Push to Widen Libya Sanctions Riles US Allies

A TERRORIST bomb that blew Pan Am Flight 103 out of the sky seven years ago is having delayed repercussions inside the Clinton administration - and threatening to become a new irritant in US relations with its European allies.

President Clinton, like President Bush before him, has talked tough about taking firmer measures against Libya, the nation accused of plotting the bombing. But the White House has long been reluctant to act. The reason: Principal American allies, which have major energy investments in the desert nation, have resisted tighter sanctions against the production and export of Libyan oil.

But a bill now wending its way through Congress is about to force Mr. Clinton's hand, leaving him with an unwelcome choice between the conflicting imperatives of domestic and international politics. ''The administration is squarely between a rock and a hard place,'' says a knowledgeable congressional source.

The tougher sanctions against Libya, the nation accused of ordering and now harboring the two men accused of the bombing, are contained in an amendment to an Iran oil-sanctions bill. The amendment was the culmination of a tenacious lobbying effort mounted by the families of the 188 Americans who were killed in the 1988 bombing just four days before Christmas.

The United Nations originally slapped sanctions on Libya after Libyan leader Muammar Qadaffi refuse to extradite the two Pan Am suspects for trial in Scotland. But because they do not cover oil production or exports, the sanctions do not strike at the heart of the Libyan economy.

President Clinton campaigned in 1992 in favor of stronger sanctions against Libya, which have also been urged by National Security Advisor Anthony Lake. A tough stance against Libyan terrorism would presumably be an election-year asset for the president, meaning that the sanctions bill would be hard for the president to veto.

But administration officials are also sensitive to European concerns over the issue of extraterritoriality - that is, extending United States law to foreign companies operating outside the US.

THE legislation applies only to future investment in Iran and Libya but would have the immediate effect of slowing oil development projects already under way in Libya, posing a problem for European giants like France's Total and Italy's Agip, which have multibillion-dollar investments there.

US private investment in the Libyan oil sector has largely atrophied since US sanctions were first imposed in 1973. ''European companies are putting profit ahead of principle, while American companies are forced to put principle ahead of profit,'' notes one Libya expert, Henry Schuler.

State Department officials worry about ruffling relations with America's key European allies just as NATO deployments are beginning in Bosnia and with planning on other security-related issues, including NATO expansion, under way.

The administration is also sensitive to the views of Egypt, a longtime Middle East ally. If tighter sanctions weaken Libya, tens of thousands of Egyptian guest workers in Libya could be forced back onto the beleaguered Egyptian economy, with potentially destabilizing results.

Senate sources say the Clinton administration expressed reservations about the Libya amendment, co-sponsored by Sen. Edward Kennedy (D) of Massachusetts, but did not formally object to it. House sources say similar concerns have been made known. Even so, the House International Relations Committee is expected to attach Libya sanctions to its own draft Iran oil embargo legislation when it takes up the issue next month.

A senior US official says the administration would like to work with Congress to find ways to strengthen multilateral sanctions on Libya as an alternative to the unilateral congressional approach. One option is to expand the embargo on goods and services for the Libyan oil sector.

The official also expresses concern that discord over the proposed Libya sanctions could dampen US-European cooperation regarding Iran. ''We don't want to compromise our ability to work the Iran side of the sanctions bill,'' he says.

The Senate bill prescribes various mandatory and discretionary penalties the president can impose on foreign companies that make investments of at least $40 million in the energy sectors of Iran or Libya. A draft House bill contains no trigger amount but has other mandatory provisions. The Iran provisions of the Senate bill were modified to meet administration objections, all but ensuring Clinton's eventual signature. Extending the sanctions to Libya throws Clinton's response in doubt.

The compromise Iran language was reportedly brokered with the help of the American-Israel Public Affairs Committee (AIPAC), the influential pro-Israel lobby that has sought tighter sanctions against the radical Islamic state.

AIPAC initially opposed the Libya amendment and argued for separate Libya legislation as a way of precluding a Clinton veto of the Iran bill. It belatedly issued a statement endorsing the Libya amendment in response to the views of other Jewish organizations and after Pan Am families, according to one member involved, posed an awkward question: ''Are you more interested in protecting Israelis from Iranian terrorism than Americans from Libyan terrorism?''