanaticism. Where does this policy put Washington in that debate? Are there moderates to strengthen or does is this really just a point of throwing one's hands up and saying there's really nobody to do business with here?

SENIOR ADMINISTRATION OFFICIAL: I think we've seen no evidence that there is any serious moderate course in Iran, but what this says is, in stronger terms than we said before, that the only way in which Iran can come back into the international community is by moderating its behavior to the extent that strengthens the hands of those who, within the Iranian government seek to moderate Iran's behavior, so much the better. But it is, I think, only through the firmness of the international community that Iran's behavior will be modified.

Q: I understand you've been working on this for some time. But do you think that the political climate, fostered in part by the Oklahoma City bombing will add impetus to congressional support of this effort to cut off Iranian oil?

SENIOR ADMINISTRATION OFFICIAL: I think you know that Iran has been a priority of this administration from day one. And if there has been an impetus to this, I think it is, or at least to the policy review, it has been what we have seen happening directed at the peace process in the Middle East over the past several months. Obviously, there is, I think, a heightened awareness in the United States of the terrorist threat, both domestically and internationally, and I assume that affects the general environment. But the purpose here is, as I've focused on, on Iran.

THE PRESS: Thank you.

END4:40 P.M. EDT

William J. Clinton, Background Briefing by Senior Administration Official Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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