Why It's Time for a New Policy on Iran

America can better serve its strategic and commercial needs - and its allies

THE United States policy of containing Iran has run its course. Given the geopolitical changes that have swept the Middle East since the Gulf war, continuing on that course would not only destabilize our allies, but undermine our strategic interests in the region. The Clinton administration must now change its adversarial policy toward Iran and initiate a process of ''passive engagement'' that could lead to normalization of relations between the two countries.

The Clinton administration's Iran policy rests on an attempt to keep both Iran and Iraq relatively weak vis-a-vis each other, the rest of the Middle East, and United States interests in the region. In short, it is a policy of ''dual containment.''

A close look at the US and Iranian positions reveals a misunderstanding of each other's motives, compounded by mutual distrust fed by past confrontations. The US continues to regard Iran as a state that sponsors anti-US terrorism, bent on exporting its brand of Islamic revolution and determined to undermine our Arab allies. The Iranians see themselves as reasonable and conciliatory, pointing to their useful role during the Gulf war and efforts to secure the release of hostages in Lebanon.

The litany of charges by each side against the other could be extended almost indefinitely. The point is that we and the Iranians have reached a stage in our relations where hostility no longer serves any useful purpose.

First, our embargo and sanctions have failed to cripple the regime, much less stem the growing trade Iran carries on with our own European allies and the rest of the world. And there is no little hypocrisy in our stance: We have been buying Iranian oil through third parties for several years.

While the Iranian economy is in difficulty, it is by no means in crisis. There is growing international interest in Iran as a potentially lucrative investment area, and many companies that put assets ''on ice'' during the revolution are now being encouraged to reopen their offices.

Iranians themselves, for all the repressiveness and intolerance of their regime, have begun carving out social and political space for themselves, and it is clear that the religious zeal that characterized the early revolutionary years has begun to diminish. Finally, there is an inescapable fact: Iran, for all its problems, is slowly regaining its position as the hegemon of the Gulf. As it re-emerges, it has begun to signal that given the right conditions, US-Iran relations could improve.

Although Iran and the US are two profoundly different societies, there still exists in Iran a deep attraction for Western lifestyles. Since the country borrowed much of its institutional base, infrastructure, and technology from the West, Iran's clergy knows that major changes will have to take place.

What is needed now is new thinking and initiatives based on the changed realities of the region.

The US should adopt a policy that engages Iranians disposed to seek American contact. There are now self-interested, pragmatic people, both in and out of Iran's government, who can be approached to our mutual benefit. The Iran of 1995 is a far different place from that of 1979. There is a much clearer, less ideological view of the outside world and the ''Great Satan.''

What should that policy include?

First, the US should abandon its policy of containment in favor of a policy of ''passive engagement.'' This would mean allowing US companies to do business with Iran and permitting contacts between American educational and financial institutions and their Iranian counterparts. Foreign investments could gradually transform the Iranian economy, creating a new commercial center of power, rivalries for capital, competition between provinces, and an expansion of trade and manufacturing far beyond the clergy's ability to manage. American commercial activity in Iran would undermine the basis, if not the ethos, of the revolution.

Second, we should cool our rhetoric and stop labeling Iran as ''evil'' or ''an outlaw state.'' Singling out Iran regularly for condemnation makes it difficult to change our policy toward that country and even harder to change American public opinion. We must not fall into the trap of blaming Iran for every subversive activity taken by an Islamic group, as we used to blame the Soviet Union for every leftist uprising regardless of its cause.

Third, we have to place the nuclear issue at the top of our agenda with Iran. We found a way to deal with North Korea on this issue; we should be able to find a way to deal with Iran. We can insist on a clear-cut agreement about the disposal of spent fuel and on acceptable safeguards for any reactor Iran may acquire. Russia and other countries determined to sell nuclear technology to Iran will be far more receptive to that approach than to American coercion aimed at forcing cancellation of a deal promising millions of dollars in hard currency.

Fourth, to begin creating in the US an atmosphere conducive to normalization of relations, we should publicly acknowledge any improvement in Iran's human-rights behavior. We rationalize dealing with Beijing by saying we have a greater possibility of influencing its behavior through dialogue and trade than economic sanctions.

Fifth, we should develop an Iranian strategy that will engage our allies. We have placed our friends in a no-win situation where they have to choose between cooperation with us or the loss of a lucrative market. We cannot expect to pressure them to act against their own best interests.

Sixth, an important strategic consideration involves the security of US allies in the Gulf: Are Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, and Oman strengthened or undermined by the policy of containment? As long as Iran and Iraq remain capable of intimidating, if not threatening US allies, none feel safe. Oman and Qatar even feel compelled to normalize relations with Iran to reduce the pressure.

The interests of the US and Iran in the Gulf are not mutually exclusive. Iran must come to terms with America's vital interests in the Gulf, and the US must recognize Iran's special role in the region. As world leader, America can afford a new policy toward Iran without being accused of appeasement. Regional stability is critical to US interests.

What is needed, then, is a new American strategy free of recrimination. Such a strategy can serve our national interests and at the same time allow Iran to ''redeem'' itself without humiliation. It would encourage Iran to choose cooperation and adherence to international norms of conduct.