The European allies' commitment to impose limited economic sanctions against Iran this week has been thrown into confusion and doubt by Britain's decision last night to ban only future contracts for trade with Iran.
An angry revolt by members of Parliament from all parties forced Prime Minister Margaret Thatcher to break the agreement made Sunday by Britain and the other eight countries in the European Community to cut off trade contracts with Iran dating to November, when hostages were seized at the American Embassy in Tehran.
Britian's sudden retreat means that sanctions will have virtually no immediate effect on its rapidly growing trade with Iran. It has surprised and annoyed its Common Market partners, as well as American diplomats in Europe.
Representatives of the nine Common Market countries will meet in Brussels Wednesday to decide what to do next about the sanctions, which were to be put into effect Thursday.
[In Tokyo, Japanese officials said they may postpone the second phase of their sanctions against Iran because of the split among the Common Market nations, United Press International reported. Japan had planned to follow the European lead on the sanctions.]
West Germany said today it intends to honor its pledge to cut off all trade under contracts dating back to November. But other European government sources questioned how they could force their businessmen to stop trade with Iran under existing contracts in the face of continuing British competition.
"If the British do this, it will make it very difficult for us to deal with French companies asked to make sacrifices. I don't see how we can hold the line," said one source in Paris, who emphasized that France wanted to honor its commitment to the United States.
The Italian government is believed to be even less likely than before to take action that might jeopardize its existing Iranian trade, including $3 billion in construction contracts that employ 1,700 Italians in Iran.
"We might wind up with sanctions that would not have any impact on Iran until way down the line in the future," said one American diplomat in Western Europe. "There were already enough loopholes to drive a fleet of Fiats through."
British politicians claimed that many businessmen here were preparing to get around the sanctions anyway by sending Iran-bound goods through Turkey or Eastern Europe. They feared that the major casualties of cutting off existing contracts would be big exporters who could not easily do this, such as Talbot (formerly Chrysler U.K.), where several thousand jobs would be lost if it could no longer sell car kits to Iran for assembly there.
Britain's trade with Iran has bounced back to more than $100 million dollars a month, nearly as high as before the revolution there in February 1979. Much of the rest of Western Europe's trade with Iran also has been recovering, and Dutch officials estimated that less than 10 percent of it would be immediately affected even by cutting off contracts signed since November.
It was under the leadership of British Foreign Secretary Lord Carrington that the European foreign ministers first decided in Luxembourg in April to ban all existing and future trade with Iran, except food and medicine, if progress was not made by the middle of this month toward the release of the American hostages.
Fears about the damage of their own economies and possible damage suits against their governments by businessmen whose existing contracts were broken caused the Europeans to reconsider and make plans to embargo only future trade contracts. They also were warned by Iranian President Abol Hassan Bani-Sadr that tough Euorpean sanctions would make it even more difficult for moderates like himself to help negotiate the hostages' eventual release.
But then U.S. Secretary of State Edmund Muskie made a strong plea to several European foreign ministers in meetings in Brussels and Vienna last week for more meaningful sanctions to be imposed to prevent American public opinion from turning completely against the allies. So the European foreign ministers agreed in Naples Sunday to a compromise ban on both future contracts and completion of those dating back to when the hostages were seized.
When this plan was presented to the British House of Commons yesterday, it created an uproar. Both the opposition and some of Thatcher's Conservative Party members complained. They argued that pressure from the United States and possibly some of Britain's European Community partners caused Thatcher's government to violate recent assurances to Parliament that it would ban only future trade contracts with Iran.
After Thatcher and Carrington were told at an emergency Cabinet meeting last night that the government's sanction order might well be defeated in the House of Commons, they decided to back down.
The opposition Labor Party's foreign affairs spokesman Peter Shore repeated the widely held European view that tough sanctions are neither enforceable nor likely to help free the hostages.
"We all know the United States held a different view, but this was in no way sufficient reason for [British diplomats] to go beyond the will of the House of Commons," he said.
The retreat leaves Britain in an embarrassing position in its relationship with the United States and the European allies. Since Thatcher came to power here a year ago, Britain had been gaining influence in the creation of coordinated European policies on Iran, Afghanistan and the Middle East, while fighting tenaciously for a better financial deal in the Common Market.
The French newspaper Le Monde said today that the British parliamentary rebellion could be explained both by "very mercantile motives" and by "a nationalist reaction both against the continent and the United States."
"It's not always those who make a display about their solidarity who always practice it," said a French government source, referring obliquely to past American criticism of France for failing to demonstrate sufficient solidarity with the United States. "The British always want to show the Americans they are the good pupils in the class."
Britain also was the most outspoken proponent of strong European action to support U.S. economic sanctions against the Soviet Union and the U.S. boycott of the Moscow Olympics after the Soviet invasion of Afghanistan, earning frequent praise from Washington. But in the end, very little British trade with the Soviet Union was interrupted and the British Olympic Committee voted overwhelmingly to participate in the Moscow Games.