Soon after reformists won a landslide victory in Iran's February 2000 parliamentary elections, the conservative offensive began in earnest. One of the first victims was Saeed Hajjarian, a top strategist in the reform movement and among President Mohammad Khatami's closest advisers, who was on his way to a meeting of Tehran's city council when a young man hopped off a motorcycle and approached him. The man pulled a gun, pointed it at Hajjarian's head, and fired. The reformist survived the attack, although he was critically wounded, and the gunman and several accomplices were eventually tried and imprisoned. Still, few Iranians believe the attackers acted on their own, and the incident drove home the extraordinary risks now facing Iran's reformers. The shooting also marked the beginning of a sustained assault on the reform movement that has continued ever since.

Anxious to turn back Khatami's democratic reforms, hard-line conservatives are now resorting to ever more aggressive tactics. On March 4 of this year, Mostafa Tajzadeh—Iran's deputy interior minister and another Khatami confidant—was sentenced to a year in prison by the conservative judiciary. The trumped-up conviction, ostensibly for rigging votes in last year's parliamentary victory by the reformists, was an attempt by hard-liners to prevent Tajzadeh from overseeing the June 8 presidential election.

Tajzadeh was not the only recent victim. Reformist parliamentarians have been harassed and intimidated, and numerous media outlets have been shut down. The vehemence of the conservative backlash may stem from the hard-liners' fear that they are soon to be eclipsed. Despite all the attempts to stymie the reform movement, the Iranian public has endorsed further change at almost every opportunity—and, as of this writing, was expected to do so again by electing President Khatami to a second term with a wide margin on June 8. Still, the fate of Iran's democratic movement remains very much uncertain. Despite the popularity of the reformists, conservatives still dominate much of the government. The circumstances are so fragile that relatively minor changes could have dramatic repercussions inside Iran, eventually tilting the balance one way or another. American policy toward Iran should therefore proceed very carefully. Although it is clear what outcome Washington would prefer, the United States should avoid embracing any particular domestic faction as Iran's power struggle intensifies.

This does not mean, however, that Washington should do nothing at all. The right American policy—one characterized by subtle but significant shifts—could make an important contribution, encouraging Iran's evolution in a direction that would eventually benefit both countries. It is therefore time for the Bush administration to abandon the containment strategy it inherited and embark on a new policy of moderate engagement. By slowly helping Tehran reintegrate into the world community through various multilateral arrangements, Washington can encourage and strengthen positive forces within Iran. This tactic could eventually lead to a rapprochement between the two long-time enemies.

Given the legacy of mistrust between Tehran and Washington and the fluid nature of Iranian politics, rebuilding ties will take time. But Washington should start making the investment now, for Iran's strategic value is difficult to overlook. The country abuts the fragile states of the Caucasus and Central Asia, some of which are endowed with large untapped energy reserves. Iran's neighborhood also features oil-rich U.S. allies, a recalcitrant Iraq, a terrorist and narcotics haven known as Afghanistan, and a politically troubled, nuclear-armed Pakistan.

Most important, Iran's potential for democratic development far outstrips that of many of its troubled neighbors. If encouraged, the country could become a stabilizing force in a region vital to American interests. Improved U.S.-Iranian ties could lead to cooperation on a range of shared priorities. From the Iranian perspective, cooperation would lead to even greater prizes: the economic benefits that would accrue from normal commercial relations with the United States and the diplomatic gains that would accompany an end to Washington's containment policy.

That policy is already beginning to waver. In March 2000, the Clinton administration responded to reforms in Iran by making an explicit overture to the Iranian people and their government. But the olive branch was rebuffed, and Tehran has continued to engage in the sort of activity that makes rapprochement impossible. Its tradition of supporting terrorism has not diminished: when violence between Israelis and Palestinians escalated last year, Iran gave both moral and material support to terrorist groups such as Hezbollah and Hamas, encouraging them to join forces in the fight against Israel. Meanwhile, within Iran, the government has continued to commit human rights violations and to develop missiles and weapons of mass destruction (WMD) with the assistance of Russia and other states. These are not minor obstacles to better relations with the United States, and because of them, crafting the right strategy for the Bush administration will not be easy. But Iran is slowly changing, and although the advances remain uncertain, it is time that U.S. policy followed suit.


The current dramatic changes in Iran date back to 1997 and the surprise election of a dark horse presidential candidate, a mid-level cleric named Mohammed Khatami, who came to power promising to democratize the Islamic Republic. Initially, Khatami succeeded in advancing large portions of his reform program (dubbed the "Second of Khordad Movement," after the date of his election on the Iranian calendar). Khatami and his allies granted new freedoms to the press, eased some social restrictions, and brought a limited degree of accountability to government. Iranians allowed themselves to become optimistic about the future.

Changes soon began to appear on the international front as well. In a 1998 interview on CNN, Khatami told a surprised world audience that he wanted to start breaking down "the wall of mistrust" that separated Iran from the United States. This statement was cautiously welcomed by much of the international community, which hoped that the positive changes being made inside Iran would eventually be reflected in the country's external policies. Meanwhile, the United States found that international support for the American containment policy was beginning to slip. As long as Iran had remained in the grip of revolutionary fervor, its extreme behavior helped justify U.S. policy. But once the new government reached out to the West, advocated detente with the United States, and called for democracy and the rule of law at home, international perceptions began to change. Key American allies in Europe had already embarked on a process of "critical dialogue" with Iran before Khatami's election, in the belief that engagement is a more effective way to reform a regime than is isolation. Once Khatami was inaugurated, Europe and Japan became even less willing to cooperate with the United States in applying pressure on Iran.

U.S. policymakers eventually began to moderate their views toward the Islamic Republic. In its final years, the Clinton administration started rethinking the aggressive containment policy that it had pursued since 1993—a policy that sought to isolate Iran, in part by attempting to limit all third-party assistance to the country. The restrictions had been tightened in 1995; in response to pressure from the Republican-dominated Congress, President Bill Clinton had issued an executive order imposing across-the-board, unilateral trade and investment sanctions on Iran. But in March 2000, Washington signaled its new approach toward Iran through a speech delivered by then Secretary of State Madeleine Albright. The speech touched on many painful historical episodes that still resonate strongly in both countries, such as American support for a 1953 coup and the 1979-81 hostage crisis. Albright then went on to outline a vision for a new, positive relationship between the United States and the Islamic Republic. She announced the easing of sanctions on Iranian exports of food and carpets and on people-to-people exchanges and offered to settle the significant legal claims that have remained unresolved for two decades since the revolution. And she reiterated the long-standing U.S. offer of open dialogue without any preconditions.

Albright's overture was received favorably by many in Iran who wanted improved ties with the United States. The speech even generated a brief, taboo-breaking debate on whether to restore relations with the United States—leading one Iranian newspaper to print an American flag, without any flames, on its front page. Unfortunately, the internal power struggle between reformists and conservatives soon intensified, leading most Iranians to turn their attention to matters closer to home. Tehran chose not to respond to the American offer.


The immediate impetus for Albright's speech had been the February 2000 election of a new parliament (or Majlis) dominated by the reformists. This victory marked the third time in three years in which Iranians had endorsed progressive change at the polls. After the election, many Iran-watchers believed that the reformists had finally gained the institutional clout they needed to begin implementing their program. But then the momentum changed rather abruptly.

In the last year, Khatami's moderates have been thrown on the defensive by a severe hard-line backlash, led by conservatives who still control Iran's courts, the Revolutionary Guards (an army-like institution that also plays an important role in internal security), the office of the Supreme Leader, and powerful bodies such as the Council of Guardians, which can veto legislation deemed to conflict with the Iranian constitution or Islamic principles. Under Iran's constitution, ultimate authority is vested in the Supreme Leader, who is appointed by a conservative-dominated council, establishes guidelines for Iran's domestic and foreign policies, and controls the state media, the judiciary, the Revolutionary Guards, the armed forces, and other key power centers. The president appoints a cabinet with the approval of parliament but occupies a secondary position, managing the day-to-day affairs of government within the parameters set by the Supreme Leader.

Using their institutional upper hand, hard-liners have arrested journalists and opposition political activists and sent them to prison. They have shut down reformist newspapers and magazines. Proposed laws debated by the Majlis to expand press freedom and promote social reforms have been blocked. The hard-liners have managed to harass and drive from office close associates of Khatami. The Second of Khordad Movement has stalled.

The battle lines, however, are not completely clear. Iran's political scene is vastly more complex than the simple division between "reformists" and "conservatives" suggests. In reality, each category encompasses a broad set of groups, each with its own ideology and world-view. The reformists include factions ranging from the religious left to pragmatic technocrats and restless students. The conservative label refers to diverse elements such as moderate bazaaris (merchants), much of the clerical establishment, and extreme hard-liners who advocate violence against their political opponents. To complicate matters even further, the two camps are not entirely consistent when it comes to Iran's foreign policy, including the question of relations with the United States. Elements in both camps take different positions on whether rapprochement is appropriate and on what conditions should be placed on a dialogue. Only one consistent factor distinguishes the two sides, in fact: the argument over the proper role and structure of government in Iran.

The two camps have also adopted different strategies. In recent months, the conservatives, especially the hard-line faction, have worked together effectively to weaken their opponents and slow or halt policies they view as threatening Iran's social harmony and the essence of the Islamic Republic. It remains unclear whether the conservatives have overreached and failed to recognize their own unpopularity with the public. For the time being, however, the reform movement has fallen into disarray—a reversal of roles from the first two and a half years of Khatami's tenure, when it was the conservatives who seemed on the defensive.

Many Iranians who had high hopes for the Second of Khordad Movement have been sorely disappointed, and some erstwhile supporters have directed their frustration at President Khatami for not assertively countering the challenges to his proposals. In recent months, Khatami has admitted candidly that he lacks the means to discharge his responsibilities. Despite his setbacks and the newly lowered expectations, however, Khatami was still (as of this writing) expected to win a second term easily. Though the scales may have fallen from the public's eyes, the president is still considered the best hope for peaceful reform.

A Khatami victory, however, will not by itself change the political dynamics in Iran. Despite a new popular mandate for the reformists, the conservatives—who have shown little interest in public sentiments thus far—will probably continue their assault on the president's reform agenda. But although the conservatives may succeed in slowing the pace of change, the underlying social and economic forces that led to Khatami's election in the first place will only continue to grow in strength. Iran today has a burgeoning youth culture: roughly half of the country's nearly 65 million people were born after the revolution. These young people crave social and political freedom and want their country to better integrate with the dynamic world beyond their borders. Along with a well-educated middle class, politically active women, and high unemployment, these forces form a potent combination that will ultimately make political change in Iran inevitable—whether the conservatives like it or not.

Khatami's program reflects these fundamental shifts in Iranian society. But the president, himself a cleric, has always taken extreme care to portray his reforms as consistent with the ideals of the revolution and Iran's constitutional order. Whether he will be able to carry it off and bridge the many competing forces within Iran while preserving his image as a champion of the Islamic Republic remains to be seen. Should Khatami fail, the broad coalition that carried him to power could split at the seams, with religious reformists, Western-oriented secularists, leftists, and students all going their separate ways.


Given this uncertainty, the United States must avoid appearing to take sides in the oNGOing power struggle. But this does not mean that Washington has no range of movement. In fact, the Bush administration has a choice of three broad options to follow in its Iran policy. One path would be either to simply continue with the Clinton approach (that is, basic containment but with some limited exceptions) or to try to reinvigorate it. A second option could be called "moderate engagement" and would involve helping Iran form better international ties while leaving key portions of the U.S. sanctions regime intact. This track could eventually lead Iran to moderate its more objectionable behavior and thus clear the way for improved U.S.-Iranian relations and the elimination of sanctions. A third option would be for Washington to take significant steps toward dismantling the sanctions regime now, with the hope that this preemptive move would jump-start a rapid rapprochement.

Maintaining the status quo might seem appealing to Bush officials, given the unpredictable and politically risky situation. But more of the same is unlikely to yield any progress with Iran in the foreseeable future. After eight years, there is no evidence that the current approach will ever convince Iran to modify its behavior. In fact, by limiting the potentially positive impact of outside influences, containment is likely to do more harm than good. Persisting with this unpopular policy will generate significant friction with American allies in Japan and Europe. But without their support, the attempt to isolate Iran will never succeed.

If the administration chooses to move away from containment and pursue moderate engagement, it could do so in a number of ways. The United States could seek cooperation with Iran on one of several limited issues, such as the effort to stop narcotics trafficking. In the last decade, Iran has taken several thousand casualties in battles with drug traffickers along its eastern frontier and has requested assistance from the international community. Even without creating formal diplomatic ties, the United States could help out indirectly through the United Nations Drug Control Program. In addition, Washington could support American nongovernmental organizations (NGOs) that could provide humanitarian assistance to the two million Afghan and Iraqi refugees now living in Iran. According to the U.N. High Commissioner for Refugees, Iran today hosts the largest refugee population in the world. This large influx has strained Iran's resources and created social tensions that U.S. aid could help alleviate.

In a similar vein, the Bush administration could also order the Treasury Department's Office of Foreign Assets Control to issue new regulations that would modify the sanctions, permitting limited support by American NGOs for academic, cultural, and civic activities in Iran. This step would remove much of the red tape that currently prevents one of the greatest assets of American democracy—a vibrant nonprofit, nongovernmental sector—from coming to the aid of Iran's emerging but still fragile civil society. In the absence of formal ties, unofficial contacts between NGOs can prove invaluable, laying the groundwork for future relations.

To help lower tensions, the administration could curtail or stop requiring the fingerprinting of the thousands of Iranians who visit the United States each year, and use alternate means to address its security concerns. The blanket regulation on fingerprinting has led to a number of embarrassing episodes that have impeded people-to-people contacts between the two countries and damaged the prospect of an overall improvement in relations.

Washington could also end its active opposition to World Bank lending to Tehran. As it is, the United States seems to be losing this battle: last year, it was rebuffed by other industrialized nations when the bank resumed lending to Iran for public health and sewer projects. The United States also could permit Iran to begin negotiations to join the World Trade Organization. WTO membership would force Iran to make fundamental changes to its economy, especially the vast government-controlled sector, which would improve transparency and bolster the reform movement.

As outlined above, moderate engagement would consist of apparently modest steps. But even these measures would have a high political price and would generate significant bureaucratic opposition within Washington. The State Department designates Iran as a state sponsor of terrorism, and this stigma would make any engagement difficult. To move forward, the Bush administration would have to overcome serious resistance not only within the executive branch but also on Capitol Hill—even though none of these steps would require new legislation. The political costs to the president would be manageable, but they would require careful handling nonetheless.

Of course, the Bush administration could decide that moderate engagement does not go far enough. In that case, Washington could take more dramatic steps toward dismantling U.S. sanctions. The administration could start by permitting U.S. businesses to enter into agreements with Iranian counterparts pending the lifting of sanctions, or it could permit U.S. oil companies to engage in swaps—a mechanism by which oil from the Caspian Basin would be delivered to Northern Iran while an equivalent amount of Iranian oil was shipped out of the south.

A more comprehensive approach would be to lift the ban on all non-military-related U.S. exports, Iranian exports, and U.S. investment in a single, dramatic gesture. Such a bold move could lead to a peculiar kind of relationship that reportedly has already been mooted by high-ranking Iranians: "relations without negotiations." Under this approach, Washington would defer discussions on its areas of concern until after formal diplomatic relations had been established. Some Iranians have interpreted a 1998 statement attributed to the Supreme Leader, Ayatollah Ali Khamenei, that "negotiations are worse than relations" as supportive of this kind of approach.

The administration could also try to prevent the renewal of the Iran-Libya Sanctions Act (ILSA) when it expires in August. ILSA mandates sanctions on foreign firms that invest more than $20 million in Iran's oil and gas sector. This law is symbolically important to Iran, but in practice it does more damage to U.S. relations with Europe, which objects strongly to Washington's attempt to control its allies' behavior. Nonetheless, given the strong support for ILSA in Congress, Bush should not waste political capital fighting its renewal. Instead, he should agree to ILSA's renewal in exchange for congressional support for other Iran-related measures.

In general, however, dropping sanctions on Iran would not be easy and the Bush administration would have a hard time finding support in Congress for such moves. To make matters worse, Iran would probably continue its objectionable policies despite the U.S. overtures. There is a real danger that Iran would refuse to respond in any way, leaving the Bush administration looking naive. For the time being, therefore, moderate engagement is a far safer approach to take.


Overcoming so many years of enmity will be extremely difficult. Powerful emotional, structural, and political barriers stand in the way of improved U.S.-Iranian ties—the cumulative result of reported CIA involvement in Prime Minister Mohammad Mossadeq's removal in the 1953 coup, of Washington's support for the repressive and unpopular shah, of the Iranian seizure of American diplomats in 1979, of the U.S. tilt toward Iraq during the Iran-Iraq War of the 1980s, and of the casualties inflicted by Iranian-supported terrorism.

Although many in both governments recognize the need for a better relationship, therefore, widespread hostility in each country remains a serious obstacle. Two examples illustrate this point and highlight the difficulty in moving forward. In September 1999, Iranian Foreign Minister Kamal Kharrazi addressed a gathering on the sidelines of the U.N. General Assembly, where he was asked how Iran would respond if the United States dropped its sanctions on the import of Iranian food and carpets. Kharrazi's prepared answer, carefully noted by U.S. policymakers, declared that Iran would "respond positively" to such a move. In due course, Albright announced six months later the removal of such restrictions. But the positive response promised by Kharrazi never materialized, apparently due to the opposition of Ayatollah Khamenei.

A second example also involves the Albright speech. In her statement, the secretary of state pledged to "explore ways to remove unnecessary impediments to increased contact between Iranian and American scholars, professionals, artists, athletes, and nongovernmental organizations." But the Treasury Department's Office of Foreign Assets Control, which is charged with sanctions implementation, dragged its feet and delayed granting a general license to permit American NGOs to start supporting their counterparts in Iran until President Clinton left office. As this suggests, governments in both countries may sometimes find it difficult to overcome opposition to improved ties from within their own bureaucracies.

Achieving better relations between the United States and Iran will require building a domestic consensus and overcoming a severe lack of trust. Decision-makers currently fear bold gestures because they worry that their risky steps will not be reciprocated. This problem appears to be even more acute in Iran than in the United States, where many have accepted the arguments for improving ties. Even as Congress remains deeply concerned about Iran's WMD and missile activities, staunch anti-Israel posture, human rights abuses, and support for terrorism, a growing number of legislators have expressed interest in improving relations and in visiting Iran (but have been unable to obtain visas). U.S. businesses, especially oil companies, are nervously watching foreign competitors acquire a foothold in the Iranian market and are loudly advocating a thaw in relations.

Although a strong majority of Iranians also favors improved ties, Ayatollah Khamenei, who under the constitution has the final word on all matters, remains opposed to the idea. Khamenei is sensitive to the opinions of the conservative clergy and the security services, which are his primary sources of support. Thus he has consistently rejected any dialogue with the United States. Khamenei has permitted limited indirect contacts and left the door open to the resumption of commercial ties that would benefit Iran. But he has no interest in working out reciprocal steps that both sides could take to restore confidence and eventually normalize relations.

As Khamenei and his conservative supporters see it, the United States is arrogantly trying to dictate terms to Iran. Given the strong nationalist current in the Iranian psyche and the centrality of "independence" as a core principle of the Islamic Revolution, Iran is particularly sensitive to the notion that sanctions are being used as leverage to effect changes in its behavior. As long as the hated sanctions remain in place, many in Iran will view any dialogue as tantamount to a capitulation to U.S. dictates.

As a result, Iranian diplomats have insisted that in order for relations to improve, the United States must show its respect for Iran's "dignity and honor" by first lifting all sanctions, settling billions of dollars in outstanding legal claims, and dropping its opposition to Iran's serving as a transit route for oil from the Caspian basin. These three conditions seem to reflect a consensus position among Iran's political factions. Even those within Iran who would like to go beyond a commercial relationship and establish political ties have lined up behind this policy in the hope that bringing an end to U.S. sanctions will strengthen their bargaining position on the question of formal relations. And the recent election is unlikely to change any of this.

The positions of the two governments, then, can be summed up as follows. Washington tells Tehran, "let's talk, and when we talk we can discuss sanctions." Tehran replies, "you lift sanctions, and we'll think about talking." Meanwhile, neither side believes that its moves will be reciprocated by the other.

In addition, both sides tend to downplay the importance of developing a new relationship. Iranians feel that U.S. ties have grown less important because of their improving relations with Europe, Japan, Russia, China, and regional players such as Saudi Arabia. Tehran is also convinced that Washington's thirst for oil will eventually bring it around. The United States, on the other hand, seems to feel it has little reason to engage an intermittently hostile, medium-sized country.

Although both countries could survive without improving their relations—indeed, they have managed to do so for more than two decades—neither should miss the opportunity to bolster regional and global security. Negotiations between the two sides might be difficult, but the absence of direct dialogue is worse, since it leads each side to badly misjudge the other's intentions and to misread the other's signals.


In light of these many factors—U.S. domestic political constraints, the uncertainties surrounding the pace of political evolution in Iran, and the international unpopularity of containment—moderate engagement emerges as the most sensible policy. Washington should make important but limited gestures toward Iran while offering to go much further if Iran reciprocates. Even if the Bush administration does decide to pursue this policy, however, it should have realistic expectations about the troubles ahead. Both sides have already suffered too much from frustrated expectations of the other.

Washington should not expect Tehran to end its more objectionable policies anytime soon—certainly not as a direct response to U.S. overtures. Even with the international community pressuring Iran, it is unlikely to moderate its stance unless its national interests compel it to. Thus Iran is unlikely to withdraw its support for terrorist groups such as Hezbollah or Hamas, which oppose peace in the Middle East, until a comprehensive settlement is struck that sidelines Palestinian radicals and causes Syria to ask Iran to withdraw from the scene. Likewise, Tehran is unlikely to rein in its WMD programs without broad regional talks on the subject and the promise of a safer neighborhood. After all, Iran has had good reason to fear one of its neighbors in particular: Iraq, which has used chemical weapons against Iran in the past.

Given these realities, the Bush administration must separate the question of restoring political ties from the objective of encouraging Iran's moderation and integration as a responsible member of the international community. The latter can be achieved without the former and is so important to U.S. interests that it is worth pursuing on its own.

Moderate engagement would encourage Iran's collaboration with multilateral institutions, help its integration with the global trading system, and give it far stronger incentives to improve its behavior than has the containment policy. Moderate engagement would also bring the United States into closer alignment with its allies, decreasing friction and improving the chances for a more effective common approach.

Meanwhile, moderate engagement would begin a gradual process of laying the groundwork for an eventual rapprochement once Iran's domestic political situation permits it to move forward. Many Iranians now recognize that the best way to secure their country's future is by making a positive contribution to international peace and security. A new U.S. policy would strengthen their hand, helping them do just that.

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  • Puneet Talwar served on the State Department's Policy Planning Staff from 1999 to 2001 and recently joined the staff of the Senate Foreign Relations Committee. He prepared this article while on a Council on Foreign Relations International Affairs Fellowship; the views expressed here are his own.
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