With the Soviet Union dead and buried, the United States probably has worse relations with Iran than with any other country in the world. We detest North Korea dispassionately and from a distance. Our hatred for Cuba is tinged with pity. From time to time, we actually forget to loathe Libya. As for Iraq, not even an outright war produced the rancor that the United States and Iran seem to feel for one another. We hate a handful of Iraqis—Saddam Hussein and his supporters—but we nurse an abiding dislike for everything Iranian, from the humiliation of the hostage standoff to Iran’s alleged support for international terrorism to the late Ayatollah’s sentence of death on Salman Rushdie.

There is plenty in Iran to arouse dismay, distaste, and deep distrust. The country is run by obstinate men. And nevertheless, in my opinion, Iran has more genuine long-term potential as a trading partner—and, for that matter, as an economic and even political ally—than Saudi Arabia, Iraq, Syria, or Egypt. Israel aside, no country in the Middle East today presents more promising opportunities for U.S. business than the Islamic Republic of Iran.

Of course, to realize this potential and reap the full benefits of active commercial contact, relations between our two countries would have to improve very dramatically indeed. Here again, however, I take an unorthodox view. I believe that the opportunity as well as responsibility to build a better relationship rests more heavily with the United States—and less with Iran—than most Americans are inclined to believe. Iran’s rhetoric has been relentlessly belligerent, no question about that, and its support for the most radical enemies of both the United States and Israel has been consistent, but Iran’s actions as opposed to its words have shown some openness to compromise and even reconciliation. On the geopolitical level, moreover, U.S. failure to cultivate a better relationship with Iran could have dire consequences.

Assessing Iran’s suitability as a place to do business is a highly company-specific matter, but let me start by considering three critical factors: overall stability, economic potential, and the prospects for U.S.-Iranian compatibility.

Stability

Iran’s revolution is over. In expressing decades of pent-up rage and frustration, the Iranians indulged in terrible excesses, but they settled accounts with those they held responsible for the past. Moreover, the turmoil accomplished its purpose, which was the overthrow of the absolute monarchy and the end of foreign domination. Even more fortuitous, Iran’s revolution, unlike so many others, did not pass from absolute monarchy to military dictatorship and thus pave the way for more bloodshed in the future.

In short, Iran has settled its internal struggles and reemerged with functional republican institutions. Its neighbors have this work still ahead of them. Saudi Arabia’s future holds the painful transformation of a totally feudal society with no constitution, no freedom of religious worship, no elected parliament, total censorship, and no formal system of justice whatsoever. Syria is ruled by a small, ruthless minority—Hafez Al-Assad’s Alawite sect makes up less than 10% of the population—and can look forward to internal retribution on a scale beyond anything seen in Iran. Forty years after Nasser’s revolution, Egypt has many of the trappings of a modern democracy, but out of fear for its own Islamic fundamentalists, it has prohibited open criticism of the regime, reinstated press censorship, and all but eliminated free elections. And in the four decades since it overthrew its monarchy, Iraq has managed little more than a series of brutal dictatorships, of which today’s Sunni domination of the Shiite majority is only the latest version.

Iran has settled its internal struggles. Its neighbors still have this work ahead.

Iran has another political advantage over its neighbors. It is a nation state, with several thousand years of national identity and national borders that have been well defined for centuries. More than 70% of Iranians claim Farsi as their first language, and 95% are Shia Muslims. Iran’s ethnic minorities—Turks, Kurds, Turkomans, Baluchis, Arabs, Armenians, Jews—make up less than one-third of the entire population and, with the inevitable exception of the Kurds, have enjoyed decades, even centuries, of good relations with the Persians. The Shah set aside two seats in the Majles for Armenian Christians, one seat for Jews and one for Zoroastrians, and the mullahs have never taken those seats away, though they could easily have done so.

Iran is also relatively secure regionally. The Soviet threat from the north has largely disappeared. Iran dwarfs all its Arab neighbors in population, national defense, and economic potential. Although Iraq inflicted heavy damage during the eight-year war, that war was fought under an unusual set of circumstances. Except for Syria, the world gave Iraq support, encouragement, and arms. Unless the world collaborates against Iran again, no country in the region is a threat to its sovereignty.

Today’s Iran is more at peace with itself than the West is willing to admit. The revolution was popular and so is the republic. While there are many in Iran who would like to see the power of the mullahs reduced, most would not want a return to the Shah’s march toward secular rule. As a matter of fact, until the Pahlavis came to power in the 1920s, Shia clerics had wielded great influence in national politics for more than two centuries, and their continuing loss of power for the next 50 years was an aberration, not the norm. Discontent centers much more on economic deprivation than on the absence of civil rights. For that matter, though not always easy to perceive in Western news reports, the absolute monarchy and the terror that followed it have gradually given way to a system that tolerates peaceful political and economic struggle. As a result, today’s Iran is more united and therefore politically stronger than it could ever have been under the Shah.

Today’s Iran is more united and politically stronger than it ever could have been under the Shah.

Unlike other countries in the region, Iran has the heritage and institutions for the reemergence of genuine democracy and the rule of law. Iran adopted its first constitution and established its representative assembly, the Majles, in 1906. The Pahlavis subverted both, but the desire for constitutional government remained strong; in fact, for more than half a century, the 1906 constitution has had the status of an icon and the political weight for Iranians that the Magna Carta has had for the English.

Despite the drawbacks, Iran’s vast natural resources and massive import needs make it a potential gold mine.

Iranian institutions and respect for human rights may not live up to Western ideals, but they are years ahead of their neighbors. While the clerics chose a constitution giving unsurpassed authority to the supreme religious leader, still they did create a constitution and in so doing affirmed the concept and much of the practice of civil and political rights. The Majles conducts genuine debates and provides an effective check on presidential powers. Candidates for the Majles must have the approval of a clerical committee that declares them fit for office, but once approved, candidates conduct real campaigns against real opponents in free elections. Though the courts may not always be fair, the supporters of the present regime do not invariably get their way, especially when it comes to commercial justice. (Armenian Christians recently won a court case allowing them to build a church on land claimed by mullahs for the construction of a mosque.) While dress codes for women may be abhorrent to many, a higher percentage of women work in Iran today than did under the Shah. While the law permits no criticism of Islam, the Ayatollah Khomeini, or his successor as Iran’s religious leader, on all political and other points there is freedom of religious worship, freedom of speech, and freedom of the press.

Economy

Iran’s population is approaching 60 million, most of it young; the country has vast oil and gas reserves in addition to chromite, copper, bauxite, marble, and other minerals; skilled labor is plentiful and cheap; and almost everything else is in short supply. Natural resources make Iran a natural site for world-scale petrochemical plants, and its location affords substantial advantages for transshipment of oil and gas from some former Soviet republics. Iran has massive import needs and an incalculable pent-up demand for both consumer and capital goods, including the oil extraction technologies and sophisticated engineering capabilities in which the United States is preeminent.

Iran has massive import needs and an incalculable demand for both consumer and capital goods.

But since the revolution, economic time has stood still in the best industries and moved decisively backward everywhere else. There has been no infrastructure maintenance to speak of, little new investment, and a gradual decline of per capita GNP. Oil production fell from six million barrels a day under the Shah to less than two in 1980–1981 and has risen to less than four today. Since the revolution, imports have declined due to the shortage of foreign exchange, the balance of payments on the current account has been continuously in deficit, and sales of U.S. goods and services to Iran have dropped by about 80%.

In fact, the Iranian economy has suffered five damaging blows over the last 14 years: the revolution itself, the quixotic economic policies that followed the revolution, the Iran-Iraq War, the decline in oil production and exports, and the ongoing financial disputes with the United States.

The revolution disrupted the economy for at least two years, with its strikes and mass demonstrations, its widespread exodus of managers, and its general business uncertainty. Even worse, however, were the long-term consequences of a number of economic decisions taken in the name of revolution. Although Islam is very receptive to business and to profit, Iran’s new religious rulers were hardly economists. Their policies reflected a deep concern for the kind of social justice that would help them preserve their power, and they tried hard to eliminate many of the inequities so prominent under the Shah. But their economic remedies were at best naive and at worst detrimental. The new Islamic government initiated price controls and consumer subsidies, enacted labor laws favoring workers at the expense of business efficiency, and protected uncompetitive areas of the private sector from foreign competition. It also nationalized some 40% of the private industrial sector, creating huge state foundations that enjoyed special rights and privileges and answered only to the supreme religious leader. Parliament has no control over these foundations, and they operate without any of the motivations and constraints that a normal need for efficiency and profit would typically provide.

Capricious decision making and the overall inefficiency of foundation managers had already begun to drag down economic performance when the Iran-Iraq War broke out in September 1980. For the next eight years, military expenditures squeezed out virtually all spending on business and industrial development and maintenance. The import of industrial spare parts came to a virtual halt. In addition, Iraqi artillery and air raids did more than $150 billion worth of damage to Iranian industry, agriculture, roads, buildings, railways, oil fields, power plants, refineries, and other vital elements of the country’s economic infrastructure.

By 1988, the only bright spot on the economic horizon, aside from peace, was the virtual absence of foreign debt. Iran’s government had exercised such strict fiscal discipline during the war that the country paid its military bills as it went—aided of course by most of the world’s refusal to sell it arms and equipment. This lack of external debt could have opened the door to swift economic reconstruction and expansion after 1988, but persistently hostile U.S.-Iranian relations and the popular perception of Iran as a high-risk environment impaired its access to foreign direct investment, advanced technologies, and international loans. Moreover, Iran used much of the few loans it did receive to finance consumption and support uncompetitive heavy industries such as steel.

At the same time, oil slipped from its preeminent position in a generally healthy Iranian economy to a position as perhaps the least hamstrung of many crippled industries. Production, as I mentioned earlier, has fallen from some 6 million barrels a day in the late 1970s to about 3.6 million today, of which roughly 70% is exported. This is bad news for Iran’s ability to earn foreign exchange and reinvest in its deteriorating economy. But the bad news is not as bad as it would be if Iran were as wholly dependent on oil as its neighbors. In 1991, Iran’s industrial sector (which includes oil) accounted for only 20% of gross domestic product, versus 55% in Saudi Arabia and 50% in Iraq—although oil exports made up 87% of exports versus 90% in Saudi Arabia and about 95% in Iraq.

In order to compensate for the depletion of oil over time, oil-dependent economies must save a very high portion of current income to develop nonoil sources of production. Simply put, oil-dependent economies cannot afford to be wasteful. They must save and invest a large portion of their current oil revenues to ensure future economic prosperity. At the moment, the Iranian government runs deficits—it “dissaves”—with ominous implications for the future.

In Iran, recent budgetary deficits have been persistent, though the size of the deficits has been much smaller (2% to 3% of GDP) than those in Saudi Arabia (roughly 10%). The reason for this difference is that Iran has in place an income-tax structure, however flawed. At the same time, Iran’s current account deficits have resulted in greater external borrowing. Although foreign debt was small in 1988, it has since grown handily, from $7.5 billion in 1989–1990 to about $26 billion in 1992–1993. Deducting foreign assets, this most recent figure gives Iran a net foreign debt of about $14 billion—much larger than at war’s end but by no means large in relation to GDP or exports. The trouble is that Iran has little to show for its foreign debt and that the country’s political isolation makes additional international financing so hard to come by. Iran’s situation would also improve if it could sell more oil—provided of course that it used the revenues for economic investment. But each production increase of one million barrels a day costs about $10 billion to achieve, so to produce more oil for sale, Iran must first increase its ability to borrow.

An improvement in Iran’s long-term economic performance will require, first and foremost, tough political decisions—reduction of subsidies, elimination of all government controls (price controls and stifling labor laws), a gradual reduction of tariffs, privatization of government and foundation assets, and Iranian willingness to submit to international arbitration of financial disputes. Reforms of this kind would benefit the country greatly over time. But since most Iranians would suffer in the short run, principally as a result of higher prices and higher unemployment, the political cost is higher than the Iranian government has been prepared to pay in the absence of external financing. Yet there are some signs that reform may yet come.

In some developing countries, the International Monetary Fund instigates reform once the need grows sufficiently desperate. IMF involvement reduces perceived risk, and that, in turn, stimulates foreign direct investment and commercial funding. Vietnam is a case in point. Iran, which is a member of both IMF and the World Bank, is now fast approaching this level of economic crisis. It is presently ten months behind in its payments on letters of credit and is beginning to restrict its imports, so the legitimacy of its government and proven ability to tax may draw in the IMF and bring reform willy-nilly. And then again they may not. The necessary catalyst may have to be Iran’s complete reintegration into the world financial community. And here the final blow falls. Iran’s continuing isolation from the world community is due in large part to its hostile relations with the United States, and these relations continue to be utterly horrific on every apparent level.

Compatibility

For nearly 50 years, Iran and the United States have had a relationship that has to be called incongruously intimate. On opposite sides of the earth, our dealings with one another have run the complete gamut from gratitude, respect, love, and mutual advantage to exploitation, hatred, insult, and total outrage. No Third World country ever seemed a closer ally. Few countries ever handed the United States a more painful humiliation.

No Third World country ever seemed a closer ally than Iran. Few countries ever handed the U.S. a more painful humiliation.

I have already mentioned the importance of the 1906 constitution in Iran’s modern history. The only other factor that looms as large is U.S.-Iranian relations.

During the Second World War, Allied forces from the United States, Great Britain, and the Soviet Union invaded and partitioned Iran to deter Iranian-German collaboration and to support the war effort in Russia. The Shah’s father, who had usurped the throne in the 1920s, agreed to go into exile in return for continued family rule in the person of his son. After the war, the Russians continued to occupy the Iranian province of Azerbaijan, inhabited by the Turkish-speaking Iranians and representing roughly 15% of the population and 5% of Iranian territory, and it was U.S. pressure that led to ultimate Russian withdrawal. The gratitude of the Shah and the Iranian people was immeasurable. Modern U.S.-Iranian relations were built on something very like love. On this firm foundation, unfortunately, the U.S. helped the Shah construct a police state that terrorized Iranians into supporting our new client, Mohammad Reza Pahlavi.

In 1951, Mohammad Mossadeq, a passionate nationalist, became prime minister and proceeded to nationalize Iran’s oil industry. Under pressure from the United Kingdom and its Anglo-Iranian oil company, the United States joined in the boycott of Iranian oil in the form of a British naval blockade, and the Iranian treasury began a slow hemorrhage. In 1953, Mossadeq was finally forced from office, but popular pressure brought him back into office, and the Shah fled. Within days, the CIA had engineered Mossadeq’s ouster by military coup, and the Shah returned in triumph. From that day forward, government officials and common Iranians alike have referred to the United States as Arbab—Farsi slang for boss.

The political consequences of this interference were slow to develop and ultimately devastating. The economic consequences were more immediate and much more fortunate for almost everyone involved, Iranians as well as Americans. U.S. oil companies acquired a 40% interest in Iran’s Oil Consortium (the United Kingdom held the other 60%). Every U.S. oil service company did business in Iran, as did a virtual Who’s Who of other U.S. business and financial interests, including General Motors, Ford, Chrysler, Du Pont, Allied Chemical, Anaconda, Reynolds Metals, B.F. Goodrich, and Chase Manhattan Bank. By 1977, the annual flow of U.S. direct investment in Iran was around $200 million, and Iran had become the largest market for U.S. goods and services not only on the Persian Gulf but in all of North Africa and the Middle East. U.S. merchandise exports to Iran reached $2.2 billion in 1977. Including services and arms, the figure was on the order of $5 billion.

In the opposite direction, U.S. purchases from Iran came to $4.3 billion in 1978. But business relations went far beyond trade. About 60,000 Americans were employed in Iran on the eve of the revolution. In testimony to what had once been, the severance of U.S.-Iranian relations brought 872 large U.S. corporate claims against Iran.

It is no exaggeration to say that U.S. business was more firmly entrenched and more widely represented in Iran than in any other developing country in the world. But as Iranian prosperity grew, so did Iranian resentment. Arbab’s growing domination of Iranian business and cultural life disturbed many Iranians; Arbab’s support for the Shah alienated almost all of them. After 1953, our power to underwrite Iran’s economic development steadily increased, but our image in the hearts and minds of Iranians gradually changed. We had been Iran’s support against Russian aggression. We became the Shah’s support against the Iranian people.

The revolution gave Iranians a chance to settle political scores, but it also ended the long economic honeymoon. U.S. companies started pulling out personnel in 1978 and 1979. Even though only two Americans died in Iran as an indirect result of the revolution, the hostage-taking by radical students was an indignity that the United States could neither forget nor forgive. It also led to the freezing of Iranian assets, and the crisis that followed triggered U.S. corporate claims against Iran and massive U.S. corporate withdrawal.

Living and Breathing in Teheran Iranians hate the United States and love Americans. They may hold massive demonstrations now and then to commemorate the day student radicals took U.S. diplomats hostage in 1979, but when an American woman I know ran out of gas in a Teheran suburb, the first man she asked for help siphoned gas from his car to put in hers. In fact, no American I know has ever reported a hostile act or attitude in personal contact with Iranians. By world standards, Teheran is a relatively safe place to live and a notably friendly place to visit. Getting a visa is relatively easy, although Westerners must have a sponsor in the country. To do regular business in Iran, a Western company is also required to have an Iranian agent. Hundreds of such agents vie for the attention of Western businesses, and most are of questionable value. The best way to find a good agent is through a U.S. or European company that already has one. As a rule, the officials and businesspeople a Westerner encounters in Iran are easier to deal with than Arabs and much more Western in their thinking. Many have U.S. college degrees, speak fluent English, and seem entirely comfortable with Westerners. Even religiously correct young people with no overseas experience—often in figurehead positions and with political connections among the mullahs—are likely to be cordial and pragmatic. (Like other Middle East countries, Iran has long suffered from corruption, and the country’s new religious rulers have been unable to control it. The only real difference is that venality under the mullahs has grown more democratic. Bribery was once limited to the royal family and its officials. Now it is practiced openly at much lower levels, where people see it as an indispensable adjunct to income.) For the business visitor, life in Teheran is definitely livable. Iranians love almost everything Western, especially things American. One of Teheran’s largest hotels, the Azadi (once the Hyatt), now has the words “Down with USA” inscribed above its lobby door, but the hotel newsstand sells Time, Newsweek, the International Herald Tribune, and in the coffee shop you can treat yourself to a burger and fries with a genuine ice-cold Coca-Cola. Iranian men don’t often wear ties, which everyone associates with the old regime, but business and professional men wear Western suits. Islamic law requires women to cover their bodies and heads except for their hands and faces, so they all wear head scarves and a long, loose, lightweight wrap called a roupush, beneath which, however, it is not unusual to catch a glimpse of running shoes or jeans. At hotels, foreigners are required to pay in dollars at a rate of roughly $120 a night, but a three-course meal in rials at the same hotel runs about $4. Teheran has two daily papers in English, and Iranian television broadcasts the news in English every evening. Liquor is banned, but Teheran’s Christians are allowed to produce alcohol at home for their own use. Western goods are easy to find, including familiar brands of toothpaste, candy, and cosmetics. Cinemas abound. There is excellent skiing just outside the city. Western goods are easy to find—including familiar brands. Still, there is no disguising the fact that in 14 years, Iran has moved from the upper to the middle echelon of Third World countries. The air is polluted, and the automobiles are old. The city is clean, but its buildings suffer from neglect. Power blackouts have grown less common but still occur. Teheran airport is a decaying relic of the 1960s. Selective price controls—coupled with rapid inflation all through the 1980s—have left the economy riddled with such distortions that relative prices are now practically useless as a basis for making business decisions. A loaf of subsidized bread costs about 1.5 cents and a gallon of subsidized gas about 12 cents, but a pound of chicken costs $1, a tube of lipstick $7, and rent on a two-bedroom apartment in Teheran can run $1,000 a month. The average government employee, making about $100 a month, needs at least two jobs to make ends meet, but Iran also has a wealthy elite that can afford to spend $42,000 for a Honda Accord or $2,000 for a General Electric side-by-side refrigerator-freezer. A quarter acre of the best residential land can cost more than $1 million.

With the signing of the Algiers Accord and the release of the American hostages, it seemed that, in time, workable U.S.-Iranian relations might very well be reestablished. The legacy of economic relations seemed simply too enormous to abandon. Even politically, our two countries had more to gain by eventual rapprochement than by confrontation. But a dozen years have now passed, and still the hostile rhetoric continues.

From the U.S. point of view, every Iranian action remains questionable and potentially belligerent. Iran asks to buy Boeing 737s, and the United States forbids the sale as a military threat to the region. Iran buys MIG jets and two diesel-powered submarines from Russia, and the United States brands the purchase a massive military build-up, even though we sell much more sophisticated equipment in greater volume to the Saudis. Iran decides to develop a gas field beneath Iranian and Qatari waters, and prominent Americans accuse Iran of aggression. The mullahs crack down on women in Teheran for not covering their hair, and the United States calls it a grave violation of human rights, overlooking the fact that the oppressed women of Iran—in stark contrast to women in our Saudi Arabian client state—can at least vote, hold three seats in the Majles, and are able to work alongside men in every job environment. The United States accuses a Chinese ship of delivering dangerous chemicals to Iran and decries Iranian intentions to develop chemical weapons. In fact, Iran is a signatory to the International Chemicals Treaty, which several of our own client states have refused to sign, and, in any case, a search of the ship turns up nothing.

Yet the United States uses all these accusations in its attempt to persuade the world to isolate Iran, a policy based on the preposterous notion that economic isolation will cause Iranians to drive out the mullahs and replace them with a regime friendlier, or more subservient, to foreign domination.

Iranians, in turn, engage in their own brand of hysterical rhetoric and hostile behavior. They march in the streets of Teheran, shouting “Death to America!” They give aid and comfort to those who commit terrorist acts against the United States and its allies. They oppose the U.S.-sponsored Middle East peace process. The United States is “The Great Satan” and “The Enemy of Islam.”

Behind all this reciprocal name-calling there is substance. The United States cannot forgive the violation of its diplomatic dignity and reacts with great hostility toward acts of violence and threats of violence against Americans, Israelis, and other peoples. Iran cannot forgive American support for the Shah’s brutality.

The United States can’t forgive the violation of its diplomatic dignity. Iran can’t forgive U.S. support of the Shah’s brutality.

There are also some financial issues to be settled—claims against both the U.S. and Iranian governments arising from the revolution. Many of these have been settled, either by the Iran-U.S. Claims Tribunal at The Hague or in U.S. courts. Iran has paid some $2 billion to U.S. nationals and corporations and collected a bit less than $500 million from U.S. corporations. The principal area of ongoing dispute consists of Iranian government claims against the U.S. government for allegedly undelivered military hardware that Iran insists it paid for before the revolution (the so-called Foreign Military Sales or FMS claims). Of some 2,800 FMS claims, only a few have been settled, and the United States has paid about $485 million to Iran. Iran claims $10 billion to $12 billion on the remainder. Little real progress has been made, a decision from the Tribunal is years away, and the prospects of an amicable overall settlement out of court seem very remote indeed.

On top of it all, the United States continues to do all it can to punish Iran for its past and present misconduct. No one may import Iranian goods into the United States without a special license from the U.S. Treasury, which does not easily give permission. It has granted a few licenses in the particular case of oil, but since 100% of the purchase price must be placed in escrow for the payment of possible claims against the Iranian government, few transactions of this kind have taken place.

Except for food, farm machinery, and a few other categories of merchandise, U.S. exports to Iran require a license from the Department of Commerce, and the U.S. has said that no licenses whatsoever will be issued for certain products—computer workstations, for example, and passenger aircraft—because of their possible dual application in the military arena.

Yet the fact is that U.S. restrictions have not kept U.S.-Iranian trade from growing, at least in one direction. After all, the embargo is unilateral. Rhetoric notwithstanding, Iran has no restrictions on trade with the United States.

I believe that the resumption of trade also represents the reassertion of 40 years of close commercial contact. More important still, I think it is a chink in our mutual armor of hostility. Iran’s merchandise imports from the United States have increased from $140 million in 1980 to $822 million in 1992, consisting principally of oil drilling and engineering equipment, chemicals, gas turbines, medical equipment, and spare parts for machinery. Coca-Cola has a franchise bottling plant in Mashhad with a capacity of ten million cases a year and another plant planned in Teheran. R. J. Reynolds has licensed the manufacture of a Winston cigarette clone called Bistoon. Iran was Caterpillar’s largest foreign market in 1992, with sales exceeding $200 million. General Electric sold several hundred million dollars worth of power equipment to Iran in 1991. Last year, astonishingly, a subcontract for the reconstruction of an oil platform destroyed by the U.S. Navy was awarded to McDermott International of New Orleans.

The resumption of trade between the U.S. and Iran is a chink in our mutual armor of hostility.

Furthermore, Exxon was the largest single lifter of Iranian crude in 1992, accounting for about 20% of Iran’s total oil exports. Of course this crude did not come into the United States but was traded or used in Exxon’s foreign refineries.

However impressive these numbers may be in light of the severe U.S. restrictions now in place, they actually understate the true volume of U.S. corporate exports to Iran. Many U.S. corporations export to Iran through their foreign subsidiaries—legally permissible if no U.S. content is involved. Others export to Dubai for reexport to Iran. And many more will not talk about their business dealings with Iran for fear of the reactions of customers and even of their own shareholders. A more accurate estimate of direct and indirect U.S. exports to Iran would be closer to $1.5 billion.

But while the United States may still be getting a significant share of the Iranian merchandise import market, it is getting very few of the service contracts to rebuild Iran’s oil, gas, and petrochemicals industry and infrastructure. The lion’s share of such contracts is going instead to Europeans, Japanese, and Koreans. In 1990, a $150 million ethylene plant was built in Iran by South Korea’s Daelim. In 1991, a $270 million contract for ethylene oxide and glycol plants went to Technimont of Italy and the German company Salzgitter, and a $295 million contract for a PVC plant went to two German companies: Kloeckner and Krupp Koppers. A contract for $400 million worth of repairs to Kharg oil-loading facilities went to a French corporation in 1992. And in 1993, the Iranians gave a $350 million contract for a paper plant to an Italian-British joint venture.

If the politicians were willing, Iran could offer great opportunities to U.S. corporate participation, including market size, years of economic deprivation, and, eventually, even restored access to external financing.

Take the experience of one U.S. company I have worked with, the biggest in its field. The corporate hierarchy decided in 1990 that Iran had the potential to be its largest market in the Middle East. They took the time to find a person well-connected in the Iranian business environment and hired him as a consultant. They sent a team to visit Iran. (U.S. citizens can easily get visas.) To their pleasant surprise, these corporate executives discovered that Iranian officials welcomed U.S. corporate participation. In fact, the Iranians asked them to bid on very large contracts—exceeding $500 million. After further study, the company decided instead to secure a small contract—less than $10 million—which they nevertheless believed to have immense future potential.

Their reluctance to go for a larger contract was a simple political and strategic calculation. Given the state of U.S.-Iranian relations, they were unwilling to station employees in Iran, especially Americans, and they found it difficult in the present anti-Iranian climate to find financing for any large Iranian project. Nevertheless, they have begun the process of positioning themselves to move swiftly and powerfully when U.S.-Iranian relations improve.

Reconciliation

Iran’s negative image in the hearts and minds of average Americans makes it difficult for any U.S. administration to do business with Iran until Iran has taken the first step toward better relations. Though it may come as a surprise to many Americans, Iranians believe that they have made several gestures of reconciliation and that all of these have been rebuffed.

Iranians believe they have made several gestures of reconciliation—and that these have been rebuffed.

In 1991, for example, when President Bush declared that goodwill from Iran would beget goodwill from the United States, the Iranian government used its influence (and, allegedly, its pocketbook) to secure the release of American hostages in Lebanon. Iranians are also quick to point out that later, during the Gulf War, they turned down a deal proffered by the Iraqi foreign minister to reexport Iraqi oil at great profit; they maintained a strict technical neutrality even in the face of provocation; and they took in Kuwaiti refugees almost without restriction, despite recent bad relations between the two countries. In 1993, the Iranian defense minister went so far as to announce that Iran had no objection to a U.S. military presence in the Persian Gulf. The United States reciprocated none of these gestures.

Sadly, it may take negative developments for the United States to realize that it may need Iran even more than Iran needs the United States. The Middle East peace process could fall apart. Egypt’s internal problems could escalate. Iraq could reemerge as a menace to peace. A friendly government in the Persian Gulf could fall. Civil wars could engulf a former Soviet Republic or Russia itself. In any of these eventualities, Iran’s goodwill and good offices would be an immense asset in the pursuit of American interests in the Middle East.

I also believe that the continued isolation of Iran and Iraq could drive these former enemies into a partnership of shared economic and political interests. This is not as farfetched as it may sound. In my experience, and a little to my surprise, Iranians do not hate Iraqis, who, like the Iranians, are overwhelmingly Shiites. They hate only Saddam Hussein and his Baath party.

Continued hostility from the United States could drive Iraq and Iran into each other’s arms.

The moment some Middle Eastern crisis reawakens or one of its unstable governments collapses—and the list of likely candidates is a virtual gazetteer of Middle Eastern countries—our need for Iranian cooperation will become immediately obvious and urgent. We will then take steps to develop workable relations by negotiating our differences and the limits of each nation’s reach. One of our first steps will have to be a recognition of Iran’s legitimate interests, the permanence of its revolution, and the potential of its institutions, industries, and people. But the fact is that we could take such steps more profitably now.

U.S.-Iranian relations will not be easy to repair, but they are hardly irreparable. To begin with, nothing will bring back the past or undo what the Iranians have done. The central fact of postrevolutionary Iran is that no power on earth could induce the Iranians to submit again to foreign domination. But reopening relations, rebuilding confidence, and restoring mutual commercial benefits can only help both countries. The world of politics and diplomacy is full of sudden turnarounds like our rapid change of heart toward Russia, the PLO, and Vietnam.

For the moment, business leads the way, and, in the long run, trade and commerce will cement the relationship as they might have done once before. But the first decisive steps must be taken by a U.S. administration that takes a more pragmatic than popular view of our national interest in the Middle East.

Iran is ripe for reinstatement in the world community. Having passed through the worst excesses of a popular revolution—and having now eased aside the most extreme of its religious and nationalist radicals—Iran is beginning to reanimate the democratic institutions that were established by the constitution of 1906 and so badly abused by the Pahlavi Shahs. Once again, the nation is led by pragmatists. They are confrontational men with often enigmatic goals, but they are not fanatics. Ali Akbar Hashemi Rafsan-jani, for example, is as much of a politician as he is a mullah and more a businessman than either.

Given the potential instability of Saudi Arabia, Iraq, Syria, and Egypt, moreover, Iran bids fair to becoming one of a very few fixed points in the entire Middle East. By continuing to insist on Iran’s isolation, we indulge a pointless vengefulness, endanger our geopolitical interests, and waste business opportunities as great as any in the developing world.