WASHINGTON—The Defense Department is drafting a plan that would bar major international oil companies from helping reconstruct Iraq's oil fields if they already do business in neighboring Iran, according to U.S. officials and Middle East analysts.
The plan—should it become President Bush's formal policy—appears certain to further anger European nations that already are upset that their companies have been frozen out of other major reconstruction contracts in favor of U.S. firms.
Ironically, it could alienate the very European nations that have most ardently backed the war in Iraq, including Great Britain, Italy and Spain.
The Pentagon effort is an attempt to extend U.S. sanctions on the government in Iran, which Bush has named as one member of the "axis of evil." Conservatives inside and outside the government have talked of encouraging the overthrow of Tehran's theocracy.
The plan was confirmed by a defense official who saw it, and by two analysts who were informed about it.
A 1996 U.S. law, the Iran and Libya Sanctions Act, or ILSA, threatens sanctions on foreign companies that make $40 million or more in new investments in Iran. These companies could be barred from U.S.-awarded contracts in Iraq.
The law, which Bush renewed in 2001 for five years, has outraged members of the European Union. They reject it as an illegal attempt to impose U.S. foreign policy goals on others.
Major corporations that have energy projects under way in Iran include the French company TotalFinaElf, Japan's state-owned oil company and Britain's Shell group.
In addition to protests from those countries, the plan could face a challenge under World Trade Organization rules, said James Placke, a senior associate at Cambridge Energy Research Associates.
"I'm not sure what the limits of the authority of the Defense Department are these days," said Placke, referring to the Pentagon's involvement under Defense Secretary Donald H. Rumsfeld in foreign policy issues.
Officials at the White House had not yet seen the proposal, a spokesman said.
Under ILSA, responsibility for imposing sanctions rests with the secretary of state.
A State Department official, speaking on condition of anonymity, said, "We do not have a blacklist of firms that would be excluded" from bidding on contracts in Iraq.
No foreign firm has been sanctioned under the 1996 law, largely because of the potential political ramifications.
Tying the law to what are expected to be highly lucrative oil contracts in post-Saddam Iraq is a way of giving ILSA new life, officials who back the move said.
But it could hit Britain's Shell and possibly British Petroleum, which is bidding for work in Iran's massive South Pars natural gas field. Also in the running is the Italian company Eni.
British Prime Minister Tony Blair and Italian Prime Minister Silvio Berlusconi have been among Bush's staunchest backers.
European companies already are irked that the U.S. Agency for International Development has reserved eight major reconstruction contracts for U.S. companies. Two have been awarded.
U.S. officials say the bidding was limited to U.S. companies to speed the urgent reconstruction effort and that many subcontractors will be non-U.S. companies.
(c) 2003, Knight Ridder/Tribune Information Services.