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Blocked Oil Deal Shows Conflicting U.S.-Iran Relations : Policy: Each nation castigates the other, but they have been drawn closer diplomatically and economically.


Gary Sick, a White House adviser in the late 1970s, has suggested that Tehran may have chosen Conoco partly to signal that Iran is now prepared to improve relations with the United States. If so, it can only read this week's decision as a U.S. rebuff.

Marr says previous policy has been "gray," partly to enable U.S. policy-makers to use a "carrot-and-stick approach" in attempts to get Iran to change--offering incentives instead of just threatening penalties.

Hard-liners contend that the United States would do better to keep the pressure up--and tighten it if possible.

With global oil prices stagnant, Iran already has been undergoing severe economic strains. The value of the rial, Iran's currency, has plummeted more than 40% over the last four months. Prices of imported goods are soaring, and Tehran needs new income sources.

But others argue that Washington is unlikely to be able to squeeze Tehran much more. Not only are American firms already enmeshed in Iran's economy--their subsidiaries receive about 24% of its crude oil, for example--but European corporations can easily fill any trade vacuum.

On Wednesday, White House Press Secretary Mike McCurry said the Administration is conducting a review to see what else it can do to "isolate Iran economically" so Tehran cannot "foment terrorism," "break apart the Middle East peace process" and "do many of the things that we find so objectionable."

Times staff writers Doyle McManus and Robin Wright contributed to this report.

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