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Testimony

Perspectives on the Strategic Necessity of Iran Sanctions

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
27th January 2015

Chairman Shelby, Ranking Member Brown, members of the Committee, on behalf of the Foundation for Defense of Democracies (FDD), thank you for inviting me to testify today. I am honored to be testifying with Patrick Clawson whose work I greatly admire.

I will focus my testimony on the strategic necessity of deadline-triggered sanctions aimed at ensuring the success of the current negotiations. Specifically, I will explain how these measures can restore U.S. negotiating leverage. I also will respond to what appear to be the Obama administration’s main arguments against these deadline-triggered sanctions.

EXECUTIVE SUMMARY

Deadline-triggered sanctions are a strategic necessity to make it clear to Iran the consequences of its unwillingness to reach a timely and acceptable nuclear compromise. To date, the Iranian government remains unwilling to come into compliance with its international obligations as the search for a comprehensive agreement between the West and Iran enters the sixth year for the United States, and the twelfth year for the Europeans. At the same time, as U.S. negotiating leverage has diminished, the Obama administration has lowered its nuclear demands to try to accommodate the red lines laid out by Iran’s Supreme Leader.

The White House also has provided a financial lifeline to Iran in the form of sanctions relief. As a result, Iran’s economy has stabilized and is on a modest recovery path after a deep, sanctions-induced recession in 2012 and 2013. This has reduced Iranian regime fears of another economic crisis and increased economic resilience against future pressure.

Congress imposed many of the most impactful sanctions over the objections of the Obama administration. Using arguments that the Obama administration is repeating today, administration officials expressed deep concerns that Central Bank of Iran, oil export, and SWIFT (Society for Worldwide Interbank Financial Telecommunication) sanctions, amongst others, would alienate U.S. allies, undermine the international effort to isolate Iran, and redound to Iran’s benefit. For example, in the Obama administration’s intense pushback against congressional sanctions targeting Iran’s central bank and oil exports, then-Secretary of the Treasury Timothy Geithner wrote a letter expressing the administration’s objections:

I am writing to express the administration’s strong opposition to this amendment because, in its current form, it threatens to undermine the effective, carefully phased, and sustainable approach we have taken to build strong international pressure against Iran … In addition, the amendment would potentially yield a net economic benefit to the Iranian regime.

Obama administration officials now widely acknowledge the important role these congressional sanctions played in convincing Iran to come to the negotiating table. As those sanctions were aimed at changing the calculus of the Iranian regime regarding its commitment to retaining its nuclear program, and not just regarding the regime’s willingness to negotiate, so too must deadline-triggered sanctions be part of the strategy to reverse the troubling dynamic of decreasing U.S. leverage and Iranian intransigence.

In its opposition to these new deadline-triggered sanctions, the Obama administration argues:

1. The Joint Plan of Action (JPOA) has “frozen” Iran’s nuclear program, and the deadline-trigger sanctions could threaten this achievement.

The JPOA has not frozen Iran’s program. Iran has suspended mostly those aspects of the program that no longer need significant advancement, while continuing to work on those elements of the program it has not yet mastered. This strategy follows the approach established by President Hassan Rouhani, dating back to his time as Iran’s chief nuclear negotiator with the EU3 from 2003 to 2005. Rouhani described this strategy as one in which, “We [Iran] only agreed to suspend activities in those areas where we did not have technical problems.”

Iran has taken advantage of gaps and ambiguities in, and differences in interpretation regarding, the JPOA. It has engaged in mechanical testing of advanced centrifuges, accumulated greater stockpiles of low-enriched uranium in easily reversible oxide form, announced the construction of two new nuclear reactors, and continued to illicitly procure parts for its nuclear program. The JPOA also does not prevent Iran from moving forward on critical parts of its military nuclear infrastructure, including construction of the non-nuclear elements of its Arak heavy-water reactor, long-range ballistic missiles capable of carrying a nuclear warhead and, most critically, long-standing IAEA concerns about the possible military dimensions of Iran’s program.

2. Deadline-triggered sanctions violate a U.S. commitment to “refrain from imposing new nuclear-related sanctions.”

The JPOA does not prohibit the passage of sanctions to be imposed after the expiration of the deadline of the interim agreement. The deadline-triggered sanctions will be “imposed” if and only if no agreement is reached by the June 30, 2015 deadline. This deadline is not congressionally invented but rather a deadline agreed upon by the P5+1 and Iran. The bill also reportedly provides the President with unlimited 30-day waivers after the deadline to waive the imposition of new sanctions indefinitely.

The deadline-triggered sanctions wouldn’t tie negotiators hands. They are reportedly linked to whether or not the P5+1 and Iran have reached a viable agreement by June 30, 2015, and the trigger is not reportedly related to the content of the agreement.

3. Iran will walk away from the negotiations if sanctions, including deadline-triggered measures, are imposed.

The Iranian threat to walk away from the negotiations is counter-historical. Despite multiple rounds of sanctions, Iran has remained at the negotiation table for over a decade, using talks to legitimize its nuclear weapons program and to avoid a full U.S.-led financial and trade embargo.

Iran has successfully used the JPOA period and previous negotiations to transform the debate from one of “Can Iran have a nuclear program?” to “How much of a nuclear program can Iran have?” While it is possible that Iranian negotiators might walk away temporarily from the talks, the history of the Iran talks suggests that they won’t, and if they do, they are likely to return.

There is also a strong economic reason for Iran not to walk away from the negotiations. If Tehran terminated the talks, such a move would trigger a program of even more severe sanctions than currently contemplated, including a complete financial and trade embargo that could cripple its economy and put the regime’s survival in question.

Finally, if negotiations break down upon the passage of sanctions triggered to the expiration of the JPOA deadline, this should raise questions about the durability of any future deal. Acquiescence to this threat now would hand Iran effective veto power over the future actions of American lawmakers or the next U.S. president and raise serious concerns about the ability of the United States to enforce any nuclear deal.

4. Tehran has “escalation dominance” through its ability to restart and expand its nuclear program.

Notwithstanding sanctions pressure, Iran has advanced its nuclear program, especially during the Ahmadinejad era. However, Iran has historically escalated its nuclear activities cautiously, so as not to invite a military response from the United States or Israel or to trigger crippling sanctions from the international community. Iranian nuclear escalation historically has involved incremental increases with the goal of avoiding egregious cheating that would precipitate a massive response.

Escalatory nuclear activities, where Iran moves to undetectable breakout through the rapid expansion of its enrichment capacity or blocks weapons inspectors from monitoring its declared facilities, would likely garner a negative international response. All the members of the P5+1 assess a nuclear-armed Iran as a threat to their own interests and are invested in the talks to stop Tehran from acquiring this capability. It is difficult to imagine that any member would support Iranian nuclear escalation in response to deadline-triggered sanctions.

The U.S., not Iran, retains “escalation dominance,” and can accordingly leverage greater economic pressure on the Islamic Republic if it engages in escalatory nuclear activities. Washington also retains far greater escalation dominance through its military, cyber, and covert power if Iran foolishly escalated.

5. The introduction of deadline-triggered sanctions would isolate the United States from our international coalition.

The idea that new sanctions against Iran – triggered off a deadline to which the entire P5+1 has agreed – would isolate the U.S. from its P5+1 allies, is an argument in conflict with the Obama administration’s position on Russia. The U.S. and EU have imposed tough sanctions on Moscow related to the crisis over Ukraine and Crimea. The Obama administration has argued that its dispute with Russia over Ukraine will remain separate from the talks with Iran and that Moscow will not leave the P5+1 talks over Ukraine-related sanctions.

So far, the administration’s assessment is correct: Russia remains committed to the P5+1 talks. Why would President Putin leave the P5+1, or become even more supportive of Iran, over deadline-triggered sanctions on Iran when he didn’t after Washington imposed sanctions on his own country?

If the coalition has held against Iran despite Ukraine-related sanctions on Russia, Moscow is likely to stay put as a member of the coalition in dealing with Iran. It, too, is concerned about a nuclear-armed Iran and sees the negotiations as a way to protect its own interests. China is part of the P5+1 for similar reasons.

If Russia and China are likely to remain part of the coalition, primarily because the talks help secure their own interests, it is highly improbable that France, Great Britain, and Germany would break rank.

6. New deadline-triggered sanctions will empower the hardliners in Iran.

The direct and indirect economic relief precipitated by the Obama administration’s decision to de-escalate the sanctions pressure has stabilized the Iranian economy and strengthened the hardliners who no longer fear the collapse of their economy and the prospect of a severe, sanctions-induced depression. They also have preserved both the essential elements of their nuclear infrastructure under the JPOA and the ability to move ahead on those parts of their military-nuclear program they haven’t mastered. They are further emboldened by Iran’s growing regional dominance over Iraq, Syria, Lebanon, and Yemen. It is not surprising that these hardliners, including the Supreme Leader himself, may not be willing to compromise further.

As it stands now, given the political climate in Iran, a deal based what the West is prepared to offer is unlikely unless the pressure on Tehran is intensified or Washington and its partners are willing to make future concessions. The goal of deadline-triggered sanctions is to convince that those in Iran who are still resisting further compromise that the Iranian regime cannot survive economically without a deal, and thus tip the scales in favor of nuclear compromise.

7. New sanctions are not needed because the fall in the price of oil is inflicting sufficient damage on Iran’s economy.

The rapid decline in the price of oil is not a substitute for deadline-triggered sanctions. Iran has lived for two years without full access to its overseas oil revenues. Iran experienced its own asymmetric oil shock between 2012 and 2013 when U.S. sanctions targeted Iranian oil exports, requiring countries to make significant reductions in Iranian oil purchases, while locking up Iran’s oil profits through a little-understood provision of the Iran Threat Reduction Act (ITRA).

Today, in a strange twist of fate, these restrictions blunt the full impact of the drop in oil prices on Iran’s economy. Iran’s foreign revenues from energy products are captured in escrow accounts, mitigating the direct pass-through of declining oil revenue on the Iranian economy.

To be sure, the drop in the price of oil will still be a drag on Iran’s economy and has an impact on Iranian investor and consumer sentiment. But the Islamic Republic has weathered sanctions. It can weather the declining price of oil, too. If economic leverage has any chance of convincing Iran of the need for nuclear compromise, it will take deadline-triggered sanctions to signal the consequences of the failure to reach a deal. If no deal is reached, it will take major sanctions escalation, not just falling oil prices, to once again reanimate the fear the regime felt in 2012 and 2013 when it narrowly escaped potential economic collapse.

8. Sanctions will make it more likely that the United States will have to use military force to stop Iran’s military-nuclear program.

Supporters of deadline-triggered sanctions believe that increased economic pressure on Iran will prevent war. As the Obama administration has acknowledged, these economic sanctions, including the congressional measures passed over the administration’s objections, are the reason that Iran is negotiating seriously today. They remain the most effective tool for convincing Iran of the necessity of nuclear compromise, for ensuring Iranian compliance with a comprehensive agreement, and for punishing Iranian non-compliance.

By contrast, continuous extensions of the JPOA will only serve to help Iran advance its nuclear program in critical areas, build greater economic resiliency, and extend its influence regionally. This may lead to a situation in the future in which the president has insufficient economic leverage to respond to Iranian nuclear mendacity. At that point, he or she will be faced with a painful choice between accepting an Iranian bomb and using military force to forestall that possibility. This will make war more, not less, likely.

By deploying deadline-triggered sanctions to lay out the concrete consequences of continued Iranian nuclear intransigence, Congress can and should strengthen U.S. negotiating leverage and increase the likelihood of a peaceful nuclear compromise. This is in America’s interest.