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U.S. Policy Towards Iran, Q and A

House Oversight and Government Reform Subcommittee on National Security, Homeland Defense and Foreign Operations

November 15, 2011

 

Witnesses:
Mark Dubowitz, Executive Director, Foundation For Defense Of Democracies

Kenneth Pollack, Director, Brookings Institution's Saba Center For Middle East Policy

Suzanne Maloney, Senior Fellow, Saban Center For Middle East Policy, The Brookings Institution

 

CHAFFETZ:

Dr. Maloney, I really appreciate the comments you made. I think I agreed with a lot of your points. To suggest that there has been, in your words, unprecedented success, I just -- I beg to understand -- or I just don't understand where you think there's been unprecedented success, other than, you know, maybe getting some European countries to say, "Hey, we support you."

And even in -- when we list the five key points, one of the critical nature -- you mentioned China -- China is not coming along. China has not been helpful and persuasive in this. Do you see any sense that China, being such a pivotal role and in close proximity, obviously, to Iran, that they are in any way, shape or form helping us in any way? Yes?


MALONEY:

I think, first, that the U.N. sanctions resolution 1929, which was approved in June 2010, was, in fact, much more robust and much more meaningful. It includes a conventional arms ban. It included measures that facilitated European Union sanctions that effectively preclude any European investment in the Iranian energy sector. That is unprecedented, and it's important it has a real impact both economically and psychologically. The Iranians would much prefer to deal with European companies, ultimately.

In terms of Chinese cooperation, I think, in fact, we've seen quite a bit. They were cooperative during the process of the negotiation of U.N. Security Council Resolution 1929. They've gone slow with their investment. They've refused to sign new deals with Iran, but they do continue to do business. They're not legally prohibited from doing so.

And that is, I think, where all the upside potential is in dealing with Iran, in making the point that the international community is united. It's very, very important that we persuade the Chinese to go beyond the current U.N. Security Council sanctions measures.


CHAFFETZ:

Thank you. And I guess my concern is, I don't think that we've -- we've been doing this -- Mr. Dubowitz, let me go to you. In your testimony, you list 18 firms connected to the Islamic Revolutionary Guard Corps, the IRGC, which formed part of the crude oil supply chain. These firms' activities were detailed in a report from the Foundation for the Defense of Democracies to the administration back in February.

To the best of your knowledge, has the administration taken any action against the 18 firms noted in that report?


DUBOWITZ:
You're starting to see some sanction. They sanctioned Tidewater, which is the largest ports operator in Iran. I think that's important. It's consequential. But there are literally hundreds of IRGC firms that are dominant players in the oil supply chain, including the largest Iranian energy front company in the world, the National Iranian Oil Company, NIOC, which is presented as a state-owned institution and is usually the counterparty on an oil trade, but the IRGC is a dominant player in the Iranian energy industry, including in NIOC.

And so I think that the administration should move ahead and sanction NIOC and other IRGC players in the oil supply chain and send a message to what I call white-hatted companies, those who have U.S. interests, who care about their reputation, who don't want a front- page story in the Financial Times that they're doing business with the Revolutionary Guard Corps, and send a message that if you're buying oil from Iran, you're buying it from the Revolutionary Guard Corps, and that's bad for business, it's bad for your exposure, it's bad for your reputation.

We could rapidly accelerate the pace of designations. The administration could do much more and do it very quickly and, in doing so, send a message that we will not impact supply of oil, but we will go after price. We will put the remaining buyers, including the Chinese buyers, in a position where they'll have strong negotiating leverage to force a discount on the price of oil without taking one barrel of Iranian oil off the market.

I agree with Dr. Maloney: We shouldn't be going after physical supply. We shouldn't be spooking oil markets. We shouldn't be doing anything that sends a message that we'll be taking 2.3 million barrels of Iranian oil off the market. But put the remaining buyers in a stronger negotiating position. I have a lot of confidence in Chinese oil traders, that they will drive ruthlessly for price discounts if they have the Iranians figuratively and literally over a barrel.


CHAFFETZ:
Thank you.

Dr. Pollack, let's talk about what's going to happen at the end of the year, and the concerns that the Iranians will redirect many of their attacks -- you know, we've got 16,500 people that will be left there starting January 1st, many of these contractors. Let's talk a little bit more, if you will, about the ramifications of what you see Iran doing now.


POLLACK:
Thank you, Mr. Chairman. I think this is a critical question moving forward, having spent quite a bit of time in Iraq and been rocketed, been mortared. This is not something to take lightly.

Muqtada al-Sadr has already announced that the American embassy should be considered a residual occupying force and should be resisted as staunchly as the American troop presence was. What we have seen is a growth in -- in Iranian-backed capabilities, among groups like, say, Bahal al Hak (ph), Kata'ib Hezbollah, the Promised Day Brigades. And what we've seen is very little willingness on the part of the Iraqi government to actually crack down on these because of its own complicated internal politics.

I don't see any of that changing moving forward, except that our ability both to influence the Iraqi government, to get the things they need to do is going to be dramatically diminished. It took intervention by the administration, and in particular General Austin, to get the Iraqis to do anything over the summer. And even that has tapered off since then.

And what's more, our ability to respond directly is going to be dramatically undermined. No matter how many Blackhawk helicopters Triple Canopy may have, they are not going to have the same capability that the Apaches that our current forces have.


CHAFFETZ:
OK. Thank you. My time has expired. We'll now recognize the gentleman from Massachusetts, Mr. Tierney, for five minutes.


TIERNEY:
With your deference, Mr. Chairman, I'm going to defer to the ranking member of the full committee, who I think is scheduled...


CHAFFETZ:
Absolutely. Rather than do that, we'll recognize the ranking member, Mr. Cummings, for five minutes.


CUMMINGS:
Dr. Maloney, in your written statement, you say that there is simply no mechanism for exerting game-changing pressure on Iran without imposing unpredictable and probably unpleasant consequences for global energy balance and the worldwide economic recovery.

Dr. Maloney, what do you think of Mr. Dubowitz's claim that his approach to tougher «sanctions» on «Iran»'s oil sales does not risk driving up the price of oil?


MALONEY:
I haven't investigated the modeling that he has compiled, but what I have seen and read of the mechanism that he proposes is that many experts on oil markets suggest that it would have an escalatory impact on the price of oil, both here and around the world.


CUMMINGS:
And, Dr. Maloney, do you think that significant new «sanctions» on «Iran's oil sales are worth the risks of endangering the global economic recovery?


MALONEY:
I think we have yet to see that this regime in Tehran is susceptible to economic pressure in terms of changing its foreign policy. I was testifying before this subcommittee two years ago, and people said that refined petroleum products, cutting off supply of gasoline to Tehran would be an Achilles' heel and change its posture. We did not see that, in fact, occur.

I am not optimistic that incremental measures, even if they make Iran's fiscal conditions more difficult, will alter their approach to their security policy.


CUMMINGS:
So you just think they're hardnosed?


MALONEY:
I think that this regime and this current leadership in Tehran is tied to its approach to the world, is deeply paranoid and defensive. Looking at the regional environment, looking at what's happened in Libya, they are unlikely to bargain away their nuclear advantage or any of their other policies. They see these as existential defense mechanisms against a world which is aligned against them.


CUMMINGS:
Now, the Obama administration can make a persuasive claim to unprecedented successes in dealing with Iran, and yet the ultimate objective of United States policy, eliminating the threats posed by the regime's pursuit of nuclear capability, support for terrorism and abuse of its own citizenry remains as distant as ever.

Dr. Maloney, do you believe that further economic sanctions are necessary for the United States to make progress in achieving its goal?


MALONEY:
I think sanctions which bring the entire world together to send a message to Tehran will have an impact over time, but I think we also have to recognize that they also have an impact on our own economy. Iran is capable of change, but the level of impact that we need to have is one that will involve the entire international community coming together in a united fashion.


CUMMINGS:
And speaking of that international community, I think you said that the fact that all of these nations have come together with regard to this effort is unprecedented. Do you see any threat to that cohesion?


MALONEY:
I think as sanctions endure and the fact that the Chinese can continue to do business in Iran, even if they have been relatively cooperative to date in terms of not expanding their posture in Iran since the 2010 U.N. Security Council resolution, that will encourage other countries and companies to sanction (inaudible) in particular, I would look toward Russia, which is also not susceptible to other sanctions at the moment. The leadership is not inclined to accept them. And they have no unilateral sanctions which preclude their energy companies from investing in Iran's energy sector.

I would suspect that over time, as China continues to do business in Iran, the Russians will look to expand their own position there.


CUMMINGS:
Well, would unilateral sanctions by the United States undermine the progress that was made in convincing the international community to participate in a comprehensive sanctions regime?


MALONEY:
Sanctions that make the price of oil more expensive for customers of Iranian crude will alienate those customers, in particular China and India.


CUMMINGS:
And therefore...


MALONEY:
And therefore, they will make it much more difficult for us to attain the level of international cooperation that's necessary to drive a decisive message to Tehran.


CUMMINGS:
Well, in the wake of the assassination of the Saudi ambassador to the United States and the recent report by the International Atomic Energy Agency, some have called on Congress to pass strict sanctions against -- and to limit diplomatic communications with Iran. Mr. Dubowitz, do you believe Congress should pass strict sanctions legislation that eliminates the administration's ability to apply sanctions when needed and prevent further attempts at diplomacy?


DUBOWITZ:
Well, Ranking Member Cummings, I'm very much focused on whether sanctions can actually work, whether the United States should be talking to the Iranians, and what they should be talking about is up to the administration. I mean, what I want to do is respond to the point about sanctions.

I ultimately do not think sanctions will force the Iranian regime to change its risk-reward calculus with respect to a nuclear weapon. Let me be clear and on the record on that.

I do think that we have a moral and strategic responsibility to try and to exhaust all peaceful alternatives. Otherwise, perhaps everybody on this panel will agree we may have to move to more coercive methods.

What I would suggest, with respect to oil sales, is that there is a way to do this, instead of only punishing greed -- our sanctions regime is always designed to punish greed, to punish the self-interest of companies that want to continue to do business with Iran, what I'm suggesting is that there may be an opportunity to leverage greed, in other words, to shrink the number of buyers for Iranian oil using a variety of methods, both unilateral and multilateral, designed to actually put the Chinese and others in a position where they can buy all the oil they want from Iran, that they have stronger negotiating leverage because the pool of potential buyers of Iranian oil is shrunk.

And we can do that through a variety of ways that have already been used multilaterally. For example, the Iranian Revolutionary Guard Corps, the idea of designating IRGC companies that are active in the Iranian economy is something that has received overwhelming international support from the U.N., from the E.U., the United States, Canada, Japan, South Korea. In fact, former Undersecretary Stuart Levey, his successor, Undersecretary David Cohen, are using exactly this method to persuade international financial institutions to stop doing business with IRGC banks.

I'm suggesting we do the same thing in the crude oil supply chain -- designate IRGC entities and then threaten sanctions against companies that do business with the IRGC. The reality is, white- hatted companies -- Europeans, Japanese, some South Korean refineries -- will respond to that pressure. The Chinese and others will not. But that's fine. Let them continue buying Iranian oil. Let them drive for price discounts. Let them not impact physical supply.

If you -- if Congress and the administration is too aggressive in calling for sanctions against physical supply, then I agree with Dr. Maloney. What you're going to see is a spike in oil prices. But if we make the case that this is about price, not about supply, I think we can have a much better alternative. And if we -- if it doesn't work, no one could argue that countries threatened by Iran have not exhausted all peaceful alternatives.


CHAFFETZ:
Thank you. I now recognize the gentleman from Massachusetts, Mr. Tierney, for five minutes.


TIERNEY:
Thank you.

Dr. Pollack, the -- President Bush made -- entered a deal or arrangement, contract, with Iraq government that we would have our troops out at the end of 2011. And President Obama has been trying to fulfill that commitment, I believe.

So given that background, that, you know, the status-of-forces agreement to get the troops out by that point and our -- their -- Iraqis' apparent unwillingness to amend that in any sense of the way, am I hearing that your response to this is, at this point, the best that we can do in terms of that is to try and give some useful and robust assistance from the United States to Iraq to try to help them resolve their internal problems to strengthen their government and their ability to withstand pressures from Iran? I think you have to put your microphone on.


POLLACK:
Keep forgetting. Thank you.

First, Congressman, I would certainly agree that there have been a long, painful litany of mistakes made in American policy toward Iraq, and they begin from the very early days of the Bush administration's focus on Iraq. It is certainly the case that the hand left to the Obama administration was a weak one. Nevertheless, I think that we've made -- we've created additional problems for ourselves since then.

There's no question that we are where we are. There's no question that Iran's influence in Iraq has increased and will likely increase as our troops withdraw.

The best that we can hope for is to help moderate Iranian behavior, and the best way to do that is to strengthen Iraq's own internal politics. That is going to be difficult in an era of declining American resource commitments to Iraq. And, therefore, we have to act as creatively as we possibly can.

Much of what I've proposed, much of what is in my written testimony is about how we find creative ways to do that, to do things by giving these -- other than just money -- know-how, diplomatic assistance. But one that's also worth thinking about, because actually the Iraqis will likely have the ability to buy it at some point in time, is military assistance, which the Iraqis need, and as we've seen in Egypt can play an extremely important role in helping shape Iraq's political development, which as I have stressed is the key to keeping Iran out.

TIERNEY:
Thank you for that.

Mr. Dubowitz, now I'm going to call on your integrity to help us out here. We don't have a witness up here who can apparently counteract your theory.

You know, from having put your position out there, that other people have rebutted it in some sense. So I'm sure you're fully aware of that.

Do us the favor, if you would, of presenting what those rebuttals are, you know, what issues do people raise with you (inaudible) and then, again, I will offer you the chance to rebut them back and give your position again.

But I'm curious to know what people say when you say this is the way to do it. How do they couch the way that they think is going to drive up international prices and why?

Is it because that oil is fungible on the market? Is it because they just think that (inaudible) will come in and buy up the $2.3 billion and it won't be any big deal -- if you would?

DUBOWITZ:
Yeah, no, there's certainly some weaknesses to the argument. I think the first is that the assumption is that the Chinese will actually use their trade negotiating leverage to force the discount.

The Chinese may have other strategic objectives and they decide they're going to pay a premium for oil in order to support the Iranian regime and undermine American security. I think that's perhaps one weakness.

I think a second weakness of the argument is that it -- it presupposes that our short-term sanctions policy is to stop this Iranian nuclear weapon.

If you believe that our sanctions policy should be designed as a containment strategy, then a medium to long-term sanctions strategy is sufficient. And I think that the administration has done a good job of putting in place a medium to long-term sanctions regime. And I think Dr. Maloney articulated what that looks like.

Unfortunately, I think we should stop the nuclear bomb. I think President Obama has made it very clear that an Iranian nuclear weapon is unacceptable. And I fear that we are in a bit of a sanctions sleep-walk, where we have done a very good job, or the administration has done a very good job of designing a regime that has decreased foreign investment in the Iranian energy sector, that has shrunk gasoline imports by about 90 percent, that has led to many companies terminating their business ties, including providing technology to Iran's massive natural gas industry.

And so the medium to long-term sanctions strategy is working. It's gone after investment. It's shrinking oil production. And I think, in that respect, it's giving energy markets time to adjust so that there isn't a reactionary or alarmist response to the sanctions.

Part of the weakness of the argument is, if you're pursuing a short-term strategy, it is not 100 percent clear how energy markets will respond. And I think that it's up to the administration and Congress, when speaking about this, to speak about oil sanctions responsibly and to make it very clear to energy markets the goal is not to go after physical supply but in fact to keep every barrel of Iranian oil on the market but at a discounted price.

So it's really a question of short-term to long-term strategy. I fear again that we're in a bit of a sanctions sleep-walk where we all recite positive talking points about how sanctions are working, but I think we're all beginning to acknowledge that sanctions have not worked.

TIERNEY:
So it appears that, once again, under your proposal, China would hold the key again, that, depending on whether or not we could convince China to not pay a premium, whether or not they'd find out that their goal was to, sort of, give it to us by just paying the premium and watch the prices go up and watch the West countries, sort of, figure out how they're going to deal with that in the middle of an economic problem, or they're going to just have their own self- interest in mind on economics.

But it's both self-interest, I guess, so pick one over the other. Is that fair to say?

DUBOWITZ:
Right. Well, I think it's fair to say. I mean, it may be that the Chinese actually don't want to see a nuclear-armed Iran. It may not be good for Chinese energy and national security. So it may be an opportunity for them to actually support both their economic self-interest and their political self-interest. But I think that is an open question.

TIERNEY:
It would be useful for us to get some Chinese experts in here to explore that further, about what their reaction may be.

DUBOWITZ:
I think, certainly, from a political economy perspective, in terms of their strategic objectives, I think it's very useful to have Chinese experts who can elucidate that.

TIERNEY:
Thank you very much.

CHAFFETZ:
Thank you. I will now recognize the gentleman from Illinois, Mr. Quigley, for five minutes.

QUIGLEY:
Thank you, Mr. Chairman. Sorry. I was in another committee meeting. I understand you touched on the issue of the Central Bank of Iran. I would just reference the letter from the 92 senators to Senator (sic) Obama, urging him to sanction the Central Bank, and Mr. Geithner's response, which was, quote, "All options to increase the financial pressure on Iran are on the table, including the possibility of imposing additional sanctions against the CBI.

Is there a timetable for doing this?

And have we discussed this possibility with our allies?

(UNKNOWN)
Those discussions are taking place right now. There are amendments that have been offered in both the House and the Senate to include a CBI designation in the current legislation.

I think there's certainly a lot of discussion about how to do this. I absolutely support a blanket designation of the CBI. I think it needs to be done in a way, however, that's -- that's targeted, incremental and -- and implemented rapidly.

In other words, if you today call for a blanket designation with a view that you're going to strictly enforce that designation thereby essentially cutting off the possibility that people buying Iranian oil can use the CBI to settle those oil transactions, you may be sending a message to the markets that there is no way to financially settle an oil trade.

On the other hand, if today the administration were to target the CBI to make this very case, if you are buying Iranian oil, you are buying it from the Revolutionary Guard Corps. And if you're settling that transaction with the CBI, then we will sanction that transaction.

That's the selective, targeted way of doing it. And again, it builds into this theory that there will be some oil buyers who will respond to that pressure and will look for alternative suppliers. There will be other oil buyers who will believe the administration will never sanction them and will continue settling those transactions through the CBI.

I think, if we did that, number one, we could move today targeting the CBI instead of waiting for a blanket designation. Number two, we could lay the predicate for a much tougher CBI designation down the road. And, number three, I do think we need to give time to markets for markets to adjust to a CBI designation.

Again, there are major buyers of Iranian oil using the CBI because the U.S. Treasury Department has done such an effective job of shutting down other financial avenues to settle an oil transaction.

Again, incremental steps implemented rapidly with a view to minimize the opportunity or the risk of a reactionary or alarmist response from oil markets.

QUIGLEY:
Reactions from the other doctors?

MALONEY:
I think it's simply just a fallacy that you can begin to reduce the opportunities for companies to purchase crude coming out of Iran and it will have no impact on the price of oil anywhere else.

It's -- you know, if it increases the leverage of Chinese companies to drive other competitors from the market for purchasing Iranian crude, then it will thereby decrease the leverage of those other companies which are no longer then available to -- as purchasers of Iranian crude, as they deal with other countries and companies.

Right now, in fact, what we see is that the Iranians are in fact gaining advantage. When the -- when the Greeks have had difficulty making purchases elsewhere, they've turned to the Iranians.

This sort of idea that somehow the Iranians can become a kind of niche market for only bad countries and bad companies to purchase crude oil from simply doesn't reflect the realities of the international marketplace.

And the idea that somehow we can inspect every barrel of crude that comes into this country to ensure that not a drop of oil was produced in Iran is, you know, simply, inconsistent with the way the international oil market works.

QUIGLEY:
Doctor?

POLLACK:
Thank you, Congressman.

I'd like to take this to a slightly higher level and say I think what we've all been saying is that it is a mistake to believe that sanctions alone are going to achieve our goals with Iran.

I completely agree with my colleague Dr. Maloney's statement. The sanctions have had an unprecedented impact and yet they are not achieving our goal. And we should not assume that they will.

By the same token, it would be a mistake to scale back the sanctions. That would send absolutely the wrong message to Iran, to the Iranian people, to the rest of the international community, to other would-be proliferators.

I think the real question is, first, can we in some way find ways to help do a little bit more with sanctions, because we do want to keep the pressure on, but in particular, how do we find other ways to bring pressure against Iran on issues that this regime actually believes important to it.

The sanctions have not been able to accomplish that. And I would urge this subcommittee to hold additional hearings on other ways that the United States might bring pressure on Iran on other areas beyond its economy, which, again, are not unimportant; they are important, but they clearly are not going to get us to where we want to be.

QUIGLEY:
Mr. Dubowitz?

DUBOWITZ:
OK. If I could follow on what Dr. Pollack said, I think that's absolutely right. I mean, we talk about sanctions, we talk about economic sanctions. I think human rights sanctions have actually played a very important and consequential role, particularly in focusing world attention on the vast system of repression that the Iranian regime has set up and the egregious human rights abuses that it's perpetrated.

I think human rights sanctions are also important because, under U.S. law today, we should be sanctioning companies that are providing tools of oppression to the Iranian regime. That authority exists under CISADA. We have not sanctioned any companies for doing so. They are providing technology and parts and components to the Iranian nuclear industry.

So it's counterproliferation sanctions. It's human rights sanctions. We have the ability to be much more rigorous in enforcing existing law. And I think let's start with cutting the tools of oppression that are being sold to the regime, the U.S. and international companies that are selling multimillion-dollar hardware units and software that help the regime target Iranian dissidents, roll them up, torture them and kill them. And that would be a good place to start in expanding our view of sanctions beyond energy and economic sanctions.

QUIGLEY:
Thank you, Mr. Chairman.

CHAFFETZ:
Thank you.

If (inaudible) the members, I think what we'll do now is we will move to the -- to the second panel, unless members have any additional questions.

We want to thank you for your -- your expertise, for your participation here today. Again, if you have any additional comments you care to share with the committee, we would certainly welcome those. Thank you again.