London, United Kingdom
May 18, 1998

I have determined that the investment by the firms Total (France), Gazprom (Russia), and Petronas (Malaysia) in the development of Iran's South Pars gas field constitutes activity covered by the Iran and Libya Sanctions Act of 1996. This determination follows an extensive review of the actions taken by the firms in this case as they relate to the provisions of the law.

At the same time, exercising the project waiver authority of Section 9(c) of the Act, I have decided that it is important to the national interest to waive the imposition of sanctions against the three firms involved. Among other factors, I considered the significant, enhanced cooperation we have achieved with the European Union and Russia in accomplishing ILSA's primary objective of inhibiting Iran's ability to develop weapons of mass destruction and support of terrorism.

Granting this waiver does not mean we support this investment; we do not. In fact, we made vigorous efforts to stop it, including representations at the highest levels of the governments involved. When it appeared that the project would nevertheless go forward, we closely studied the possible application of sanctions. We concluded that sanctions would not prevent this project from proceeding.

While unsuccessful in stopping the South Pan deal, our efforts to discourage the Indonesian firm Bakrie from proceeding with the development of the Balal oilfield contributed to Bakrie's apparent decision to withdraw although the impact of the Asian financial crisis was also important.

My decision to grant section 9(c) waivers in this case is based on the conclusion that, taking all factors into account, it is the option that best serves U.S. interests. I also decided that it would not be appropriate to grant country-wide waivers under Section 4(c) of ILSA.

In choosing among the available options, I took into account a number of factors relating to our national interests. In the case at hand, waivers will enhance our ability to work with the Europeans, Russia, and Malaysia on a host of other bilateral and multilateral concerns. For example:

-- Russian ratification of START II, cooperation on nonproliferation, and progress on internal economic reform.

-- Resolution of differences over Helms-Burton, including a new discipline to deter investment in illegally expropriated property worldwide, including in Cuba, and further EU support for democratic change and human rights in Cuba, and creation of a new U.S.-EU initiative to liberalize trade.

-- Multilateral cooperation on Iraq to maintain isolation of Saddam Hussein and to bring about compliance with UNSCR obligations, including cooperation with UNSCOM/IAEA inspections.

-- Progress on Kosovo and Bosnia, where cooperation of our NATO allies is essential, and on other European security issues.

-- Cooperation with European and Asian partners, including Malaysia, in addressing the Asian financial crisis and the rapidly unfolding events in Indonesia. We were also concerned about the effect of sanctions on a major Malaysian company at a time when Malaysia is feeling the serious effects of the crisis.

Moreover, granting waivers will prevent retaliation against U.S. firms, which the imposition of sanctions would probably engender, and avoid possible challenges based on claims related to treaties and other international obligations. These considerations buttress the view that a waiver in this case best serves our national interest.

We remain deeply concerned about Iran's support for terrorism and efforts to acquire weapons of mass destruction. While there are indications that the Iranian government may be trying to improve its relationship with the West, we have not seen substantial change in Iranian policies of greatest concern.

ILSA has been a valuable tool in making clear to others the seriousness of our concerns about Iran's behavior. The Act encourages the Administration to develop multilateral cooperation to deter Iran from acquiring weapons of mass destruction and supporting terrorism. Through vigorous diplomatic efforts, we have made progress toward these goals. I believe that my decision in the South Pars case will promote even more progress and will be more effective than sanctions -- which will not stop the project -- in achieving ILSA's objectives.

We already have a very high level of cooperation with France and our other European allies on nonproliferation issues. As reflected in the joint U.S.-EU statement announced today, the EU is taking additional steps, separately and in cooperation with us, to strengthen further their policies in this area. This includes a EU commitment to give high priority to proliferation concerns regarding Iran and a commitment to stepped-up efforts to prevent dual-use technology transfers where there is a risk of diversion to weapons of mass destruction programs.

This new commitment also involves U.S.-EU cooperation on developing better controls over "intangible" (e.g., electronic) technology transfers, on closer coordination of export-control assistance to third countries, and on increasing diplomatic efforts to stem technology exports by other countries to proliferators, including Iran.

On counterterrorism, we also enjoy a very high level of cooperation with our European partners. We have issued a joint statement with the EU that highlights the EU's commitment to cooperation and identifies specific common objectives. We are also working with EU members and other countries to ensure ratification of all eleven counter-terrorism conventions. The EU will be giving particular attention to obtaining adherence by Central and Eastern European states that are seeking EU membership.

More can be done, and we will continue to work with our European allies to broaden our nonproliferation and counterterrorism cooperation even further. In light of their essential cooperation, and as long as this heightened level of cooperation is maintained, we would expect that a review of our national interests in future ILSA cases involving Iran similar to South Pars, involving exploration and production of Iranian oil and gas, would result in like decisions with regard to waivers for EU companies.

The United States remains strongly opposed to oil and gas pipelines which transit Iran and, as a policy matter, we will continue to encourage alternative routes for the transport of Caspian energy resources, such as trans-Caspian pipelines and the Baku-Ceyhan route, and the Caspian Pipeline Consortium route. We will carefully examine any proposals for trans-Iranian pipeline construction across Iran for possible implications under ILSA and take whatever action is appropriate.

Russia has announced new undertakings, including a January 22 Executive Order that strengthens the government's authority to control missile technology and other transfers of concern. As a result of a subsequent executive order issued on May 14, 1998, the Russian Government is now taking significant steps to implement the earlier order to ensure compliance, including establishing supervisory bodies in all enterprises dealing with missile, or nuclear technologies. The positive start of our joint export control working group is another promising step. While the Russian Government is acting to implement fully President Yeltsin's policy, considerable work remains to be done. We will remain closely engaged with the Russian Government at all levels to ensure effective enforcement.

On May 17, G-8 countries, including key European countries, Canada, Japan and Russia, made an important commitment to deny any kind of assistance to programs for weapons of mass destruction and their means of delivery. They also committed to enhance their cooperation on export controls, including the exchange of information. We have also made nonproliferation progress regarding Iran with other countries. For example, Ukraine recently agreed to forgo all nuclear cooperation with Iran, including making a commitment not to go through with the sale of turbines destined for Iran's Bushehr nuclear plant.

Malaysia has not been actively engaged with us on nonproliferation issues, nor has it been a source of nonproliferation concerns. It has acted as a force for moderation in Islamic circles. Malaysia is our partner for the upcoming session of the U.S.-ASEAN Dialogue, which will address for the first time the establishment of export control procedures. Imposing sanctions on a major Malaysian firm would have disrupted our efforts to work with Malaysia and other countries to address the Asian financial crisis.

We will review, periodically, the rational interest factors applicable to ILSA cases and to our waiver policy to determine whether adjustments are needed.

We also remain intensely concerned about the potential for terrorist actions emanating from Iran, and we would expect our friends and allies to take appropriate steps in response to any Iranian involvement In terrorist activities.

We fully recognize the dangers to Israel of weapons of mass destruction from its enemies in the regions dramatized by Iraq's SCUD attacks in 1991. The Administration has worked closely with Israel to address possible missile threats and will continue to do so. Since 1988, the U.S. has jointly funded the ARROW missile defense system; provided Israel with space-based early warning notification of ballistic missile launches, and jointly funded a feasibility study of the Israeli Boost Phase Intercept Concept.

Finally, I want to emphasize that our position on Iran has not changed. Although Iran's new government has made it clear that it wants increased cultural contacts between the U.S. and Iran, it is not clear how far it is willing to go in changing those policies of greatest concern to us. We therefore will continue to press for enhanced international cooperation to counter Iran's efforts to acquire weapons of mass destruction and their delivery systems, and its support for terrorism. Today's decision is designed to strengthen that cooperation.

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