Iran's Economy Targeted Over Nuclear Issue & Libya Will Remain On The US Hook.

*** Egypt Is Falling On The Wrong Side Of The US - Opposing The American Presence In Iraq And Supporting The Sudanese Regime In Rejecting A Peace Proposal Backed By Washington

*** Has Iraq Become A Mecca For Anti-American Terrorists? - Gen. Abizaid Says His Forces Have Captured 225 From Syria, Sudan, Etc.

*** The Arab-Israeli 'Road Map' Is Dying; A New Cycle Of Violence Is Imminent; The US Is In No Mood For A Fresh Peace Initiative

NICOSIA - US diplomacy aimed at getting Iran to abandon its nuclear activities is getting more intense, with Tehran refusing to compromise on what it says is only for civilian purposes. The US says it will maintain its sanctions on Libya after UN sanctions against Tripoli have been lifted, with Col. Qadhafi's gamble of admitting responsibility for the Lockerbie bombing to have only limited value. Washington will be more active in enforcing its Iran-Libya Sanctions Act (ILSA) against companies investing in the energy sector of these two countries.

The focal point where Iran is concerned is the Additional Protocol to the nuclear Non-Proliferation Treaty (NPT). Tehran says it will not sign a protocol allowing snap inspections of its nuclear facilities, unless conditions for imports of nuclear materials from exporting countries are relaxed as per the NPT. But Tehran remains vaguely flexible. The US, however, is determined to prevent Iran from developing any further nuclear capability and to roll-back its existing capacity. With the US concerns being to some degree shared by Europe, Russia and Japan, Washington now wants the International Atomic Energy Agency (IAEA) to adopt a resolution on Iran this week declaring Tehran is not meeting its NPT obligations. The US wants the IAEA to refer the dispute to the UN Security Council.

An IAEA report confirms that its inspectors found traces of weapons-grade enriched uranium at an Iranian nuclear facility. Iran said it was due to contamination of imported equipment.

Signs of ILSA enforcement against investment in Iran have been mounting since Japan - under heavy pressure from Washington including a "request" from National Security Adviser Condoleezza Rice - missed a June 30 deadline to sign a $2.5 bn agreement for the first phase in the development of the Azadegan oilfield, a super-giant. Tokyo first suggested it was making its signature of the agreement conditional on a solution of the Iran nuclear issue. Tehran hit back by suggesting that it could give the Azadegan project to other companies, with Russian and Chinese firms having shown interest.

On Aug. 21 a Japanese foreign ministry official said that, while Tokyo wants Tehran to sign the Additional Protocol, "we haven't said it is a pre-requisite... We're leaving that separate for now". In July Japan's chief cabinet secretary Yasuo Fukuda had said: "Suspicion about Iran's nuclear development is not an issue affecting only our country... We can't sign the crude oil accord ignoring it".

Tokyo expects the Azadegan project to become a new source of energy supply after the Arabian Oil Co., Japan's top E&P operator, lost its concession in the Divided Zone between Kuwait and Saudi Arabia in 2000-03.

Shell was joining a Japanese consortium for Azadegan. The Italian energy group ENI was intending to compete with this group for the project.

US Energy Secretary Spencer Abraham was in Europe in August discussing Iran with Dutch Economic Affairs Minister Laurens-Jan Brinkhorst and Italian Industry Minister Antonio Marzano. According to Dutch Economic Affairs Ministry spokeswoman Paula de Jonge, they "only talked about Iran in general terms... The subject of investments didn't come up". APS sources said Washington was pressing Amsterdam to get Shell to ease back on its Azadegan interest and Rome to persuade ENI not to bid for that project. Shell, the biggest gasoline retailer in the US, has major investments in Iran and intends to expand them.

Simultaneously, another set of pressures is building up. On Aug. 21, Britain's Scotland Yard announced the arrest of Iran's former ambassador to Argentina, Hadi Soleimanpour, in connection with the 1994 car bombing of a Jewish centre in Buenos Aires which killed 85 people and injured 200. This came just one week after a judge in Argentina issued an arrest warrant through Interpol for Soleimanpour and seven other Iranian officials in connection with the bombing. Iran's traditionalist hardliners represented by Supreme Leader Ayat. Khamenei want to prevent Soleimmanpour's extradition to Argentina at any cost, because he would be forced to disclose secrets very damaging to their camp. Also on Aug. 21, police and customs officials in the Latvian capital, Riga, seized what was described as a sizable illegal shipment of weapons reportedly bound for Iran. According to Latvian police, the shipment was disguised as farm products but actually contained Russian-made night vision goggles, spare parts for armoured vehicles and anti-aircraft systems.

Iran is aware of the US strategy to squeeze it on the nuclear issue. On Aug. 22, Bloomberg quoted Tahmasb Mazaheri, Iran's minister of economics and finance, as saying on the sidelines of a London conference that "the US has done its best to prevent the Iranian economy from growing". But Tehran is still not certain that Washington will succeed in getting it to sign the additional protocol. A big number of firms are ignoring US demands that they boycott Iran.

The Fifth Tehran International Auto Fair, a five-day event that closed July 5, attracted companies like Renault, PSA Peugeot Citroen, Mazda Motor Corp., DaimlerChrysler's Mercedes-Benz, Fiat and Volkswagen. Most of the estimated 200 companies now present in Iran, such as Ericsson (the world's largest maker of mobile-phone equipment) and Alcatel (the second-biggest producer of telecommunications gear), have no plans to leave, although they are maintaining a low profile. Upstream oil and gas developers like Total, ENI, Shell, BP and Statoil have openly declared that they will stay in Iran for the long term.

The US has partly damaged its ILSA cause through selective treatment of companies. In 1998, then Secretary of State Madeleine Albright granted a waiver to Total and its partners - Gazprom of Russia and Petronas of Malaysia - when it became clear that they would ignore the US sanctions to develop Phases 2&3 of the South Pars gas field. But the nuclear issue is serious and Tehran should not ignore Washington's warnings.

On Aug. 30 the top EU foreign policy chief Javier Solana ended a visit to Tehran by warning, at a joint press conference with Iranian Foreign Minister Kamal Kharrazi, that the signing of the additional protocol was not negotiable. He said: "We will have bad news for Iran if it refuses to sign the additional protocol...Let me say this openly - no one should expect a reward for signing it. The issue is not for bargaining; it is a matter of a friend advising another friend, and Iranian authorities are politically mature to hear a friend's advice".

According to a European source, no matter how much pressure the US applies on Iran, only one of three possible outcomes is expected of the nuclear issue: (1) Iran will "fight to the end", i.e. it will reject all proposals, leading eventually to a military confrontation. (2) Iran and the US will reach a secret deal, whereby ironclad assurances will be given and this will be trusted by both sides. (3) Tehran will make the unilateral concessions that Washington wants. The source points out that, despite the rhetoric, there is sufficient pragmatism left on both sides to enable one of the last two scenarios to materialise.

What Qadhafi & Washington Want: Such pragmatism does not exist in the US-Libya equation. Although Libya has deposited the $2.7 bn it agreed to pay in three tranches to compensate the families of the 270 vicitims of the Lockerbie bombing, Washington has made it clear it will not ease its own sanctions unless Qadhafi fulfils six conditions. But before listing these conditions, here is what Qadhafi wants of Washington: (1) to end the US sanctions against Libya so that US oil companies can return to this country; (2) to end all US actions against Libya's political and economic expansions in Africa, with Qadhafi's ambitions now concentrating on leadership over a united African continent, and, above all; (3) to back the survival of Qadhafi's regime, by ending Washington's classification of Libya as a "rogue state" and lifting it from the State Department list of states sponsoring or backing terrorism - to Qadhafi, survival of his regime is the top priority, having seen how quickly Saddam's regime in Iraq was destroyed by the US a few months ago.

In return, Qadhafi is ready to give US oil firms and other US companies preferential treatment, ready to invest considerably in the US, ready to help advance US interests in Africa, ready to help the US against Islamist terrorism, ready to back - or not interfere in - the US-led peace process between the Arabs and Israel, and ready to have normal relations with Israel once the US-led peace process has been successful.

Washington's six conditions: (1) It should prove beyond any doubt that Libya is against any form of terrorism, including Lebanon's Hizbollah, Hamas and all those other Palestinians whom the US calls terrorists. (2) It should end relations, or stop co-operating, with states in the US terrorist list. (3) It should prove beyond any doubt that it has no weapons of mass destruction (WMD) and thus open Libya to free inspections by an authority acceptable to the US. (4) It should cease interfering in any other country's affairs, be that in Africa or elsewhere. (5) It should have a "normal" democratic state structure acceptable to Washington, thus end being a Jamahiriya (state of the masses controlled by committees that are controlled by no one other than Qadhafi), uphold the rule of law that is recognised internationally, and prove beyond doubt that it has a clean human rights record. (6) It should have a free market economy open to private investment by local and foreign companies.

It is hard to believe that Qadhafi can accept these US conditions. Nor would the US accept a compromise for less than what it wants of Qadhafi's regime. (See important supplement at the end of the Recorder).