DOWN GOES THE DEAL

By John Greenwald

Was this any way to strike a billion-dollar trade deal? For four years the Conoco company had been negotiating to develop two huge offshore oil fields in Iran, but the deal's managers kept only low-level State Department officials informed of the broad nature of the talks. As a result, just after Conoco and the Iranians reached their agreement this month--but before the Houston-based company had sought approval from senior U.S. officials or board members of DuPont, its corporate parent--the contract flared into a political and diplomatic incident as unwelcome to Conoco as a fire in an oil well. It was left to President Clinton to put out the flames by issuing an order that barred all U.S. companies from helping Iran develop its energy resources. Yet even as the President acted last week, his move raised questions about how the Conoco talks had progressed even as far as they did.

The answers may lie in part within an Administration whose passion for brokering trade deals clashes with its hostility toward Iran. On the one hand, the Commerce Department under Clinton has helped U.S. companies sign billions of dollars' worth of contracts with foreign countries. On the other hand, the U.S. government remains deeply suspicious of Iran, which is one of the countries--along with Cuba, North Korea and Iraq--with whom the U.S. restricts trade.

But Conoco may have been guilty of a little soft-pedaling of its own, hoping to slip a deal through first and worry about government approval later. When pressed by TIME to name which State Department members the company had consulted, Conoco officials refused to name them. According to two people in the room, Conoco president Constantine Nicandros told State Department officials at their meeting last week: "We always knew the Administration would be opposed to the deal. But everyone acknowledged that it would not violate the law."

Secretary of State Warren Christopher became the first senior official to attack the Conoco deal in public after Iran abruptly disclosed it on March 6. He immediately denounced any transaction that put money into "the evil hand of Iran," but recused himself from involvement as soon as he learned his former law firm took the case. No one was more put out by the Administration's sudden get-tough attitude than Conoco's Nicandros. Rushing to Washington on March 10, he found his $1 billion contract with Iran under attack from all sides. Not only was Christopher loudly opposing the deal, but Alfonse D'Amato, who chairs the Senate Banking Committee, was using it to escalate his two-month-old crusade for a virtual halt to all American commerce with Iran. While U.S. oil firms have long been barred from buying Iranian crude oil, their foreign subsidiaries are free to purchase it and sell it abroad.

There was broad agreement in the Administration to kill the Conoco contract as an example to Russian Foreign Minister Andrei Kozyrev, whom the Secretary is to meet in Geneva this week. There, Christopher will urge Kozyrev to stop Russia from delivering two nuclear reactors to Iran, which the U.S. fears could be used to help develop nuclear weapons.

Nicandros had little success in pleading his case at the Departments of Energy and State. Senior Clinton adviser Mack McLarty finally told him point-blank two weeks ago that the Iranian project was almost certainly doomed. Acknowledging defeat, Nicandros asked only that the Administration issue an Executive Order that would at least make his defeat seem imposed.

Nicandros could hardly have battled further because he faced opposition within his own corporate family. It would have come from the powerful Bronfmans--Edgar Bronfman Sr. and sons Edgar Jr. and Charles--who control the Seagrams liquor company and hold three seats on the board of Du Pont-and who, significantly, had not been informed of the deal earlier. As political contributors and officers of the World Jewish Congress, which vehemently opposes U.S. trade with Iran, the Bronfmans have voices that are heard in Washington. Edgar Bronfman Sr. used prearranged meetings with top lawmakers such as House Speaker Newt Gingrich and Senate majority leader Bob Dole to argue against the deal.

Conoco executives might have recognized the Administration's concerns sooner if contacts between the company and Washington had been more high-level and open from the start. Conoco discussed the Iranian deal only with midrank diplomats at U.S. outposts in Dubai, Kuwait and London, as well as in Washington, repeatedly since 1991--including four times in the past 18 months. Nor did State policymakers ever say they flatly opposed the Iranian negotiations. Michael Stinson, who headed the Conoco project, told Congress last week that "the typical response was, 'The U.S. would prefer that you not do this deal, but it's clearly legal.' "

It was legal; it is also complicated in its consequences. What the episode perhaps shows is that in order to halt a deal, all parties must first have their cards on the table.

--Reported by Nina Burleigh, James Carney, J.F.O. McAllister and Mark Thompson/ Washington

With reporting by NINA BURLEIGH, JAMES CARNEY, J.F.O. MCALLISTER AND MARK THOMPSON/WASHINGTON