[Senate Hearing 109-763]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 109-763
 
       IRAN'S POLITICAL/NUCLEAR AMBITIONS AND U.S. POLICY OPTIONS

=======================================================================

                                HEARINGS



                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE



                       ONE HUNDRED NINTH CONGRESS



                             SECOND SESSION



                               __________

                          MAY 17 AND 18, 2006

                               __________



       Printed for the use of the Committee on Foreign Relations


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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota              JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio            RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee           BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
LISA MURKOWSKI, Alaska               BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              

                        Wednesday, May 17, 2006

                                                                   Page
Albright, David, president and founder, Institute for Science and 
  International Security (ISIS), Washington, DC..................    15
    Prepared statement...........................................    18
Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware, opening 
  statement......................................................     3
    Prepared statement...........................................     6
Clawson, Dr. Patrick, deputy director for Research, the 
  Washington Institute for Near East Policy, Washington, DC......    58
    Prepared statement...........................................    60
Dodd, Hon. Christopher J., U.S. Senator from Connecticut.........    31
    Prepared statement...........................................    32
Einhorn, Hon. Robert J., senior adviser, Center for Strategic and 
  International Studies, Washington, DC..........................     8
    Prepared statement...........................................    10
Kemp, Dr. Geoffrey, director of Regional Strategic Programs, the 
  Nixon Center, Washington, DC...................................    65
    Prepared statement...........................................    67
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     1
Pollack, Dr. Kenneth M., senior fellow and director of Research, 
  the Saban Center for Middle East Policy at the Brookings 
  Institute, Washington, DC......................................    41
    Prepared statement...........................................    47
Sadjadpour, Karim, Iran analyst, International Crisis Group, 
  Washington, DC.................................................    51
    Prepared statement...........................................    54

                         Thursday, May 18, 2006

Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware, opening 
  statement......................................................    82
    Prepared statement...........................................    83
Coleman, Hon. Norm, U.S. Senator from Minnesota..................    84
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................    81
Nanay, Julia, senior director, PFC Energy, Washington, DC........    98
    Prepared statement...........................................    99
Nasr, Dr. Vali R., professor of National Security Affairs, Naval 
  Postgraduate School, Monterey, CA..............................    91
    Prepared statement...........................................    93
Phillips, James A., research fellow for Middle Eastern Affairs in 
  the Douglas and Sarah Allison Center for Foreign Policy 
  Studies, the Heritage Foundation, Washington, DC...............   102
    Prepared statement...........................................   104
Wisner, Hon. Frank G., vice chairman for External Affairs, 
  American International Group, Inc., New York, NY...............    84
    Prepared statement...........................................    87

                                 (iii)

  


       IRAN'S POLITICAL/NUCLEAR AMBITIONS AND U.S. POLICY OPTIONS

                              ----------                              


                        WEDNESDAY, MAY 17, 2006

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Richard G. 
Lugar (chairman of the committee) presiding.
    Present: Senators Lugar, Martinez, Biden, Dodd, Nelson, and 
Obama.

 OPENING STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM 
                            INDIANA

    The Chairman. This meeting of the Senate Foreign Relations 
Committee is called to order.
    The committee meets today to examine the situation in Iran 
and options for U.S. policy. We will have a second hearing on 
this topic tomorrow. As the American people and policymakers 
debate our course in Iran, I am hopeful that this committee can 
contribute by being a bipartisan forum for clarifying the 
diplomatic situation and evaluating policy options. Our intent 
is to inform policymakers, as well as to help stimulate 
constructive public debate.
    President Bush has announced that the United States remains 
committed to exhausting all diplomatic options with respect to 
Iran. The United States and its allies at the United Nations 
have been pressing for multilateral diplomatic and economic 
sanctions under chapter 7. There is widespread agreement that 
Iran has sought to deceive the international community about 
its nuclear intentions. Tehran's decision to move ahead with 
uranium enrichment was condemned by the international 
community, but efforts to attain Security Council consensus on 
a firm response to Iran's actions have not been successful.
    American policy in the near term will be defined by efforts 
to convince the international community of our commitment to 
diplomacy and to build a broad multilateral and international 
coalition against Iran's nuclear ambitions. I believe that this 
is the strategy that Iran fears most. Last minute negotiations, 
letters to President Bush, and a feigned interest in 
compromises are just a few of the transparent efforts Tehran 
has undertaken to split the international community. We must 
overcome Iran's efforts with patient diplomatic spadework.
    We have stated that no option is off the table. Although 
direct talks with Iran come with difficulties and risks, we 
cannot rule out their utility, particularly as they relate to 
our primary effort to build an international coalition. 
Secretary Baker's talks with Iraqi leaders in 1991 were 
distasteful, but proved to be a gesture that displayed 
America's hope for a peaceful settlement and built 
international equity for all steps in our response. The United 
States has the diplomatic prowess to attain a strong 
multilateral response and win the international debate. We must 
be prepared to commit the time, energy, and resources necessary 
to win this diplomatic battle.
    Retaining all communication tools is also important because 
they may be necessary to avoid a tragic miscalculation by the 
Iranians. Analysts in our intelligence agencies and State 
Department do not regard the Tehran regime as irrational, but 
the framework for their decisionmaking is very different from 
our own. We must understand that they are interpreting our 
actions in ways that we do not always discern. If one overlays 
these perceptual differences with demagogic rhetoric, historic 
suspicion, and high political stakes, the possibility for 
miscalculation increases exponentially. Our policies and our 
communications must be clear, precise, and confident, without 
becoming inflexible. In some situations, this delicate 
diplomatic balance can best be achieved through direct 
communications.
    Some have expressed frustration with the administration's 
coalition-building approach and have advocated quick, punitive, 
and unilateral sanctions focused on international companies 
doing business in Iran. Secretary Rice has stated that such a 
policy ``. . . would complicate our ability to work 
successfully with our allies to counter the threat posed by 
Iran. It would narrow in important ways the President's 
flexibility in the implementation of Iran sanctions, create 
tensions with countries whose help we need in dealing with 
Iran, and shift focus away from Iran's actions and spotlight 
differences between us and our allies. This could play into 
Iran's hands as it attempts to divide the United States from 
the international community as well as to sow division between 
the EU3, China, and Russia.''
    Unilateral sanctions targeting European and Asian 
corporations do not appear to be an effective way to secure 
long-term commitments from their host governments on a 
multilateral approach to the threat posed by Iran. As such, 
they are likely to be counterproductive, as the Bush 
administration has asserted.
    As part of our diplomatic efforts, the administration 
should consider how the NATO alliance might be utilized to 
strengthen our position. NATO is the principal defense and 
security organization of the trans-Atlantic community. NATO has 
become the preeminent strategic forum for broader security 
cooperation with Japan, Australia, and members of the 
Partnership for Peace in the Caucasus and Central Asia. It is 
also facilitating closer ties with North African countries 
through the Mediterranean Dialogue. NATO is the only entity 
that has successfully developed and implemented a strategy of 
deterrence and containment against a nuclear armed enemy. The 
Alliance provides us with an effective and experienced 
infrastructure capable of supplementing our activities at the 
United Nations and implementing an international coalition's 
strategy toward Iran.
    I would underscore a final point as the Congress and the 
administration move forward with decisions pertaining to Iran. 
Even as we work quickly, we must calibrate our response with 
the long term in mind. The issues related to Iran's pursuit of 
nuclear weapons, its role in the Persian Gulf region, and its 
impact on world energy markets will not be addressed with a 
single act or policy, be it miliary, economic, or diplomatic. 
The American people must know that whatever policy options are 
chosen will likely require years, if not decades, of intense 
vigilance and diplomatic followup.
    To assist us in our deliberations today, we welcome two 
distinguished panels of experts. The first panel will discuss 
the status of Iran's nuclear program. We are joined by Dr. 
Robert Einhorn, a senior adviser at the Center for Strategic 
and International Studies, and Dr. David Albright, president of 
the Institute for Science and International Security. Our 
second panel will discuss Iran's motivations and strategies. 
Joining us will be Dr. Ken Pollack, the director of the Saban 
Center for Middle East Policy at the Brookings Institution; Mr. 
Karim Sadjadpour, an Iran expert with the International Crisis 
Group; Dr. Patrick Clawson, deputy director of the Washington 
Institute for Near East Policy; and Dr. Geoffrey Kemp, director 
of Regional Strategic Programs at the Nixon Center.
    We appreciate our witnesses being with us today, and in a 
moment I will call upon our first panel, but first it's my 
privilege to call upon the distinguished ranking member, 
Senator Biden, for his opening statement.

   STATEMENT OF HON. JOSEPH R. BIDEN, JR., U.S. SENATOR FROM 
                            DELAWARE

    Senator Biden. Thank you very much, Mr. Chairman. It will 
not surprise the panel to hear that my statement tracks yours 
in many ways. As we say in this business, I associate myself 
with your remarks.
    Mr. Chairman, I commend you for calling this hearing, and I 
welcome a genuinely impressive group of witnesses we have 
today.
    Unfortunately, in my view, Mr. Chairman, this 
administration has chosen not to send a senior official to be 
part of these hearings, and I think that's a mistake. I think 
they should have. I know you tried. If the administration wants 
to avoid the repeat of the fiasco leading up to the war in 
Iraq, I think it has to begin to do what it failed to do at 
that time, and that is level with the American people, straight 
up, level with them as to what's at stake, and what the 
strategy is. Platitudes like ``all options are on the table'' 
and ``we're pursuing diplomacy,'' in my view, are not good 
enough. Dodging congressional hearings is not a good start to 
what promises to be one of the most challenging problems facing 
our country over the next several years, if not decades, as you 
indicated.
    Let me state what I think the problem is: A nuclear-armed 
Iran. That would put a bomb in the hands of a radical theocracy 
swimming in a sea of high-priced oil, whose President has 
denied the Holocaust and threatened to wipe Israel off the map.
    Now, in my view, I don't believe Iran would use a weapon 
against us or Israel or give its technology to terrorists, but 
I believe it would feel emboldened to make more mischief in the 
region. And if Iran gets the bomb, that could well fuel an arms 
race with Sunni Arab countries like Egypt and Saudi Arabia, 
making an already volatile region even more dangerous than it 
is.
    But I believe we have time. Most published reports conclude 
Iran is likely--and I'm quoting from published reports, I'm not 
quoting from any direct information that I have. Published 
reports conclude Iran is unlikely to develop a weapon for 
another 5 to 10 years. The critical question is: How do we use 
that time to persuade Iran to forgo nuclear weapons?
    For now, the administration seems to have settled on a 
diplomatic course, and I think that's the right course, but it 
seems to be pursuing it with one hand tied behind its back, 
without providing the answers to critical questions that we 
need to shape a smart policy. For example, our allies in Europe 
are working on a package of incentives that are meant to be a 
final offer to Iran. What is our role in developing those 
incentives? How seriously can Iran take an offer from Europe, 
say, in matters relating to security guarantees if the United 
States is no part of that deal? Why are we in a posture of, in 
effect, negotiating with the negotiators who are going to 
negotiate with Iran? I find that strange, as I know you--as I 
suspect you do. Just as I find the same situation strange as it 
relates to North Korea. We're negotiating with the negotiators 
who are going to negotiate with Iran, and yet we are the 
lynchpin of any negotiation. Wouldn't it save some trouble and 
confusion to be in the room, along with our allies, as well as 
possibly Russia and China?
    The press reports that if the Iranians spurn the European 
offer, the United States and its allies will move for sanctions 
of Iran, even through the U.N. Security Council, or failing 
that, through a coalition of like-minded nations. What cost 
will these sanctions entail for Iran, for us, for the key 
countries we need on our side? How vulnerable is Iran to a ban 
on imports of gasoline or exports of crude? What would be the 
impact on oil markets and at the local gas pump if Iranian 
crude were removed from the market? Why isn't the 
administration doing more to prepare the public for the 
sacrifices sanction would entail if we go that route, as, by 
the way, I might note, the Iranian leadership is preparing 
their public?
    More broadly, what are the chances Europe, Russia, and 
China will agree to sanctions if they believe the United States 
has not explored every diplomatic avenue, including direct 
negotiation with Tehran?
    Is the administration committed to regime change in Iran? 
Would it be prepared to abandon it as part of the package of 
security guarantees in a negotiated settlement on a nuclear 
issue that was verifiable? I asked that question to Secretary 
of State Rice, I believe it was during her confirmation hearing 
or the next visit she had. They're so seldom I should remember 
them. And she said we'd have to talk about many other things.
    I find it interesting that the recognition of the Qaddafi 
regime and placing an embassy in Tripoli and suggesting that 
the same kind of rationale in dealing--it wasn't too long ago, 
Mr. Lugar, that this administration, as was not totally 
inappropriate, talked about two madmen, the madman in Baghdad 
and the madman in Libya. And we're putting an embassy in the 
madman's country because we actually negotiated. We actually 
got something that we wanted that was consequential. And I'm 
not criticizing that judgement, but we negotiated.
    Is the administration's funding of democracy activities 
inside Iran the best way to promote internal reform, or is it 
literally the kiss of death for Iranian democrats? How do you 
tap into the deep desire for change, particularly among the 
majority of the Iranian population, which was born after the 
Islamic Revolution? Why, after more than 5 years in office, has 
the American administration not lifted sanctions on American 
NGOs so they can support democratic activities within Iran?
    I wish we had someone here today from the administration to 
answer these questions. It's time for a full public airing on 
the choices that are before us. Let me state my recommendation, 
my recommended policy, up front, and it's not fundamentally 
different from yours, Mr. Chairman. Last week the Iranian 
President sent a letter to President Bush. The letter won't be 
nominated for the Nobel Prize for Literature, or for Peace for 
that matter. But the content and style of the letter is not the 
point, nor is the identity of the sender. I have not been alone 
in suggesting that we should respond not to the letter we 
received, but with our own ideas on how to move forward. I 
would go a step further: We shouldn't respond to the President; 
President Bush should respond to the man who has the final say 
in Iran. That is Ayatollah Khamenei. It would make--I would 
make the letter public. I would include a call for direct talks 
anywhere, anytime, with everything on the table. We should be 
willing to talk about all the issues that divide us: The 
nuclear program, terrorism, Iraq, Afghanistan, Israeli-
Palestinian peace, sanctions, and security. We should, in my 
view, lay out for Iran's leaders and especially for its people 
what the future would look like if Iran renounces its nuclear 
ambitions and its support for terrorism, and what the future 
will look like if it does not.
    Will Iran respond favorably? I have no idea. I don't know. 
But in recent months Iran has indicated a readiness to engage. 
Indeed, an Iranian outline for their own bargain was 
communicated to the Bush administration 3 years ago. While the 
Government in Tehran has changed since then, Iran's fundamental 
position likely has not. If anything, the regime is now even 
more comfortable with reformists purged from the Majlis and the 
Presidency.
    Three years ago when I was chairman of this committee, I 
called publicly for a dialog between Members of Congress and 
the Iranian Majlis. Senator Hagel joined me in that effort. 
That call from two Senators sparked an intense debate in Iran 
which lasted for several weeks in every major publication in 
the country. The reformist press embraced it; the hard-liners 
condemned it. The Supreme Leader finally weighed in and 
rejected any direct discussion or meeting.
    If two Senators can spark that kind of debate within a 
country, imagine what the President could do. I believe that an 
offer of direct dialog would place enormous pressure on the 
Iranian leadership from their own people, from the 
international community. Iranian leaders would face a stark 
choice: Reject the overture and risk complete isolation and an 
angry public or accept it and start down a path that would 
require Iran to alter its nuclear ambitions or be exposed for 
not having any intention of doing that.
    Talking to Iran would not reward bad behavior or legitimize 
the regime. Talking is something we have done virtually with 
every other country on Earth, including the former Soviet Union 
during the cold war, which possessed, in fact, an existential 
threat to us, and the unsavory regimes like the ones in North 
Korea and in Libya. And demonstrating that we made a serious 
attempt at diplomacy is also the best way to keep others on 
board--the point of your statement, one of the points in your 
statement for tougher actions if Iran fails to respond.
    It seems to me that we have been outsmarted by not very 
smart people in their ham-handed use of diplomacy, by us 
refusing to engage in imaginative diplomacy. There's more than 
one purpose to a meeting, one of which is to keep the rest of 
the world on our side. I think it would be a wise course of 
action for any administration, but for the Bush administration, 
with it's blemished record on Iraq, it is not simply a wise 
choice; I think it's a requirement. The threshold of trust is 
much, much, much, much higher for this administration at this 
point with regard to Iran. If the administration wants to 
convince our allies and others to place serious pressure on 
Iran over the long haul, it seems to me it makes sense for us 
to walk the extra diplomatic mile. I hope we can proceed with 
the wisdom that the matter requires. How the Iranian crisis is 
handled will help determine international security for a 
generation, if not longer.
    I look forward to the testimony and the insights of our 
witnesses, and I thank you, Mr. Chairman, for once again 
staying focused on what is one of the gravest concerns we have 
right now in terms of a long-term interests. And I thank the 
Chair for the time.
    [The prepared statement of Senator Biden follows:]

  Prepared Statement of Hon. Joseph R. Biden, Jr., U.S. Senator From 
                                Delaware

    Mr. Chairman, I commend you for calling this hearing. And I welcome 
an impressive group of experts. It will not be a surprise that I am 
very much in agreement with the chairman's statement.
    Unfortunately, the administration has chosen not to send a senior 
official to be a part of these hearings. That is a mistake.
    If the administration wants to avoid a repeat of the Iraq fiasco, 
it must begin to do what it initially failed to do in that arena: Level 
with the American people about what is at stake and what its strategy 
is. Platitudes like ``all options are on the table'' and ``we're 
pursuing diplomacy'' aren't good enough.
    Dodging congressional hearings is not a good start to what promises 
to be one of the most challenging problems facing our country over the 
next several years.
    Let me state what the potential problem is: A nuclear-armed Iran. 
That would put the bomb in the hands of a radical theocracy, swimming 
on a sea of high-priced oil, whose President has denied the Holocaust, 
threatened to wipe Israel off the map and to attack us.
    In my view, Iran probably would not use a weapon against us or 
Israel or give the technology to terrorists. But it would feel 
emboldened to make even more mischief in the region. And if Iran gets 
the bomb, that could well fuel an arms race with Sunni Arab countries 
like Egypt and Saudi Arabia, making an already volatile region even 
more dangerous.
    But I believe we have time: Most published reports conclude Iran is 
unlikely to develop a weapon for at least another 5 years. The critical 
question is: How do we use that time to persuade Iran to forgo nuclear 
weapons?
    For now, the administration seems to have settled on a diplomatic 
course. That's the right course--but it seems to be pursuing it with 
one hand tied behind its back, and without providing the answers to 
critical questions that we need to shape a smart policy.
    For example, our allies in Europe are working on a package of 
incentives that are meant to be a final offer to Iran. What is our role 
in developing these incentives? How seriously can Iran take any offer 
from Europe--say on matters related to security guarantees--if the 
United States is not part of the deal?
    Why are we in a posture of--in effect--negotiating with the 
negotiators? Wouldn't it save some trouble and confusion to be in the 
room along with our allies as well as Russia and China?
    The press reports that if the Iranians spurn the European offer, 
the United States and its allies will move to sanction Iran either 
through the United Nations Security Council or, failing that, through a 
coalition of like-minded nations.
    What costs will these sanctions entail for Iran, for us, and for 
key countries we need on our side? How vulnerable is Iran to a ban on 
imports of gasoline or exports of crude? What would be the impact on 
oil markets and at the local gas pump if Iranian crude were removed 
from the market? Why isn't the administration doing more to prepare the 
public for the sacrifice sanctions would entail as the Iranian 
leadership is preparing their public?
    More broadly, what are the chances that Europe, Russia, and China 
will agree to sanctions if they believe the United States has not 
explored every diplomatic avenue, including direct talks with Tehran?
    Is the administration committed to regime change in Iran? Would it 
be prepared to abandon it as part of a package of security guarantees 
in a negotiated settlement of the nuclear issue?
    Is the administration's funding of democracy activities inside Iran 
the best way to promote internal reform, or is that literally the 
``kiss of death'' for Iranian democrats? How do we tap into the deep 
desire for change, particularly among the majority of the Iranian 
population which was born after the Islamic Revolution?
    I wish we had someone here today from the administration to answer 
these questions. It is time for a full public airing of the choices 
before us.
    Let me state my recommended policy up front.
    Last week, the Iranian President sent a letter to President Bush. 
The letter won't be nominated for the Nobel Prize for Literature--or 
for Peace. But the content or style of the letter is not the point, nor 
is the identity of the sender. I have not been alone in suggesting that 
we should respond--not to the letter we received, but with our own 
ideas on how to move forward.
    I would go a step further. We shouldn't respond to President 
Ahmedinejad. President Bush should write to the man who has the final 
say in Iran--Ayatollah Khomenei.
    I would make the letter public and I would include a call for 
direct talks with Iran--anywhere, anytime, with everything on the 
table.
    We should be willing to talk about all the issues that divide us: 
The nuclear program, terrorism, Iraq, Afghanistan, Israeli-Palestinian 
peace, sanctions, and security.
    We should lay out for Iran's leader--and especially for its people 
``what the future could look like if Iran renounces its nuclear 
ambitions and support for terrorism--and what the future could look 
like if it does not.
    Would Iran respond favorably? I don't know, but in recent months, 
Iran has indicated a readiness to engage.
    Indeed, an Iranian outline for a grand bargain was communicated to 
the Bush administration 3 years ago. While the government in Tehran has 
changed since then, Iran's fundamental positions likely have not. If 
anything the regime is now more comfortable with the reformists purged 
from the Majlis and the Presidency.
    Four years ago, when I was chairman of this committee, I called 
publicly for a dialog between Members of Congress and the Iranian 
Majlis. Senator Hagel joined me in that effort. That call--from two 
Senators--sparked an intense debate in Iran that lasted several weeks. 
The reformist press embraced it. The hard-liners condemned it. The 
government couldn't figure out how to respond.
    If two Senators can spark that kind of debate, imagine what the 
President could do.
    I believe that an offer of direct dialog would place enormous 
pressure on the Iranian leadership--from their own people and from the 
international community. Iranian leaders would face a stark choice--
reject the overture and risk complete isolation and an angry public, or 
accept it and start down a path that would require Iran to alter its 
nuclear ambitions.
    Talking to Tehran would not reward bad behavior or legitimize the 
regime. Talking is something we have done with virtually every other 
country on earth, including the former Soviet Union--which posed an 
existential threat to us--and unsavory regimes like the ones in North 
Korea and Libya.
    Demonstrating that we made a serious attempt at diplomacy is also 
the best way to keep others on board for tougher actions if Iran fails 
to respond.
    It would be a wise course of action for any administration. But for 
this administration, with its blemished record in Iraq, it is not 
simply a wise choice--it is a requirement. The threshold of trust is 
much higher. If the administration wants to convince our allies and 
others to place serious pressure on Iran, it must walk the extra 
diplomatic mile.
    I hope that we can proceed with the wisdom that this moment 
requires. How the Iran crisis is handled will help determine 
international security for a generation, if not longer.
    I look forward to the testimony.

    The Chairman. Thank you very much, Senator Biden.
    We now turn to our witnesses. I'll ask you to testify in 
the order that I introduced you. That will be, first of all, 
Mr. Einhorn and Dr. Albright. Your full statements will be made 
a part of the record, and you may summarize or proceed as you 
wish. We're looking forward to your testimony, and then to our 
opportunity to ask questions of you. We have been advised that 
our colloquy may be punctuated by a rollcall vote or two, as 
the case may be, and at that point, the Chair will recess the 
committee so that all the Senators may vote and return and all 
of us will hear the same questions and answers and testimony.
    Now, we're delighted to have you, and would you please 
proceed, Mr. Einhorn.

STATEMENT OF HON. ROBERT J. EINHORN, SENIOR ADVISER, CENTER FOR 
      STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC

    Mr. Einhorn. Mr. Chairman, Senator Biden, I thank you very 
much for the opportunity to appear here this morning.
    In the brief time I have, I would like to make five points. 
First, I believe that Iran's claim that it's already mastered 
centrifuge enrichment technology is premature. It's true that 
the Iranians have assembled a 164-machine centrifuge cascade 
and produced enrichments of up to 5 percent. And that's 
significant. But they cut many corners in their R&D efforts. 
For example, instead of running the cascades with gaseous 
uranium for 6 months or more, which would have been standard 
practice for gaining the necessary confidence, they ran it for 
less than 2 weeks.
    Iran's recent R&D efforts have been driven by political 
rather than technical considerations. Their highest priority 
has been to be able to announce a publicly impressive level of 
enrichment so that they can claim that they've already achieved 
their goal and that it's too late to stop them. They want the 
international community to conclude that it has little choice 
but to accommodate to the reality of an Iranian enrichment 
capability. But they're not there yet, at least not with any 
degree of confidence. They'll now have to go back and do the 
thorough developmental and testing work they would normally 
have done earlier. It will probably take several months to a 
year before Iran will have mastered the technology and be able 
to replicate it, and scale it up with confidence.
    Second point. While Iran has indeed reached some key 
milestones recently, its basic timeline for achieving a nuclear 
weapons capability has not significantly changed. I think David 
Albright has done the best analysis of this, and I agree with 
his conclusion that whether Iran enriches uranium in a small, 
clandestine enrichment plant, or breaks out of the NPT and uses 
the first module of its industrial scale facility at Natanz, 
the earliest it could have enough highly enriched uranium for a 
bomb would be about 3 years from now, or 2009.
    I would emphasize, as David does, that this is a worst-case 
assessment. Unless Iran is both very lucky and very good, it 
will probably take significantly longer. For comparison, 
Director of National Intelligence, John Negroponte, told the 
Senate Intelligence Committee in February that Iran will likely 
have the capability to produce a nuclear weapon within the next 
decade. And according to a news report, a National Intelligence 
estimate last year judged that Iran could have a nuclear weapon 
in 5 to 10 years. I think that was the report you were 
referring to, Senator Biden.
    Senator Biden. It was, Bob.
    Mr. Einhorn. Of course, large margins of uncertainty 
surround such estimates. The biggest wildcard is whether, and 
to what extent, Iran has a clandestine nuclear program parallel 
to its overt program. If it has successfully hidden both a 
uranium conversion plant and an enrichment facility, then 
clearly all bets are off. Although I believe Iran is pursuing 
some activities covertly, I doubt that they include both 
conversion and enrichment.
    Third point. The presence of the International Atomic 
Energy Agency on the ground in Iran is crucial in helping us 
track--helping us keep track of Iran's progress toward a 
fissile material production capability. But without stronger 
verification authorities, the IAEA will not be able to 
determine whether Iran is pursuing a covert nuclear weapons 
program. The IAEA can measure accurately how much uranium 
feedstock is produced at Isfahan and how much low-enriched 
uranium is produced at Natanz. It can also tell us that no 
bomb-grade highly enriched uranium is being produced at Natanz. 
But while the IAEA is good at monitoring declared nuclear 
facilities, its ability to detect undeclared facilities and 
activities is limited, especially after Iran's decision no 
longer to act as if bound by the IAEA's Additional Protocol. 
The IAEA admitted as much in its April 28 report which said 
that given Iran's failure to cooperate and be transparent, it 
is ``unable to make progress in its efforts to provide 
assurances about the absence of undeclared nuclear material and 
activities in Iran.''
    The U.N. Security Council should act soon to give the IAEA 
stronger verification authorities, including monitoring and 
inspection rights that go well beyond those contained in the 
Additional Protocol.
    Fourth point. Unless there is a major change in Iran's 
current perception of the benefits and risks of pursuing its 
own enrichment program, Iranian leaders will stay on course. 
The United States and the other major powers should act boldly 
and quickly to alter Iran's calculus. With military strikes 
unlikely, and Russia and China resolutely opposing sanctions, 
Tehran now sees little cost in proceeding with enrichment. And 
with the United States seemingly intent on regime change 
whatever happens on the nuclear issue, it sees little benefit 
in negotiating away its enrichment program with the Europeans.
    If the international community is to have any chance of 
persuading Iran to give up its enrichment capability, and 
that's an increasingly big if, it must confront Iran with 
stronger sticks and more attractive carrots. Russia and China 
must join the United States and Europeans in posing a credible 
threat of increasingly severe penalties. At the same time, the 
major powers must offer significant incentives going beyond 
what the Europeans proposed last July.
    A critical incentive for Iran would be the prospect of a 
less threatening, more normal relationship with the United 
States, and, specifically, a recognition in Washington that 
regime change in Tehran should be the prerogative of the 
Iranian people, and not the policy of the United States.
    Fifth and final point. Within a multilateral framework that 
also includes Germany and the other P5 countries, the United 
States should be prepared to have bilateral, face-to-face 
contacts with Iran. The agenda for United States-Iranian 
contact should not be confined to the nuclear issue. It should 
cover the full range of issues that divide the two countries, 
including United States concerns about Iran's support for 
Middle East terrorist groups, its alleged harboring of al-Qaeda 
operatives, its role in Iraq, its policies toward Israel, and 
its treatment of its own people. And, of course, the Iranians 
undoubtedly will have their own list of issues.
    The purpose of the talks would be to explore whether U.S. 
concerns can be met and whether the interests of the two 
countries can be reconciled. Only by addressing the broad range 
of issues can prospects for normalization be assessed. And only 
the prospect of normalized, bilateral relations can provide the 
context in which Iran is likely to consider suspending its 
enrichment program and giving up its aspiration for nuclear 
weapons.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Einhorn follows:]

 Prepared Statement of Hon. Robert J. Einhorn, Senior Adviser, Center 
        for Strategic and International Studies, Washington, DC

                         THE IRAN NUCLEAR ISSUE

    Mr. Chairman, thank you for giving me the opportunity to appear 
before the committee this morning.
    Developments over the last 10 months--including Iran's abrogation 
in July of its agreement with the EU3 (Britain, France, and Germany), 
its resumption in August of uranium conversion at Isfahan, the end of 
its voluntary implementation of the IAEA Additional Protocol, the weak 
U.N. Security Council presidential statement issued at the end of 
March, Iran's production of enriched uranium at Natanz, and the 
inability so far of the five Security Council Permanent Members to 
agree on a chapter 7 resolution--have created a widespread impression 
that Iran's quest for a fissile material production capability is 
progressing more rapidly than expected and is essentially unstoppable.
    Fostering that impression--and the belief that the international 
community has little choice but to accommodate to the reality of an 
Iranian enrichment program--is very much part of Iran's game plan. But 
despite the significant progress Iran has made, Iran's claims that it 
has mastered centrifuge enrichment are premature; it still has far to 
go before it can produce either highly enriched uranium (HEU) or 
nuclear weapons; and its willingness to negotiate an end to its 
enrichment and reprocessing programs has yet to be put to a serious 
test.

Evaluating recent Iranian progress
    As documented by the International Atomic Energy Agency (IAEA) in 
its report of April 28, 2006, Iran has indeed passed some important 
milestones in recent months. Since September 2005, it has produced over 
110 tonnes of uranium hexafluoride (UF6) at the Isfahan 
uranium conversion facility, enough gaseous uranium feedstock for over 
20 nuclear weapons. After ending its suspension of enrichment 
activities in January, it fed UF6 into a single P1 
centrifuge machine, then into 10-machine and 20-machine cascades, and 
then moved quickly to a 164-machine cascade (a key building block in a 
centrifuge enrichment facility) where it successfully enriched uranium 
to around 3.6 percent. Meanwhile, Iran has been assembling two 
additional 164-machine cascades at its Pilot Fuel Enrichment Plant 
(PFEP), one which is about to begin enrichment operations and the other 
which should be ready by June. In addition, the Iranians announced that 
they would begin installing the first 3,000-machine module of their 
industrial-scale enrichment facility in the fourth quarter of 2006.
    On the basis of these developments, Iran's leaders are claiming 
that they have now mastered centrifuge enrichment technology and that 
it is too late to stop them. They go so far as to say that, even if 
existing nuclear facilities were destroyed, they have reached a stage 
where they could regenerate their program quickly and confidently, with 
little loss of time. But such claims are premature.
    The Iranians have cut corners in their research and development 
effort in order to register the accomplishments listed in the IAEA's 
report. Standard practice would have required them to run the 164-
machine cascade with UF6 on an uninterrupted basis for up to 
6 months or more before gaining confidence in its operation. Instead of 
proceeding in parallel to assemble and operate additional cascades, the 
efficient operation of the initial cascade would first have been 
demonstrated. To verify the ability to manufacture centrifuges 
indigenously, the experimental cascade would have relied on machines 
made in Iran rather than imported, and it would have been heavily 
instrumented to measure performance. And before introducing 
UF6 into the cascades, any impurities in the uranium gas 
that could damage the centrifuges would have been addressed and 
eliminated.
    But the Iranians deviated from standard practice. Apparently intent 
mainly on demonstrating publicly the ability to reach a significant 
enrichment level, they ran the cascade with UF6 for less 
than 2 weeks. A significant portion of the experimental cascade may 
have consisted of centrifuges imported from the A.Q. Khan network 
rather than produced indigenously. Moreover, little of the equipment 
normally used to measure performance seems to have been used during the 
short experimental run. And instead of taking the time to fix the 
problems in the Isfahan conversion process that have produced 
impurities in the UF6, the Iranians seem to have chosen to 
use the impure UF6 and accept the risk of having to replace 
any centrifuges damaged as a result.
    Iran's research and development efforts to date seem to have been 
driven by political rather than technical considerations. By giving 
highest priority to achieving and announcing the ability to produce 
uranium enriched to 3.6 percent, the Iranians wanted to present the 
world with a fait accompli--to demonstrate that they already have an 
enrichment capability and that continued efforts to stop them would be 
futile. Moreover, fearing (despite their determined show of self-
confidence) that they may eventually be forced to accept another freeze 
on their program, they wanted to establish the highest possible 
baseline for such a freeze--thus, accelerating the operation of the 
second and third cascades at the PFEP and starting installation of the 
3,000-machine module this year at the industrial-scale facility. And 
not least, Iran's leaders saw the early announcement of the enrichment 
breakthrough as a way of boosting national pride and building domestic 
support for the regime, especially in anticipation of international 
pressures and possible hardships to follow.
    Having taken a series of shortcuts largely for political reasons, 
Iran presumably will now have to do the thorough developmental and 
testing activities it would normally have done earlier. That will take 
considerable time, and is probably one reason why the Iranians are 
saying they would be prepared to negotiate a deferral of industrial-
scale enrichment if the Europeans and others will agree to accept 
continued R&D activities on a pilot scale.
    So recent reports regarding progress in Iran's nuclear program, 
especially boastful accounts coming from Tehran, have created the 
somewhat misleading picture that Iran's efforts have accelerated to an 
alarming degree. While Iran has indeed reached some key milestones of 
late, the basic timelines for Iran achieving a nuclear weapons 
capability--in particular, the capability to produce enough HEU for a 
single nuclear weapon--have not significantly changed.

Timeline for producing HEU
    One of the best recent analyses in the open literature of Iran's 
timeline for producing HEU was done by David Albright.\1\ Since he's a 
witness at today's hearing and available to explain his analysis, I'll 
just cite his conclusion--that whether Iran builds a clandestine 
enrichment plant with 1,500 P1 centrifuges or breaks out of the NPT and 
uses its first module of 3,000 P1 centrifuges at its industrial-scale 
facility, the earliest it could produce enough HEU for a single nuclear 
weapon would probably be 3 years from now, or 2009. Albright emphasizes 
that this is a worst-case assessment and that Iran is likely to take 
longer if, for example, it needs additional time to manufacture and 
install the necessary number of centrifuges and overcome the normal 
technical difficulties that arise in seeking to operate a number of 
cascades in a single production unit.
---------------------------------------------------------------------------
    \1\ David Albright and Corey Hinderstein, ``The Clock is Ticking, 
But How Fast?'' The Institute for Science and International Security 
(ISIS), March 27, 2006.
---------------------------------------------------------------------------
    Director of National Intelligence, John Negroponte, seems to 
believe Iran will probably take longer than 3 years. In testimony 
before the Senate Intelligence Committee in February 2006, he said that 
if Iran continues its present efforts, it ``will likely have the 
capability to produce a nuclear weapon within the next decade.'' A 
National Intelligence Estimate on Iran produced last year reportedly 
judged that Iran could have a nuclear weapon in from 5 to 10 years.
    Large margins of uncertainty inevitably surround judgments of when 
Iran will or could have nuclear weapons or the fissile materials to 
build them. Some of the biggest unknowns relate to Iran's intentions--
whether it is determined to produce HEU and acquire nuclear weapons as 
soon as possible; whether--and for how long--it is willing to stop at 
an LEU production capability while deferring decisions on HEU 
production and weaponization; or whether it is prepared to forgo, 
temporarily or indefinitely, the capability to produce even LEU in 
order to avoid penalties or gain rewards.
    Other uncertainties about the pace of Iran's nuclear program relate 
more to capabilities. If Iran cannot readily overcome the technical 
problems that typically accompany startup enrichment operations, the 
timeframe will lengthen. If, however, Iran can soon learn to master the 
much more efficient P2 centrifuge design and build P2 enrichment units, 
the timeframe will shorten. Iran's ability to procure materials, 
equipment, and technology from abroad will also affect the pace of its 
nuclear program, although imports will be much more important in the 
case of Iran's industrial-scale enrichment facility, which still 
requires large quantities of specialized materials and equipment, than 
in the case of a pilot-scale facility. Indeed, even if it were possible 
to cut off its access to foreign supplies, Iran probably already 
possesses within its territory all the materials and equipment it needs 
to set up a 1,500- or 3,000-machine centrifuge facility and produce 
enough HEU for a small nuclear weapons stockpile.
    A key variable affecting the pace of Iran's nuclear program is 
whether--and the extent to which--Iran has a clandestine nuclear 
program parallel to its overt program. Obviously, a successfully hidden 
conversion plant and enrichment facility would invalidate current 
estimates and eventually confront the United States and its allies with 
a sudden, major security threat. But even undetected activities of less 
importance (e.g., manufacture of centrifuge components or assembly of 
centrifuges) could have a substantial impact on timeframes for 
producing HEU or nuclear weapons.

Monitoring Iran's program--the role of the IAEA
    The IAEA plays a critical role in narrowing our uncertainties about 
Iran's nuclear program. But IAEA monitoring of Iran's program has 
serious limitations, especially given Tehran's decision in February to 
cease implementation of the Additional Protocol and its overall failure 
to meet the IAEA's requirements for transparency and cooperation.
    The Agency's presence in Iran, even with the less intrusive 
verification rights contained in the IAEA-Iran Comprehensive Safeguards 
Agreement (as compared to the Additional Protocol), provides a strong 
basis for monitoring declared nuclear facilities and activities in 
Iran. Agency inspectors can measure accurately how much UF6 
is produced at Isfahan and verify that it is not being diverted to a 
covert enrichment plant. They know how much enriched uranium is being 
produced at Natanz and can be confident that no HEU is being produced 
there and that no Natanz-produced LEU is being sent to a covert 
enrichment facility to be further enriched to weapons grade. Frequent 
IAEA visits also enable us to keep track of progress in assembling and 
operating cascades at the PFEP, in constructing and operating the heavy 
water production plant and heavy-water research reactor at Arak, and in 
building the industrial-scale enrichment plant at Natanz. This 
information is crucial in understanding the nature and pace of Iran's 
acquisition of a fissile material production capability.
    While the IAEA can effectively monitor declared nuclear facilities 
and activities as long as the Agency has access to them, monitoring 
confidence drops off rapidly at undeclared locations or if inspectors 
are no longer given access to declared sites. In the latter case, such 
as in the event of NPT withdrawal and termination of IAEA verification, 
Iran could proceed without international scrutiny to use previously 
monitored facilities to produce fissile material, either by starting 
from natural uranium or boosting previously safeguarded LEU to HEU.
    Even if Iran remains in the NPT, monitoring undeclared locations is 
a formidable challenge, especially given Iran's 20-year track record of 
what the IAEA calls its ``many failures and breaches of its obligations 
to comply'' with its NPT safeguards agreement and given its February 
decision no longer to act as if bound by the Additional Protocol. In 
its April 28 report, the IAEA cites numerous ``gaps in the Agency's 
knowledge'' that have sustained or even heightened ``concern'' that 
Iran may be pursuing nuclear weapons. Among the IAEA's concerns are 
that Iran is not being honest about the extent of its work on P2 
centrifuges, that Iran took fuller advantage of a 1987 offer by A.Q. 
Khan's network than it is admitting, that procurement of dual-use 
equipment (e.g., mass spectrometers) was related to a weapons program, 
that Iran's military is heavily involved in the nuclear program, that 
experiments with plutonium, polonium, and uranium metal point to a 
weapons program, and that Iran may be engaged in nuclear-related high 
explosives testing and missile re-entry vehicle design.
    These concerns, and the IAEA's judgment that Iran is not providing 
the Agency ``full transparency and active cooperation,'' have brought 
the IAEA to the sobering admission that it ``is unable to make progress 
in its efforts to provide assurances about the absence of undeclared 
nuclear material and activities in Iran.'' The April 28 report goes on 
to say that ``additional transparency measures, including access to 
documentation, dual use equipment, and relevant individuals''--all of 
which have been specifically requested by the IAEA Board of Governors 
but denied by Iran--will be required if the Agency is to be able to do 
its job.
    Iran's decision to stop implementing the Additional Protocol (AP) 
has hampered the IAEA's work. But implementation of the AP is not 
enough. The AP has its own limitations. Unlike what many observers 
believe, it does not provide for ``anywhere, anytime'' inspections. It 
does not, for example, authorize investigation of suspected 
weaponization activities or allow access to military facilities where 
no nuclear materials are believed to be present. That is why the IAEA 
Board has several times requested, unsuccessfully, that Iran accept 
verification procedures going beyond what is required by the AP.
    The IAEA must be given stronger tools to perform its verification 
mission in Iran, and that will require action by the United Nations 
Security Council. The IAEA Director General should be asked to 
determine what additional verification authorities the Agency would 
need to carry out its mandate in Iran. If required, those authorities 
should go well beyond what is contained in the existing Comprehensive 
Safeguards Agreement or even the Additional Protocol. The Security 
Council should then take a decision to grant the IAEA those additional 
authorities.
    Enhanced verification tools would not be a panacea. Even if Iran 
complied with a Security Council directive to cooperate with them, more 
intrusive methods would not necessarily be capable of uncovering all 
undeclared nuclear activities. For example, a relatively small 
clandestine centrifuge enrichment plant (e.g., 1,500 centrifuges) might 
still be difficult to detect. But stronger verification tools would 
give the international community significantly more confidence than it 
currently has in the ability to detect and deter violations.

Persuading Iran to forgo its enrichment program
    The absence so far of a clear-cut IAEA determination that Iran is 
seeking nuclear weapons has made it very difficult to build strong 
international support for a strategy capable of persuading Iran to give 
up its enrichment capability. Indeed, under present circumstances, the 
prospects for heading off an Iranian fissile material production 
capability by means short of the use of military force do not look very 
good.
    Iran's leaders have done an effective job convincing the Iranian 
public that an indigenous enrichment capability is an Iranian right 
that is essential to national dignity, technological advancement, and 
energy independence and must never be given up. While influential 
Iranians occasionally express concern about the potential consequences 
of pursuing an enrichment program in defiance of the international 
community, the regime can be expected to remain on course barring a 
major shift in the currently perceived balance of benefits and risks.
    The risks, at this stage at least, appear manageable. Tehran 
probably believes the likelihood of military strikes has increased in 
recent months but remains remote given Washington's preoccupation with 
Iraq and its appreciation of Iran's many options to retaliate. The 
Russians and Chinese have so far remained stalwart in their opposition 
to sanctions and a chapter 7 resolution. Even if resistance in Moscow 
and Beijing eroded, the Iranians may calculate that any sanctions 
adopted would be weak and easily weathered and that tougher measures 
(such as those affecting oil and gas markets) would be avoided on the 
assumption--actively promoted by Tehran--that they would hurt the West 
more than Iran.
    Not only do the risks of continuing enrichment seem limited, but 
the benefits of giving up the enrichment program also currently appear 
small (especially when compared to the perceived security, 
geopolitical, and prestige benefits of acquiring a nuclear weapons 
option). The economic, technological, and political incentives offered 
by the Europeans last July apparently didn't impress the Iranians, who 
probably recognize that, without U.S. support, those benefits may not 
fully materialize. More fundamentally, Iran's leaders may see little 
sense in giving up their trump card in a deal with the Europeans if 
they believe they'd still face a U.S. Government intent on pursuing a 
policy of regime change.
    If the international community is to have any chance of persuading 
Iran to give up its enrichment capability (and its nuclear weapons 
option), it must radically alter Tehran's current calculus of benefit 
and risk.
    Part of the equation is stronger sticks. Iran must face the 
credible threat of increasingly severe penalties--ranging from travel 
bans, asset freezes, and political gestures to investment and trade 
restrictions to even the use of military force. Russia and China, in 
particular, must be persuaded that such threats are necessary and not 
counterproductive. But they will be prepared to join in threatening 
such penalties only if Iran is also offered incentives that they 
believe could get Iran to accept the deal and, therefore, avoid the 
need to implement the penalties.
    And so the other part of the equation is more attractive carrots. 
Possible incentives for Iran have been widely discussed, including the 
kinds of commercial and technological cooperation offered by the 
Europeans last July, membership in the World Trade Organization, 
lifting of existing U.S. economic sanctions, military confidence-
building arrangements in the gulf region, and so forth. But the carrot 
likely to be most influential in Tehran would be the prospect of a less 
threatening and more normal relationship with the United States--and 
specifically a recognition in Washington that regime change in Tehran 
should be the prerogative of the Iranian people and not the policy of 
the United States.

Direct engagement between the United States and Iran
    The most effective way to offer the incentive of a more normal, 
less threatening relationship with the United States--and indeed the 
only way it would be credible--is through direct, face-to-face 
discussions involving American and Iranian representatives. Bilateral 
United States-Iranian contacts could take place within the framework of 
a multilateral process that also included Britain, France, Germany, 
Russia, and China--analogous to the six-party talks that have provided 
an acceptable context for bilateral meetings between the United States 
and North Korea during the last year or so.
    The agenda for United States-Iranian discussions should not be 
confined to the nuclear issue. It should instead cover the full range 
of issues that divide the two countries, including U.S. concerns about 
Iran's support for Middle East terrorist groups, its role in Iraq, its 
alleged harboring of al-Qaeda operatives, its policies toward Israel, 
and its treatment of its own people. Iran undoubtedly will have its own 
list of issues and demands. The purpose of the talks would be to 
explore whether U.S. concerns can be met and whether the interests of 
the two countries can be reconciled. Only by addressing the broad range 
of issues can prospects for normalization be assessed. And only the 
prospect of normalized bilateral relations can provide the context in 
which Iran is likely to consider suspending its enrichment program and 
giving up its aspiration for nuclear weapons.
    At various times during the past decade, the United States and Iran 
have both been interested in bilateral engagement, but never at the 
same time. In recent weeks and months, the Iranians have been sending 
signals--however mixed and confusing--that they might be ready. But it 
is the U.S. administration that is now resisting.
    Asked recently whether the Bush administration is willing to engage 
directly with Iran, Secretary Rice replied: ``What is to be gained if 
Iran is not prepared to show that it is ready to accede to the demands 
of the international community?'' But do we really expect Iran to meet 
our demands even before sitting down to talk with us--before knowing 
what it might receive in return? Do we realistically think our current 
bargaining position is so strong?
    There seems to be a strong conviction within the administration 
that talking to the current regime in Tehran will give it legitimacy 
and sustain it in power, whereas pressuring and isolating it will 
divide the leaders from the people and perhaps even result in regime 
change and more acceptable policies on the nuclear issue and other 
issues. But most experts on Iran tend to believe just the opposite--
that external pressures will unite the Iranian public behind the regime 
and its nuclear policies, while engagement will magnify the fissures 
that have begun to appear within the Iranian leadership and perhaps 
produce significant changes in policy, including on the nuclear issue.
    In London this Friday, the P5 countries plus Germany are scheduled 
to meet to consider a European-drafted package proposal for Iran. It is 
an opportunity to make the major changes in Iran's calculation of 
benefits and risks that will be necessary to induce Tehran to give up 
its enrichment capability. To have that effect, the Russians and 
Chinese should agree that the package will require stiff penalties if 
Iran does not accept a reasonable offer. The Europeans should provide 
incentives more attractive than those contained in their July proposal. 
And the United States should be prepared to engage in direct talks with 
the Iranians within a multilateral framework.
    Such a package would be the first real test of whether Iran is 
willing to give up its quest for a nuclear weapons capability. If the 
Iranians are determined to proceed with their nuclear plans come what 
may, they will fail the test. But that will at least put the United 
States and the Europeans in a stronger position to rally the 
international community behind a longer term strategy to demonstrate to 
Iran that it has much to lose and little to gain by staying on its 
present course.
    Despite recent progress in Iran's enrichment program, Iran is still 
years away from being able to produce a nuclear weapon. But it will not 
be long--perhaps several months to a year--before Iran is confident in 
its ability to enrich uranium efficiently in overt or clandestine 
production units large enough to produce bomb quantities of HEU in less 
than a year. It is, therefore, important that the United States and the 
other key states move quickly to construct and present a package that 
gives Iran a stark choice--it can be a pariah with nuclear weapons or a 
well-integrated, respected member of the international community, with 
normal relations with the United States, without them.

    The Chairman. Thank you very much, Mr. Einhorn. We will at 
this point recess the committee. We're in the midst of a 
rollcall vote. Senator Biden and I will vote and return. I look 
forward to Mr. Albright's testimony. For the moment, we are 
recessed.
    [Recess.]
    The Chairman. The committee is called to order again. And 
we're privileged now to hear from Mr. David Albright.

 STATEMENT OF DAVID ALBRIGHT, PRESIDENT AND FOUNDER, INSTITUTE 
 FOR SCIENCE AND INTERNATIONAL SECURITY (ISIS), WASHINGTON, DC

    Mr. Albright. Thank you, Mr. Chairman and Senator Biden for 
inviting me to testify at this hearing.
    Now that Iran has resumed enrichment activities in Natanz, 
one of the key questions facing us is how soon could Iran have 
nuclear weapons. A critical factor in developing reliable, 
credible information needed to answer that question has been 
intensive or intrusive IAEA inspections and monitoring of 
Iran's enrichment related activities. Such inspections are now 
sharply reduced in scope and intensity. Iran has halted its 
adherence to the Additional Protocol, and it has ended the 
monitored suspension of its enrichment activities.
    IAEA inspections, as Bob has pointed out, can now provide 
only a partial picture of Iran's progress in operating gas 
centrifuge cascades, which are a collection of centrifuges 
connected by pipes. And Iran's mastery of these centrifuge 
cascades remains its last significant technical hurdle before 
it can actually build gas centrifuge plants.
    With the clock now ticking, our ability to learn critical 
information about Iran's gas centrifuge activities has greatly 
diminished, making revisions of estimates--and I'd emphasize 
revisions of estimates--of the time to the bomb more uncertain. 
Such a condition carries special risks as diplomacy picks up 
over the next several months. The risk of Iran can be 
understated, leading to a false sense of security. On the other 
hand, the risk of hyping up or exaggerating Iran's progress 
toward the bomb can propel us toward unnecessary confrontation 
and military action against Iran.
    As a result, Congress needs to conduct thorough oversight 
and review of intelligence community assessments, and become 
familiar with these assessments themselves. Therefore, I 
applaud this committee's actions on this subject to try to get 
a handle and an expertise over what Iran is up to. And it 
reminds me of this committee's actions in 2002, when they tried 
to get a handle on the aluminum tubes issue, to bring in 
dissenters from the intelligence community, and to try to get 
to the bottom of that story. I think we've learned a lot from 
that time, and I think that that kind of expertise in this 
committee is extremely valuable.
    I think Bob has outlined the current situation with regard 
to Iran's nuclear program, and I'll just skip over that 
quickly. As you know, Iran has enriched uranium in its 164-
machine cascade. It has operated the cascade for a relatively 
short period of time, and it's going to need to operate it much 
longer. It's now building a second and third cascade. The pilot 
plant can hold up to six of these cascades, and they can work 
individually or together. And the working of these machines in 
these cascades in parallel is going to be a critical goal for 
Iran to achieve. The gas centrifuges, based on Iranian 
statements, don't seem to be working as well as they could, and 
I would wholely endorse what Bob said, that Iran has a lot to 
learn. The demonstration phase for these cascades is likely to 
last for many more months.
    With regard to the fuel enrichment plant, the underground 
site at Natanz, from talking to officials in Vienna, not much 
has been happening. Iran earlier this year moved fairly quickly 
to bring some equipment in there, but it does not appear that 
Iran is aggressively moving to outfit the fuel enrichment 
plant. And some of the things it has to do, from what I 
understand from officials in Vienna, is lay electrical cable, 
and finish installing auxiliary equipment that would go along 
with the centrifuges. As you all know, Iran has announced that 
it plans to start installing the centrifuges in the underground 
halls during the fourth quarter of this year.
    To understand the timeline to the bomb, I've developed 
several worst-case scenarios, two of which I put in my written 
statement, and Bob summarized them better than I could. The 
first is a clandestine plant that Iran would build. The other 
is a breakout using the fuel enrichment plant and the first 
module of 3,000 centrifuges. And in my estimate, I felt that 
they could not do that any sooner, or let's say, do all that 
and then produce enough material for a bomb before 2009. And 
the information I've seen since I originally did these 
estimates has not shifted my timeline. And as Bob said, these 
are worst-case assessments and should in no way be viewed as 
projections of when Iran could have the bomb, but more in 
answer to the question of how much time do we have or what's 
the least amount of time that we have.
    In 3 years, I think there is enough time for diplomatic 
action, but I would emphasize that it's not too much time, and 
I would say that complacency should not set in. It's also very 
important that we get more information through the inspection 
process. I know everyone is waiting for the inspectors to 
report, and many people in many countries are contacting them 
to learn about what the recent inspection missions have 
detected, because I think, in this case, as it was true in 
Iraq, the best information will come from the inspectors. Our 
own intelligence means will continue to provide only limited 
information about what's actually going on.
    One of the issues--or one of the aspects of the Iranian 
program that has emerged during the inspection process is how 
dependent Iran has been on outside assistance. I would say that 
it continues to be dependent on outside assistance. It's not 
for big-ticket items, necessarily, major, dual-use equipment, 
but it still is out there shopping for enrichment-related 
items. And it's very important that countries maintain their 
guard. I think the Western suppliers do a very good job at 
trying to stop Iran from getting items from European companies 
and United States companies, and that work needs to continue. 
But I think Iran is now targeting more countries. We hear 
reports that Iran is targeting or planning to target India as a 
source of certain types of equipment that it just cannot make 
itself and it needs to build its centrifuge plants.
    I would emphasize that one of the uncertainties is, does 
Iran have everything it needs to build this 3,000-centrifuge 
module model, and there is still debate about that. The IAEA 
doesn't know, from what I understand. They don't know 
everything Iran has in hand and what it still needs. Certainly, 
if Iran wants to go beyond this module, it's going to need more 
items from overseas. And so I think it's very important that 
the United States work with a broader set of nations to try to 
stop Iran's elicit procurement.
    And the final point I'd like to make is that it's very 
important for the United States to stick to its goal. I 
personally believe, and have for many years, that the goal in 
Iran has to be no enrichment or enrichment-related activities 
and no reprocessing. I think that Iran's nuclear power program 
can proceed, and I would actively support Iran acquiring power 
reactors.
    But I do think that a little bit of enrichment is a bad 
thing, and that what we should maintain as our goal is no 
enrichment activities. I think we need that to satisfy broader 
security goals, and we also need it for effective verification. 
Gas centrifuge plants are very hard to detect. I've worked on 
many studies, some with the IAEA, trying to detect clandestine 
enrichment plants, particularly gas centrifuge plants. We've 
had years of experience studying secret gas centrifuge plants 
in many countries, and they remain one of the most challenging 
aspects of verification. I think that it's much easier to 
assure or provide assurance of no enrichment activity if 
there's no enrichment plant in operation in the country.
    I think it's appealing now to try to reduce our goal or 
compromise our goal, but I think we have to maintain a very 
strict position. And in that sense, I do applaud the Bush 
administration for being willing to maintain that central goal.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Albright follows:]

Prepared Statement of David Albright, President and Founder, Institute 
     for Science and International Security (ISIS), Washington, DC

    Iran is now on the verge of mastering a critical step in building 
and operating a gas centrifuge plant that would be able to produce 
significant quantities of enriched uranium for either peaceful or 
military purposes. However, Iran can be expected to face serious 
technical hurdles before it can produce significant quantities of 
enriched uranium.
    In testimony before the Senate Intelligence Committee on February 
2, 2006, John Negroponte, Director of National Intelligence, stated 
that Iran is judged as probably having neither a nuclear weapon nor the 
necessary fissile material for a weapon. He added that if Iran 
continues on its current path, it ``will likely have the capability to 
produce a nuclear weapon within the next decade.'' The basis for this 
estimate remains classified, although press reports state that Iran's 
lack of knowledge and experience in building and running large numbers 
of centrifuges is an important consideration. Many interpret 
Negroponte's remark to mean that Iran will need 5-10 years before it 
possesses nuclear weapons.
    Estimates of the amount of time Iran needs to get its first nuclear 
weapon are subject to a great deal of uncertainty. Many questions about 
Iran's technical nuclear capabilities and its plans to build nuclear 
weapons remain unanswered. In addition, the International Atomic Energy 
Agency (IAEA) is unable to verify that Iran has fully declared its 
nuclear activities. It still cannot state conclusively that Iran does 
not conduct secret uranium enrichment activities. Nonetheless, because 
of over 3 years of inspections, the IAEA has developed considerable 
knowledge about Iran's nuclear program and identified the main 
uncertainties in its knowledge about that program. The remaining 
uncertainties appear to exclude the existence of undeclared nuclear 
facilities large enough to significantly shift projections of the 
amount of time Iran would need to produce nuclear weapons. However, 
these uncertainties also suggest that Iran intends to develop a nuclear 
weapons capability, enabling it to build deliverable nuclear weapons 
once the regime's leaders make to a decision to do so.
    To understand the assumptions, key information, calculations, and 
uncertainties driving estimates of the timelines, I present two 
``worst-case'' estimates of the time Iran would need to build its first 
nuclear weapon. In both of these estimates, which involve the 
production of highly enriched uranium (HEU) and cover the more likely 
scenarios, Iran appears to need at least 3 years, or until 2009, before 
it could have enough HEU to make a nuclear weapon. Given the technical 
difficulty of the task, it could take Iran longer.
    Before discussing these estimates, I will provide background 
information on Iran's nuclear program and discuss recent developments 
in Iran's gas centrifuge program. In particular, I will discuss several 
of Iran's recent progress and problems in its centrifuge program that 
affect these estimates.
Iran's nuclear program
    Iran has invested heavily in nuclear industries in the last 20 
years. It has sought a wide range of items overseas, including nuclear 
reactors, uranium conversion facilities, heavy water production plants, 
fuel fabrication plants, and uranium enrichment facilities. Many of its 
overseas purchases were thwarted, such as multiple efforts to buy 
research reactors and an attempt to purchase a turn-key gas centrifuge 
plant from Russia in 1995. However, in general, Iran found suppliers to 
provide the wherewithal to build nuclear facilities. A.Q. Khan and 
business associates in Europe and the Middle East provided Iran the 
ability to build and operate gas centrifuges. Without their assistance, 
Iran would have likely been unable to develop a gas centrifuge program.
    Iran's current nuclear infrastructure is impressive. Although many 
key facilities are not finished, Iran is close to operating a large 
power reactor at Bushehr and has started or is close to operating 
several relatively large fuel cycle facilities. Following the end of 
the suspension embodied in its November 2004 agreement with the 
European Union, Iran resumed operating its uranium enrichment 
facilities at Natanz. Table 1 summarizes the main nuclear facilities in 
Iran.
    Most of Iran's foreign procurement for its fuel cycle facilities 
occurred in secret, and several of the associated nuclear materials and 
facilities were not declared to the IAEA, as Iran was required to do 
under the Nuclear Non-Proliferation Treaty. Appendix 1 lists Iran's 
many violations of its safeguards agreement and important incidences of 
its lack of cooperation with the IAEA.
    If Iran finishes its declared nuclear facilities, it would have a 
capability to produce HEU and plutonium for nuclear weapons. At that 
point, Iran could decide to change the purpose of its safeguarded 
nuclear facilities and rapidly dedicate them to nuclear weapons 
purposes.
    Under current and expected developments, Iran's gas centrifuge 
program provides the quickest route to the indigenous production of 
nuclear explosive materials. As a result, the gas centrifuge program is 
the main focus of my testimony.
    However, Iran is also progressing on developing an indigenous 
method to produce plutonium. It continues to build a heavy water 
reactor at Arak, despite repeated international requests that Iran 
discontinue this project. Iranian officials have stated that the 
reactor is scheduled to be completed in 2009, although this schedule 
may not be met due to problems in building and starting up such a 
reactor. When fully operational, the reactor is estimated to be able to 
produce about 9 kilograms of weapon-grade plutonium per year, enough 
for two nuclear weapons per year. Iran has told the IAEA that it does 
not intend to build reprocessing facilities to separate plutonium from 
this reactor. It did state that it was planning to build hot cells to 
separate ``long-lived radioisotopes,'' but said that it was having 
problems obtaining the necessary manipulators and lead glass windows. 
IAEA investigations into Iran's past reprocessing activities continue.
Iran breaks the suspension on enrichment activities
    Iran ended the suspension on enrichment and enrichment-related 
activities in January 2006. Its actions appear aimed at finishing the 
Pilot Fuel Enrichment Plant (PFEP) at Natanz this year and, soon 
afterward, starting to install centrifuges in the Fuel Enrichment Plant 
(FEP), the main underground enrichment facility at Natanz slated to 
hold eventually about 50,000 centrifuges.
    In early January 2006, Iran removed 52 seals applied by the IAEA 
that verified the suspension of Iran's P1 centrifuge uranium enrichment 
program. The seals were located at the Natanz, Pars Trash, and Farayand 
Technique sites, Iran's main centrifuge facilities. On February 11, 
Iran started to enrich uranium in a small number of centrifuges at 
Natanz, bringing to a halt Iran's suspension of uranium enrichment that 
had lasted since October 2003. A few days earlier, Iran moved to end 
its implementation of the Additional Protocol, an advanced safeguards 
agreement created in the 1990s to fix traditional safeguards' inability 
to provide adequate assurance that a country does not have undeclared 
nuclear facilities or materials.
    After removing seals, Iran started to substantially renovate key 
portions of the PFEP. Iran began construction on the PFEP in secret in 
2001, and it installed up to 200 centrifuges in 2002 and 2003. The PFEP 
is designed to hold up to six 164-machine cascades, groups of 
centrifuges connected together by pipes, in addition to smaller test 
cascades, for a total of about 1,000 centrifuges.
    At Natanz and Farayand Technique, Iran quickly restarted testing 
centrifuge rotors and checking centrifuge components to determine if 
they are manufactured precisely enough to use in a centrifuge. By early 
March, Iran had restarted enriching uranium at the pilot plant in 10- 
and 20-centrifuge cascades.
    On April 13, 2006, Iran announced that it had produced low enriched 
uranium in its 164-machine cascade, finished in the fall of 2003 but 
never operated with uranium hexafluoride prior to the suspension of 
enrichment that started in October 2003 as a result of an agreement 
between the European Union and Iran reached in Tehran. Soon afterward, 
it announced that it had enriched uranium up to a level of almost 5 
percent.
    Restarting the 164-machine cascade took several months. Iran had to 
repair damaged centrifuges. According to IAEA reports, many centrifuges 
crashed or broke when the cascade was shut down at the start of the 
suspension in 2003. Before introducing uranium hexafluoride, it had to 
reconnect all the pipes, establish a vacuum inside the cascade, and 
prepare the cascade for operation with uranium hexafluoride.
    The initial performance of the P1 centrifuges in this cascade has 
been less than expected. Based on statements on state-run television on 
April 12, 2006, by the Gholam-Reza Aqazadeh, head of the Atomic Energy 
Organization of Iran, the average annualized output of the centrifuges 
in this cascade is relatively low.\1\ In the same interview, he implied 
that he expects that the average output of each P1 centrifuge will 
almost double in the main plant.
---------------------------------------------------------------------------
    \1\ The annualized average output of each centrifuge was about 1.4 
separative work units per machine per year, based on Aqazadeh's 
statement of a maximum feed rate of 70 grams per hour and the 
production of 7 grams per hour of 3.5 percent enriched uranium. The 
feed and product rate imply a tails assay of 0.4 percent. This 
relatively low output could mean that the aluminum centrifuge rotors 
are spinning at a lower speed than possible. For the main plant, he 
said that 48,000 centrifuges would produce 30 tonnes of low-enriched 
uranium per year. Assuming a tails assay of 0.4 percent and a product 
of 3.5 percent enriched uranium, the estimated average output of each 
machine would be about 2.3 swu/yr. With an assumed tails assay of 0.3 
percent, the estimated output rises to 2.7 swu/yr, high for a Pakistani 
P1 design, but theoretically possible if the centrifuge is further 
optimized.
---------------------------------------------------------------------------
    In addition, the Iranians have not yet run this cascade 
continuously to produce enriched uranium. One report stated that the 
cascade operated with uranium hexafluoride only about half of its first 
month of operation, although it continued to operate under vacuum the 
rest of the time. The Iranian centrifuge operators do not yet have 
sufficient understanding of cascade operation and must conduct a series 
of longer tests to develop a deeper understanding of the cascade.
    The IAEA reported in April that Iran was building the second and 
third cascades at the PFEP. A senior diplomat in Vienna said, in a 
recent interview, that the second cascade could start in May and the 
third one could start in June. This schedule would allow Iran to test 
multiple cascades running in parallel, a necessary step prior to 
building a centrifuge plant composed of such cascades. The diplomat 
speculated that Iran could continue with this pattern, installing the 
fourth and fifth in July and August, respectively. He stated that the 
slot for the sixth cascade is currently being occupied by the 10- and 
20-machine cascades.
    Iran would likely want to run its cascades individually and in 
parallel for several months to ensure that no significant problems 
develop and to gain confidence that it can reliably enrich uranium in 
the cascades. Problems could include excessive vibration of the 
centrifuges, motor or power failures, pressure and temperature 
instabilities, or breakdown of the vacuum. Iran may also want to test 
any emergency systems designed to shut down the cascade without losing 
many centrifuges in the event of a major failure. Absent major 
problems, Iran is expected to need roughly 6 months or more to 
demonstrate successful operation of its cascades and their associated 
emergency and control systems.
    Once Iran overcomes the technical hurdle of operating its 
demonstration cascades, it can duplicate them and create larger 
cascades. Iran would then be ready to build a centrifuge plant able to 
produce significant amounts of enriched uranium either for peaceful 
purposes or for nuclear weapons. However, Iran may encounter additional 
problems when it tries to build and operate a centrifuge plant.
    As of late April, according to the IAEA, Iran was not moving 
aggressively to finish the FEP in preparation for installing the first 
module. Earlier, it moved process tanks and an autoclave, used to heat 
uranium hexafluoride into a gas prior to insertion into centrifuge 
cascades, into the FEP at Natanz. Iran told the IAEA that it intends to 
start the installation of the first 3,000 P1 centrifuges, called the 
first module, in the underground cascade halls at the FEP in the fourth 
quarter of 2006. Iran still needs to finish the basic infrastructure, 
including installing electrical cables. A key question is whether Iran 
has procured or manufactured all the equipment it needs to finish the 
first module. In addition, questions remain about the number of 
centrifuges Iran has in-hand and the quantity it would still need to 
manufacture indigenously to exacting specifications, a task that many 
countries have found challenging.
    The Uranium Conversion Facility (UCF) at Isfahan has continued to 
operate since its restart in August 2005, following the breakdown in 
the suspension mandated by the November 2004 agreement between Iran and 
the European Union. By late February 2006, Iran had produced about 85 
tonnes of uranium hexafluoride, where the quantity refers to uranium 
mass. This amount had increased to about 110 tonnes in April. With 
roughly 5 tonnes needed to make enough HEU for a nuclear weapon, this 
stock represents enough natural uranium hexafluoride for roughly 20 
nuclear weapons. Although Iran's uranium hexafluoride reportedly 
contains impurities that can interfere with the operation of 
centrifuges and reduce their output, IAEA experts believe that Iran can 
overcome this problem. Iran is known to be working to improve the 
purity of the uranium hexafluoride produced at the UCF. Nonetheless, if 
necessary, Iran could use its existing stock of impure material, if it 
had no other material. It could take additional steps to purify this 
uranium hexafluoride, or it could use the material in its own 
centrifuges and experience reduced output and a higher centrifuge 
failure rate.
Worst-case estimates
    Developing an answer to how soon Iran could produce enough HEU for 
a nuclear weapon is complicated and fraught with uncertainty. Beyond 
the technical uncertainties, several other important factors are 
unknown. Will Iran develop a nuclear weapons capability but produce 
only low-enriched uranium for nuclear power reactors and not any highly 
enriched uranium? Will Iran withdraw from the NPT, expel inspectors, 
and concentrate on building secret nuclear facilities? How does Iran 
perceive the risks of particular actions, such as producing HEU in the 
pilot plant? What resources will Iran apply to finishing its uranium 
enrichment facilities? Will there be military strikes against Iranian 
nuclear sites?
    Before developing a timeline, it is necessary to estimate how much 
HEU Iran would need to make a nuclear weapon. Many assessments cite 25 
kilograms of weapon-grade uranium (HEU containing more than 90 percent 
uranium 235) as the minimum amount necessary for a crude, implosion-
type fission weapon of the type Iran is expected to build. However, the 
experience of similar proliferant states such as Iraq leads to lower 
quantities. In 1990, Iraq initially planned to use 15 kilograms of 
weapon-grade uranium in its implosion design. An unclassified design 
using almost 20 kilograms was calculated in a study coauthored by 
Theodore Taylor and Albright in about 1990. Thus, an Iranian nuclear 
weapon could be expected to need about 15-20 kilograms of weapon-grade 
uranium. A larger quantity of HEU is needed than the exact amount 
placed into the weapon because of inevitable losses during processing, 
but such losses can be kept to less than 20 percent with care and the 
recovered material recycled into successive weapons. Thus, for the 
estimates presented here, a crude fission weapon is estimated to 
require 15-20 kilograms of weapon-grade uranium.
Scenario I--Clandestine centrifuge plant
    Iran's most direct path to obtaining HEU for nuclear weapons is 
building a relatively small gas centrifuge plant that can make weapon-
grade uranium directly from natural uranium.\2\ If Iran built such a 
plant openly, it would be an acknowledgement that it seeks nuclear 
weapons. As a result, Iran is likely to pursue such a path in utmost 
secrecy, without declaring to the IAEA the facility and any associated 
uranium hexafluoride production facilities.
---------------------------------------------------------------------------
    \2\ Alternatively, Iran could secretly build a ``topping plant'' of 
about 500 centrifuges and use a stock of low-enriched uranium produced 
in the pilot plant as feed to produce HEU. However, the estimated 
timeline for this alternative route is not significantly different from 
the one outlined in this scenario and is not considered further.
---------------------------------------------------------------------------
    Without the Additional Protocol in effect, however, the IAEA faces 
a difficult challenge discovering such a clandestine facility, even as 
Iran installs centrifuges at Natanz to produce low-enriched uranium. 
The IAEA has already reported that it can no longer monitor effectively 
centrifuge components, unless they are at Natanz and within areas 
subject to IAEA containment and surveillance. When Iran halted its 
adherence to the Additional Protocol, the IAEA lost access to 
centrifuge production and storage facilities. Alternatively, Iran may 
feel less assured about successfully deceiving the inspectors and 
proceed with such a plant only after withdrawing from the NPT and 
asking inspectors to leave. In either case, United States, Israeli, and 
European intelligence agencies would be unlikely to locate precisely 
this facility.
    The key to predicting a timeline is understanding the pace and 
scope of Iran's gas centrifuge program, for example the schedule for 
establishing a centrifuge plant large enough to make enough HEU for one 
nuclear weapon per year. Such a clandestine facility would require 
about 1,500-1,800 P1 centrifuges with an average capacity of about 2.5-
3 swus per year. These values for separative work are at the high end 
of the possible output of Iran's P1 centrifuge; actual values may be 
less.
    A capacity of 4,500 swus per year is sufficient to produce about 28 
kilograms of weapon-grade uranium per year, assuming continuous 
operation and a tails assay of 0.5 percent, where tails assay is the 
fraction of uranium 235 in the waste stream. This is a relatively high 
tails assay, but such a tails assay is common in initial nuclear 
weapons programs. As a program matures and grows, it typically reduces 
the tails assay to about 0.4 percent and perhaps later to 0.3 percent 
to conserve uranium supplies.
    Iran has enough components for up to 5,000 centrifuges, according 
to senior diplomats in Vienna. However, other senior diplomats said 
that Iran may not have 5,000 of all components, and many components are 
not expected to pass quality control. In total, Iran is estimated to 
have in-hand enough good components for at least an additional 1,000 to 
2,000 centrifuges, beyond the roughly 800 centrifuges already slated 
for the pilot plant at Natanz. Iran could also build new centrifuge 
components, and in fact may have already started to do so.
    If Iran had decided to build a clandestine plant in early 2006, it 
could assemble enough additional usable centrifuges for this plant of 
1,500-1,800 centrifuges in about 15-18 months, or by about mid-2007. It 
would need to assemble at the upper limit of its past rate of about 70-
100 centrifuges per month to accomplish this goal. If necessary, Iran 
could also increase the centrifuge assembly rate, for example, by 
increasing the number of shifts from one to two per day, according to 
diplomats in Vienna.
    In the meantime, Iran would need to identify a new facility where 
it could install centrifuge cascades, since it is unlikely to choose 
Natanz as the location of a secret plant. It would also need to install 
electrical, cooling, control and emergency equipment, feed and 
withdrawal systems, and other peripheral equipment. It would then need 
to integrate all these systems, test them, and commission the plant. 
Iran could start immediately to accomplish these steps, even before the 
final testing of the 164-machine cascades at Natanz, but final 
completion of the clandestine plant is highly unlikely before the end 
of 2007.
    Given another year to make enough HEU for a nuclear weapon, where 
some inefficiency in the plant is expected, and a few more months to 
convert the uranium into weapon components, Iran could have its first 
nuclear weapon in 2009. By this time, Iran is assessed to have had 
sufficient time to prepare the other components of a nuclear weapon, 
although the weapon may not be small enough to be deliverable by a 
ballistic missile.
    This result reflects a worst-case assessment, and Iran can be 
expected to take longer. Iran is likely to encounter technical 
difficulties that would delay bringing a centrifuge plant into 
operation. The output of its centrifuges may not achieve the higher 
value used in this assessment. Other factors causing delay include Iran 
having trouble in the manufacturing and installation of so many 
centrifuges and cascades in such a short time period, or Iran taking 
longer than expected to overcome difficulties in operating the cascades 
as a single production unit or in commissioning the secret centrifuge 
plant.
Scenario II--Break out using FEP
    Iran has stated its intention to start installing centrifuges in 
late 2006 in its first module of 3,000 centrifuges in the underground 
halls of FEP at Natanz. This module would give Iran another way to 
produce HEU for nuclear weapons, even though the module is being 
designed to produce low-enriched uranium. Once Iran has an adequate 
stock of LEU, the time to produce enough HEU for a nuclear weapon in 
this facility could be dramatically shortened.
    At above rates of centrifuge assembly, and assuming that Iran has 
or can produce enough new P1 centrifuge components and associated 
equipment, Iran could finish producing 3,000 centrifuges for this 
module sometime in 2008. Although cascades would be expected to be 
built before all the centrifuges are assembled, Iran will probably need 
at least another year to finish this module, placing the completion 
date in 2009 or 2010. Unexpected complications could delay the 
commissioning date. On the other hand, Iran could accelerate the pace 
by manufacturing, assembling, and installing centrifuges more quickly. 
Given all the difficult tasks that must be accomplished, however, Iran 
is unlikely to commission this module much before the start of 2009.
    If Iran decided to make HEU in this module, it would have several 
alternatives. Because of the small throughput and great operational 
flexibility of centrifuges, HEU for nuclear weapons could be produced 
by reconfiguring the cascades in the module or batch recycling where 
the cascade product is used as feed for subsequent cycles of enrichment 
in the same cascade.
    Reconfiguration could be as straightforward as connecting separate 
cascades in series and selecting carefully the places where new pipes 
interconnect the cascades. The Iranian module is slated to be composed 
of 164-centrifuge cascades operating together under one control system. 
In such a case, reconfiguration would not require the disassembly of 
the individual cascades, and it could be accomplished within days. In 
this case, the loss of enrichment output can be less than 10 percent, 
although the final enrichment level of the HEU may reach only 80 
percent, sufficient for use in an existing implosion design albeit with 
a lower explosive yield. With a reconfigured plant, and starting with 
natural uranium, 20 kilograms of HEU uranium could be produced within 4 
to 6 months. If Iran waited until it had produced a stock of LEU and 
used this stock as the initial feedstock, it could produce 20 kilograms 
in about 1 to 2 months.
    Batch recycling would entail putting the cascade product back 
through the cascade several times, without the need to change the basic 
setup of the cascade. Cascades of the type expected at Natanz could 
produce weapon-grade uranium after roughly four or five recycles, 
starting with natural uranium. Twenty kilograms of weapon-grade uranium 
could be produced in about 6 to 12 months. If the batch operation 
started with an existing stock of LEU, the time to produce 20 kilograms 
of weapon-grade uranium would drop to about 1 to 2 months.
    Whether using batch recycling or reconfiguration, Iran could 
produce in 3,000 centrifuges at Natanz enough HEU for its first nuclear 
weapon in less than a year. Iran could do so in considerably less than 
a year, if it used an existing stock of LEU as the initial feed. It is 
likely that Iran would operate the module to make LEU so that any 
production of HEU would be expected to happen quickly.
    Using either break-out approach, Iran is not likely to have enough 
HEU for a nuclear weapon until 2009. This timeline is similar to that 
outlined in the clandestine plant scenario. In addition, technical 
obstacles may further delay the operation of the module in the FEP.
Conclusion
    The international community needs to be committed to a diplomatic 
solution that results in an agreement whereby Iran voluntarily 
forswears having any deployed enrichment capability. Looking at a 
timeline of at least 3 years before Iran could have a nuclear weapons 
capability means that there is still time to pursue aggressive 
diplomatic options, and time for measures such as sanctions to have an 
effect, if they become necessary.
    In the short term, it is imperative for the international community 
to intensify its efforts to disrupt or slow Iran's overseas acquisition 
of dual-use items for its centrifuge program and other nuclear 
programs. Iran continues to seek centrifuge-related items aboard, but 
it has encountered greater difficulty acquiring these items because of 
the increased scrutiny by key supplier states. As Iran seeks these 
items in a larger number of countries, greater efforts will be required 
to thwart Iran from succeeding.
    It is vital to understand what Iran has accomplished, what it still 
has to learn, and when it will reach a point when a plan to pursue 
nuclear weapons covertly or openly could succeed more quickly than the 
international community could react. Although these estimates include 
significant uncertainties, they reinforce the view that Iran must 
foreswear any deployed enrichment capability and accept adequate 
inspections. Otherwise, we risk a seismic shift in the balance of power 
in the region.

               TABLE 1--IRAN'S MAIN DECLARED NUCLEAR SITES
------------------------------------------------------------------------
                Activity                             Location
------------------------------------------------------------------------
Uranium Mining and Milling.............  Saghand Mine and Mill.
                                         Gchine Mine and Mill.
Nuclear Research & Development.........  Jabr Ibn Havan Multipurpose
                                          Laboratories (JHL).
                                         Radiochemistry Laboratories of
                                          TNRC.
                                         Tehran Research Reactor (TRR).
                                         Uranium Chemistry Laboratory
                                          (UCL).
                                         Research reactors at Esfahan.
                                         Molybdenum, Iodine and Xenon
                                          Radioisotope Production
                                          Facility (MIX Facility).
Uranium Conversion.....................  Uranium Conversion Facility
                                          (UCF).
Centrifuge Research & Development and    Kalaye Electric Company.
 Manufacturing.                          Farayand Technique.
                                         Pars Trash.
                                         Other centrifuge manufacturing
                                          sites.
Centrifuge Uranium Enrichment..........  Pilot Fuel Enrichment Plant at
                                          Natanz.
                                         Fuel Enrichment Plant at
                                          Natanz.
Laser Uranium Enrichment...............  Lashkar Ab'ad.
                                         Karaj Agricultural and Medical
                                          Center.
Fuel Fabrication.......................  Fuel Fabrication Laboratory
                                          (FFL).
                                         Zirconium Production Plant
                                          (ZPP).
                                         Fuel Manufacturing Plant.
Heavy-Water-Related Facilities.........  Heavy Water Production Plant.
                                         IR-40 Heavy-Water Reactor.
                                         Hot Cells.
Nuclear Power Generation...............  Bushehr Nuclear Power Plant
                                          (BNPP).
Waste Disposal.........................  Anarak.
Suspect Sites..........................  Parchin, Lavisan-Shian.
------------------------------------------------------------------------

                Appendix 1--Iran's Safeguards Violations

    The International Atomic Energy Agency (IAEA) has found that Iran 
violated the Nuclear Non-Proliferation Treaty (NPT) and its related 
safeguards agreement for many years. Iran's violations and eventual--
though still incomplete--cooperation with the IAEA can be divided into 
four eras or stages.
First Stage: Up to mid-2002
    In the first stage, beginning in the mid-1980s to early 1990s and 
continuing until mid-2002, Iran violated its safeguards agreement by 
pursuing undeclared fuel cycle activities with little scrutiny by the 
IAEA or member states. Although the IAEA and member states were 
collecting information about Iranian violations, they were reluctant to 
act publicly.
Second Stage: 2002-2003
    The second stage began in August 2002 when the National Council of 
Resistance of Iran (NCRI) made the first of many public revelations 
about secret Iranian nuclear facilities, revealing the Natanz and Arak 
nuclear sites and ended in late 2003. After pressure from the IAEA and 
further public revelations about the Natanz site by ISIS, Iran finally 
allowed the IAEA to visit Natanz in February 2003, and that month Iran 
began to reveal some of its violations. However, the Atomic Energy 
Organization of Iran denied many of the accusations, and blocked access 
by the IAEA to suspect sites. During this time, Iran's leadership 
seemed to be torn between acting cooperative and protecting their 
nuclear secrets at all costs. Despite many efforts by Iran to hide its 
past and current activities, however, the IAEA, with assistance from 
member states, NCRI, and ISIS, revealed several more secret nuclear 
activities and facilities.
    In his November 2004 safeguards report to the IAEA Board of 
Governors, the Director General detailed Iran's failures to implement 
its safeguards agreement that had been uncovered through this period. 
The violations include Iran's failure to report activities related to 
nuclear material, the failure to declare the existence of relevant 
nuclear facilities, the failure to provide design data for a number of 
facilities, and the ``failure on many occasions to cooperate to 
facilitate the implementation of safeguards, as evidenced by extensive 
concealment activities.'' \1\
---------------------------------------------------------------------------
    \1\ International Atomic Energy Agency, ``Implementation of the NPT 
Safeguards Agreement in the Islamic Republic of Iran,'' GOV/2004/83, 15 
November 2004.
---------------------------------------------------------------------------
    According to the IAEA, Iran failed to declare six major activities 
related to nuclear material:

   Iran failed to report that it had imported natural uranium 
        (1,000 kg of UF6, 400 kg of UF4, and 400 
        kg of UO2) from China in 1991 and its transfer for 
        processing. Iran acknowledged the import in February 2003.
   It failed to report that it had used the imported uranium to 
        test parts of its uranium conversion process, such as uranium 
        dissolution, purification using pulse columns, and the 
        production of uranium metal, and the associated production and 
        loss of nuclear material. Iran acknowledged this failure in 
        February 2003.
   Iran failed to report that it had used 1.9 kg of the 
        imported UF6 to test P1 centrifuges at the Kalaye 
        Electric Company centrifuge workshop in 1999 and 2002. In its 
        October 2003 declaration, Iran said it first fed UF6 
        into a centrifuge in 1999 and in 2002 fed UF6 into 
        as many as 19 centrifuges. Iran also failed to declare the 
        associated production of enriched and depleted uranium.
   It failed to report that in 1993 it had imported 50 kg of 
        natural uranium metal, and that it used 8 kg of this for atomic 
        vapor laser isotope separation (AVLIS) experiments at Tehran 
        Nuclear Research Center from 1999 to 2000 and 22 kg for AVLIS 
        experiments at Lashkar Ab'ad from 2002 to 2003.\2\ Iran 
        acknowledged these activities in its October 2003 declaration.
---------------------------------------------------------------------------
    \2\ International Atomic Energy Agency, ``Implementation of the NPT 
Safeguards Agreement in the Islamic Republic of Iran,'' GOV/2003/75, 10 
November 2003, Annex 1, p. 2.
---------------------------------------------------------------------------
   Iran failed to report that it had used imported depleted 
        UO2, depleted U308, and natural 
        U308 to produce UO2, UO3, 
        UF4, UF6, and ammonium uranyl carbonate 
        (AUC) at the Esfahan Nuclear Technology Center and the Tehran 
        Nuclear Research Center.
   It failed to report that it had produced UO2 
        targets, irradiated them in the Tehran Research Reactor, and 
        then separated the plutonium from the irradiated targets. Iran 
        also failed to report the production and transfer of waste 
        associated with these activities and that it had stored 
        unprocessed irradiated targets at the Tehran Nuclear Research 
        Center. In meetings with the IAEA following its October 2003 
        declaration, Iran said that it conducted the plutonium 
        separation experiments between 1988 and 1993 using shielded 
        glove boxes at the Tehran Nuclear Research Center.

    According to the IAEA, Iran failed to declare the existence of key 
nuclear facilities and failed to provide design information, or updated 
design information, for a number of facilities. Iran failed to declare 
the existence of the pilot enrichment facility at the Kalaye Electric 
Company workshop, the laser enrichment facility at Tehran Nuclear 
Research Center, and the pilot laser enrichment plant at Lashkar Ab'ad.
    Iran failed to provide design information for the facilities where 
the uranium imported in 1991 was received, stored, and processed, 
including at Jabr Ibn Hayan Multipurpose Laboratories, Tehran Research 
Reactor, Esfahan Nuclear Technology Center, and the waste storage 
facilities at Esfahan and Anarak. Iran also failed to provide design 
information for the facilities at the Esfahan Nuclear Technology Center 
and the Tehran Nuclear Research Center where Iran produced 
UO2, UO3, UF4, UF6 and AUC 
using imported depleted UO2, depleted U308, and 
natural U308. Iran failed to provide design information for 
the waste storage facilities at Esfahan and Anarak in a timely manner. 
It failed to provide design information for locations where wastes 
resulting from undeclared activities were processed and stored, 
including the waste storage facility at Karaj. And it failed to provide 
design information for the Tehran Research Reactor, in relation to the 
irradiation of uranium targets, the facility at the Tehran Nuclear 
Research Center where Iran separated plutonium, and the center's waste 
handling facility.
Third Stage: End of 2003-2005
    The third stage, from October 2003 to the end of 2005, could be 
called the ``Rowhani era,'' because Hassan Rowhani, then head of Iran's 
National Security Council, took the lead from the Atomic Energy 
Organization of Iran in the fall of 2003 and attempted to convince the 
international community that Iran would now be transparent and 
cooperate fully with the IAEA. Facing a deadline set by the IAEA Board 
of Governors, on October 21, 2003 Iran made an extensive written 
declaration to the IAEA of its past nuclear activities, which revealed 
a number of additional safeguards violations, and Iran agreed to sign 
the Additional Protocol.
    According to the IAEA Director General's November 15, 2004, report 
to the Board of Governors, ``Since October 2003, Iran's cooperation has 
improved appreciably, although information has continued in some cases 
to be slow in coming and provided in reaction to Agency requests. Since 
December 2003, Iran has facilitated in a timely manner Agency access 
under its Safeguards Agreement and Additional Protocol to nuclear 
materials and facilities, as well as other locations in the country, 
and has permitted the Agency to take environmental samples as requested 
by the Agency.''
    However, despite better cooperation, a number of new questions have 
been raised. For example, Iran's work on developing P2 centrifuges, 
which Iran had failed to declare in its declaration in October 2003, is 
not fully understood by the Agency. In addition, Iran has not allowed 
the IAEA sufficient visits to suspect sites at Parchin that are 
involved in research and development of high explosives. In proceeding 
with construction of tunnels at the Esfahan Nuclear Technology Centre 
before it had told the IAEA, Iran failed to honor its commitment to 
tell the IAEA about plans to construct new facilities.
    Iran has not permitted the IAEA adequate information about and 
access to dual-use equipment and materials procured by the Physics 
Research Center for its Lavisan-Shian site that could be used in a gas 
centrifuge program. Except in one case, Iran has also refused repeated 
IAEA requests to interview individuals involved in the acquisition of 
these items. In the one case where the IAEA recently interviewed a 
former head of the Physics Research Center and took environmental 
samples of some of the equipment he presented to the inspectors, it 
detected traces of HEU on some vacuum equipment. This result links this 
equipment to the gas centrifuge program and contradicts Iranian denials 
about its relationship to the centrifuge program.
    In addition, the IAEA has questions about a range of studies and 
documents that could have a military nuclear dimension. The documents 
include a 15-page document that describes the production of uranium 
metal from uranium hexafluoride and the casting of enriched and 
depleted uranium into hemispheres, activities typically associated with 
a nuclear weapons program. Iran declared that it received the document 
unsolicited from agents of the Khan network and that it has never used 
the document. Because this document was part of a package of detailed 
documents available from the Khan network related to the production of 
nuclear weapon components made from depleted uranium and HEU, the IAEA 
remains concerned that Iran may have received more documents in the 
package and conducted undeclared activities associated with these 
documents.
    Another set of documents were located on a laptop computer that was 
brought out of Iran and provided to the United States, which in turn 
shared part of the information with the IAEA. The studies relate to a 
``Green Salt Project,'' high explosives testing, and the design of a 
missile re-entry vehicle that appears able to carry a nuclear warhead. 
Although this information is not a smoking gun, it suggests the 
existence of a military-run nuclear weapons program. Iran has refused 
to answer questions about the last two areas and offered inadequate 
answers about the Green Salt Project.
    A number of questions from before October 2003 also remain 
unanswered, pending new information or further analysis, such as the 
source of low-enriched uranium and some HEU contamination on Iran's P1 
centrifuges and the timeline of Iran's plutonium separation activities.
Fourth Stage: 2006-present
    In the fourth stage, starting in early 2006 and continuing until 
today, Iran has broken the suspension and halted its adherence to the 
Additional Protocol. The IAEA is making minimal progress in answering 
its outstanding questions and concerns or in confirming the absence of 
undeclared nuclear material and activities. It has also lost access to 
key centrifuge production and storage facilities, which would enable 
inspectors to determine the rate and status of Iran's production of 
centrifuges. This knowledge is especially relevant to concerns of a 
possible covert enrichment program.

    The Chairman. Thank you very much, Mr. Albright. In terms 
of management of the hearing, we will have a round of 
questions. I'm going to suggest 8 minutes, although the Chair 
will be liberal in case there's some runover in terms of 
questions and answers there. We have a good representation 
present, and we have another distinguished panel of four 
witnesses still to come. So we'll have one round of questions, 
and I'm sure we'll not exhaust all the things we would like to 
ask you. We hope that you might be available for further 
questions and deliberation by mail, if not in person.
    Let me start the questioning by asking both of you: 
Yesterday EU officials stated that Iran should be offered, 
``the best and most sophisticated'' nuclear technology in 
exchange for coming back into compliance with its 
nonproliferation obligations and commitments. Now let me ask 
you for a discussion by both of you. What do you understand 
this technology to be, and what are the conditions under which 
it could be given to Iran? How can that technology be reliably 
safeguarded in a country such as Iran? And something to frame 
the issue more: What technology should not be given to Iran as 
far as its noncompliance to current obligations? And finally, 
if enrichment of fresh fuel and reprocessing of spent fuel for 
Iran were carried out in Russia as a part of this plan, would 
that prevent Iran from building a nuclear weapon?
    Will both of you discuss this current development and the 
EU proposal?
    Mr. Einhorn.
    Mr. Einhorn. Thank you, Mr. Chairman. I think what the 
Europeans have in mind are a couple of things. One is to 
provide a light-water research reactor to Iran so that it can 
do, you know, legitimate research. It could produce medical, 
agricultural, industrial isotopes, these kinds of peaceful 
uses.
    Right now Iran is constructing a 40-megawatt heavy-water 
moderated research reactor at a town called Arak. Now, that 
reactor is exactly the same kind of reactor that several 
countries have used in the past for nuclear weapons programs. 
It's a very efficient producer of weapons-grade plutonium. I 
think that's why Iran is constructing that reactor. It wants to 
be able to reprocess the spent fuel and have plutonium for 
bombs.
    So the Iranians are trying to wean them away from that kind 
of a reactor and give them a more proliferation-resistant 
light-water research reactor, which has to be fueled with 
enriched fuel rather than natural uranium fuel. So that's 
better, and I think it's a very good idea to provide Iran that, 
and to show the Iranian public that the West is not seeking to 
deny them the benefits of nuclear energy.
    Also, the Europeans may be talking about providing fuel 
assurances. The Iranians say they've got to make their own 
enriched fuel because they've been so disappointed in the past 
about being the victim of embargoes from the United States and 
others. They've been a member of the EURODIF enrichment 
consortium, but have been cut out of that. So what they're 
saying is they have to have their own enrichment capability. 
The Europeans are saying we'll give you guarantees that if you 
are cut off, your fuel supply is cut off for reasons having 
nothing to do with your performance on nonproliferation, we'll 
assure you that you can get alternative sources of supply. It's 
a way of encouraging them to give up this indigenous 
capability, and I think that makes good sense.
    On your third question, about the Russian joint venture, I 
think that's just a good idea. The Bush administration endorses 
doing--having a joint venture, but on Russian territory, 
without Iran having access to the enrichment technology that 
will be used in Russia. I think that's fine, but of course it's 
no guarantee that the Iranians are not going to try 
clandestinely to have their own enrichment facility even if 
they formally sign up to forgoing that capability indigenously, 
and that's why it's very, very important to have the IAEA given 
strengthened verification authorities by the U.N. Security 
Council.
    The Chairman. Mr. Albright, do you have a comment?
    Mr. Albright. He said it very well. Why don't I just leave 
it at that.
    The Chairman. All right. Fine. Let me try out for size 
then, we've talked about Russia, but let me ask how are the 
Russians and/or the Chinese likely to get interested in the 
European proposals or in our desires in this situation? We have 
talked about the diplomatic track, and clearly it includes 
those two countries, members of the Security Council. Almost 
anything having to do with resolutions, large or small, 
involves them. You've already touched on the plans the 
Europeans have to involve the Russians with regard to the spent 
fuel.
    Why would they become interested in this, given their 
protestations that they already have energy deals with Iran? 
They have a very sizeable strategic interest in dealing with 
Iran.
    Mr. Albright. Let me just respond to one of the sets of 
statements by China and Russia, which is they mistrust what the 
United States is up to, that they often see this as Iraq No. 2, 
and so they pull back. Particularly, Russian officials have 
expressed that.
    I think it would help if, as Senator Biden pointed out, if 
the United States would change its policies and be willing to 
negotiate with the Iranians. I would tend to support efforts 
that are somewhat like the six-party talks, build from the 
European-Iranian discussions, and then after the United States 
is involved try to draw in Russia and China.
    I also think it would be helpful if the administration 
would not remove the military option from the table, but stop 
banging that drum, because I think it's hurting this effort.
    [Disruption in the audience.]
    Mr. Albright. I think they think they're sending a signal 
to Iran, and Iran will somehow listen. In our monitoring of the 
Iranians and the press, it's having the opposite effect. And so 
it would be useful if the administration would, as Britain has 
done, just back away from that for now.
    Mr. Einhorn. Could I just add to that, Mr. Chairman? I've 
been, in the last 3 weeks, both in Moscow and in Beijing and 
spoken to senior officials involved in the Iran issue. Iraq 
looms very large in their thinking. They don't want to--I'll 
use the words of one of my interlocutors--they don't want to 
get on the first rung of the escalatory ladder. They think that 
adopting a chapter 7 resolution will get the world on that 
first rung, and then we will--if I can shift metaphors--slide 
down the slippery slope to a military confrontation, and that's 
their principal reason not wanting to get tougher in the 
Security Council.
    I've also spoken to German, British, and French officials, 
and all of them, as well as the Russians and Chinese, say that 
it would be very, very important for the United States 
administration to be prepared to engage directly with Iran. Now 
the Russians and Chinese are doubtful that the United States is 
prepared to take yes for an answer on the nuclear issue. I 
think they would be much more willing to pose the prospect of 
penalties to Iran if the Bush administration were prepared to 
say, you know, we're prepared to negotiate and if Iran is 
prepared to change its behavior on the nuclear issue, and on 
other issues, then we're prepared to move eventually toward 
normalization. I think the Russians and Chinese would see that 
as a very different kind of situation, and it would, I think, 
increase the likelihood that they would buy into a package of 
both sticks and carrots.
    The Chairman. Thank you.
    Senator Biden.
    Senator Biden. I've not had the same talks you've had, Bob, 
but I've had talks with European counterparts. And I'm going to 
say something. Maybe I agree with both your judgements that if 
we stopped rattling the saber--I mean, it's kind of interesting 
that 6 years ago the other metaphor was used by the President--
of Teddy Roosevelt; walking softly and carrying a big stick. I 
think he used that actual metaphor. I'm not positive of that, 
but that's my recollection. And now we sort of rattle the cage, 
and actions have consequences. The very thing that a number of 
us, sitting on this dais, warned that would flow from Iraq in 
terms of impacting our ability to get the rest of the world to 
listen to us and join us in other things, I think we're seeing 
it now, because I can't imagine why Russia or China would not 
think it in their interest to stop Iran from having a nuclear 
weapon, particularly Russia.
    But one of the things--and I'm not asking you to respond. 
One of the things that I hear back, and I had not intended on 
saying this, but it is that as long as Mr. Rumsfield and Mr. 
Cheney are perceived to be the drivers of policy, I'm not sure 
whatever the administration says, absent what they do, will 
make a lot of difference. As I suggested, we should be talking. 
We should flat out say that regime change can be taken off the 
table if behavior changes. But I must tell you I'm not sure, 
absent actually engaging in such discussions, it's going to 
matter a whole lot, because I find the rest of the world 
extremely skittish.
    I note that, the end of March, the Brits floated a proposal 
not unlike what you suggested, that Russia and the United 
States, the EU3, get involved in direct talks. And the White 
House wasn't very happy about that, and maybe it's 
coincidental, but I notice the Brits backed off that proposal. 
So I think we've got a long way to go, but that doesn't mean we 
shouldn't be pushing it.
    I'd like to speak to this issue--ask you to speak to the 
issue of this notion of a full range of issues. When I say to 
people--and it's not unique to me; I know the chairman has been 
saying it for sometime; I think, I may be mistaken, Senator 
Dodd has said it; I know Senator Hagel has--that we should be 
directly engaging the Iranians, and that it not just be limited 
to the issue relating to nuclear questions. As a matter of 
fact, I've suggested that with regard to Iraq, we engage them, 
just on Iraq engage them. I get the following response from 
skeptics, and there's a reason to be skeptical, and that is 
that Iraq has no interest whatsoever, there's no common ground 
that we could arrive at with regard to Iraq, no common ground 
we could arrive at with regard to the nuclear issue, no common 
ground we could arrive at on any of the issues that would come 
up in a discussion. And my response is, and I'd like you to 
respond to it--my response is that unless you assume the 
leadership of Iran to be totally irrational; not 
miscalculating, but irrational--it's not in their interest, for 
example, to have an all-out civil war in Iraq. It threatens 
their security, their stability, that is, the clerics. It's not 
in their interest to see the world united in attempting to 
isolate them and sanction them in various ways. And so they 
would be inclined to, if there were enough carrots and sticks 
to make it credible, talk about a lot of these things. Respond 
to that for me, the criticism that, no, there's no common 
interest here; why would the Iranians be willing to talk to us 
about anything constructively.
    Mr. Einhorn. I think it was clear a few years ago, after 
the Afghanistan campaign, when there were meetings in Bonn 
about the future Afghanistan, that it was possible for American 
and Iranian diplomats to speak together about the future of 
Afghanistan in a very constructive way. I know the Americans 
who participated in those discussions, and they found the 
Iranians very forthcoming, very practical, because we did have 
common interests in stabilizing the situation in Afghanistan.
    I think clearly our interests are not identical in Iraq, 
but you've cited a number of the areas where they do converge. 
I can't imagine that Iran wants to see chaos.
    Senator Biden. I can't imagine Iran wants to see 17 million 
Arab Shiites honing the art of war, when 65 of their 71 million 
people don't like them, and the border is relatively porous. I 
don't understand, but that's me.
    Mr. Einhorn. But we have to explore. We don't know how much 
commonality of interest there might be on Afghanistan, on Iraq, 
or any other subject. That's why we have to sit down and 
explore. The administration has authorized Ambassador Khalizhad 
to sit down and talk about Iraq, but nothing else. My hope is 
that if those----
    Senator Biden. Even that, by the way, took about a year and 
a half for him to get that kind of authority, and even there, 
I'm not sure what the breadth of that----
    Mr. Einhorn. Well, it would be good if broader 
authorization were provided, but if not, if it turns out that 
these Iraq-specific talks look productive, then eventually 
there will be authorization to broaden them. I think that's the 
best hope. I think we do have to address the full range of 
issues that divide us. As much as I think the nuclear issue 
deserves high priority, it's hard to imagine, domestically, for 
us to cut a deal on the nuclear issue when we still--when 
Ahmadinejad is still making these outrageous comments about 
Israel, if we believe that al-Qaeda operatives are being 
harbored in Iran, if we believe that Iran is still providing 
arms to Middle East terrorist groups. So I think we have to 
explore the possibility of reaching a broad modus vivendi with 
Iran. It may not be possible, but it will take a long time to 
address all these issues, and I would hope that as we engage in 
this broad dialog, we can at least put the nuclear issue on 
hold by gaining Iran's agreement to fully suspend its 
enrichment program.
    Senator Biden. Doctor, my time is almost up, but let me ask 
you, you raised the point that's been raised by others that 
there appears to be a continued requirement on the part of the 
Iranians in order to move forward in a robust way with their 
gas centrifuge system. They're searching the world. What could 
or should we be doing? What other things can be done to make it 
harder for Iran to be able to access what material or 
technology that they may need to----
    Mr. Albright. To go forward?
    Senator Biden [continuing]. Move forward more rapidly?
    Mr. Albright. Yeah. Let me just mention two. One is a 
simple one--making Iran the center of international attention. 
Whether it's companies or governments, the company should find 
out what the end user is planning to do, and try to see through 
all these trading companies that go out and seek items for 
Iran.
    Another, if I can highlight the United States-India deal. I 
think one of the problems that I had with that deal is that 
India, from what we understand, is going to be a target for 
Iranian procurement. We don't know exactly what form. We sort 
of know the items they're looking for. We see India having 
inadequate export controls. Their heart is in the right place, 
but its system inadequate. I don't think this administration is 
putting enough pressure on India to come up with adequate 
controls. We all know what they are but Indians may not. I 
don't know if they really understand they need to interact and 
cooperate on this issue with us and others. But I think that 
India remains a ripe place for Iran to go and try to seek 
items, either directly from Indian companies or through 
contacting, let's say, European companies who are setting up 
shop there now, and to try to then move the material to Iran 
under false pretenses.
    Senator Biden. Thank you very much.
    Mr. Chairman, for the record, because I'm out of time now, 
I think it would be useful for the public at large and our 
colleagues, if you would each respond to a question for the 
record that makes a distinction between--which confuses people 
as I speak to them--uranium enrichment and plutonium. Why, when 
one is more available, is the seeking of the other more 
consequential? In other words, why the dual track that they're 
on? If you would, for the record.
    Mr. Albright. Is this for Iran or just in general?
    Senator Biden. For Iran. Yes, I'm sorry. Iran, 
specifically.
    Mr. Albright. I think that Iran is seeking both pathways to 
the bomb. It has agreed to not pursue reprocessing; that's been 
accomplished. But as Bob pointed out, it's building this heavy-
water reactor, which will probably make weapon-grade plutonium, 
normally, and it could create a reprocessing plant fairly 
quickly. And so I think that path needs to be made a part of 
these deals, that Iran would stop the heavy-water reactor.
    Another part of these deals put forth by the Europeans and 
the Russians is that spent fuel produced in power reactors 
would leave Iran, that Iran wouldn't have an endless supply of 
plutonium in spent fuel.
    The uranium enrichment route is traditionally much harder 
for developing countries, no doubt about it, and without the 
assistance of A.Q. Khan, I don't think we'd be talking very 
much about Iranian gas centrifuges. And so that's been the big 
disappointment of the international community, that these 
technologies have gotten out and spread. Once you have a gas 
centrifuge program, from a proliferation point, or from a 
proliferation point of view, it's much more valuable than the 
plutonium pathways, which involve reactors that are easier to 
spot. And if you can go the gas centrifuge route, if you master 
that, then you could build these things in what are just light 
industrial buildings. They don't emit much radiation. You can 
isolate them from the rest of your nuclear establishment so 
people aren't moving back and forth, and successfully hide them 
from even some of the best IAEA inspections.
    Senator Biden. Thank you very much.
    The Chairman. Mr. Dodd.

   STATEMENT OF HON. CHRISTOPHER J. DODD, U.S. SENATOR FROM 
                          CONNECTICUT

    Senator Dodd. Thank you, Mr. Chairman, and thank you again 
for hosting and holding this hearing. And I gather Senator 
Biden raised the point earlier, but it deserves being 
underscored again: I'm terribly disappointed that we didn't get 
administration officials to come and share their thoughts with 
us on this issue. If I had to prioritize issues involving this 
Nation's national security, obviously Iraq would probably come 
in No. 1 because of the proximity and immediacy of all of that, 
but a very close second, in my view, would be this issue. And 
the fact the administration is unwilling to participate in a 
discussion about where we ought to be going here is troubling, 
to put it mildly. I'm very grateful to both of these witnesses, 
but my hope is that in other hearings we have, they will be 
forthcoming and share with us their thoughts because this is 
critically important.
    I spent a week or so in the Middle East 2 weeks ago. Unless 
I brought up the issue of Iraq, it didn't come up; Iran came up 
everywhere. Everyone wanted to talk about Iran and what we were 
going to do, what likely would happen. So I appreciate the 
witnesses' testimony; it's very helpful, by the way, and I 
thank you for it.
    I'd like to underscore the point again--I think, again, I 
heard Senator Biden raise it, it may have been raised by the 
chairman as well--and that is the notion somehow that the 
administration and others are marketing that diplomacy is a 
gift to Iran rather than recognizing it as a vital national 
security tool. And we're allowing this word diplomacy and 
negotiation to slip into the category of as a favor to our 
adversaries or opponents in the world, rather than utilizing it 
as a tool by which we minimize the very threats we're facing, 
and you've pointed out some serious ones here. And no less a 
figure than Henry Kissinger in yesterday's--I think it was 
yesterday's piece he wrote for, I think, the Washington Post as 
well as Richard Haas and others, have argued that we ought to 
begin more seriously looking at the diplomacy route here as a 
way to try and explore that route without giving up, obviously, 
as we all say, the option of utilizing force, but with the 
clear understanding--I think, Mr. Albright, you made it very 
clear as well--we need to be downplaying that at this time, it 
seems to me, and more aggressively pursuing the diplomatic 
approach.
    And, Mr. Chairman, I had some opening comments here that I 
just ask consent to be included as part of the record.
    [The prepared statement of Senator Dodd follows:]

   Prepared Statement of Hon. Christopher J. Dodd, U.S. Senator From 
                              Connecticut

    Mr. Chairman, I commend you for holding this critical hearing on 
Iran's political and nuclear ambitions, and for following it up with 
another hearing on Thursday. Iran's pursuit of nuclear technology is 
perhaps the most urgent international crisis that we face today, and 
Congress needs to be discussing this issue in a thorough and 
deliberative manner. I am confident that our distinguished witnesses 
here today will help us to do just that and I welcome them here.
    Mr. Chairman, all of us here in this room probably agree that Iran 
would like to acquire nuclear weapons. And I think that there is a 
universal desire to prevent such a development. But the 
administration's policy of diplomatic disengagement is only hastening 
that outcome.
    Indeed, I can't help but feel a sense of deja vu. It was just a few 
years ago that we encountered a similar situation on the Korean 
Peninsula. The agreed framework was faltering but North Korea had not 
yet produced nuclear weapons. Then the Bush administration came into 
power and refused to deal with the North Koreans. This decision had an 
immediate, simple, and severe repercussion--the North Koreans started 
producing bombs. And they've kept producing them.
    Today, we're facing a nation that is similarly hostile--but that is 
at the same time willing to talk--Iran. The leaders of that country 
just sent two letters to President Bush, in at least a rhetorical 
effort, to engage the United States. But instead of responding to frame 
the conflict on our terms, the administration is letting Iran define 
this issue to the world.
    And instead of engaging to shape an outcome that we want, the Bush 
administration has outsourced U.S. national security to our European 
allies--France, Britain, and Germany. With all due respect to our 
allies, at the end of the day it's only with U.S. engagement and 
cooperation that there can be any hope of a real solution.
    This means that the administration needs to sit down with our 
European allies--and also with Russia and China. Together, we need to 
figure out exactly what our shared objectives are with respect to Iran. 
And then we need to engage in multilateral talks on the issue. The 
United States must be directly involved in these negotiations. And we 
must be willing to offer some real incentives. Henry Kissinger stated 
nearly as much in an op-ed published yesterday in the Washington Post, 
and I couldn't agree more.
    Until today, this administration has treated any hint of diplomacy 
with Iran as a gift. This needs to change. Because diplomacy isn't a 
gift. It's a vital national security tool.
    If you don't want to take my word for it, then ask two highly 
respected former officials who served under Republican 
administrations--Richard Haass and Henry Kissinger.
    Or consult the writings of the famed Prussian soldier and 
strategist, Carl von Clausewitz, who wrote almost 200 years ago that 
``war is a continuation of politics by other means.'' In other words, 
waging diplomacy is different than war only in the blood and treasure 
that is expended.
    That's not to say that we should take the military option off of 
the table. The threat of war is a vital component of effective 
diplomacy. But by eschewing diplomacy we're liable to leave ourselves 
with very few options for resolving this crisis.
    It's high time that the Bush administration comes to the table with 
our allies and Iran. Because with each passing day, we're losing ground 
and the Iranians are coming closer to acquiring a nuclear weapon. The 
U.S. strategy of diplomatic disengagement is simply not working--it is 
failing to protect the security of the American people.
    I would note, finally, my deep regrets that the President didn't 
send Secretary Rice or Undersecretary Burns here today to testify. 
There has never been a more crucial time for open and constructive 
dialog on an issue as the one we are here today to discuss.
    Thank you again, Mr. Chairman, for holding this hearing. I look 
forward to asking some questions of our witnesses at the appropriate 
time.

    The Chairman. It will be included in the record in full.
    Senator Dodd. And I want to underscore that point. I think 
it's--I've looked back over the years and had that view of 
treating diplomacy as a gift been predominant, I shudder to 
think what the 1950s, 1960s, 1970s, and 1980s might have looked 
like as we worked through a containment philosophy with the 
former Soviet Union and others. We had sound diplomats who 
utilized diplomacy to minimize those threats, and to treat it 
today as somehow a favor to someone I think is a major step 
backward, and I hope we reverse that trend.
    Let me explore the issue of the military option with you, 
though, because I think it needs to be thought out. I want you, 
if you can, both of you or however you want to do it, draw the 
comparisons between the Israeli attack in the 1980s on the 
reactor in Iraq and what would be involved today if we were to 
successfully--or an ally or someone else were to try and 
successfully take out the Iranian nuclear capability. What is 
involved? Compare the two actions for us, based on the 
information you have today, and the likelihood of succeeding 
with such an option. What period of time would it take? What 
sort of forces would be necessary?
    Mr. Albright. Well, the purpose of the 1981 attack by 
Israel was to take out a reactor that they believed would 
produce plutonium for nuclear weapons and was also, by the way, 
fueled by highly enriched uranium. I would say that attack was 
successful at taking out the reactor, but unfortunately had the 
effect of greatly accelerating the Iraqi nuclear weapons 
program and left them with the highly enriched uranium that was 
going to be used by them in their crash program in 1990 and 
1991 to try to build their first nuclear weapon. So I think the 
one lesson of the 1981 strike is that you're unlikely to take 
out all the program, and you may reinforce the country's view 
that their only solution to their security problem is to build 
nuclear weapons.
    I think Iran has certainly learned from that example, and 
from the very beginning it's been building things underground; 
it's been dispersing sites. I think even during the suspension, 
it's been focused on trying to build up stockpiles of certain 
items, like uranium hexaflouride, so that if the uranium 
conversion facility at Isfahan was bombed, it would have enough 
for a bomb program. The civilian program would be stopped dead 
by a bombing, but because of these actions of Iran, their bomb 
program would have enough uranium hexaflouride.
    So I think what military planners are confronted with is a 
dispersed program, an adversary that is thinking actively of 
how to maintain its capabilities after a military campaign. And 
I think that what we would be faced with is essentially a 
massive bombing campaign that would really be aimed at other 
things in Iran, that we probably couldn't have much confidence 
that its nuclear weapons program was set back.
    As I said before, their civil nuclear program would be 
devastated and probably never recover, but their nuclear 
weapons program may not be affected very much at all, 
particularly if the bombing isn't even contemplated for a 
while. In a certain sense, the best time to have bombed Iran 
was probably last January/February. The IAEA knew where 
everything was. Now as this crisis builds, we can expect that 
we will know less and less about Iran's key assets that would 
be oriented toward their nuclear weapons program.
    Senator Dodd. What time would be sort of involved? Does it 
involve more than a day? A single strike? Multiple strikes over 
a period of time?
    Mr. Albright. Oh, I think it would be many strikes.
    Senator Dodd. A major military operation?
    Mr. Albright. Yes, I think it would be. At the time of a 
military strike that is being discussed, Natanz may very well 
have centrifuges underground, and so you'd want to knock out 
that site. From our understanding, the roof is about 8 meters 
underground, and so it's vulnerable to conventional strikes, 
but I don't think you can take it out with one bomb.
    Senator Dodd. No.
    Mr. Albright. I think you're going to be doing multiple 
strikes against those kinds of facilities. There's tunnels 
everywhere in Iran. It is a legacy of the Iran-Iraq war.
    [Disturbance in the audience.]
    The Chairman. The committee will be in order. The committee 
will be in order.
    Mr. Albright. So I think the bottom line is you're looking 
at a major military campaign against Iran that would go over a 
significant period of time. And it would just start a war. It's 
not going to be 1981 again where Israel bombs Iraq and then 
there's a diplomatic crisis.
    Senator Dodd. I'd like you to also comment on how far along 
is this heavy-water reactor in construction. To the extent that 
you might be able to convince the Iranians with the European 
proposal to back up on that proposal, to go to a smaller 
facility, how far down does this add on to this question?
    Mr. Einhorn. On that, Senator Dodd, they're at the very 
early stage of constructing this 40-megawatt heavy-water 
reactor, so they have years and years to go. And I think 
they've been more successful in their enrichment program. 
That's why I think they're probably prepared to bargain away 
their plutonium program. But just on the other question, I 
think the main difference between Osirak in 1981 and Iran today 
is the ease and speed of regenerating the capability. There are 
probably lots of facilities in Iran we cannot locate; they're 
just hidden. But my guess is we know where the critical 
facilities are, and I think it's Natanz, their enrichment 
plant, their two plants--their pilot plant and their 
industrial-scale facility that's not yet really under 
construction; their conversion facility in Isfahan, and this 
reactor in Arak. We know where they are. I think we could 
destroy those facilities. The problem is that it might not take 
a long time to regenerate facilities capable of fissile 
material production.
    It would take a long time to regenerate facilities able to 
generate nuclear power, you know, a large-scale enrichment 
plant. But a small, clandestine enrichment facility with 1,500 
or 3,000 centrifuge machines, I think that could be done 
relatively quickly, whereas in the Israeli raid against Osirak 
in 1981, you had to rebuild the whole reactor. That's a major 
project. It's out there in the open; you can see it. In the 
case of Iran, you're not going to see what they're able to do 
in terms of, you know, building clandestine and relatively 
small facilities.
    Senator Dodd. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Dodd.
    Senator Martinez.
    Senator Martinez. Chairman, thank you very much for holding 
this important and timely hearing on this very important issue. 
I want to just ask the panel--and whichever one of you cares to 
answer would be perfectly OK--on the issue of Iran's internal 
situation and their own perception of this nuclear program as 
to--at times I've had the idea that perhaps this has been a 
very popular thing within the country and that politically it 
has helped the Iranian Government to solidify support within 
the country. What is your insight into that, and how do you 
think whatever steps we take would not help to enhance further 
strengthening of the hand of the current government?
    Mr. Einhorn. Senator Martinez, I suggest--I'll give you an 
answer, but the second panel is really going to be much more 
informative on this question. My take on it is that so far 
there's been unanimity in the Iranian public about this 
enrichment program, about the nuclear program, but there's been 
unanimity because they haven't--no one's had to pay a price. 
The Iranians have felt that they can have their cake and eat it 
too. They can have an enrichment capability, advanced nuclear 
power, and good relations with the West. But if they're forced 
to make a choice, and they can't have their cake and eat it 
too, I think there might be divisions within Iranian society. 
We've already seen some fissures opening up. A number of senior 
Iranians have begun raising questions about the wisdom of going 
down this enrichment track in defiance of the international 
community because they think there may be costs that could 
really hurt Iran. I think it's important that we demonstrate to 
them that there will be costs if they continue down this track, 
and I think that will open up and expand fissures within Iran 
and perhaps over time lead to a change of policy.
    Senator Martinez. But that really would require a fairly 
united front from the international community?
    Mr. Einhorn. Absolutely.
    Senator Martinez. And my perception is that we're not quite 
there at this point.
    Mr. Einhorn. Absolutely. And as long as they get the 
impression that the Russians and the Chinese will block any 
severe penalties, then they're going to continue on their 
present course.
    Senator Martinez. A lot of focus has been placed lately on 
the idea that the United States should play a more preeminent 
role in negotiating with Iran. It seems to me that we should be 
perhaps focusing on our negotiations with the Soviet--I'm 
sorry, with Russia and with Chinese governments in hopes of 
instilling their commitment for strong international action. 
How do you suggest we might approach that.
    Mr. Einhorn. Well, I think the administration has put a lot 
of time and effort into persuading Russia and China to join 
with the United States and the Europeans in threatening 
sanctions in the Security Council, so far to no avail. We'll 
see now. Friday in London there's going to be a meeting of the 
P5 plus Germany to try to come up with a package of both 
incentives and disincentives. Perhaps that will be more 
successful. The Russians and Chinese have urged the Europeans 
to put more carrots on the table. In exchange, they may be 
prepared to support some sticks. We'll see.
    Senator Martinez. One other area that I know my colleague 
from Florida, Senator Nelson and I, and I know Senator Dodd, 
and I don't mean to exclude others, but the area of Latin 
America and our neighbors close to the south of Florida. 
Increasingly there seems to be a strategic alliance developing 
between the Venezuelan Government and the Cuban Government with 
Iran, and it particularly seems like they're working in 
lockstep internationally, or as, you know, Iran makes 
aggressive statements, they seem to have fairly supportive 
echoes from both Caracas and Havana. Have you focused on this 
potential alliance and this area of support for the Iranian 
Government so close to our own backyard?
    Mr. Einhorn. It's something that bears close watching. The 
Iranians and Ahmadinejad--President Ahmadinejad--recently have 
talked about sharing their nuclear technology. You know, this 
is very worrisome. I don't know if he was just trying to twist 
our tail on that, you know, or what, but I think we need to 
watch that very carefully and make sure Iran is not exporting 
any of its technology. I think Hugo Chavez has talked about 
nuclear technology and perhaps cooperating with Iran. That 
bears close watching. Again, don't know if it's just thinking 
out loud or a bluff, but I think we have to be very careful 
about that.
    Senator Martinez. Lastly, there was one other--Mr. 
Chairman, I guess I'm OK on time.
    There was one other area. Recently I've heard the thought 
advanced that perhaps one of the great ways in which we can 
check Iranians' ambitions is by having pluralistic democracies 
at two of their borders, Afghanistan and Iraq, particularly 
countries that area Shi'a majorities. Do you share that view 
that perhaps this is a positive development for the reason and 
that it could influence Iranians, particularly within Iran, in 
terms of their own attitudes toward their government?
    Mr. Einhorn. I think the demonstration effect of 
functioning democracies in Afghanistan and Iraq would be very 
powerful as far as Iran is concerned. I think we have a long 
way to go, though, before we have truly functioning 
democracies. But I think it's a goal that we ought to be 
pursuing.
    Mr. Albright. I would just add that I don't think that 
would stop Iran from seeking uranium enrichment.
    Senator Martinez. You mean the fact that they had a 
democratic neighbor, but, however, do you think it would 
influence people within the country in terms of how they view 
their own government?
    Mr. Albright. It could possibly affect their security 
calculation, for example, the Iraq security issue was settled 
in 2003. So I think that the motivations for them to pursue 
enrichment--which are both national pride, a desire to have 
enriched uranium for power reactors and, I believe, also 
nuclear weapons--will remain intact. And so I think that if 
Iran transforms and becomes more democratic, it may still seek 
uranium enrichment. They may, however, be easier to negotiate 
with because they may drop some of these other attributes, like 
the support of terrorism.
    Senator Martinez. And you're clear that their ambitions are 
not purely civilian?
    Mr. Albright. I don't believe they're civilian. I mean, 
we're all struggling with what's the smoking gun. We can't find 
one, at least I don't believe we can. But everything I've seen, 
I believe they're seeking nuclear weapons. I don't believe 
they've necessarily made a decision and allocated the budget to 
build a nuclear arsenal, but I think they've made a decision to 
put in place an ability to produce nuclear weapons in the 
future, and will only make a concrete decision when they're 
further along.
    Senator Martinez. Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Martinez.
    Senator Nelson.
    Senator Nelson. As we consider the India nuclear deal, 
you're suggesting to us that we have as a condition of the 
agreement, tightened export controls and guarantees on 
cooperation with Iran?
    Mr. Albright. Well, what I would suggest is that the 
condition be that India has taken steps--measurable steps--to 
improve its export control system. And they're well known. I 
mean, number of staff devoted to this, number of companies in 
India informed. I wouldn't put a condition that relates to Iran 
specifically, because it may be other countries that will 
target India too. But I do think that a critical condition is 
for India to improve its export control system, particularly 
its implementation of that system.
    Mr. Einhorn. The Indians like to say that their export 
controls are impeccable. Well, I agree with David. I think 
they're ``peccable.'' And they need further work. Whether you 
condition our nuclear cooperation on strengthening their export 
control system, I'm not sure what the committee would want to 
do, but I think we need to work with the Indians and ensure 
that they do strengthen their system, especially if David is 
right and the Iranians are going to go shopping in India's 
market for enrichment-related technology and equipment.
    Mr. Albright. I would add another condition. India goes out 
and buys items from Western countries for its own gas 
centrifuge program and its other unsafeguarded nuclear 
programs. I think we should also ask India to stop that. We see 
networks that they create. They're not like Pakistan. I mean, 
they're not as hidden, India is not as involved in active 
deception of the suppliers on a national level, but we see 
India going out and buying things and using very circuitous 
routes. It uses trading companies to get items, dual-use items. 
I think another condition should be that India would stop 
illicit procurement. It's not violating Indian laws, but if 
they go to Germany and do this, it can violate German law.
    Senator Nelson. Let's talk about Hezbollah. What dollar 
value would you put on Iranian support for Hezbollah?
    Mr. Einhorn. I'd encourage you to wait for the second 
panel. I think the fellows just behind me have that information 
off the top of their heads. And if they don't, they have a few 
minutes to figure out a good answer. [Laughter.]
    Senator Nelson. OK. I'll wait till the second panel.
    The Chairman. Thank you very much, Senator Nelson.
    Senator Obama.
    Senator Obama. Thank you, Mr. Chairman. Thanks for the 
panel. This is very informative, and I appreciate you taking 
the time.
    I wanted to just follow up on Senator Dodd's question with 
respect to the military option because I think that there has 
been a lot of saber rattling out there, and it strikes me that 
any time we start talking about military options, we should 
weigh costs and benefits, something that sometimes we haven't 
done. And we pay a price for this lack of sober analysis. And 
so I just wanted to be clear. My understanding, based on the 
testimony, was that a military option is viable only through a 
sustained and fairly costly series of air strikes, for example, 
which would not only involve major military operations, but 
also presumably significant civilian casualties, to slow down a 
program but not eliminate a program. Is that an accurate----
    Mr. Albright. Yes.
    Senator Obama [continuing]. Assessment on both your parts?
    If that's the case, and if we agree that it's very 
important for us to pursue diplomatic approaches in a vigorous 
way, can you tell me where--Where is the space that we would 
potentially provide Iran to land in negotiations? The problem 
right now is that the nuclear issue in Iran has become a symbol 
of national pride. There's been a lot of stoking of the fires 
within Iran by domestic politicians. It strikes me in some ways 
that they've backed themselves into a corner by placing so much 
capital into the nuclear program. So if, in fact, we were to 
try to provide some sort of carrots as well as sticks, what 
would that look like? What would be a position that the 
Iranians can possibly take that would accommodate their 
political needs and accommodate our national security 
objectives, if there is any? Maybe they're irreconcilable, in 
which case diplomacy will flounder, but if that is the 
assessment presumably we'd want to start thinking about what an 
endgame might be.
    Mr. Albright. Let me just say one thing. I think you want 
to have it somewhat how Taiwan and South Korea have ended, 
where they gave up reprocessing and uranium enrichment. They 
were caught seeking nuclear weapons. The United States played 
major roles in catching them and turning them around, but they 
now both have robust civil nuclear energy programs.
    If you look at our country, there's certainly more money in 
medical isotopes, radio isotopes, and industrial isotopes and 
their applications than on electrical generation by nuclear 
power. There's money to be made in enrichment, but it's not 
that great of money. And so I think in terms of the benefits 
and sort of where the action is, it's on nuclear power and 
isotopes.
    I think one of the brilliant moves of the Iranian regime is 
to turn this all on its head and make it look like some 
incredibly uneconomic, wasteful activity like gas-centrifuge 
enrichment in Iran for civil purposes is the major goal of 
civil nuclear energy. It's not at all. I think if Iran was 
truely invested in civil nuclear energy and isotope use, the 
enrichment program would just evaporate for economic reasons.
    And so I think that where we want Iran to land is with the 
most of the rest of the world that's invested in civil nuclear 
energy.
    Senator Obama. Can I just follow up, and then I'd like your 
response, Mr. Einhorn. Is it your understanding that the 
current--that our administration's posture provides room for 
that scenario, or in public statements have we seemed to go 
further and expect Iran to completely dismantle all nuclear 
activities?
    Mr. Albright. It's gotten better. They've shifted over the 
3 years of this nuclear crisis with Iran. Many administration 
officials started out saying that Bushehr was not acceptable. 
Some even said that Bushehr was more of a threat than the 
enrichment program. So I think they've shifted away from that, 
but I don't think they've come out and publicly stated that 
it's fine for Iran to have Bushehr Two, Three, Four, and Five. 
In fact, this meeting on Friday could be interesting to see how 
the United States reacts to this potential European offer to 
provide a light-water reactor, if it marks another shift in the 
U.S. position toward accepting a robust nuclear energy program 
in Iran.
    Mr. Einhorn. On that question, Senator Obama, I think that 
the administration has come a long way. They're prepared to 
concede that Iran can pursue a nuclear power program. It may 
not make sense for them given, you know, the amount of oil and 
natural gas they have, but if they want to do it, fine, as long 
as they don't pursue sensitive fuel cycle capabilities that 
would give them the ability to produce nuclear weapon fuel.
    But in terms of what incentives should they be given, I 
think much of the explanation for their program is a desire for 
prestige in the region, in the Islamic world, and so forth. And 
I think any incentives would have to address those kinds of 
needs. The Europeans have tried to do that. They've talked 
about advanced technology cooperation, so that Iran would be 
seen as, you know, on the cutting edge of advanced technology. 
I think that is important. Also, Iran wants to get into the 
World Trade Organization. I think accelerating that process 
would be very beneficial to Iran.
    There are security objectives, obviously, that contribute 
to Iran's desire for a nuclear deterrent. A key one now, is 
concern about the intentions of the United States. And I think 
that by having direct discussions with them and seeing if we 
can reach some kind of modus vivendi, we can alleviate over 
time concerns about a threat from the United States. It means, 
as I mentioned in my statement, recognizing that regime change 
is the prerogative of the Iranian people and not a policy of 
the United States. Also, Iran has legitimate security interests 
in its own region. It probably wants to dominate its region. It 
sees itself as the natural leader. Well, I think we can't 
prevent Iran from playing a leading role in its region, but I 
think by working through our friends and allies in the region 
and having discussions about confidence-building measures and 
security arrangements in the region, we can both satisfy the 
security needs of our friends and allies, but also demonstrate 
to Iran that we are not, you know, opposed to their living in 
the region and playing an important part in that region.
    Senator Obama. Mr. Chairman, I'm running out of time, but I 
wonder if I can ask just one more question. And that is on the 
stick side of the equation. There is seemingly a range of 
options that experts are advocating--and you voiced some 
concerns about what China and Russia would or would not be 
willing to go along with. Just in terms of changing the cost-
benefit analysis for the Iranians, what measured steps could be 
taken that you think would have a significant effect on the 
Iranians but would not be perceived as provocations of the sort 
that are overt attempts at regime change or imply that we're 
not willing to negotiate in good faith?
    Mr. Einhorn. Well, at the low end of the spectrum, the 
kinds of measures that have been considered are bans on travel, 
you know, for members of the elite leadership. You deny visas 
to come into their countries. You don't send your own senior 
officials to Tehran. Freezing the assets of Iranians overseas. 
Making it difficult for Iranian financial institutions to deal 
with Western financial institutions. These kinds of things. 
There are also symbolic measures, and some of the people on the 
second panel have suggested various devices--deny them the 
ability to compete in the World Cup of soccer, for example, 
because, you know, Iranians love soccer. There are lots of 
things that can be done at the political level, but you 
escalate it when you get into the area of trade and investment. 
Those are potentially very, very significant, but that sword 
cuts both ways, and that's why it's of such great concern.
    Senator Obama. Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Obama.
    We thank both of the witnesses for your outstanding 
testimony and your responses to our questions, and we look 
forward to visiting with you again.
    Mr. Albright. Thank you.
    The Chairman. The Chair would like to call now our 
distinguished second panel, which includes Dr. Kenneth Pollack, 
director of research and senior fellow of the Saban Center for 
Middle East Policy, Brookings Institution; Mr. Karim 
Sadjadpour, Iran analyst, International Crisis Group; Dr. 
Patrick Clawson, deputy director for research at the Washington 
Institute for Near East Policy; and Dr. Geoffrey Kemp, director 
of Regional Strategic Programs, The Nixon Center.
    We welcome you, gentlemen. And I'll ask you to testify in 
the order that you were introduced, and that will be Dr. 
Pollack first. Let me just say at the outset, your full 
statements will be made a part of the record, and we'll ask 
that you please summarize those statements. And we'll hear each 
of the members of the panel and then have a round of 
questioning by Senators.
    Dr. Pollack.

STATEMENT OF DR. KENNETH M. POLLACK, SENIOR FELLOW AND DIRECTOR 
  OF RESEARCH, THE SABAN CENTER FOR MIDDLE EAST POLICY AT THE 
              BROOKINGS INSTITUTE, WASHINGTON, DC

    Dr. Pollack. Thank you very much, Mr. Chairman. Thank you, 
distinguished Senators. As always it is a great pleasure to be 
back here testifying before this committee on this very 
important topic.
    You've asked us to consider Iran's motives in seeking a 
nuclear enrichment capability wholely with the intent of at 
some point acquiring nuclear weapons capability. Like most of 
my colleagues, I see three principal sets of motives among 
Iranians, and I will say that I think that different Iranians 
probably share different mixtures of these motives. The first, 
the most obvious, I think, is a security motive. As we are fond 
of saying, Iran lives in a tough neighborhood. It is surrounded 
by countries that at times have been Iran's adversaries, 
oftentimes are antagonistic toward the Islamic regime. The fact 
that in many cases the Iranians provoked the antagonism of 
these other countries I think is often lost on the Iranians, 
but nevertheless, the objective fact remains the case that Iran 
does have significant security problems. Farther beyond its 
borders there is Israel, and, of course, beyond that is the 
United States. And I would say that of all of Iran's security 
considerations, I think that the United States is the 
overwhelming security threat that Iranians feel, that while 
they might talk about Israel and its threats to Iran, that in 
truth what they fear is an American military strike, an 
American effort at regime change designed to topple their 
regime.
    I would say that the experience of North Korea versus Iraq 
is probably not one that is lost on the Iranian leadership. The 
North Koreans are believed to possess nuclear weapons, and so 
they were not invaded by the United States of America. The 
Iraqis did not possess nuclear weapons, were believed to be 
trying to do so, and were invaded by the United States of 
America. And so just looking at the other members of President 
Bush's axis of evil, the Iranians could draw some obvious 
conclusions that if you want to keep the United States from 
invading your country and trying to overturn your government, 
you need to have a nuclear weapon.
    I think a second set of motivations for many Iranians is 
prestige. We should never forget that Iranians consider 
themselves the lineal descendants of a 2,500-year-old 
civilization which produced the world's first superpower and 
many great powers after it. Iranians, almost to a man or woman, 
believe themselves to be part of a nation that ought to be one 
of the world's great powers. I think that a lot of Iranians do 
believe that acquisition of a nuclear weapons capability would 
help boost them to that status that they seek. And here I think 
the example of India is probably one that is not lost on Iran, 
that India's acquisition of nuclear weapons, and ultimately the 
international community's acceptance of India's nuclear weapons 
program, were critical in India achieving its long-term 
aspiration to become one of the great powers of the world to be 
consulted on all of the important matters of the world, 
something that Iranians themselves seek. And I think that that 
prestige motive is also one that lies behind many Iranians and 
their thinking about their nuclear weapons program.
    The final motive is one that I would term ideology, 
although I would here caution that most of the Iranians who 
would subscribe to this position would not consider their 
motivation to be ideologically driven, but strategically 
driven, that when they were to present it, they would present 
it in strategic terms. But I think from our perspective we can 
consider it ideological. There are still Iranians who believe 
in the export of their revolution, who do still believe in the 
mission that Ayatollah Khomenei preached to them during his 
time as the leader of Iran, who believe that there is a 
fundamental battle between good and evil going on in the world, 
in which they perceive Iran to be the champion of good and the 
United States to be the champion of evil, and therefore, again, 
they must acquire a nuclear weapon or some other deterrent to 
keep the United States at bay and help them to wage this 
struggle. We've seen Iranian leaders over the last 27 years 
engage in a variety of different aggressive behavior around the 
region, oftentimes I would say largely because of this 
ideological aspiration. Their efforts to subvert friendly 
governments in Saudi Arabia, in Kuwait, in Bahrain, to subvert 
governments in Iraq, their efforts in Lebanon, elsewhere, are 
often driven by these goals. These goals bring them into 
conflict with the United States, and, again, I think that for 
some Iranians acquisition of nuclear weapons is important to 
them because they believe that only by acquiring nuclear 
weapons will they be able to successfully wage this cataclysmic 
struggle, this apocalyptic struggle that they see between the 
United States and the West--or the United States and Iran, or 
at a more mundane level, simply be able to expand their own 
power, create governments that are friendly to themselves in 
the region without fear of American retaliation.
    That, I think broadly encompasses most Iranian motives for 
acquiring nuclear weapons. But that said, I think that a 
discussion of Iran's motives is at best no more than half of 
the issue before us. And I think that the other issue, which 
the previous panel alluded to, at least briefly, is the 
question of priorities. As all of you know better than any of 
us on this panel, politics is not so much what you want, but 
what you're willing to get or willing to take. Politics is 
mostly about making tradeoffs. And I think the critical 
question that we need to be asking ourselves is not what do the 
Iranians want, but what are their priorities. What is their 
highest aspiration, what is secondary, what they would be 
willing to give up to hang on to their nuclear program.
    A friend of mine, a Swedish diplomat, once said to me in 
response to exactly this point that if you asked Swedes on the 
street whether they wanted a nuclear weapon, most of them would 
probably say yes, too, until you pointed out to them that the 
acquisition of those weapons would probably entail costs and 
possibly even international sanctions. Once you start 
introducing costs into people's calculus, that calculus can 
change very rapidly. And here I think what's important is that 
there do seem to be very important divisions, both Iranian 
leaders and between the Iranian leadership and the Iranian 
people.
    It is always dangerous to start divvying up the Iranian 
leadership and ascribing some leaders to this group and other 
leaders to that group, but, of course, there is no alternative 
to doing so, not, certainly, in the amount of time that we're 
allocated today. And so I will go down that slippery slope and 
divide the Iranian leadership into three different groups. 
There are pragmatists, typically associated with former 
President Hashemi Rafsanjani among others, for whom Iran's 
economy is clearly the highest priority. What's more, these 
figures seem to recognize that the only salvation for Iran's 
economy, which is in very deep trouble, is a better 
relationship with the West and the technology and the 
investment and the latching with the global economy that would 
come from that.
    For them, therefore, Iran's nuclear weapons I think are 
desirable. I suggest that most Iranian leaders in this group 
probably would like to have nuclear weapons if there were no 
costs involved, but they have consistently suggested that 
Iran's economic health was a higher priority than the nuclear 
program, and that Iran might be willing to make accommodations 
and even sacrifices where its nuclear program was involved if 
it were important for Iran's economic health.
    At the other end of the spectrum are the radical hard-
liners, today typically associated with President Ahmadinejad, 
although he is not by any means the most important member or 
the only member of that camp. The radical hard-liners seem to 
believe that nuclear weapons are Iran's highest priority. 
That's not because in some cases they don't believe that Iran's 
economy isn't important, in many cases they do, but because 
they have very different ideas about how to solve Iran's 
economic problems. In part it's because they don't know very 
much about economics or how to solve Iran's economic problems, 
but also because they do, in many cases, ascribe to this 
ideological motivation. They do believe in the revolution, and 
they do seem to believe that having nuclear weapons is 
important for them to ultimately achieve the goals that 
Ayatollah Khomenei laid out for the Islamic Revolution.
    Caught in between are Iran's mainstream conservatives, and 
here the most important figure by far is the Supreme Leader, 
Ali Khamenei. I think that the best way I would describe 
Khamenei's position, as best any of us can tell given the tea 
leaves that we are forced to read because our sources of 
information about Iran or Iranian leadership are so limited, is 
that they see Iran's economy and its nuclear program as perhaps 
being coequal in importance. Or at least that's the best we can 
tell given their behavior so far. Khamenei has tried very hard 
since about 1990 to simultaneously maintain progress on Iran's 
acquisition of nuclear weapons and maintain good enough ties 
with the West so that Iran can have enough trade and enough 
investment to keep its economy from stumbling along. The 
mainstream conservatives, like the pragmatists, seem to 
recognize that the greatest problem for the regime is popular 
dissatisfaction with the regime and that the greatest source of 
that popular dissatisfaction is Iran's poor economic health.
    What we've seen from the regime to support this point, 
first of all, are very different perspectives on the nuclear 
program, to the extent of Mr. Ahmadinejad's Foreign Minister 
rejecting out-of-hand offers for negotiations, for example, 
from the Russians, only to have several days or weeks later, 
Mr. Khamenei's people come in and then accept those very same 
offers from the Russians and others, suggesting a very serious 
difference within the Iranian regime.
    Beyond that, there is the fact that the Iranian regime has 
tried scrupulously to maintain that their nuclear program is 
all about Iran's economic health, even to the extent of 
throwing out the CNN Bureau when an interpreter mistranslated 
remarks by President Ahmadinejad where he mentioned nuclear 
power, and it was mistranslated as nuclear weapons. And this 
demonstrates the extreme sensitivity of the regime.
    Again, as the previous panel suggested, the regime is 
trying to convince the Iranian people that the reason that they 
need this nuclear program is to help Iran's economy, that it is 
the solution to Iran's economic problems, not its security 
problems. And, again, that speaks to what I think is the fourth 
factor in all of this, which is the Iranian people. Which, 
again, I will say we have the least--the worst information on 
what the Iranian people believe; however, there do seem to be 
quite a bit of anecdotal evidence that indicates that for the 
Iranian people, ``It's the economy, stupid.'' The economy is by 
far the most important priority that they have, and I think 
that there is every expectation, especially given the regime's 
own rhetoric, that if the Iranian people were ever forced to 
choose between their economic health and their nuclear program, 
they would grudgingly but readily choose their economic health.
    Now, what all of this suggests to me is that convincing 
Iran to give up its nuclear weapons program or its nuclear 
program will be difficult, but not impossible. Iran clearly 
does have powerful incentives for acquiring this capability, 
and I don't think that it is going to be easy for someone to 
convince them otherwise. By the same token, there is nothing 
about their priority structure that suggests that it is going 
to be impossible to do so. And, again, for me, history is an 
important set of lessons. In the 1960s, especially in the late 
1960s, Mr. Chairman, you will remember that it was considered a 
foregone conclusion that Egypt would acquire nuclear weapons. 
They, too, had compelling strategic reasons, reasons of 
prestige, and reasons of ideology for acquiring those weapons. 
In fact, I think you could argue that Egypt's reasons were even 
more compelling than Iran's reasons today. But Egypt 
voluntarily chose to give up its nuclear weapons program, and 
it did so because Egypt's leadership recognized that nuclear 
weapons were not its highest priority and that its pursuit of 
nuclear weapons were undermining its highest priorities.
    More recently, Belarus, Ukraine, and Kazakhstan have been 
convinced to give up their nuclear weapons even though any 
number of academic strategists believed that they were insane 
to do so because of their own strategic rationales for keeping 
the weapons. But what the Ukrainians, Belarusians, and Kazaks 
realized was that again, their relationship with the West and 
the health of their economies was far more important to them 
than their possession of these nuclear weapons.
    And as a final example, there is Libya, one of the worst 
rogues of the Middle East over the last 30 years, which also 
under the weight of international sanctions was ultimately 
convinced that its pursuit of terrorism and nuclear weapons 
stood in the way of its ultimate prosperity and stability.
    All of that suggests to me that, again, it will be 
difficult, but not impossible to convince the Iranians to give 
up their nuclear weapons program.
    Ultimately, in addition, what it points to, to me, is that 
the goal, the strategy that the West should be employing, the 
international community should be employing to try to convince 
the Iranians to cease its nuclear weapons program is to force 
them to make a choice between their highest priority, their 
economy, and their nuclear weapons program. And I think that it 
has been our failure to do so all along that has left us in the 
conundrum that we face today.
    Ultimately, I believe that we need to change Iran's 
incentive structure, since at the moment they have strategic, 
ideological, and prestige incentives for pursuing it and few 
economic and other disincentives to cease pursuing it. And here 
is a sidebar. I'll point out that this is one reason that I'm 
also very leery of a military operation against Iran to try to 
eliminate its nuclear capability, because ultimately, no matter 
how successful that effort may, or may not, be in the short 
run, in the long run it will do nothing to change Iran's 
incentive structure, and in fact will most likely simply 
reinforce it.
    Now, my time is running short, and I'm not going to get 
into this in greater detail because others have already made 
the point and it is available elsewhere, but I do believe that 
the key incentive for Iran is ultimately economic incentives, 
both positive and negative. As I've said, the one priority that 
we can clearly identify among the Iranian people and among 
important segments of its leadership is the health of Iran's 
economy. And so, therefore, I think that the key for the 
international community is to make clear to the Iranians that 
if they continue down this path, if they continue to resist the 
will of the international community, their economy will suffer 
and will suffer very markedly and very quickly.
    On the other hand, I also think it is critical that the 
international community, including the United States, also 
offer a positive set of incentives to the Iranians that the 
best way out of their current economic impasse is to give up 
the nuclear program, and ideally their support of terrorism, 
and that in so doing, they would be rewarded and it would help 
them to solve their economic problems.
    As I suggested, it is going to be difficult to convince 
them to give up this program, and I think that only a 
combination of positive and economic--positive and negative 
economic inducements is going to do so, and what's more, I 
would suggest that these positive and negative economic 
inducements are going to have to be very significant. Given the 
range of Iranian motivations for possessing these weapons, I 
don't think that we should assume that symbolic sanctions or 
minor concessions along the lines of what President Bush 
offered on March 10, 2005, when he offered admission to the WTO 
and spare parts for Boeing aircraft is going to be sufficient 
to bring the Iranians around. We're going to have to put some 
very significant offers on the table, including the lifting 
ultimately of United States economic sanctions against Iran, 
and very serious economic sanctions against Iran if they're not 
willing to comply. And here I think the best way to focus our 
efforts would be in the area of investment rather than trade. 
My own experience with our Iraq sanctions during the 1990s has 
convinced me that trade sanctions, which can very immediately 
affect the people of the targeted country, are not in our best 
interests. They are not sustainable----
    [Disruption in the audience.]
    The Chairman. The hearing will come to order.
    Dr. Pollack. They are not the appropriate moral course of 
action for the United States of America. Investment is an area 
where Iran is vulnerable and, ultimately, an area where the 
West can apply significant pressure over the long term in a way 
that is unlikely to hurt the Iranian people in the short term.
    I would also say that I think that we need to brace 
ourselves, because even if we are willing to put a very 
significant set of positive inducements on the table, and here 
I'd make the point that while I do believe that economic 
inducements need to be at the heart of that package, it cannot 
be the only thing. Security guarantees, a new security 
architecture for the Persian Gulf where the Iranians can 
discuss their legitimate security concerns and perhaps even 
find a way toward an arms control solution to the various 
problems of the Persian Gulf should be another element. I would 
also be very willing to allow the Iranians nuclear energy, 
access to nuclear technology as the first panel described, and 
a range of other incentives. But, again, for me I think it is 
the economic incentives that need to be at the heart of it 
because that is the one priority that we've identified of the 
Iranians that seems to stand above even their pursuit of 
nuclear weapons.
    I think that we need to recognize that the Iranians also 
have a reason to resist even a very compelling package, a 
package of big carrots and big sticks, and this is because, 
ultimately, it is going to be--while we are the ones required 
to put up the big carrots at this point in time, it is our 
European allies, and hopefully the Russians and Chinese and 
Indians, who will have to put up the big sticks. And quite 
frankly, I don't think that the Iranians think that the 
Europeans are up to it. All throughout the 1990s they saw the 
Europeans threaten economic sanctions and then back off, often 
for no reason whatsoever regardless of what Iran's behavior 
was. And so I think that Iran's current policy of brinksmanship 
is very much designed to force the Europeans to do something 
that the Iranians believe that the Europeans just don't have 
the stomach for. And for that reason as well, I think that even 
if we do apply a package of carrots and sticks, we're going to 
have to expect that we're going to have to impose significant 
sanctions on Iran probably for some period of time before the 
Iranian regime believes that the Europeans really mean 
business.
    I will conclude with one final thought. I've had a chance 
to quickly skim Dr. Clawson's testimony, and I know that he is 
going to advocate a different kind of package, one where the 
incentives are primarily security related. And I will simply 
close by saying, Mr. Chairman, that I think we now have in 
front of us the definition of a hard problem, which is when the 
security expert on the panel urges an economic solution to the 
problem, and the economist on the panel urges a security 
solution to the problem.
    Thank you very much.
    [The prepared statement of Dr. Pollack follows:]

    Prepared Statement of Dr. Kenneth M. Pollack, Senior Fellow and 
    Director of Research, Saban Center for Middle East Policy, the 
                 Brookings Institution, Washington, DC

    Mr. Chairman, Senator Biden, other distinguished members of the 
committee, it is an honor to appear here today to discuss a matter of 
such importance to our Nation.
    As with all writing about Iran's political process, it is important 
to be humble about what we can know. Our sources of information about 
Iranian decisionmaking are miserable and the Iranian governmental 
process is labyrinthine and unpredictable even for the most subtle and 
knowledgeable observers inside Iran and out. Even Iran's public opinion 
is difficult to discern because the regime works hard to control 
sources of information, punishes dissent, and hinders the efforts of 
disinterested pollsters. Consequently, we are all ``reading tea 
leaves'' when it comes to trying to predict Iran's behavior, especially 
on an issue as important and heavily debated as this one. All that any 
of us can offer is an educated guess as to what the Iranians are 
thinking and how they may react.
    With that caveat in mind, I believe that Iran's interest in nuclear 
weapons is both wide and deep, but it is not adamantine. The issue, as 
always in politics, is not whether Iran wants to see its nuclear 
program through to completion but what it would be willing to sacrifice 
to keep it. On this matter, I believe the Iranians would be willing to 
sacrifice a fair amount, but hardly everything. What this suggests then 
is that convincing Iran to give up its nuclear program is going to 
require very considerable inducements, both positive and negative, but 
that it is not impossible to do so.

                      IRAN'S STRATEGIC PERSPECTIVE

    Setting aside the question of whether Iran is determinedly seeking 
actual nuclear weapons or simply the capability to produce fissile 
material (and thereby be in a position to acquire the weapons 
themselves rapidly), there is ample reason to believe that Iranians 
would want nuclear weapons.
    Deterrence. It has become a cliche in the United States to note 
that Iran lives in a tough neighborhood. Iranian leaders in Tehran can 
objectively look out beyond Iran's borders and see a wide range of 
potential threats, from chaos and civil war in Iraq or Afghanistan, to 
a nuclear-armed Pakistan, to Israel over the horizon, to American 
forces arrayed all along Iran's borders. What's more, Tehran's 
relations are strained or antagonistic with many of its neighbors, and 
even those with correct relations with the Islamic Republic tend to 
view it with considerable suspicion. Thus, the Iranians can honestly 
point to a wide range of threats and serious concerns for their 
security, although the fact that their own actions have been 
responsible for much of the animosity they face is probably lost on 
most of them.
    In other words, possession of nuclear weapons makes sense from an 
Iranian perspective for purely defensive reasons. While nuclear weapons 
cannot solve all of Iran's security problems, they can solve some, and 
in so doing might make dealing with the rest much easier. At the most 
extreme, Iran is unlikely to be able to deter a determined American 
military operation without a nuclear arsenal. This lesson has no doubt 
been driven home to the Iranians by the divergent experiences of Iraq 
and North Korea, the two other members of President Bush's ``Axis of 
Evil.'' North Korea is believed to possess nuclear weapons and so the 
United States has not attacked it and is being forced to engage with 
Pyongyang. On the other hand, Saddam Hussein's Iraq did not possess 
nuclear weapons--but was believed to be trying to acquire them--and so 
the United States was willing to invade and overturn the Ba'athist 
regime. It is hard to imagine that the leadership in Tehran did not see 
this as a very simple set of reinforcing conclusions: If you have 
nuclear weapons, the United States will not dare use force against you, 
but if you don't, you are vulnerable.
    Prestige. We should never forget that the Iranians see themselves 
as the lineal descendants of a 2,500-year-old civilization that 
bequeathed to the world its first superpower (the Persian Empire of 
Cyrus the Great, Darius, and Xerxes), and a long string of great powers 
from the Parthians to the Sassanids to the Safavids. Only very 
recently, as measured by the full tale of human history, has Persian 
power been supplanted in the region by European and eventually American 
power. A great many Iranians believe that their country's history, 
experience, and natural resources mandate for it a role as one of the 
world's great powers and the dominant force in southwest Asia and the 
Persian Gulf.
    To the legacy of Persia's imperial greatness can be added the pride 
of the Islamic Revolution, which since 1978 has reinforced to many 
Iranians the sense that their nation has been marked by destiny to play 
a leading (perhaps ``the'' leading) role in the region and the Islamic 
world. Although many Iranians have soured on the revolution, others 
continue to see it as vital to Iran's mission in the world and many 
more still see it as another sign that Iran should be the intellectual, 
diplomatic, and military hegemon of the region.
    Persian pride appears to be another motivation in Iran's pursuit of 
nuclear enrichment capability, if not actual nuclear weapons. Acquiring 
nuclear weapons would give Iran a status that only a very few other 
nations possess. It would immediately catapult Iran into the ``big 
leagues'' of world politics. It would likely force other states to pay 
more attention to Iran's aspirations and wishes. Here the recent model 
that seems to stand out in the minds of many Iranians is India, whose 
development of nuclear weapons--and their acceptance by the 
international community--has been a critical element of New Delhi's 
acceptance as one of the great powers of the world, whose views should 
be considered on any matter of importance. Since this is the position 
to which many Iranians seem to aspire, matching India in the nuclear 
realm also appears to be a self-evident necessity for Iran.
    Export of the Revolution. For at least some Iranians, typically 
referred to as the ``radical hard-liners,'' Ayatollah Khomenei's dream 
of exporting Iran's Islamic Revolution to the rest of the Muslim world 
(and possibly even beyond) is yet another motive. Throughout the 1980s 
and, to a lesser extent during the early 1990s, Iran attempted to 
realize this dream by attempting to subvert reactionary Middle Eastern 
governments and assist would-be revolutionaries in those same 
countries. Iranian efforts in Iraq, Saudi Arabia, Kuwait, Bahrain, and 
even Lebanon were all motivated in part or in whole by this goal. But 
Iran's efforts in these countries triggered the animosity of the United 
States and in at least one case (Iraq during the Iran-Iraq war) 
prompted limited but direct American military intervention against 
Iran. In Lebanon, Iranian actions were part of what inspired American 
intervention there, and in Saudi Arabia, Iranian activities sparked 
other aggressive American responses as well as prompting debate in 
Washington over whether to mount retaliatory military actions against 
the Islamic Republic.
    For still other Iranians, another motivation to acquire nuclear 
weapons appears to be the related goal of waging war against the United 
States. This is an offensive version of the deterrence argument above 
that is also closely related to export of the revolution. Proponents of 
this motivation continue to see the world as Khomenei described it--as 
a battle between the forces of good, represented by Iran, and the 
forces of evil, represented by the United States. In this worldview, 
Iran will not just face endless attack by the United States but it will 
also face constant opposition to its efforts to export the revolution 
from the United States. Therefore, Iran must have the power to drive 
out American influence from the region and prevent the United States 
from keeping Iran from achieving its destiny.
    For Iranians holding either or both of these more offensive 
rationales, acquisition of nuclear weapons would also appear to be 
vital because it would be the only sure way to limit or preclude an 
American military response for Iranian asymmetric warfare, terrorism, 
and subversion against the United States and its conservative allies in 
the region.

                       MOTIVATIONS VS. PRIORITIES

    The Iranians clearly have a range of powerful motivations, 
strategic, ideological, and psychological, for desiring an arsenal of 
nuclear weapons--or at least the capability to manufacture such weapons 
in short order. Nevertheless, it would be a mistake to confuse 
motivations with a universal and indomitable determination to do so. 
The history of the past 60 years demonstrates that other states with 
equal or greater strategic need, ideological justification, and/or 
psychological desire for nuclear weapons ultimately chose either not to 
pursue them at all or to give up their pursuit midstream:

   In the 1960s it was considered a foregone conclusion that 
        Egypt would develop a nuclear weapon as its strategic and 
        psychological incentives were even more compelling than Iran's 
        are today. Egypt was locked in a conflict with a nuclear-armed 
        Israel which resulted in four mostly disastrous wars (for 
        Egypt) in 25 years, and Cairo aspired to be the ``leader of the 
        Arab world.'' Yet Egypt shut down its nuclear weapons program 
        entirely of its own volition because the Egyptian leadership 
        concluded that it had higher priorities which the pursuit of 
        nuclear weapons were undermining.
   Leaders in Italy, Australia, Sweden, Japan, and South Korea 
        considered developing nuclear weapons at various points, and 
        the Italians and Australians actually made some considerable 
        progress toward that goal. However, all of them decided that 
        nuclear weapons would be counterproductive to other, higher 
        priorities, and that they could find ways to deal with their 
        security problems (including even South Korea) through other 
        means.
   Belarus, Ukraine, and Kazakhstan went even further in the 
        early 1990s, voluntarily surrendering the nuclear arsenals that 
        they had inherited from the Soviet Union. Although many Western 
        academic strategists believed that they were insane to do so, 
        all three recognized that the security benefits from possessing 
        nuclear weapons were outweighed by the diplomatic and economic 
        benefits of giving them up and strong economies and good 
        relations with the rest of the world were of far greater 
        importance to them.
   Finally, there is the example of Libya, long one of the 
        Middle East's worst rogue states, which agreed to give up its 
        nuclear program in December 2003 after 10 years of U.N. 
        sanctions convinced Muammar Qaddafi that his pursuit of the 
        bomb was not worth the devastation of Libya's economy and 
        international relationships.

    What these examples demonstrate is that it is entirely possible for 
the international community to dissuade states from trying to acquire 
nuclear weapons and even persuade them to give them up, even when those 
states have compelling strategic rationales for possessing the weapons. 
In every case, the key has been to create a powerful set of positive 
incentives and negative disincentives geared to the priorities of the 
state in question.
    Iran's political leadership is divided over its nuclear program in 
important ways. While the available evidence suggests that most Iranian 
leaders would like at least a nuclear weapons capability (if not the 
weapons themselves), it also indicates that they differ widely in the 
priority they ascribe to this goal. For instance, in an interview in 
2002, then Minister of Defense, Ali Shamkhani, warned that the 
``existence of nuclear weapons will turn us into a threat to others 
that could be exploited in a dangerous way to harm our relations with 
the countries of the region.'' More important still, former President 
Ali Akbar Hashemi Rafsanjani has warned that ``If there [are] domestic 
and foreign conflicts, foreign capital will not flow into the country. 
In fact, such conflicts will lead to the flight of capital from this 
country.'' Statements like these demonstrate that important Iranian 
leaders do not regard possession of nuclear weapons either as an 
unvarnished blessing or Iran's highest priority.
    The same appears to hold true for the Iranian populace, as best we 
can discern it. When Iranians took to the polls in the spring of 2005 
to elect a new President, they did not vote for Mr. Ahmedinejad because 
he was determined to acquire nuclear weapons. Instead, they voted for 
him because he promised to reform Iran's economy and curb the rampant 
corruption that is the principal blight on the economy. Anecdotal 
evidence has repeatedly confirmed that for the Iranian people, ``it's 
the economy, stupid.'' Of course, many average Iranians continue to 
voice their support for Iran's nuclear program and even for acquisition 
for nuclear weapons, but stated in a vacuum (i.e., without regard for 
potential tradeoffs) such sentiments are meaningless. As a friend of 
mine, a Swedish diplomat, put it to me, ``If you were to ask Swedes 
whether Sweden should have a nuclear weapon, most of them would 
probably say yes, too, until you told them that it would come at the 
cost of isolation or even sanctions.''
    What's more, the regime appears to be well aware of this. Supreme 
Leader Ali Khamenei and his allies have tried hard to steer clear of 
policy paths that would cause Iran's European and Japanese trading 
partners to impose economic sanctions on Tehran, even being willing to 
agree to suspend Iran's nuclear program in 2003 to avoid such a fate. 
It is noteworthy that while President Ahmedinejad and his hard-line 
colleagues in Iran's Foreign Ministry regularly reject foreign 
overtures to deal with Iran's nuclear program, Khamenei's people have 
just as frequently contradicted the hard-liners by announcing a 
willingness to negotiate. Thus it was Ahmedinejad's Foreign Ministry 
that rejected the 2005 Russian proposal to allow Iran to enrich uranium 
at Russian facilities, but days later National Security Adviser (and 
Khamenei protege) Ali Larijani accepted the Russian offer to start a 
dialog on this proposal, almost certainly in an effort to drag out 
negotiations, postpone U.N. Security Council action, and possibly 
harden Russia's support for Tehran's position.
    It is also important to note that the regime itself has 
scrupulously maintained that the nuclear program is about securing 
Iran's energy needs (so that it can export more oil and gas) and 
developing a high-tech industry. While there are a number of logical 
and evidentiary problems with these claims, what is critical is that 
they are designed to portray Iran's nuclear program as necessary to 
Iran's economy, not its security. Indeed, Tehran is so paranoid about 
this that it temporarily evicted CNN's bureau from Iran when a CNN 
interpreter mistranslated ``nuclear power'' as ``nuclear weapons'' in a 
speech of Ahmedinejad's. This too makes clear that the regime shares 
the belief that if the Iranian people were ever forced to choose 
between the nuclear program and economic health, they would choose the 
latter.

                          SQUARING THE CIRCLE

    This discussion suggests that convincing Iran to give up its 
nuclear program is going to be tough. The Iranians are not going to do 
so willingly. But it also tells me that doing so should not be 
impossible, because there are Iranians--both the bulk of the people and 
important members of the regime--for whom nuclear weapons are 
desirable, perhaps even important, but neither essential nor even their 
first priority.
    Another comparison is useful to illustrate this point. North 
Korea's calculus regarding nuclear weapons was clearly different from 
Iran's. For Pyongyang, its nuclear weapons program was its highest 
priority and it was willing to tolerate hardships that few other 
countries (including even Iran) would be willing to. Ultimately, North 
Korea accepted the devastation of its economy, the impoverishment of 
its citizenry, and having 3 million of its people starve to death to 
hold onto its nuclear weapons program. If the same could be said about 
Iran then it probably would be impossible to convince Iran to give up 
its nuclear program; however, there is no Iranian or Iran expert who 
believes that this is the case. There is absolutely no evidence that 
Tehran would be willing to tolerate the extremes of sacrifice that 
North Korea did. Instead, the evidence suggests exactly the opposite, 
that Iran would be more like Libya: Difficult, but hardly impossible to 
convince.
    The key then is for the United States and its allies to compel the 
Iranians to choose between their nuclear program and their highest 
priority--their economic well-being. The way of doing so is now well-
explicated, including in my own work. Briefly, it would involve a 
multilateral sanctions regime that would gradually shut down Western 
(ideally the OECD, but initially perhaps just the G-7) investment in 
Iran, particularly its gas and oil sectors, in response to continued 
Iranian recalcitrance. Even with oil prices above $60 per barrel, Iran 
is desperate for Western investment capital because corruption is 
sucking the oil revenues right out of the system and thus having little 
impact on the overall economy. Despite the claims of some that Russia 
and China could make up for any loss capital from Europe and Japan, the 
fact is that their economies are still roughly a decade away from being 
in a position to do so. Simultaneously, as we did with the Libyans, in 
return for Iran agreeing to abandon its nuclear program and do so in 
verifiable fashion, the West (or the U.N. Security Council) would offer 
Tehran a package of incentives to include admission to the WTO and 
integration into the global economy, a lifting of U.S. economic 
sanctions (assuming that, like Libya, Iran renounced terrorism as well) 
and a universal settlement of all outstanding claims, investment 
guarantees to make investing in Iran more attractive for Western 
companies, provision of properly safeguarded light-water reactors, 
terms for giving Tehran access to enrichment technology (without the 
feedstock materials, the equipment, or the spent fuel), security 
guarantees, and ideally a new security architecture in the Persian Gulf 
similar to the Organization of Security and Cooperation in Europe that 
would allow Iran to address its legitimate security concerns through a 
peaceful process of dialog and, eventually, arms control.
    Presenting such a package would make clear to the Iranian people 
and their leadership that their country really did have just two 
choices. They could retain their nuclear program (and their support for 
terrorism) and they would become an international outcast and have 
their economy slowly crippled by sanctions. Or they could give up these 
two things and enjoy all of the benefits of the international community 
that they ever dreamed of.
    Two additional caveats suggested by the discussion of Iranian 
motives and priorities are also in order here. First, the package would 
have to make very clear that all Iran has to give up is its pursuit of 
nuclear weapons--not nuclear energy or nuclear technology--to get all 
of the benefits promised. Any ambiguity here would allow Iran's hard-
liners to continue to proffer the canard that Iran's nuclear program is 
about its economy, thus engaging Iran's highest priority and making it 
less likely that the Iranian people would favor it.
    Second, both the carrots and the sticks employed by the 
international community are going to have to be very big. Iran has 
major strategic, ideological, and psychological equities attached to 
its nuclear program and it will not budge easily. Small carrots, like 
those offered by President Bush on March 10, 2005 (admission to the WTO 
and sale of spare parts for Boeing passenger aircraft), or simply deals 
for nuclear reactors and technology, are probably not going to be 
adequate. The Iranian people will have to believe that there is a huge 
pot of gold at the end of the rainbow, especially if they are going to 
be able to help Iran's more pragmatic leaders defeat Tehran's hard-
liners in what is likely to be a knock-down, drag-out internal 
political battle. Similarly, no one should be under the misimpression 
that Iran will accept such a deal without the threat of very serious 
economic sanctions. Indeed, it seems likely that the international 
community, or merely the West acting outside the United Nations in 
multilateral fashion, will have to impose strong sanctions on Iran and 
keep them in place for some time before Tehran accedes. As noted above, 
it took 10 years for Libya to come to terms, although the Libya 
sanctions were relatively light as far as sanctions go.
    Moreover, throughout the 1990s the European countries threatened 
Iran with sanctions for its bad behavior but never, ever followed 
through on their threats no matter how outrageous Iran's behavior. 
Consequently, it appears that Iran does not believe that the Europeans 
will be willing to impose such sanctions, let alone maintain them for 
very long. This is the root of Tehran's current strategy of 
brinksmanship: The Iranians seem certain that, in the end, the 
Europeans will balk and when that happens, the crisis will be over and 
they can go back to both pursuing nuclear weapons and enjoying trade 
and investment from Europe. Thus their strategy is to give on nothing 
and force the Europeans either to make good on their threats or, as 
Tehran seems to believe, admit that they are bluffing. For this reason, 
the Iranians are probably going to have see the Europeans actually 
impose meaningful sanctions and be willing to hold them in place for 
some time before Tehran actually believes the Europeans mean business.
    None of this should be terribly heartening, but neither should it 
cause us to lose heart. We always knew that convincing states like Iran 
that have a range of important rationales for pursuing a nuclear 
capability to give it up is difficult. But few things in the worlds of 
politics and diplomacy are impossible, and there is good reason to 
believe that Iran can be dissuaded from its current course if the 
United States and its allies in Europe and Asia can forge a common 
position and make clear to Iran that pursuit of a nuclear weapon will 
cost it what most Iranians value the most.

    The Chairman. Well, thank you very much, Dr. Pollack, for 
your very comprehensive testimony.
    I appreciate that our guests today are enthusiastic about 
our panel members, but please, if you can, resist too many of 
these impulses as it would be helpful in terms of the order of 
the hearing to proceed.
    Now, Mr. Sadjadpour, would you please testify.

  STATEMENT OF KARIM SADJADPOUR, IRAN ANALYST, INTERNATIONAL 
                  CRISIS GROUP, WASHINGTON, DC

    Mr. Sadjadpour. Well, thank you very much, Mr. Chairman. 
It's a great privilege to be here before you on behalf of the 
International Crisis Group. It's a great privilege to be a 
member of such a distinguished panel as well. I thought I would 
focus primarily on domestic political happenings in Iran, given 
that my colleagues have not been granted a visa to go to Iran 
by the Iranian Government.
    I think that we are on a collision course here between the 
United States and Iran with decidedly potentially devastating 
consequences for the future of nonproliferation, for the future 
of Middle East peace and security, and for the future of Iran's 
evolution toward democracy.
    These negotiations were once called a game of chess. I 
believe they've now evolved into a game of chicken. We 
essentially have a situation where we have two cars moving at 
each other with increasing velocity, and neither side, meaning 
neither the United States, nor Iran, believes that it behooves 
them to either slow down or to get out of the way.
    From Washington's perspective there's great suspicion about 
Iran's intentions to acquire this nuclear capability. There's a 
sense in Washington that we should not reward bad Iranian 
behavior and we should not talk to it by talking to Iran would 
conferring legitimacy on the regime.
    From Tehran's perspective there's also great suspicion 
about United States intention. Tehran believes that this 
nuclear issue is simply a pretext for a regime-change approach, 
and their mentality is that if we succumb to pressure on this 
nuclear issue, it's not going to get us out of trouble, it's 
simply going to invite further pressure, and, again, nothing 
short of a regime change is going to appease the United States.
    I thought I would focus on four observations and their 
implications for U.S. policy. And the first observation--this 
is in my capacity as an analyst with the International Crisis 
Group based in Tehran and interviewing Iranian, European, and 
United States officials frequently. I believe there's very 
little hope of reaching any binding resolution absent some type 
of direct U.S. involvement. In 3 years of interviewing the 
European negotiating team and senior European officials, I've 
always come away with the notion that there's very little 
confidence that a binding resolution can be reached absent some 
type of direct United States role because it is not political 
security and economic dividends that Iran is seeking from the 
Europeans, but from the United States.
    Iran analysts commonly invoke a paradigm to talk about the 
situation: Two ticking clocks. There's the regime change clock 
and the nuclear clock. I believe the dilemma is that when you 
try to speed up the regime change clock, you simultaneously 
expedite Iran's ambitions for a nuclear deterrent. I think when 
it comes to United States policy we should be very clear to the 
Iranians that a belligerent foreign policy is not going to reap 
rewards, but at the same time we should make it clear that a 
more conciliatory and compromising Iranian stance would trigger 
reciprocal steps from the United States.
    The second observation I wanted to address is that we 
should disabuse ourselves of this notion that dialog is 
tantamount to appeasement or indifference to human rights 
abuses, that talking to Iran would be selling out the will of 
the Iranian people. Empirical studies and anecdotal evidence 
suggests overwhelmingly that the Iranian people, despite great 
discontent with their leadership, overwhelmingly want to have 
relations with the United States. Empirical studies suggest 
upward of 80 percent of Iranians would support having dialog 
and relations with the United States. The vast majority of 
Iranian democratic activists I've come across agree that they 
believe a United States-Iran diplomatic accommodation would 
actually be helpful to their cause, not hurtful of their cause. 
I'm talking about Nobel Laureate, Shirin Ebadi, and brave 
activists like Akbar Ghangi.
    One thing that's been dismaying for me personally is that 
human rights, the issues of human rights and democracy have 
been absent from these EU-Iran nuclear accords that have taken 
place these last few years, and I do believe that the United 
States is the only country which, if they were to join the 
negotiations, would be able to ensure that these issues, human 
rights and democracy, have a role at the table.
    Now, I wanted to nuance some of the comments of the 
previous panel about Iranian popular sentiment vis-a-vis the 
nuclear issue. Having been based in Iran intermittently since 
2003, this is an issue in which I would engage the vast 
majority of Iranians I would come across traveling around the 
country. And I found that this popular sentiment which has been 
written about in the Western media and, of course, the Iranian 
media, has been very much exaggerated. It is true that for some 
Iranians this is an issue of national pride. Iran is an old 
country, old civilization, and they look around and they say, 
well, India, Pakistan, Israel can have these projects, why the 
double standard? But I would argue that at the same time this 
is a society which experienced a devastating 8-year war with 
Iraq, which not really one family was left unscathed by this 
war. And no one romanticizes about the prospect of conflict, 
about the prospect of militarization, so when they see this 
nuclear project, there's a lot of concern about the direction 
in which the country is headed. And quite frankly this is a 
very technical project, actively enriching uranium indigenously 
as opposed to importing enriched uranium abroad. So despite the 
claims of the Iranian Government, I can tell you that the 
Iranian people don't wake up thinking in the morning what's 
missing from our lives is enriched uranium.
    I would argue that if you were to pose two options to the 
Iranian people as a referendum: (a) Pursue this nuclear program 
unequivocally come what may, sanctions, further isolation, 
potential military confrontation, or (b) make certain nuclear 
compromises and reintegrate into the international community, 
this young Iranian population, two-thirds of whom are under 30, 
would overwhelmingly choose the later option.
    Now, lastly, I believe that we need to disabuse ourselves 
of the notion that a sudden upheaval in Iran or some type of 
abrupt political change would necessarily be for the better. I 
would argue that the vast majority of Iranians are in favor of 
a democratic system, a more tolerant system, a more open 
society. But unfortunately these peaceful and democracy-loving 
Iranians are not the ones who are currently organized, and 
they're not the ones currently with arms. To quote the great 
United States diplomat and Iran scholar, John Limbert, who was 
actually a hostage in Iran for 444 days, to paraphrase him, in 
fact, revolutions are not won by those who can write incisive 
op-ed pieces. At that time it was won by those who were willing 
to throw acid in other people's faces. These days it's won by 
those willing to conduct suicide operations, et cetera. So I 
think we should be very careful about romanticizing about the 
prospect of sudden, abrupt change in Iran.
    Lastly, I wanted to present two visions for Iran, two 
possibilities which I believe are equally plausible. The first 
is of a country isolated from the world, isolated from the 
international community, but with enough oil wealth to continue 
to fund its paramilitary groups, 2 million Bassij, 150,000 
revolutionary guards, to repress popular will and popular 
demand for change. And unfortunately I can see this 
sustainable. I can see an Islamic Cuba with a bomb 10, 15, 20 
years from now.
    The second vision is of a country reintegrated into the 
international community, having relations with the United 
States, having a United States Embassy in Tehran, having 
increased foreign investment, a strengthened middle class, 
tourists going back and forth, the Iranian diaspora going back 
and forth. I believe this is a much more fertile ground for 
democratic change and would certainly expedite Iran's path 
toward democracy rather than the contrary.
    Thank you.
    [The prepared statement of Mr. Sadjadpour follows:]

  Prepared Statement of Karim Sadjadpour, Iran Analyst, International 
                      Crisis Group, Washington, DC

    Mr. Chairman and Senator Biden, thank you for allowing me, on 
behalf of the International Crisis Group, the privilege to discuss 
before you the fate and relationship of the two countries which I care 
most deeply about, the United States and Iran.
    Mr. Chairman and Senator Biden, I fear we are on a collision course 
with decidedly devastating consequences for the future of the U.S.'s 
international standing, nuclear nonproliferation, Middle East peace and 
security, and Iran's evolution toward a society which respects the 
human rights and civil liberties of its citizens. What was once 
described as a game of chess has evolved into a game of chicken: The 
United States and Iran are like two cars moving head on with increasing 
velocity. Most concerning is that neither side believes that it serves 
its interests to slow down or get out of the way.
    The policy stances of both sides have the merit of being clear: 
Washington sincerely doubts that Tehran's intentions are peaceful, and 
refuses to ``reward bad behavior'' or ``confer legitimacy'' on the 
Iranian regime by talking to it. Tehran, meanwhile, believes that the 
nuclear issue is simply a pretext used by the United States to cover 
its regime change ambitions, and that agreeing to compromise on its 
``legal NPT rights'' would not allay U.S. pressure, but on the contrary 
be perceived by Washington as a sign of weakness that would only invite 
further pressure. Operating under this premise, Iran's leadership 
believes it must not relent from its position, especially when oil 
prices soar, its hand in Iraq is strong, and there is still no 
indication that a more conciliatory Iranian approach would beget a more 
conciliatory U.S. response.
    I do not believe that a nuclear-armed Iran is inevitable. Nor do I 
believe that a firm decision has been made in Tehran to pursue the 
acquisition of a nuclear weapon. Despite current ominous trends I 
remain hopeful that the Iranian people's aspirations to live in a more 
open society at peace with the outside world is a worthy goal which 
will one day be realized. But I believe the probability of achieving 
either of these two salient goals--preventing a nuclear-armed Iran and 
forwarding the cause of Iranian democracy--is highly unlikely in the 
context of current U.S. policy toward Iran.
    Over three decades of U.S. attempts to change Iranian behavior by 
isolating it politically and economically have borne little fruit: 27 
years after the 1979 revolution, Iran continues to sit atop the State 
Department's list of the world's state sponsors of terror, continues to 
play an unconstructive role in the Israeli-Palestinian conflict, 
continues to expand its military arsenal, and continues to repress its 
own population. If U.S. policy toward Iran were a business model, it 
would have been scrapped long ago for failing to achieve its bottom 
line.

         I. TEHRAN'S CALCULATIONS: THE INTERNAL NUCLEAR DEBATE

    Iran's senior leadership has always attempted to project a unified 
mindset regarding the nuclear issue, but in reality the country's 
ruling elites are divided into three broad categories: Those who favor 
pursuit of the nuclear project at all costs; those who wish to pursue 
it without sacrificing diplomatic interests; and those who argue for a 
suspension of activities to build trust and allow for a full fuel cycle 
down the road. Understanding and exploiting these differences should be 
a key component of any diplomatic approach.
    The first group, sympathizers of President Mahmoud Ahmadinejad, 
comprises ideologues and confrontationists who romanticize the defiance 
of the revolution's early days. They believe that former President 
Mohammed Khatami's ``detente'' foreign policy projected an image of 
weakness while achieving little for Tehran other than membership in the 
``Axis of Evil.'' In contrast, they favor an uncompromising approach, 
in some cases going as far as to advocate that Iran withdraw from the 
NPT, unequivocally pursue its nuclear ambitions, and dare the 
international community to react. This group advocates measures such as 
withholding oil exports and cutting diplomatic ties with countries that 
side against Iran, confident that ``the West needs Iran more than we 
need them.'' While 2 to 3 years ago such views were on the fringe, with 
the recent elections they have gained increased relevance and 
credibility.
    Like the confrontationists, the second group is highly cynical of 
Western (particularly U.S.) intentions, and argues that Iran is ``bound 
by national duty'' to pursue its ``inalienable'' right to enrich 
uranium. Unlike them, however, they favor working within an 
international framework. Iran's lead nuclear negotiator Ali Larijani is 
perhaps the best representative of this group, arguing simultaneously, 
perhaps inconsistently, that Iran must neither succumb to ``Western 
double standards'' nor abandon diplomacy. ``The West wants two classes 
of nations,'' Larijani frequently says. ``Those that have nuclear 
technology and can be advanced, and nations that must be restricted to 
produce only tomato juice and air conditioners . . . [But] a country's 
survival depends on its political and diplomatic ties. You can't live 
in isolation.''
    The third, more conciliatory group, arguably most representative of 
popular sentiment, is currently the least influential. After months of 
silence, however, they are increasingly beginning to make their voices 
heard. Former President Khatami and former lead nuclear negotiator, 
Hassan Rowhani, have criticized their successor's disregard for 
diplomacy, and the country's largest reform party recently urged the 
government to voluntarily suspend all nuclear fuel cycle work. 
Believing the costs of nuclear intransigence to be greater than its 
benefits, they argue that Iran should freeze its enrichment activities 
in order to build confidence and assuage international concerns. This 
group welcomes diplomacy and has consistently backed direct talks with 
the United States, convinced that the Europeans are incapable of 
providing the political, economic, and security dividends Iran seeks.
    Signing off on all major decision in Iran is Supreme Leader 
Ayatollah Ali Khamenei, whose 17-year track record suggests a leader 
who wants neither confrontation nor accommodation with the West. Yet 
decisions in Iran are made by consensus rather than decree, and at the 
moment Ayatollah Khamenei appears more influenced by advisors who 
argue--with some plausibility--that nothing short of regime change will 
satisfy the United States, and that retreating on the nuclear question 
will only display weakness. If there is to be clash with the United 
States, Tehran's hard-liners want it to occur on their terms, when oil 
prices are high and the United States is bogged down in Iraq.

               II. AHMADINEJAD AND THE STRUGGLE FOR POWER

    If Mahmoud Ahmadinejad's election proved anything, it is that the 
Iranian regime is far from monolithic and Iranian politics are far from 
predictable. While his triumph last June was widely viewed as a 
consolidation of power by the nation's conservatives, differences among 
conservatives have never been greater than today. And though it was 
widely assumed that he would focus on domestic economic affairs and 
have minimal influence over Iran's foreign policy, in the 9 months 
since his inauguration, Ahmadinejad's impact on Iran's foreign 
relations has been nothing short of monumental.
    Ahmadinejad's assertiveness and outspokenness has surprised many. 
During his election campaign he criticized Iran's previous nuclear 
negotiating team for being ``frightened,'' and as President he 
disbanded it in favor of his own. He is said to have personally 
authored the provocative speech he delivered at the U.N. Security 
Council last September, and to have penned his recent 18-page letter to 
President Bush. Ahmadinejad also has repeatedly issued provocative, 
bellicose statements on Israel that go beyond what the Supreme Leader 
or others in the leadership have pronounced.
    By most accounts, the President's style has irked the country's 
entrenched political elite. Senior officials have complained that he 
``doesn't play by the rules,'' and displays a surprising lack of 
respect for the Islamic Republic's protocols and hierarchy. Rather than 
defer to the elders of the revolution on matters as significant as the 
nuclear issue or United States-Iran relations, he has tried to present 
himself as a force that cannot be bypassed. Indeed, political rivalries 
once kept under wraps are now playing out in the open. Last month, for 
example, Ahmadinejad's eagerly anticipated announcement that Iran had 
successfully operated a centrifuge cascade was preemptively leaked by 
Rafsanjani to the Kuwaiti press. More recently, when news came out that 
he had written an unprecedented letter to President Bush, former lead 
nuclear negotiator, Hassan Rowhani, quickly countered by releasing a 
concise, two-page compromise proposal to Time Magazine--seemingly 
sending a message to the West that he is an alternative messenger with 
an alternative message.
    Ahmadinejad's behavior can be explained on two counts. To some 
extent, it is a function of his ambiguous relationship with Ayatollah 
Khamenei. The two men have decidedly different post-revolution 
experiences and responsibilities: Ahmadinejad and his peers' most 
salient experience was fighting in the battlefields during the Iran-
Iraq war whereas Ayatollah Khamenei was serving as President, and faced 
with the day-to-day dilemmas of governing a country embroiled in a 
full-blown war and facing near total political, economic, and 
diplomatic isolation. Wary of repeating this experience, the Supreme 
Leader has more than once publicly downplayed Ahmadinejad's fiery 
pronouncements. Yet, at the same time, there is evidence that Khamenei 
appreciates Ahmadinejad's anticorruption campaign and his commitment to 
revolutionary ideals, and finds comfort in working with a junior 
president who is seemingly loyal to him and at the same time makes him 
look like a moderate. Moreover, Khamenei judges various government 
officials by their results: In this case, he may well consider that 
during his relatively short tenure Ahmadinejad has accomplished more 
progress on the nuclear file than in the previous 2\1/2\ years of 
negotiations with Europe.
    While Ahmadinejad's behavior has caused disquiet among the 
political elite, his standing on the Iranian street is more difficult 
to assess. On one hand he has failed to deliver on his core electoral 
promise, namely that he would ``put the oil money on people's dinner 
tables''; since his inauguration last August the country has 
experienced massive capital flight, foreign investment has dropped 
precipitously, and Tehran's stock exchange has lost nearly a third of 
its value. Most noticeably for the Iranian people, inflation has 
increased dramatically, and unemployment has also risen.
    Still, Ahmadinejad continues to enjoy some backing, a result of his 
populist rhetoric, pious ways, humble lifestyle, and fiery nationalism. 
Aware that he lacks support among the urban middle and upper classes, 
he instead has courted economically disenfranchised Iranians in smaller 
towns and far-off provinces, promising loans and debt-relief. Realizing 
that he lacks favor among the country's top elite--technocrats, 
business mangers, journalists, academics, and even senior clerics--he 
curries favor with the country's paramilitary groups, such as the 
Bassij; has attempted to co-opt the country's military forces by 
providing numerous projects in the construction and development sector 
to Revolutionary Guard commanders; and has formed close alliances with 
powerful hard-line clerics in Qom, such as Ayatollah Mesbah Yazdi. All 
in all, he has managed through his nationalist rhetoric and postures to 
set the tone for Iranian foreign policy in a way that few had 
anticipated beforehand.

                     III. IRAN'S DOMESTIC EVOLUTION

    Despite concerns about Ahmadinejad and his team's desires to return 
to the early days of the revolution, societal reform in Iran is a train 
that has left the tracks. While it may be slowed down at times, and 
will certainly face delays and obstacles, it is process that will be 
near impossible to reverse, for sheer demographic reasons: Two-thirds 
of Iranians are under 33 years old; they increasingly are connected to 
the outside world via satellite television and the Internet; and they 
have no special affinity for a revolution they did not experience and a 
revolutionary government which has not been able to meet their economic 
expectations.
    Indeed, for the vast majority of Iranians the priority is economic 
rather than political deliverance. This is not to say that democracy 
and human rights are not important concerns, but that for a majority of 
Iranians they come second. As a Tehran laborer once explained to me, 
``When your stomach is empty you don't cry for democracy, you cry for 
bread!''
    While throughout the country Iranians' sense of alienation vis-a-
vis their leaders is palpable, despite these socio-economic discontents 
people have become increasingly disillusioned with politics. In 1997, 
2000, and 2001 they went to the polls in overwhelming numbers, twice to 
elect President Khatami and once to elect a reform-minded Parliament, 
yet saw insufficient returns on their civic investments. As a Tehran-
based intellectual once told me, ``People's political frustration is to 
be expected. It's like exercising every day for 6 years and not seeing 
any results. Soon you are going to stop going to the gym.''
    What's more, without a clear alternative model or alternative 
leadership, the deep-seated desire for economic, political, and social 
reform among many Iranians is tempered by a strong aversion to unrest, 
uncertainty, and insecurity. Having already experienced one tumultuous 
revolution (or in the case of Iran's youth, the aftermath of one 
tumultuous revolution) and a brutal 8-year war with Iraq, Iranians have 
few concrete ideas as to how change should take place other than it 
ought to occur bedun-e khoonrizi--``without bloodshed.''
    The post-war turbulence and insecurity in next-door neighbor Iraq 
has made Iranians even wearier about the prospects of a sudden 
political upheaval or a quick-fix solution. As opposed to the aftermath 
of the U.S. removal of the Taliban in Afghanistan, when some Iranians 
could be heard naively romanticizing about the prospects of a swift 
U.S. intervention in Tehran, today it is rare to find any Iranians who 
see Iraq as a model for change, or look to their Western neighbor with 
envy. In the widely echoed words of one middle-class, middle-aged 
Tehran resident, ``When we look at what's going on in Iraq, it seems 
that the real choice is not one between democracy or authoritarianism, 
but between stability or unrest. People may not be happy in Iran, but 
no one wants unrest.''

                      IMPLICATIONS FOR U.S. POLICY

1. To effectively counter Tehran's confrontationists, the United States 
        must simultaneously strengthen its pragmatists
    While the United States should make clear that a bellicose Iranian 
policy will not reap rewards, it should also clarify that a 
conciliatory and compromising Iranian stance would trigger reciprocal 
steps. A broader diplomatic accommodation--Iran forsaking domestic 
uranium enrichment and modifying its objectionable domestic and 
regional behavior in exchange for improved bilateral relations, 
security assurances, and a lifting of sanctions--is the preferred 
option. But given the depth of mutual mistrust and ill will, it may not 
be possible to achieve this at the moment.
    A smaller bargain proposed by the International Crisis Group would 
be to offer Iran a ``delayed, limited enrichment scheme,'' 
acknowledging its eventual right, after several years of a total 
freeze, to operate a small-scale uranium enrichment facility under an 
intrusive inspections regime, making clear that a military program 
would not be tolerated.
    In both instances the logic is similar: To strengthen the hand of 
Iranians who are pressing for a more accommodating foreign and nuclear 
policy, they need to have a realistic and appealing alternative to 
point to.
2. Dialog does not equal appeasement and certainly not indifference to 
        human rights abuses
    It is important that we disabuse ourselves of the notion that 
dialog is tantamount to appeasement, or would be ``selling out'' the 
Iranian people's aspirations for a more representative government. 
Quite the contrary: Opinion polls suggest that upward of 75 percent of 
Iranians want their government to have relations with the United 
States. Iranian democratic activists like female former MP Fatemeh 
Haghighatjou--currently a fellow at MIT--have long argued that a United 
States-Iran diplomatic accommodation is crucial for domestic change to 
take place in Iran. Embarking on a comprehensive dialog with Iran would 
provide the United States with the opportunity to match its rhetorical 
commitment to Iranian democracy and human rights with action, instead 
of ineffectively, and at times counterproductively, trying to promote 
it from afar.
    Greater economic and cultural contacts with the outside world, 
combined with continued international insistence on political reform 
and respect for human rights, would strengthen Iran's burgeoning civil 
society; not weaken it, and dilute the conservatives' hold on power 
rather than fortify it.
3. A sudden upheaval or abrupt political change in Iran is unlikely to 
        be for the better
    John Limbert, the erudite Iran scholar and talented former U.S. 
diplomat (taken hostage in Iran for 444 days) once reflected on the 
1979 Iranian revolution that his liberal-minded Iranian friends ``who 
could write penetrating analyses and biting editorials'' lacked the 
stomach to ``throw acid, break up meetings, beat up opponents, trash 
opposition newspapers, and organize street gangs . . . and engage in 
the brutality that wins revolutions.''
    Today we should be similarly sober about the realities of a short-
term upheaval in Iran. There currently exists no credible, organized 
alternative to the status quo whether within Iran or in the diaspora. 
And despite the fact that a majority of Iranians favor a more tolerant, 
democratic system, there is little evidence to believe that in the 
event of a sudden uprising it would be Iranian democrats who come to 
power, especially in a country with nearly 150,000 revolutionary 
guardsmen and 2 million members of the Bassij, whose livelihood, in 
many cases, depends on the continuation of the status quo.
4. The United States should make it clear that it has no intention of 
        undermining Iran's territorial integrity
    While a diversity of opinion exists among Iranians regarding the 
country's nuclear ambitions, the maintenance of the country's 
territorial integrity is an issue which unites the vast majority of 
countrymen of all ethnic, religious, and political persuasions. Amid 
widespread concern and rumors in Iran that the United States is 
flirting with a strategy of supporting ethnic Iranian separatists 
groups, Washington should do its utmost to reassure the Iranian people 
that such concerns are unfounded.
    Mr. Chairman and Senator Biden, I believe there are two equally 
plausible visions for Iran's future. One is a hostile, backward-looking 
nation increasingly isolated from the international community, but with 
enough oil wealth to fund military and paramilitary groups which 
repress popular demand for change. Despite popular discontent, such a 
situation could be sustainable in Iran for years if not decades; an 
Islamic Cuba, with potentially a nuclear weapon.
    The second scenario is of a country which has made amends with the 
United States, is reintegrated into the international community, 
experiences large flows of foreign investment, a strengthened middle 
class, a burgeoning private sector, and a free flow of tourists and 
members of the Iranian diaspora visiting freely. It is this scenario 
which will provide fertile ground for Iran's transition to a more 
tolerant and democratic system at peace with the international 
community.

    The Chairman. Well, thank you very much, Mr. Sadjadpour.
    Dr. Clawson.

STATEMENT OF DR. PATRICK CLAWSON, DEPUTY DIRECTOR FOR RESEARCH, 
 THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY, WASHINGTON, DC

    Dr. Clawson. Thank you. I'd like to pick up on some of the 
things that Dr. Pollack referred to about Iran's economic 
situation and how that could influence its thinking about its 
nuclear question.
    Iran has very serious economic problems of its own making. 
The country has a growing unemployment which the World Bank 
warned could, ``threaten its economic, social, and political 
situation.'' And Iran's per capita income today is 30 percent 
below that of the prerevolutionary period. At a time when the 
rest of the world incomes have doubled, Iran's income has 
fallen. And these serious economic problems create a lot of 
vulnerability to foreign pressure. Much of the discussion about 
foreign pressure is about multilateral sanctions imposed by the 
U.N. Security Council. And, in fact, I would suggest that going 
that route is a good way of giving Ahmadinejad a rallying point 
around which to say to his people that the rest of the world is 
ganging up on us and to feed this populist nationalism that he 
has been such a master at manipulating. So I'm not convinced by 
any means that U.N. sanctions route is the best route. 
Something below the horizon which can impact Iranian business 
may be a better way to go. In that regard, the de facto 
sanctions which the governments in Europe and also this 
government have been talking about may be a good way to 
persuade businesses to pull out of Iran and to have the impact 
on the business and economic elite that Dr. Pollack referred to 
without having to give the red flag that Ahmadinejad can wave 
around.
    The U.S. Government has been quite creative at pushing 
other governments about how are they going to be implementing 
the two relevant U.N. Security Council resolutions: 1373, which 
calls on governments to take action against the financing of 
terrorism and support for terrorism; and 1540, which calls on 
governments to take action to prevent the proliferation of 
weapons of mass destruction and the financing of this. We've 
also been quite effective at reminding banks around the world, 
and industrial companies around the world, that they really do 
have to go through the U.S. banking system if they want to 
carry out their economic activities, and do they really want to 
be doing business with these bad guys? It's going to cause them 
a lot of problems in their public relations and a lot of 
problems with the U.S. Government.
    We've already seen quite a bit of success about this. That 
is to say, the three largest European--excuse me, three large 
European banks--two large Swiss banks and the largest British 
bank have stopped doing new business in Iran. And recently a 
state-owned Iranian bank said, and I quote from this report 
from the Karafarin Bank, ``The fear of imposition of sanctions 
by the United Nations against Iran in connection with the 
nuclear enrichment issue has reduced the reliability of Iranian 
banks as international trading partners. . . . This may prove 
to be for the banks and the country as a whole, one of the most 
important obstacles to hurdle in the months to come.''
    So I would argue that going this route of pursuing de facto 
sanctions fits in well with also European traditions about 
providing informal guidance to companies about what to do, and 
that it is something that we can do with a coalition of like-
minded countries rather than relying on the Security Council, 
where there can be grandstanding and, of course, there's always 
the veto issue. Plus, as the Russians and Chinese remind us, 
that every time we talk about sanctions at the United Nations, 
we are also talking about the authority to use military force 
at the same time; whereas, if we do this, discourage business 
in Iran through these de facto sanctions, we don't run into 
these kinds of problems.
    Some will counter that putting economic pressure on Iran 
right now is pretty tough given the state of world oil prices. 
And it's certainly true that the Iranians are feeling very 
self-confident at the moment. But, in fact, times in Iran are 
not so good despite the high oil income. Last year the stock 
market fell by 26 percent. And, again, quoting from the 
Karafarin Bank's report, it said that, ``The [Tehran] stock 
market has shown to be hypersensitive to political issues (such 
as the course of the nuclear enrichment negotiations), as well 
as domestic economic policy uncertainties.''
    So I would suggest there is much that we can do even while 
oil prices remain high, and furthermore, the last couple times 
around when oil prices were high, that only lasted for 3 or 4 
years, and then they came crashing back down again. And so I 
wouldn't get to be so confident as the Iranians. In 1981 prices 
went up; they came way back down again in 1985 because of 
increased production and conservation.
    Some will say that economic pressure is not going to 
dissuade hard-line Iranian leaders, and I would agree with Dr. 
Pollack that someone like Ahmadinejad doesn't seem to factor 
economics that much into his calculations. But Ahmadinejad was 
elected not because of his stance on the nuclear program, but 
because of his economic populism and all these promises he's 
been making as he runs around the country offering to build a 
hospital there and a school there. When he can't deliver on 
those promises, he's going to have a problem. Now his two 
predecessors, both Mr. Rafsanjani and Mr. Khatami, came into 
office with grand plans for how to remake Iran, and they each 
got about 2 years into their terms before their plans turned to 
dust. They ran into a lot of resistance against a system which 
is really pretty hard to move, and they found themselves 
undercut by the Supreme Leader, who forced them to throttle way 
back on their plans. And if I had to guess, I'm going to give 
Ahmadinejad about the same period, about 2 years where he goes 
ahead with his plans to rekindle revolutionary fervor before he 
is going to find that his plans turn to dust, and he gets 
yanked back by the Supreme Leader once again.
    Lastly, as Dr. Pollack mentioned, I'm skeptical about using 
economic inducements as well as pressure on Iran, and one 
important reason is that it's a lot easier to pull on a rope 
than it is to push on it. And if we offer Iran economic 
inducements, that's not going to have much impact on the 
Iranian economy so long as they're following the inappropriate 
and ineffective, and, frankly, stupid policies that were there 
even before Ahmadinejad came in, and he's only made them worse. 
So all of our economic inducements aren't going to do very much 
to the Iranian economic state, and the Iranians will realize 
that pretty soon and then say, well, what do we get for all 
this, and the answer is not very much. On top of all this, 
economic inducements can look like bribes, which just encourage 
more mischief.
    So I am a fan of security inducements, and several of the 
previous speakers have noted that some of the security 
inducements that we could offer would be mutually advantageous. 
Things like confidence and stability building measures would be 
in the interests of both sides. If we had an agreement about 
how to prevent incidents at sea, or if we had an exchange of 
military observers and exercises, both sides would benefit.
    There's a lot of talk about one security inducement which 
concerns me, and that is about a security guarantee for the 
regime. We don't guarantee the survival of any regime, anywhere 
in the world. Whether or not a regime survives is up to its own 
people. But what we can do is provide a conditional security 
insurance, which is a fancy way of saying if you don't attack 
us, we won't attack you. And that, really, is what we ought to 
be talking about, which is, if you give up your nukes then we 
agree that if you don't attack us, we won't attack you. That, 
rather than guaranteeing the regime, is a security approach 
that we could have taken in other situations and could take in 
this case without compromising our stand in favor of democratic 
change inside Iran.
    Thank you.
    [The prepared statement of Dr. Clawson follows:]

    Prepared Statement of Dr. Patrick Clawson, Deputy Director for 
Research, the Washington Institute for Near East Policy, Washington, DC

    If Iran saw its nuclear program as essential to defending the 
country's very existence--the way Israel and Pakistan view their 
nuclear programs--then economic considerations would make little 
difference to Iran's calculations. But defense is not the principal 
factor behind the Iranian nuclear program. Rather, Iran's principal 
motives for its nuclear program are the pursuit of prestige and 
influence. Iranian leaders consistently present the nuclear program as 
an accomplishment of Iranian science and as evidence that Iran is an 
advanced modern industrial power. They also argue that Western 
opposition to Iran's nuclear ambitions are an effort to keep Iran down, 
to prevent the country from assuming its rightful place as a leader in 
the region and the broader Muslim world. They play to Iranians' 
national pride, to their sense that Iran is naturally a great power--
not to any sense that Iran is so threatened that it must take desperate 
steps to defend itself.
    The challenge for the West is to persuade Iran's powerholders that 
the nuclear program will not advance Iran's prestige and influence. 
Economic instruments can play a role in this regard, though they are 
most unlikely to be sufficient by themselves.

                         IRANIAN SELF-ASSURANCE

    Unfortunately, the West's ability to press Iran has eroded in 
recent years. Iran's leaders are now remarkably self-assured, given the 
conjunction of favorable circumstances, including the end to threats to 
Iran from Iraq and Afghanistan; the United States being tied down in 
Iraq; and victories by pro-Iranian forces in Iraqi and Palestinian 
elections. Economic factors play no small part in this self-assurance, 
as documented by the recent International Monetary Fund report (the 
source of all the economic figures I cite, unless otherwise noted). Oil 
and gas exports have shot up from $23 billion in 2002/03 to $55 billion 
this year, driven entirely by higher prices (Iran got $23 per barrel in 
2002/03 and will get $55 this year). The oil exports have swelled 
government coffers allowing an explosion of off-budget spending that 
has sent economic growth shooting up to an average of 6.2 percent a 
year (discounting for inflation) from 2002/03 to this year. Foreign 
exchange reserves have shot up to $47 billion, more than twice the size 
of all foreign debt, and are expected to rise further to $62 billion by 
the end of this year.
    In light of the favorable strategic situation, many in the Iranian 
leadership are no longer convinced that it must maintain strong ties 
with Russia and Europe, nor do they think that these relationships have 
brought Iran any benefits to date. To the extent that this self-reliant 
attitude prevails, it will be harder to persuade Iran to cooperate with 
the international community. However, if the great powers can remind 
Iran about the true danger of isolation, the terms of the nuclear 
debate in Iran will change. Conceding will be difficult for Iran, but 
the Islamic Republic has in the past made difficult compromises with 
its revolutionary principles, such as ending the Iran-Iraq war.
    Complicating the situation is that Iranian President Mahmoud 
Ahmadinejad seems to welcome the prospect of an attack on Iran as a 
means to rekindle the lost fervor of the early revolutionary days. 
While he represents a dangerous and growing element in the Iranian 
elite, the real power holder has been the Supreme Leader (who is 
exactly what the title suggests), Ayatollah Ali Khamenei. For the last 
18 years, Khamenei has preferred low-level confrontation with the 
West--just enough to keep the revolutionary spirit alive, but not 
enough to risk open hostilities. For now, Khamenei seems to think that 
the West, despite its tough rhetoric, will do nothing to stop 
Ahmadinejad, so why not let him push ahead.

                         ECONOMIC VULNERABILITY

    Having pegged his reputation on his ability to help the ordinary 
man, Ahmadinejad faces serious problems: The economy is a mess, his 
policies are disastrous, and Iranians' expectations are sky-high. The 
World Bank's 2003 report about Iran noted, ``Despite the growth in the 
1990s, GDP per capita in 2000 is still 30 percent below what it was in 
the mid-1970s, compared with a near doubling for the rest of the 
world.'' Iranians are galled to find that their country has slipped 
badly behind the Arabs on the south side of the Persian Gulf, whom they 
traditionally have regarded as their social inferiors. Thanks to the 
tens of thousands of Iranians living in Dubai, Iranians know full well 
that Dubai is booming because it has embraced globalization, while 
their country falls ever farther behind, trapped by its suspicion of 
the West.
    Ahmadinejad's policy is based on producing everything at home and 
creating barriers to trade--he has no use for globalization. His 
government has been discouraging foreign investors, for instance, 
refusing to allow Renault to use the billion-dollar facility it built 
in Iran to build an inexpensive car for the Asian market. The recent 
Iranian boom has been based almost entirely on profligate government 
spending which cannot last forever. Despite the flood of oil money, 
government policies are such that the IMF warns the budget will fall 
back into deficit again within 2 years even if oil prices remain sky-
high.
    The recent massive government spending has led to several years of 
solid growth, yet it has barely dented the country's long-term economic 
problems. While reported unemployment fell to an 8-year low of 10.3 
percent last year, job creation remains insufficient to absorb the 
700,000 young people entering the job market each year. The IMF 
forecasts that even if oil prices remain at their present high level, 
unemployment will steadily increase in years to come. In its 2003 
report, the usually sober and understated World Bank summed up the 
``daunting unemployment challenge'' with strong words: ``Unless the 
country moves quickly to a faster path of growth with employment, 
discontent and disenchantment could threaten its economic, social, and 
political system.''
    Economic and political frustration is feeding social problems. One 
is chronic drug problem, with the Iranian Government acknowledging that 
2 million people use narcotics, mainly opium; other estimates are 
higher. Divorce is on the rise; one study found that 30 percent of 
newlyweds got divorced within 3 years. Another is increasing 
prostitution; the official estimate is 300,000 prostitutes. There have 
been a number of corruption scandals involving judges and government 
social workers involved in prostituting young girls. Instead of making 
reforms that would allow entrepreneurs to create jobs, the political 
elite is more comfortable with the ``solution'' of rising emigration 
rates, especially among the well educated. In sum, many of Iran's best 
and brightest are leaving the country, and a growing number of those 
remaining are at risk of becoming an underclass.

                BUSINESS CONFIDENCE: THE ACHILLES' HEEL

    Given that inappropriate government policies are already making the 
Iranian business community nervous, international pressure on the 
economy could have a major impact on business confidence. ``The [Tehran 
stock market has shown to be hypersensitive to political issues (such 
as the course of the nuclear enrichment negotiations), as well as 
domestic economic policy uncertainties,'' writes the state-owned 
Karafarin Bank in its Survey of the Iranian Economy for October-
December 20. In 2005, the stock market index fell 26 percent. At the 
same time, the banking system was hit by a crisis from dishonored 
promissory notes, primarily by big firms unable to pay their debts.
    With even Iranian fans nervous about business conditions, there are 
excellent opportunities to press foreign firms to reduce their presence 
in Iran. There have already been some notable successes in this regard. 
Strict U.S. Treasury application of existing rules about fund 
transfers--such as those to prevent transfer of funds to terrorists and 
weapons of mass destruction  proliferators--led the two largest Swiss 
banks (UBS and Credit Swiss) and a large British bank (HSBC) to decide 
recently that Iran was not an attractive place to do business, so they 
stopped taking new business. The impact that this is having was well 
described by the state-owned Karafarin Bank in its Survey of the 
Iranian Economy for October-December 2005:

          Most probably, the fear of imposition of sanctions by the 
        United Nations against Iran, in connection with the nuclear 
        enrichment issue, has reduced the reliability of Iranian banks 
        as international trading partners. In other words, despite [an] 
        important balance of payments surplus, Iranian banks have been 
        facing difficulties dealing with their otherwise cooperative 
        correspondents. This may prove to be for the banks and the 
        country as a whole, [sic] one of the most important obstacles 
        to hurdle in the months to came.

    There is much scope for working with U.S. allies to more vigorously 
apply restrictions an financial transactions and trade with Iran. U.N. 
Security Council Resolutions 1373 and 1540 call on countries to adopt 
and enforce effective controls on funds and services that would 
contribute to terrorism and WMD proliferation respectively. The United 
States and its allies can approach countries to ask what are they doing 
to implement these resolutions regarding Iran, especially in light of 
the International Atomic Energy Agency (IAEA) decisions finding Iran 
has violated its safeguards agreements with the IAEA. Industrial firms 
can be warned about the many items which could be diverted from their 
declared peaceful intentions to be used instead in the nuclear program. 
Banks can be cautioned about the negative publicity as well as 
regulatory complications if they were found to be facillitating shady 
businesses. European governments excel at using such quiet warnings, 
which can be very effective at persuading firms that the Iran market is 
not worth the risks; indeed, a number of European governments seem 
already to be passing such warnings. The U.S. Treasury has a well-oiled 
machinery for implementing restrictions, and its warnings to banks can 
be particularly effective since few banks in the world are willing to 
risk being cut off from dealings with the U.S. financial system. That 
same machinery could be extended to press firms considering investments 
in the Iranian oil and gas industry.
    Tighter restrictions are ``de facto sanctions'' which have many 
advantages over formal sanctions imposed by the U.N. Security Council. 
Russia and China have no veto over tightening restrictions. In the best 
of cases, obtaining Security Council consensus for action takes a long 
time, whereas tightening restrictions can be done much more quickly. 
Action by the Security Council provides Ahmadinejad with a banner 
around which he can rally nationalist reaction, claiming that the 
country is under attack. By contrast, tighter restrictions operate 
under the public's radar screen, while their impact is fully felt by 
the business community--which in Iran means first and foremost the 
revolutionary elite which behind the scenes controls the economy as 
fully as it does the political system.

                            OIL'S MIXED ROLE

    Given that Iran's goal is to use its nuclear program to achieve 
influence and prestige, fewer instruments would seem better suited to 
that task than its oil exports. It has been suggested that were Iran to 
make good on threats to cut off its oil exports of 2.5 million barrels/
day, this action would hurt the West so much it might have to back off 
on its pressure against Iran's nuclear program.
    Perhaps--but perhaps not. The present tight world oil market will 
not last forever. Production outside of OPEC is increasing, not least 
under the stimulus of high prices, and the return of Katrina-damaged 
facilities will only add to the higher output. Despite the red-hot 
Chinese and Indian economies, world demand is growing more slowly as 
price influences consumption. It is not beyond the realm of possibility 
that within the next few years, oil markets could become much more 
slack. After all, that was the experience after both the 1973-74 and 
1980-81 price increases: Within 4 years, the oil market got soft. In 
short, the more time that passes, the less may be Iran's strategic 
leverage regarding oil.
    Indeed, the world oil situation is already changing, though that 
fact is obscured by the fears of consumers and speculation of traders. 
In April 2006, world oil production was 1 million barrels/day higher 
than demand, according to the prestigious Petroleum Intelligence 
Weekly. Plus OPEC countries--principally Saudi Arabia--had excess 
production capacity of about 1.5 million barrels/day, and the world 
refinery situation is changing such that the heavier Saudi crude oils 
could be more readily absorbed (last year when Saudi Arabia wanted to 
sell additional oil to offset post-Katrina price spikes, refineries 
were unable to take advantage of the exceptionally low prices offered). 
Those two factors alone could have made up for a cutoff in Iranian oil 
exports, even without the use of the West's approximately 1.4 billion 
barrels in strategic reserves, which are the equivalent of 560 days of 
Iranian exports (figures from the International Energy Agency).
    Were Iran to cut off its oil exports, the impact on the Iranian 
economy would be considerable. To be sure, Iran's ample foreign 
exchange reserves would cushion the impact, but those reserves would 
only be sufficient to pay for a year's imports (or, if Iran cut back 
imports to the bone, for 2 year's imports at that low level). And the 
Iranian Government relies on oil revenue to fund 75 percent of its 
expenditures, according to Karafarin Bank (the IMF reports are not much 
help on this issue, because the government has taken to conducting so 
many of its operations outside the budget through various shady 
accounts).
    Perhaps the most immediate Iranian vulnerability regarding oil is 
its dependence on imported gasoline, which provide about 40 percent of 
the 350,000 barrels of gasoline sold daily. However, this vulnerability 
is less than meets the eye. The price of gasoline at the pump is 800 
rials per liter, or about 35 cents a gallon. Such a ridiculously cheap 
price encourages rampant smuggling of gasoline to neighboring 
countries, such as Turkey and Pakistan, where gasoline prices are more 
than 10 times higher than in Iran. Plus the low pump price leads to 
excessive gasoline consumption that gives Tehran some of the world's 
most polluted air; schools frequently have to close because it would be 
unhealthy for children to go outside. And the low gasoline price 
results in a massive loss of government revenue; just the cost of 
distributing the fuel after it leaves the refinery gate is more than 
what the customer pays. The IMF and World Bank have spent years 
documenting in great detail the pernicious economic and health impact 
of the excessive gasoline consumption. In short, there are few steps 
which would help the Iranian economy more than forcing a reduction in 
gasoline consumption. And the Iranian Government is well along with 
plans to ration gasoline from September 2006--plans which would allow a 
quick response in the event of a gasoline import cutoff.
    A final word about the role of oil in thinking about Iran's nuclear 
program. It is tempting to assume that Iran can use its oil riches to 
influence the decisions of other governments. However, there is 
remarkably little evidence that Iran has successfully used oil to 
induce other countries to turn a blind eye to its nuclear violations. 
Consider for instance that the great power most reluctant to press Iran 
has been Russia, which is a fellow oil exporter and could, therefore, 
benefit if Iranian oil were kept off the market. Indeed, there is 
little reason to think that Moscow's approach has been affected by any 
economic consideration, which is not surprising given the remarkably 
favorable economic circumstances Russia finds itself in, with the main 
dilemma facing the government being how much of the vast budget surplus 
to spend and how much to save. As for Iranian efforts to use oil 
projects to influence China, Japan, or India, they seem to have had 
little impact, in part perhaps because Iran has been unwilling to offer 
particularly attractive terms to foreign investors. The eye-poppingly 
large deals announced with great fanfare have all run into serious 
difficulties over the terms and conditions.

                THE LIMITATIONS OF ECONOMIC INSTRUMENTS

    Economic instruments alone are unlikely to be sufficient to 
persuade Iran to freeze its nuclear program. The principal levers of 
power in Iran are in the hands of revolutionaries who are not motivated 
primarily by economic concerns, while those who care about the state of 
the economy do not have sufficient influence on their own to persuade 
the real powerholders to change policies. Success at influencing 
Iranian policy is much more likely if action on the economic front is 
combined with action on other fronts. In particular, the security 
apparatus--especially the Revolutionary Guards--are a vital power 
center in Iran. They need to be convinced that the current nuclear 
policies are threatening Iran's security, because Iran's neighbors and 
the great powers will react in ways that will hurt Iran. If Iran makes 
the gulf a more dangerous place, then the United States and other 
powers will need to deploy more powerful military assets to the region, 
if for no other reason to protect shipping from Iranian threats to 
close the Strait of Hormuz. And Iran's nuclear program could start an 
arms race, which the gulf Arab monarchies and Turkey would win, since 
compared to Iran they are both richer and have better ties with the 
world's principal arms suppliers.
    Much as pressure should be applied on several fronts rather than 
just on the economy, so inducements offered Iran should take multiple 
forms rather than only being trade and investment incentives. Indeed, 
economic inducements look suspiciously like bribes paid for bad 
behavior. Besides being odious, such bribes give the impression that 
bad behavior is more profitable than good behavior. Pro-Western 
reformers were unable to secure a trade agreement with Europe or 
substantial U.S. relaxation of its economic sanctions despite their 
obvious interest in improving relations, but now it appears that anti-
Western hard-liners may achieve those objectives--which suggests that 
Iran would be well advised to be obnoxious rather than cooperative. No 
matter how creatively one designs or packages economic inducements, 
they will inevitably look like reward for bad behavior.
    A much more appropriate form of inducement would be security 
inducements. Such security inducements should be designed to counter 
the argument that Iran needs nuclear weapons for its defense. There are 
many confidence- and security-building measures and arms control 
measures that would provide gains for both Iran and the West, similar 
to the way such steps reduced tensions between the old Warsaw Pact and 
NATO during the cold war. One example would be an agreement to reduce 
the risk of incidents at sea between the United States and Iranian 
navies.
    A further security inducement which the United States could offer 
would be to address the reported concern that the Bush administration's 
real goal is regime change in Iran and that the Bush administration 
will use force to that end. Such complaints sound peculiar coming from 
an Iranian Government whose President lectures President Bush on why 
the United States should abandon its liberal democracy and who 
sponsored a conference last fall on the theme ``The World Without 
Zionism and America''--a government which regularly organizes mass 
demonstrations filled with the chant ``Death to America.'' Perhaps we 
should take as a compliment that Iran's hard-liners expect the United 
States to be more restrained than they are; we certainly do not 
organize terror attacks to blow up their barracks the way they did at 
Khobar Towers in 1996 or in Beirut in 1983.
    It would of course be inappropriate for the U.S. Government to 
offer any security guarantees to the Iranian or any other government; 
what government is in power in another country is up to the people of 
that country to decide. But what Washington could offer Tehran would be 
a ``conditional security assurance''--jargon for the simple 
proposition, ``We will not attack you if you do not attack us.'' To 
clarify what that means, the U.S. Government should spell out:

   ``Just as you criticize us for our liberal democracy, we 
        will remain free to criticize you for your undemocratic 
        violations of human rights.
   ``Just as you spend tens of millions on radio and television 
        broadcasting to our country to propagate your views, so we will 
        remain free to support broadcasts to Iran.
   ``Just as you tightly restrict trade with America, we will 
        remain free to restrict trade with Iran.''

    Such a conditional security assurance might not be all that Iranian 
hard-liners want, but at the very least, it would help in the battle to 
influence European and Middle Eastern opinion that the United States is 
being reasonable and Iran is not. Since Iran's main objective in 
pursuing its nuclear program is to gain influence and prestige, 
Washington's strategy should be to show that Tehran's obstinate nuclear 
stance is undermining Iran's influence.

    The Chairman. Thank you very much, Dr. Clawson.
    Dr. Kemp.

STATEMENT OF DR. GEOFFREY KEMP, DIRECTOR OF REGIONAL STRATEGIC 
           PROGRAMS, THE NIXON CENTER, WASHINGTON, DC

    Dr. Kemp. I'm the last speaker, Mr. Chairman, so how do I 
make this interesting? [Laughter.]
    I was asked to talk about three issues: Russia and China, 
the attitudes of Iran's neighbors, the opportunities for 
containing Iran by the neighbors, and a fourth issue that I 
think is very important, the necessity for United States-
European cooperation to continue.
    On Russia and China, Mr. Chairman, I am convinced that 
Russia is a key player, that Russia could have played a much 
tougher role in containing Iran's nuclear program, and that if 
it had done this, the Chinese would have gone along. They do 
not want to be the lone dissenter. But, frankly, in my 
judgement, we've not handled the Russian portfolio with great 
skill on this particular issue.
    Russia sees Iran as a cooperative partner in an unstable 
part of the world, straddling the Caucasus and Central Asia. In 
contrast, the Russians see American policy toward the near 
abroad as provocative. And while the laudatory objectives of 
the Bush administration to nurture more freedom in Eurasia and 
develop more pipeline routes are sensible, this does not help 
the Russians in their decisions on Iran.
    And I think that those of us who've talked to Russians, and 
many of us have, what you hear, is that if you want us to take 
the step of leaning very hard on our partner, Iran, then you 
have to offer us some quid pro quos. And the quid pro quos that 
you normally hear discussed have to do with our efforts to get 
Ukraine into NATO. In my judgement, the Russians and the 
Chinese are both playing power politics on the issue of Iran, 
and I don't think they see any reason to help us on the 
particular nuclear issue unless there is something in it for 
them. And, frankly, aside from the broad goals of 
nonproliferation, I don't think we are offering them very much.
    Now, to change the subject, what about the neighborhood 
that Iran finds itself in? What do the neighbors think about 
this current regime and its behavior, particularly on the 
nuclear front? The neighbors of Iran all have specific problems 
with the leadership, but I think they all share a concern about 
the nuclear program. The dilemma is, of course, that Iraq's 
Shi'a leaders owe a great deal to Iran and have nurtured very 
close ties with the mullahs while also making it clear they do 
not want to see the establishment of a Shi'a theocracy in Iraq.
    Turkey and Iran share common concerns about the evolving 
problems in the Kurdish region in northern Iraq, and we've seen 
reports of Iranian troop movements in the north and Turkish 
troop movements in the north, suggesting that this tranquil 
area may not be tranquil forever.
    The key Sunni states of the region are very, very fearful 
about Iran's hegemonic tendencies, and, as you know, there's 
this talk throughout the Arab world about a ``Shi'a Crescent'' 
emerging from Iran through Iraq into Syria and Lebanon. We can 
dispute that, but there's no doubt that is a concern.
    The smaller gulf states plus Saudi Arabia worry about the 
impact of Iranian hegemony on their own Shi'a populations. The 
UAE has longstanding territorial disputes with Iran. Quatar has 
become perhaps our most reliable military ally in the region 
apart from Kuwait, and, therefore, has certainly taken sides on 
this issue. I think Oman is probably the least worried country 
in the gulf about what the Iranians are doing.
    Now, how do we assess, therefore, the development of an 
Iranian nuclear program on gulf security? Here I think there is 
a major difference between Saudi Arabia, the large country, and 
the smaller countries that are basically going to have to 
depend on us for their security no matter what the Iranians do. 
In the case of Saudi Arabia, they have the money and the 
wherewithal, not the technical wherewithal but the political 
wherewithal, to essentially buy themselves some form of 
deterrence if the Iranians get the bomb. You will remember in 
the 1980s that when we, the United States, refused to upgrade 
the Saudi F-15 fleet with conformal fuel tanks because that 
would extend their range deep into Israel, they, unknowingly to 
us, turned to China for medium-range surface-to-surface 
missiles, which they still have in their inventory. How good 
they are, we don't know, but they have them there. And there's 
no doubt in my judgment that if the circumstances arose where 
Iran had a nuclear program, they could do likewise, and there 
are countries who I think would be prepared to be very 
supportive of them. Pakistan immediately comes to mind.
    If the Iranians crossed the threshold and actually produced 
some form of nuclear device what would be the major concern? At 
this point in time, in the Arab Gulf at least--the concern 
would be that there would be a preemptive United States and/or 
Israeli strike, which they believe would be highly 
destabilizing, not only because of their own internal problems, 
which I alluded to, but because of the impact that could have 
on the oil market, and, of course, they're all there together 
in this highly vulnerable gulf infrastructure.
    The problem also is that there's huge suspicion about how 
much we really know about the Iranian weapons program. The 
failure of the intelligence on Iraq has had an enormous impact 
on our credibility.
    I go on in my testimony to talk about opportunities for 
containing Iran, even if it goes as far as a nuclear weapon. 
And indeed there are many things we could do in bolstering the 
security of the region, not only with our own forces, but in 
providing more capabilities to the local countries to defend 
themselves, so that at the end of the day, when the Iranians 
look around at their strategic environment if they get the 
bomb, they may find themselves even less secure because the 
neighbors have responded with upgrading their own military 
capabilities.
    Let me end, Mr. Chairman, since it's getting late, with my 
overview of where we stand today, diplomatically. I think the 
Iranian Government, as my colleagues have also been inferring, 
feels supremely confident at this point in time that neither 
the United Nations, nor the IAEA is going to really do anything 
to hurt them. And, therefore, I think what we have to fall back 
on is the issue as to whether or not this coalition of the 
willing that Dr. Clawson alludes to, mainly the United States 
and the Europeans, will be prepared in the last resort to use 
strong economic and diplomatic measures against Iran, 
irrespective of what the United Nations, Russia, China decide 
to do. And here the real pressure is on the Europeans. Don't 
forget we've had Iran under sanctions now at full speed since 
the mid-1990s. The Europeans keep avoiding the discussion of 
imposing sanctions similar to ours, in part because they 
haven't yet agreed among themselves about whether they think 
this is a wise idea or whether they can get consensus among 
themselves. But there's no doubt in my judgement that if the 
European Union were to do to Iran what we are currently doing 
in the economic arena, it would have a very serious impact on 
the Iranian economy for all the reasons that my colleagues have 
pointed out. It would not, however, change the Iranian behavior 
on the specific issues that we are most concerned about at this 
point in time: The nuclear threat, terrorism, and their 
treatment or attitude toward the peace process in Israel.
    So while I think that European and American and Japanese 
economic sanctions against Iran would have a long-term impact 
on the regime, and that might in turn bring about much more 
discontent with the current leadership, we should not kid 
ourselves that this is going to change anything in the short 
run.
    The Iranians are showing, at this point in time, sort of 
almost gleeful defiance, not only at ourselves but at the 
international community. Mr. Ahmadinejad's statements about 
Israel have actually stimulated a lot of support in certain 
Islamic countries, and once he saw this happening, he's then 
been repeating it time and time again. But I think, as my 
colleagues have pointed out, the Iranians would be unwise to 
assume that things will go their way indefinitely. And in this 
regard I agree with most of my colleagues that Iran's vital 
national interests would be helped by ending the standoff with 
the United States. I believe that we should have a dialog. I 
think we have far more to gain than to lose if we have a 
coherent and pragmatic policy toward the Islamic Republic, and 
I think in the long run that will benefit everybody.
    Thank you.
    [The prepared statement of Dr. Kemp follows:]

Prepared Statement of Dr. Geoffrey Kemp, Director of Regional Strategic 
               Programs, the Nixon Center, Washington, DC

    Mr. Chairman, I am grateful for the opportunity to speak to you and 
your colleagues about a matter of grave importance to the United 
States, namely Iran's behavior and its nuclear program. The committee 
has asked me to comment on three subjects:

   Can Russia and China be helpful in pressuring Iran to change 
        its present course?
   What are the attitudes of Iran's neighbors to the current 
        regime and the course it has chosen to pursue?
   Do opportunities exist in the region for those seeking to 
        contain Iran?

    I will add a fourth issue:

   The need for continued U.S.-EU cooperation
Can Russia and China be helpful in pressuring Iran to change its 
        present course?
    There is no doubt, in my opinion, that Russia is the key player on 
this matter and that with adroit diplomacy it would have been possible 
to obtain the cooperation of the Putin government to put far more 
pressure on the Iranian regime to put limits on its nuclear program. In 
the event of Russian cooperation it is unlikely that China would be the 
lone dissenter to joint pressure against the Islamic Republic.
    However we have not handled the Russia portfolio with skill. Russia 
sees Iran as a cooperative partner in an unstable part of the world 
straddling the Caucuses and Central Asia. In contrast the U.S. policy 
toward Russia's ``near abroad'' is seen in Moscow to be provocative. 
The laudatory objective of the Bush administration is to nurture more 
freedom in Eurasia and to develop multiple pipeline routes in the 
context of energy security. However in the specific context of 
persuading Russia that it is in its interests to turn on one of its 
partners, Iran, it must be asked what it is we are offering the 
Russians to make this difficult choice worthwhile? Russians privately 
tell you that if the Americans want to deal on Iran then it would 
require some quid pro quo, such as not encouraging Ukraine to join NATO 
or not deliberately making provocative speeches in the region a few 
weeks before the G-8 summit in St. Petersburg. I would have to conclude 
that while there are good arguments for being critical of Russia and 
being supportive of neighbors such as Ukraine and Georgia, the Baltic 
States, and Kazakhstan, such pronouncements are counterproductive in 
the context of Iran policy.
    Seen from the Russian point of view, not only are we interfering in 
their backyard, but if we eventually improve relations with Iran as 
part of some ultimate ``grand bargain'' and remove economic sanctions 
then Russia stands to lose a great deal of economic leverage in that 
country while witnessing the return of the United States and all that 
entails for the region.
    A similar set of tradeoffs could be made in the context of China. 
China is not unhappy to see us struggling in the Middle East, even 
though it does not want to see a failure in Iraq. Neither does it want 
to see an Iranian nuclear program. Yet China, too, would need some quid 
pro quo to put serious pressure on Iran.
What are the attitudes of Iran's neighbors to the current regime?
    Iran's neighbors have different specific problems with the current 
leadership in Tehran but all are concerned about its nuclear program. 
Most of Iraq's Shi'a leaders owe a big debt to Iran and have nurtured 
close ties with the mullahs while making it clear that they do not wish 
to establish a Shi'a theocracy in Iraq. Turkey and Iran share common 
concerns about the evolving Kurdish region in northern Iraq. The Sunni 
Arab States are all fearful of Iran's hegemonic tendencies and talk 
about a ``Shi'a Crescent'' running from Iran, through Iraq into Syria 
and Lebanon. The Gulf States with significant Shi'a populations, 
notably Saudi Arabia and Bahrain, worry about domestic pressure. The 
UAE has a longstanding territorial dispute with Iran. Qatar has become 
a firm military ally of the United States. Oman is probably the least 
worried about Iran, though this could change.
    How to assess the impact of Iran's nuclear program on gulf 
security? There is a major difference between Saudi Arabia and the 
smaller GCC countries, because of Saudi Arabia's size, budget, 
infrastructure, and regional aspirations. For instance, unilateral 
options open to the smaller Gulf States in the event of an Iranian bomb 
are very limited. Saudi Arabia, however, has the capacity and the 
wealth to consider some form of nuclear deterrent, most likely in 
cooperation with another country, such as Pakistan. Saudi Arabia 
already has Chinese SS-2 medium range missiles in its current 
inventory. It is not unreasonable to assume that Saudi Arabia could 
engage in nuclear purchases, either the basic fissile materials to make 
a bomb or a finished product. Furthermore, it is not only an Iranian 
bomb that could motivate Saudi Arabia to consider such an option. The 
propensity of Saudi Arabia to think about a nuclear option is related 
to the state of its relationship with the United States, which, until 
recently, was always considered the protector of the kingdom in the 
last resort.
    Aside from Saudi Arabia's reaction, the most likely initial 
response of the gulf countries to the news of an Iranian nuclear 
weapons program will be concern about possible United States and 
Israeli preemptive military actions. The Bush administration and 
Israeli leaders have both made it clear that the Islamic Republic's 
possession of the bomb will be an intolerable threat.
    However, since the Iraqi war and the unreliability of Western 
intelligence concerning Iraq's WMD programs, the case for preemptive 
war against supposedly proliferant states has been weakened and, 
therefore, the political costs of undertaking such action in the future 
have become much higher. If there is uncertainty with intelligence 
about an Iranian bomb, the United States and Israel will have problems 
garnering support for military action. Even if the evidence is 
overwhelming and highly convincing (i.e., Iran either tests a nuclear 
device or announces it is building the bomb), there will be reluctance 
to endorse United States-Israeli military action for fear of the chaos 
this could bring to the gulf and the region.
Do opportunities exist in the region for those seeking to contain Iran?
    An Iranian nuclear program means the United States will have strong 
reasons to maintain its military presence in the Gulf States. The 
nature and purpose of enhanced military cooperation between the United 
States and the Arabian Peninsula could take many forms. The most 
important component would be a counterdeterrent to indicate to Iran 
that any efforts to use nuclear weapons to intimidate or blackmail 
would be challenged by the United States. The credibility of this 
counterdeterrent would be linked to the vulnerability of U.S. forces 
and U.S. targets themselves to Iranian intimidation. And here we are 
referring to regional targets. Iran is not expected to deploy an 
intercontinental ballistic missile capable of striking the continental 
United States for many, many years. It is difficult to see under what 
circumstances Iran could use its nuclear weapons in anger, except for 
in some suicidal spasm similar to the scenarios that were heard so 
frequently with respect to Saddam Hussein and his capacity for a 
glorious Gotterdammerung ending to his fiefdom.
Need for continued U.S.-EU cooperation
    The Iranian Government feels sufficiently confident of its 
diplomatic position on the nuclear program, at both the United Nations 
and the IAEA, to run the risk of a major confrontation with the United 
States and Europe. The key test will be whether the United States and 
Europe can continue to address this issue from the same set of 
principles and talking points. Much will depend on whether the 
Europeans are now finally prepared to join the United States on 
imposing economic sanctions on Iran if pressures from the IAEA at the 
Security Council fail. The Iranian nuclear issue will be a test not 
only of U.S.-European relations, but of European resolve as well. It is 
important to note how far out on a limb the European governments, 
particularly Britain, France, and Germany, have gone in proposing this 
agreement and what a challenge they face if the Iranians continue their 
nuclear enrichment program.
    Iran's leaders appear to have calculated that they can withstand 
the diplomatic pressure they are likely to face and that even if 
sanctions are imposed Iran has the will and financial resources to ride 
them out. It remains to be seen what the long-term implications of this 
are for both Iran's domestic politics and its actions in Iraq. If the 
United States and Europe increase their rhetoric against the Iranians, 
and if sanctions begin to hurt Tehran, Iran may use its bargaining 
chips in Iraq at a critical moment in its post-Saddam political 
evolution. The linkage between the Iran's nuclear issue and its role in 
Iraq is becoming clearer.
    Despite Iran's gleeful defiance of the international community on 
the nuclear issue, it would be unwise for Iran's leaders to take their 
current good luck for granted. The Islamic Republic faces significant 
social and economic challenges that can only be made more difficult by 
alienating the West. The embarrassing and unacceptable statements by 
its new President calling for Israel's destruction, while a popular 
theme in many Islamic countries, have harmed Iran's international image 
and caused further anxiety with his behavior at home. Regionally, Iran 
has poor relations with its Arab neighbors, and it cannot be assumed 
that Iraq's Shiite community will remain friendly and grateful 
indefinitely. Iran's vital national interests could be helped by ending 
the standoff with the United States. Likewise, the United States has 
more to gain than lose if it adopts a more coherent and pragmatic 
policy toward the Islamic Republic.

    The Chairman. Thank you very much, Dr. Kemp. We'll have a 
round of questions and once again we will have an 8-minute 
period for Senators.
    Let me commence by asking you, Mr. Sadjadpour, frequently 
persons talk about working with elements inside of Iran, 
presumably persons, groups that might be helpful in creating a 
dialog somewhat different from the official dialog that many 
witnesses have suggested today at the highest levels, 
conceivably with youth, even I understand that an Iranian 
congressional delegation went to London recently and met with 
legislators over there. But let me just ask you as a student of 
who is in Iran and who might talk and who could make any 
difference, Are there other avenues here, or are these sort of 
wishful thoughts by many Americans who somehow are still 
looking for persons who want peace and who want a different 
situation, maybe who resist the mullahs, have any other views? 
Are we able to identify those people, and would even contact 
with them be dangerous for them, maybe not useful to be 
identified as friends with whom we might talk?
    Mr. Sadjadpour. Well, that's a great question, Mr. 
Chairman. I think in the current context of United States-Iran 
relations, not only with the military option not being taken 
off the table, but also with $75 million recently earmarked for 
supporting change in Iran, what is perceived in Tehran as a 
passive or covert regime change approach, I think it's very 
difficult to have official interaction with these types of 
elements within Iran. The example I will give you right now is 
a very dear friend of mine called Ramin Jahan Begloo, a 
prominent secular intellectual who was imprisoned 3 weeks ago 
and has been in solitary confinement since. He was a fellow at 
the National Endowment for Democracy about 4 years ago, and he 
has a great track record of being an apolitical, secular 
espouser of nonviolence, et cetera. And I see in the current 
context one of the wishes from his family, one of the first 
wishes from his family, was that the U.S. Government doesn't 
release any statements on his behalf, that it would be 
counterproductive to his cause when he's currently being tried 
on charges of--bogus charges of espionage.
    So I think in the current context it's very difficult to 
support these actors within Iran, simply because the costs for 
them are tremendous, and then the United States has very little 
leverage, if at all, to help their cause. But I would argue 
that any types of interactions in terms of easing of visa 
restrictions for Iranian students, as you said, congressional 
delegations, both from the United States and Iran, interacting 
with each other, scholars going back and forth, every time I've 
seen these interactions take place, I always come away with 
both--I see that the Iranian officials and the members of the 
political elite who come and spend time in the United States 
come away with a far more nuanced and understanding position of 
the United States and vice versa. United States scholars and 
academics and analysts who go to Iran come away with a much 
better understanding of Iran's perspective. So I do believe 
that interaction is definitely a plus, something that we should 
push for, but in the current context it's very difficult to 
support any types of political actors within Iran because by 
helping them I think we're doing far more to hurt them.
    The Chairman. Let me ask you, Dr. Kemp----
    [Disturbance in audience.]
    The Chairman. Please. I'm sorry. The committee will come to 
order.
    We will be in recess until the police have removed the 
demonstration.
    [Recess.]
    The Chairman. All right. The committee will come back into 
session.
    Dr. Kemp, let me ask you, what can the United States say to 
China or to Russia that might bring a ray of cooperation with 
them? Are there things that we can say to them, offer them? How 
do we enhance our dialog with partners that we've all said 
might well be around the table, I think. Would one suggest six-
power talks with Iran, maybe comparable to the North Korean 
effort?
    Dr. Kemp. Not easy. I think what we have to do is get our 
priorities straight. I mean, if indeed we all agree that the 
Iranian crisis is right up there with Iraq as a priority for 
the administration and the country, then we have to make 
tradeoffs. And it seems to me that in the case of Russia, we 
are doing things in diplomacy that are not only unhelpful, but 
seem to me to be somewhat provocative. And, therefore perhaps, 
the first thing we should do is to lower our own rhetoric at 
this point in time about some of the issues on which this 
particular Russian Government feels extremely sensitive.
    Now, you know, that of course means upsetting those who 
want to hear us speak out more loudly for the extension of 
democracy and freedom in Russia and in the near abroad and in 
Central Asia, but we have to make some hard choices. And my 
judgement is that it's not just that we're not offering the 
Russians, or for that matter, the Chinese, any real incentive 
to help us on Iran; in the case of Russia we seem to be going 
almost in the opposite direction.
    The Chairman. Let me just ask you, Dr. Clawson, quickly, 
you suggest in your written testimony that Iran has had little 
success using oil projects to influence China, Japan, and 
India. Why is this? One has the impression reading the press 
every day that given the sizeable contracts that are signed and 
the oil that's to be delivered, that Iran has considerable 
leverage over these countries.
    Dr. Clawson. Well, a good example is what's happened this 
last week. Iran signed a contract with India when President 
Ahmadinejad went to India for shipping natural gas to India, 
and Iran insisted on a price which was 40 percent higher than 
what India is paying for the natural gas that it imports from 
Quatar. And this week the Iranians said, well, you know we've 
rethought this matter, and we've decided that's not good 
enough--we want an extra 57 percent more in the price. So, in 
other words, we want to get a price which is more than twice 
what you're paying Quatar. And the Indians are saying, wait a 
minute here--this deal's no good. We would have to be paying 
much more than we could get the gas from other sources.
    So the fact is that the Iranians have been insisting that 
they're going to get every last penny out of these deals, and 
they're not particularly attractive. So the Indians, in fact, 
have said if you don't back off, we're going to, in fact, tear 
up this deal because it's just not attractive. So, in other 
words, while Iran has been prepared to sign big deals, it 
hasn't been prepared to put even small bucks on the table to 
make those deals attractive, and most of those deals are in 
very serious trouble.
    The Chairman. That's fascinating testimony because the 
general impression is that the price is right, that essentially 
there's a cohesion of effort here, but as you're pointing out, 
the price isn't right, and apparently there are still 
alternatives for the Indians, thank goodness, at least in terms 
of their economic security. And I appreciate it. Senator Biden 
and I just chatted for a moment when you talked about the stock 
market in Iran going down 26 percent. It raises all sorts of 
curious issues about the market, what's listed there and what, 
in fact, happens in their economy. The fact that that market 
might be sensitive to its foreign policy and actually reflect 
that and be reported is interesting all by itself.
    Well, let me cease for the moment and recognize my 
colleague, Senator Biden.
    Senator Biden. Well, you've asked some of the questions 
that I wanted to raise, particularly with Dr. Kemp about what 
we can essentially offer or forgo with regard to Russia and 
China. The thing that surprises me the most, Dr. Kemp, is of 
the seven administrations that have been here when I've been 
here, this is the only one that doesn't seem to connect dots 
very well. I mean, everything is bilateral. There doesn't seem 
to be any ability to be able to figure out what may be in our 
mutual interest if we offer A or B to Country X or Y that they 
may change their policy with regard to a priority we have. I 
don't get a sense--I mean, we really don't. In 6 years, I've 
not gotten a sense there's any of that kind of thinking.
    [Disturbance in the hallway.]
    Senator Biden. Catchy tune. [Laughter.]
    But you've answered that question. Here's what I take away 
from your collective testimony--and any one of you jump in 
here--that there is, the economy is critically important to the 
regime to be able to have a prospect of not preventing a 
rebellion, but providing some stability; that you vary in your 
sense from Dr. Pollack to you, Dr. Clawson, and others in 
between, as to whether or not the oil revenues that are 
available now are enough to sort of satiate that or hold over 
any kind of, if not eruption, any, you know, genuine discontent 
within the country. And this notion that if given choices, as 
one of you said, if given choices of sanctions or reintegrate, 
they'd choose to reintegrate, but that requires you to have 
some credible sanctions. Right now it seems to me the real 
choice is they get a nuclear program, there are no sanctions, 
and they're not denied from--they don't have total integration. 
I think they can see their way through to integration once they 
break through this nuclear piece and actually accomplish it or 
get the rest of the world to back off. And so the central 
question for me is, No. 1, who's really in charge? Who gets to 
call the final shots? Is it the radical hard-liners? Is it the 
mainstream? You know, Khamenei, is that where it is? What 
influence do the Iranian people have on this process?
    And the second big question I have--Dr. Clawson, you piqued 
my interest in a way I hadn't thought about it, that a 
coalition of the willing dealing with sanctions that affect the 
banking industry, and/or an ability to encourage their domestic 
companies to cease and desist from operations in Iran is fairly 
powerful. And so I have two questions.
    One, Dr. Pollack, What do you think about Dr. Clawson's 
notion that if, in fact, the European Union would engage in the 
same kind of sanctions that the United States is engaged in it 
would have a material impact on attitudes in Iran?
    And to ask all of you, in a sense what difference does it 
make if the hard-liners are really calling the shots at the end 
of the day, because they do not have any fear of this grand 
bargain like was made in China. You let us continue our 
despotic oligarchy and maintain the control over foreign policy 
and your lives, we'll let you have economic growth. And this 
grand bargain is going on where growth is occurring in China. I 
think the game is to sort of satiate the desire for what we 
call freedom. Is there any such dynamic going on in Iran?
    So, first question, and maybe my only question in the 3 
minutes I have left here, is, you know, who's in charge, and do 
the sanctions that Dr. Clawson--assuming we could get them--do 
they--would they matter, Dr. Pollack?
    Dr. Pollack. Thank you, Senator. And my response will also 
have to be brief. As the chairman is aware, I'm going to have 
to leave to make an event at the University of Delaware, which 
I know you would not want me to miss. [Laughter.]
    Senator Biden. Get going. I'll go right to Clawson. 
[Laughter.]
    Dr. Pollack. I will answer quickly. First, with regard to 
who rules, who's going to make this decision, the honest answer 
that we all have to say is we don't really know. The Iranian 
regime is, as Winston Churchill once said about Russia, a 
riddle wrapped in a mystery inside an enigma. And even the 
Iranians themselves, high-ranking Iranians in the government 
often have difficulty predicting what's going to happen. I 
think what we would all agree on is also though that the most 
important figure in the regime is clearly the Supreme Leader, 
Ali Khamenei, who has had the most decisive impact on Iranian 
policy over the last 15 years. That said, he has typically, as 
best we can tell, exerted that influence by balancing his two 
camps off and coming up with very clever compromises that give 
each of them half a loaf.
    The policy which we are all more or less subscribing to in 
one way or shape or form would ultimately be about driving Mr. 
Khamenei to make a decision he doesn't want to make, which is 
to say to him, you can't give each side half a loaf; one side 
gets the whole loaf. Which side is it? And I think what we're 
all betting is that, based on his prior behavior and the fact 
that the regime, as Karim pointed out, is quite sensitive to 
public opinion, we're betting that he ultimately, if faced with 
that dilemma--faced with that choice--would say, I don't like 
it, but the pragmatists, the economy get the whole loaf.
    With regard to Dr. Clawson's idea, as always I think it is 
a very clever one. I certainly agree. It is actually consistent 
with something I wrote a number of years ago about the 
importance of perhaps pursuing these sanctions in a 
multilateral forum outside the Security Council because of the 
problems we were likely to have in the Security Council. The 
one caveat I would attach is, is that I think it is absolutely 
critical that there be formal sanctions. As Dr. Clawson pointed 
out, all of this kind of informal sanctioning that is going on, 
this capital flight, the fear of doing business in Iran, is all 
predicated on the expectation of sanctions, and if it, at some 
point in time, it were clear that those sanctions were never 
going to occur, I think all this informal pressure would go 
away. So I think it is important, but I think it is entirely 
possible to do it in a multilateral framework.
    Senator Biden. Is that your--is that the context as you see 
it, Dr. Clawson, that the threat of sanctions is the mover 
behind the actions taken by various banks and others of not 
investing or withholding or withdrawing? Are they connected? I 
mean, tell me what you think about that.
    Dr. Clawson. We've got a powerful helper in this process, 
and his name is Ahmadinejad. With his stupid economic policies 
and his discouraging foreign investment, and his imposing price 
controls here, there, and everywhere, and announcing that the 
way he's going to help the automobile companies is freeze the 
prices that cars are sold at in a country with 20 percent per 
year inflation, I mean, his stupid economic policies are making 
the place a bad place to do business, and he's helping us a 
lot, therefore, on this front.
    Senator Biden. Well, let me ask you another way. The threat 
of sanctions out of the Security Council or wherever, formal 
sanctions, how much of a factor is that in the broader point 
you made about sanctions that are less formal but coherent?
    Dr. Clawson. For the key actors involved in the Iranian 
economy at the moment, not very. So for instance, you've got 
Renault and Total, two companies which have historically been 
owned by the French Government. The French Government can 
provide some pretty impressive informal guidance through the 
social networks that link together the business elite with the 
government elite in France, and Total and Renault can get the 
point and scale back their activities.
    So this sort of informal guidance fits in with how France 
does business usually, and let's build on it. And, if I may say 
so, it was a French Government official who told me about their 
interest in these de facto sanctions.
    So I'm optimistic that right now Ahmadinejad is living on a 
cloud because he's done the easy part, he's promised everybody 
things. And now he's got to deliver, and I don't think he's 
going to be able to. When, in fact, people discover that he's 
not delivering, there's going to be a real drop in his 
popularity. And right now the Supreme Leader, who's letting 
Ahmadinejad run free, is going to yank his chain back and this 
guy's not going to get what he wants. That's what happened to 
the last two Presidents. We shouldn't go around assuming that 
this President is somehow Superman. We thought that about 
Khatami with his talk about dialog of civilizations. We thought 
that 16 years ago about Rafsanjani with his talk of economic 
reform. And they both came crashing down to earth pretty fast. 
So it's a question of how can we postpone this nuclear issue 
long enough until Ahmadinejad crashes and burns.
    Senator Biden. Thank you very much.
    The Chairman. Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman, and thank all of 
you. You've really given terrific testimony and most 
informative. I appreciate it immensely. And, again, thank you, 
Mr. Chairman, for doing this. It's tremendously helpful.
    A couple of quick questions. I presume the previous two 
panelists when I raised the issue to lay out a scenario of 
exercising nuclear--or rather the military option. And there 
was, I think, general consensus that this would be a very 
complicated process, to put it mildly, that there would be a 
significant--it would make it difficult to have any kind of 
permanent solution here on the nuclear weapons capability of 
Iran, even if you were successful with a military option, and 
the collateral fallout of it would be pretty significant. I 
wondered if any of you disagreed with anything that was said 
there. I don't want to dwell on it. Would you add anything to 
that question I raised, or would you disagree with anything 
that was said by the two previous witnesses?
    Dr. Clawson. I would say that we should certainly operate 
on the assumption that that's what's going to happen, because 
it's a cautious assumption and we should plan for very bad 
cases. But I would just point out that the last time the United 
States and the Iranians really mixed it up was back at the end 
of the Iran-Iraq war in 1988. And at that time, after some 
initial belligerence by the Iranians, the fact is that when 
they decided that the United States was entering this conflict 
on the side of Iraq, they had no choice but to back down. And 
Ayatollah Khomenei, in fact, had to give up what had been for 
him one of the most precious aspects of the revolution, the war 
with Iraq. And he described it as like worse than drinking a 
cup of poison, but he did that.
    It would be a bad idea for us to plan that that's going to 
happen, but there is that possibility that it could happen. But 
we certainly, certainly should not assume that that is the 
case.
    Dr. Kemp. I don't disagree with that, but I do think that 
we have to be very specific about the circumstances under which 
we would contemplate any military action. I mean, there are 
things the Iranian Government could do to provoke not just 
ourselves but the rest of the world that would make it much 
more legitimate to consider the use of force. But absent 
getting a much broader agreement and a consensus on the use of 
force than we have today, I think the most immediate 
consequence would be in the energy sector at a very critical 
time, and I think that is something that I think any 
administration would have to pay attention to. And it's not 
just the fact that the oil prices would spike significantly, 
but that there could be serious damage to the infrastructure, 
not just of Iran's oil facilities, but those of the neighbors, 
including Saudi Arabia.
    Senator Dodd. Mr. Sadjadpour.
    Mr. Sadjadpour. I know Senator McCain has spoken on this 
before, saying that the only thing worse than military strikes 
on Iran would be Iran acquiring a nuclear weapon. I would 
slightly disagree with that, and I would put it into three 
different contexts. First, there's a domestic context. I would 
still make the argument that the Iranian people are the most 
pro-American people in the Middle East. But I can tell you that 
the United States has lost considerable political capital on 
the Iranian streets in the aftermath of the Iraq war. Daily 
broadcasts of the chaos, tumult, and insecurity in Iraq I think 
have taken their toll on the Iranians, and there is increasing 
skepticism about what the United States has planned for the 
region. So I think the fallout in terms of soiling this oasis 
of goodwill which currently exists vis-a-vis the United States 
would take place. I think that people like the 
confrontationists like Ahmadinejad would actually perhaps 
welcome some type of military encounter. It would give them 
further pretext to clamp down on popular will.
    From the regional perspective, I would argue that it's 
going to be very difficult to confront Iran while 
simultaneously trying to tranquilize and democratize Iraq. I 
would argue that the most plausible Iranian reaction will be in 
Iraq, but it won't be, I would argue, what Iran was doing in 
Lebanon in the 1980s, which is conducting suicide operations 
and killing United States troops. I would argue perhaps a more 
plausible Iranian response would be to mobilize and incite 
their Shiite friends in Iraq to, say, mobilize a 2-million-man 
march against the United States occupation. When you have 
Iraq's newly elected leadership telling the United States to 
leave, it's going to be very difficult to stay, and I would 
argue that that's going to be a much greater blow to United 
States interests in the region rather than the killing of more 
United States troops.
    Lastly, from a proliferation perspective, I believe the 
fallout would be tremendous and it would actually be 
counterproductive. I once played out this military option with 
a Navy captain, a retired Navy captain, who said to me, well, 
let's assume that we bomb Iran's facilities, and admittedly we 
don't have very good intelligence on where these facilities 
are, some of them are buried underground, Iran's likely 
reaction is going to be, well, you've now proven to us that we 
need a nuclear deterrent, so in fact we are pursuing the 
nuclear option and tells the IA inspectors to get out. 
International public opinion I think will sympathize with 
Iran's stance, and at that point, if they are pursuing a 
nuclear weapons program clandestinely, and there's no 
inspectors present, and the intelligence is very small, you're 
going to have to send in ground troops to go and prevent this 
production of nuclear weapons, and where are ground troops 
going to come from when we have 140,000 troops in Iraq and 
we're quite spent.
    So I think the fallout from a military encounter would be 
tremendous, and would actually be in my opinion the greater of 
the two evils of Iran acquiring a weapon or bombing it.
    Senator Dodd. Very good. Thanks. Let me jump. I'm curious 
as to how you would--what you think the U.S. response--official 
response--ought to be to the letter, which I've read several 
times, and my reaction is forget about the content--it was a 
letter, and you react to the letter. The fact that it was sent 
has more value to me, in many ways, than what was in the 
letter. And, in fact, if you read the letter and sort of 
disregard each of the major paragraphs about Christianity and 
the like, there are certain sentences in there that certainly 
sympathizing, expressing a sense of condolence and solidarity 
with the United States regarding the 9/11 attacks and how any 
nation has a right to respond when its security is jeopardized. 
So I wonder what you think we ought to be doing about that, if 
anything at all.
    Mr. Sadjadpour. I'm certain we all have views on that.
    Dr. Clawson. That letter was not for President Bush; that 
letter was to the Iranian people and to make an argument for 
Ahmadinejad to the Iranian people. And I think we should 
respond in kind with a letter to the Iranian people, which I 
would address to Ayatollah Khamenei, who is the Supreme Leader, 
who really holds power. But my aim would be to influence 
Iranian opinion and world opinion and to heck with the Iranian 
Government. I mean, that letter was not designed to persuade 
President Bush to do anything; it was designed to be part of 
the battle of ideas. And we should take advantage of this to 
wage the battle of ideas. I frankly think our diplomacy is 
going pretty well with regard to Iran, but I think that our 
public diplomacy, our waging the battle of ideas, is not going 
particularly well, and we're not spending a lot of time and 
effort on it. And so I thought it was unfortunate that we 
looked at this and said, well, this is silly if it's diplomacy, 
which diplomats around the world will recognize that's the 
case. That's not the purpose of this. This was a propaganda 
ploy vis-a-vis his own people, and we should respond in kind.
    Senator Dodd. Dr. Kemp.
    Dr. Kemp. I think we should have responded to it. I think 
we should respond to it. I would be open to suggestions to who 
the addressees are. We can make it to both the President and to 
the Supreme Leader and to the Iranian people, but I think there 
are things that we could say in a letter that would put us on 
the high ground. There are many issues that he raised about 
liberty and justice that I think we could certainly ask about 
the situation in Iran. I think the letter was quite 
deferential, actually, to religion, particularly to 
Christianity and that there's no reason why we should ignore or 
snub the letter. We just have to craft a wise and careful 
response.
    Mr. Sadjadpour. I think President Ahmadinejad was trying to 
take a page out of the play book of his idol, Ayatollah 
Khomenei, who wrote a letter to Gorbachev in, I believe, 1989, 
was it? And he wrote to Gorbachev that he should embrace Islam 
or risk the downfall of the Soviet Union. And many Iranian 
radicals to this day believe that Khomenei was very prescient 
in his analysis, and I think Ahmadinejad was trying to take--in 
fact, yeah, he caused the downfall of the Soviet Union. So he 
was trying to take a page out of his idol's play book. But I 
would also agree with Professor Kemp and Dr. Clawson that we 
should respond to this letter. We could have a debate about who 
the letter would be addressed to: The Iranian people, to the 
Supreme Leader, et cetera. But there were particular lines from 
the letter which I found quite astounding and really lacking of 
any type of self-awareness when Ahmadinejad criticizes human 
rights abuses in the United States or unfair detentions in 
Guantanamo Bay, lack of representation, lack of legal progress. 
As I said, when I have a very close friend of mine who's 
detained right now in an Iranian prison in solitary confinement 
for 3 weeks without any legal representation and without any 
contact with his family, I think the United States would be 
wise to call Ahmadinejad on this type of rhetoric.
    Senator Dodd. Let me jump to another letter, though, that's 
a bit more substantive, and that is, of course, this piece that 
appeared in the May 9 edition of Time, and it's ``Iran's 
Nuclear Program: The Way Out,'' written by Hassan Rhohani, who 
is one of the chief negotiators for Iran and its nuclear 
programs, but also very close as an advisor to the Supreme 
Leader. And this was a far more substantive piece. I don't know 
if you've seen this. Have you seen this? Well, it lays out some 
suggestions as to how Iran might be willing to respond to this 
nuclear question. Could you address this, and, by the way, just 
in the context of it, and I think you answered it with Senator 
Biden's question, but I didn't really see this as a debate 
between an economic approach or a security approach, but rather 
probably having some mix of the two would make the best sense 
in a way here, taking your suggestions.
    But I wonder if you might comment on these suggestions. 
They're far more, obviously, substantive than the letter that 
was sent to President Bush.
    Dr. Clawson. To quote a senior State Department official, 
there's a reason he only sent that letter after he got fired. 
If Iran's really interested in exploring these things, there 
are quiet channels through which these things can be passed. A 
former official publishing in the pages of Time is again more 
aimed at showing the American public and the European public 
that Iran is reasonable than it is at actually trying to 
resolve things, because I don't think there's a bat's chance in 
hell that the current Iranian Government would agree to those 
proposals at the present.
    Dr. Kemp. I think that what the letter demonstrates is 
that, you know--and Rhohani is not the only one who could write 
that sort of letter--there are some extremely sophisticated ex-
Iranian officials, some of them may still be in the government, 
who are quite capable of negotiating a reasonable deal under 
the right circumstances, but they've been shoved aside by the 
rhetoric of the current President, and that we should, 
therefore, try to find a way to nurture relations with these 
former officials, one way or the other, because at some point, 
if the pendulum swings the way some of my colleagues think it 
will, back to the Supreme Leader, then it is people like Mr. 
Rhohani who ultimately, I think, we are capable of talking to.
    Senator Dodd. I find your answers, Dr. Clawson, rather 
cavalier. I mean, I don't disagree it's a publication, but it 
seems to me that this is something that ought to be pursued. I 
mean, I don't disagree there's a way of channeling these ideas 
in a more sophisticated way, but possibly the reaction has been 
so negative that this is one opportunity.
    Dr. Clawson. I would pursue it by indeed trying to write in 
various places a similar offer which looks very very attractive 
to the Iranian people and looks very moderate. And I would also 
pass back channel the kind of message that Professor Kemp was 
suggesting, saying, look, if you're back in charge here, then 
we can work out a deal on this one. But let's be honest that 
this is unlikely to be a breakthrough at the moment.
    Senator Dodd. Oh, no. This is a game of--I understand 
what's going on.
    Dr. Clawson. It's a battle of ideas.
    Senator Dodd. But this is vastly different than what 
happened with North Korea, for instance.
    Dr. Clawson. The negotiating style is vastly different, 
which is to say the Iranians have a divided government that 
makes our system of check and balances look modest by 
comparison. And they have a style of doing politics which makes 
our partisanship look modest by comparison as well. And at some 
point, as Professor Kemp was saying, and we could be dealing 
with a different group again.
    Senator Dodd. I don't want to leave you with any 
misimpressions. I certainly have said over and over again I 
don't think you ought to take a force option off the table at 
all, and I don't necessarily believe this is necessarily going 
to work, but it seems to me that it ought to be pursued. Any 
comment on this?
    Mr. Sadjadpour. Yeah. You know, Dr. Clawson's comment about 
Rhohani being an ex-official, I think he would agree that in 
Iran personalities are more important than positions, so Hassan 
Rhohani is definitely a very relevant official. He's very close 
to both former President Rafsanjani and the current Supreme 
Leader, Ayatollah Khamenei, and I think this letter from 
Rhohani is indicative of these deep splinters taking place 
among Iran's leadership.
    When Ahmadinejad won the Presidency in 2005, it was widely 
assumed that the conservatives had now consolidated power. As 
we see now, they've never been more divided. And the timing of 
this letter was very interesting. As soon as there was word out 
that Ahmadinejad had written an 18-page letter to President 
Bush, Rhohani quickly released this letter. And it was, in my 
opinion, he was presenting both an alternative message and an 
alternative messenger to the Americans, that don't think you 
just have to deal with this crazy President of ours, and I'm 
sure he would agree with that statement, but there's other more 
pragmatic minds. But I would argue that in the very broad sense 
we should make it clear to you all that a belligerent foreign 
policy is absolutely not going to reap rewards, and if you want 
to take this bellicose, uncompromising belligerent approach, 
you're just going to reach a brick wall. But at the same time, 
I think we should make it clear that there is an alternative 
path, that a more conciliatory approach, a more compromising 
approach, will trigger reciprocal steps from the United States. 
I think to quote President Bush, Sr., good will begets good 
will.
    Senator Dodd. That's terrific. Mr. Chairman, I can't thank 
you enough. We could go on, I'm sure, another couple of hours. 
We hardly touched on this, and the subject is very important. I 
think it's right there at the top. It should be at the very top 
of our foreign policy agenda. And I deeply appreciate your 
thoughts and observations. Very, very helpful.
    Thank you, Mr. Chairman.
    The Chairman. Well, I join my colleague, Senator Dodd, in 
thanking you for your wisdom, and likewise for your stamina. We 
appreciate the hearing, and the hearing is adjourned.
    [Whereupon, at 12:50 p.m., the hearing was adjourned.]


       IRAN'S POLITICAL/NUCLEAR AMBITIONS AND U.S. POLICY OPTIONS

                              ----------                              


                         THURSDAY, MAY 18, 2006

                                       U.S. Senate,
                               Foreign Relations Committee,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Richard G. 
Lugar (chairman of the committee) presiding.
    Present: Senators Lugar, Coleman, Biden, Nelson, and Obama.

 OPENING STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM 
                            INDIANA

    The Chairman. This hearing of the Senate Foreign Relations 
Committee is called to order. The committee meets today to 
continue our examination of the United States policy toward 
Iran. This is the second hearing of our two-part series. 
Yesterday, we focused our attention on the status of Iran's 
nuclear program and on analysis of Iran's motivations and 
strategies. Today, we will evaluate the options available to 
deal with these challenges.
    The Bush administration has been attempting to build a 
cohesive international coalition capable of applying economic 
and diplomatic pressure on Iran that would have the potential 
to dissuade it from continuing its drive toward a nuclear 
weapons program. Though efforts to attain a Security Council 
consensus on a firm response to Iran's actions have not been 
successful--primarily because of resistance from Russia and 
China--diplomacy backed by multilateral sanctions remains the 
focus of United States policy.
    Our witnesses yesterday judged that Iranian acquisition of 
nuclear weapons is not inevitable, though they underscored that 
a nuclear weapons capability is an extremely important Iranian 
goal that would be given up only grudgingly. They noted that 
the Iranian leadership is pursuing nuclear weapons for a number 
of reasons, including self-defense, Iranian national pride, and 
regional influence. But as several of our witnesses asserted, 
the Iranian leadership is faced with economic problems that 
could be exacerbated by multilateral sanctions and 
international isolation. In contrast, a verifiable resolution 
of the nuclear problem could result in long-term economic 
benefits flowing to Iran, including much-needed Western 
investment in the energy sector. Our witnesses also emphasized 
that Iran's Government is far from monolithic. Factions and 
personalities in Tehran have varying priorities that could lead 
to diplomatic opportunities.
    The witnesses generally shared the view that no diplomatic 
options, including direct talks, should be taken off the table. 
Direct talks may in some circumstances be useful in 
demonstrating to our allies our commitment to diplomacy, 
dispelling anti-American rumors among the Iranian people, 
preventing Iranian misinterpretation of our goals, or reducing 
the risk of accidental escalation. Our policies and our 
communications must be clear, precise, and confident, without 
becoming inflexible.
    I noted a comment by Dr. Henry Kissinger in an op-ed on 
Iran that appeared in Tuesday's Washington Post. Dr. Kissinger 
wrote: ``The diplomacy appropriate to denuclearization is 
comparable to the containment policy that helped win the cold 
war: i.e., no preemptive challenge to the external security of 
the adversary, but firm resistance to attempts to project its 
power abroad and reliance on domestic forces to bring about 
internal change. It was precisely such a nuanced policy that 
caused President Ronald Reagan to invite Soviet leader Leonid 
Brezhnev to a dialog within weeks of labeling the Soviet Union 
the `evil empire.' ''
    Dr. Kissinger's analogy, as well as the testimony that we 
heard yesterday, reinforce the point that Iran poses a 
sophisticated policy challenge that will require the nuanced 
use of a range of diplomatic and economic tools.
    To discuss how such tools might be applied, we are joined 
by four distinguished experts. We welcome Mr. Frank Wisner, 
former Ambassador to India and currently vice chairman for 
External Affairs at the American International Group; Dr. Vali 
Nasr, a professor of National Security Affairs at the U.S. 
Naval Postgraduate School in Monterey, CA; Ms. Julia Nanay, a 
senior director at PFC Energy in Washington; and Mr. James 
Phillips, a research fellow in Middle Eastern Affairs at the 
Heritage Foundation.
    We thank our witnesses for joining us today, and we look 
forward to their insights on the policy options open to the 
United States.
    Before calling upon our witnesses, I'd like to call upon 
our distinguished ranking member, Senator Biden, for his 
opening statement.

 OPENING STATEMENT OF HON. JOSEPH R. BIDEN, JR., U.S. SENATOR 
                         FROM DELAWARE

    Senator Biden. Mr. Chairman, in the interest of saving time 
and not being redundant--because much of my statement reflects 
what you've already said--I ask unanimous consent that my 
statement be placed in the record.
    The Chairman. It will be placed in the record in full.
    Senator Biden. I just want one brief addendum, one comment. 
The headline in the New York Times today in the David Sanger 
piece about a new approach, I think it's 3 years too late, but 
a new approach of this administration to North Korea, is one 
that I hope permeates through the tundra, the frost down there, 
and makes it clear that what Dr. Kissinger referenced, the 
article you referenced what experience has demonstrated, and 
the abject failure of the policy thus far of once identifying 
the ``axis of evil'' judged by their own measure, we are worse 
off in every circumstance of every nation that we identified as 
part of that access.
    I hope this causes a stirring of at least some intellectual 
debate in the administration about how to proceed. I hope they 
conclude that it is equally reasonable to follow some version 
of the recommendations of you, of Dr. Kissinger, me and others, 
all slight variations. And I'm anxious to hear from the 
witnesses. Yesterday we heard about the nature of the threat, 
the imminency of the threat, and about motivation on the part 
of the Iranians. Today I hope our very distinguished panel 
speaks to options available that they would discuss 
forthrightly, whether or not what you have suggested or I have 
suggested or as recently as, I guess, yesterday or whatever day 
it was, Dr. Kissinger's op-ed piece--I'd be very interested to 
know what their views on that specific proposal are, that 
course recommendation is.
    So, I thank you, Mr. Chairman, and I look forward to 
hearing the testimony of our witnesses.
    [The prepared statement of Senator Biden follows:]

  Prepared Statement of Hon. Joseph R. Biden, Jr., U.S. Senator From 
                                Delaware

    Thank you, Mr. Chairman. I welcome our witnesses.
    Yesterday, we heard from several well-informed witnesses on Iran's 
nuclear program. We also heard about Iran's motivations, the attitude 
of its population, and its vulnerability to economic sanctions. Today, 
I look forward to hearing about the options before us.
    This hearing is timely. Our European allies are crafting a package 
of incentives and, if they fail, sanctions that will be presented to 
Iran.
    Their first objective is to secure Chinese and Russian support for 
the entire package, so that Iran will understand that it faces U.N. 
Security Council mandated sanctions if it rejects the offer.
    If Russia and China balk at supporting the package, there is talk 
of the United States and Europe forming our own sanctions coalition. We 
heard yesterday that Iran is already feeling some pressure as investors 
and banks pull back from Iran in anticipation of sanctions.
    But achieving broad-based agreement on sanctions cannot be the sum 
total of a diplomatic strategy for Iran. Sanctions are at best one tool 
to achieve our broader objectives, including ending Iran's uranium 
enrichment activities.
    We need greater clarity on our precise goals--clarity the Bush 
administration has, thus far, failed to provide.
    If our goal is regime change, then that argues for an aggressive 
set of policies that will likely alienate most of our friends, 
particularly in the wake of Iraq.
    If our goal is to see Iran's threatening behavior end in the short 
term--while working for long-term change--then that argues for a policy 
that many could likely support.
    Yesterday, I recommended that President Bush respond to the recent 
letter sent by the Iranian President, but he should write to the man 
who has the final say in Iran--Ayatollah Khamenei.
    I would make the letter public and I would include a call for 
direct talks with Iran--anywhere, anytime, with everything on the 
table.
    We should be willing to talk about all the issues that divide us: 
The nuclear program, terrorism, Iraq, Afghanistan, Israeli-Palestinian 
peace, sanctions, and security.
    We should lay out for Iran's leader--and especially for its 
people--what the future could look like if Iran renounces its nuclear 
ambitions and support for terrorism--and what the future could look 
like if it does not.
    As I said yesterday, I don't know for certain how Iran would 
respond, but I believe that an offer of direct dialog would place 
enormous pressure on the Iranian leadership--from their own people and 
from the international community.
    Iranian leaders would face a stark choice--reject the overture and 
risk complete isolation and an angry public, or accept it and start 
down a path that would require Iran to alter its nuclear ambitions.
    Talking to Tehran would not reward bad behavior or legitimize the 
regime. Talking is something we have done with virtually every other 
country on earth, including unsavory regimes like the ones in North 
Korea and Libya.
    Demonstrating that we made a serious attempt at diplomacy is also 
the best way to keep others on board for tougher actions if Iran fails 
to respond.
    If the administration wants to convince our allies and others to 
place serious pressure on Iran, it must walk the extra diplomatic mile.
    I look forward to the testimony.

    The Chairman. Thank you, Senator Biden.
    Senator Coleman, do you have any opening comments?

  STATEMENT OF HON. NORM COLEMAN, U.S. SENATOR FROM MINNESOTA

    Senator Coleman. Very briefly, Mr. Chairman. First, thank 
you for this hearing, for this focus, I think it's critically 
important. Just three observations.
    One, it is clear that Iran cannot be allowed to develop 
nuclear weapons, that is, that's the bottom line. How to ensure 
that, is the great challenge; this is perplexing.
    Two, regime changes in the best interest of this country. 
This is a regime in which you've got a President openly talking 
about the destruction of Israel. Hitler in ``Mein Kampf'' told 
us what he was going to do and we didn't listen. Ahmadinejad 
says what he's going to do, and throughout I would just urge 
that, I would--and I've read Dr. Kissinger's piece, and I think 
we have to look at it carefully. He is talking about new 
diplomatic initiatives, he's not talking about engagement, he's 
not talking about fully working with this regime, and lines of 
communication, if they can be done in a way that doesn't 
provide support for this regime I think would make sense, and 
the last comment is just, you know, today's Washington Post, 
and quoting Ahmadinejad, they say they talk about the Europeans 
trying to work something out with them, and as a response, they 
say that they want to offer us incentives, Ahmadinejad says 
we'll tell them, ``Keep the incentives as a gift for yourself, 
we have no hope of anything good from you.'' This is a 
perplexing issue. And I think this forum is very, very helpful, 
so thank you.
    The Chairman. Thank you, Senator Coleman.
    Let me indicate to the witnesses that your full statements 
will be made a part of the record, and we will ask you to 
either recite from those or to summarize. So that it will not 
be disconcerting to you or to those who are following the 
hearing, I would note that we anticipate a rollcall vote at or 
about 10 o'clock. We will have an interruption and recess the 
committee so the Senators can vote, and then return so that 
none of us will miss anything. We always regret that there will 
be a break in the action, but that is the nature of our debate 
on the floor today. We may have one or more votes during the 
morning.
    I want to call upon you now in the order that I introduced 
you in my opening statement. That would be first of all, Dr. 
Wisner. If you would proceed.

 STATEMENT OF HON. FRANK G. WISNER, VICE CHAIRMAN FOR EXTERNAL 
   AFFAIRS, AMERICAN INTERNATIONAL GROUP, INC., NEW YORK, NY

    Ambassador Wisner. Senator Coleman, it's a privilege to be 
able to return to the committee, and to discuss a topic of such 
moment, Iran and the nuclear enrichment crisis that we face.
    I have submitted, as you suggested, my written testimony 
for the record and therefore I won't read it.
    I come today before you with some modest background in the 
subject we're discussing. I've been part of a ``track two'' 
dialog with Iran since 2002 with thoughtful Iranians meeting 
under the auspices of the United Nations Association of the 
United States of America, generally in Sweden occasionally, and 
Austria.
    I represented the United States in 1997 in discussions in 
Moscow over the illegal transfer of missile technology--from 
Russia to Iran. But I guess, principally, I come today 
reflecting on 37 years of experience in this Nation's 
diplomatic service.
    For openers, let me make four points. These points reflect, 
substantially, the starting point that Senator Lugar mentioned 
in his opening remarks.
    My first point is, to me it is not clear that Iran has 
decided to develop a nuclear weapon. I believe its house is 
divided, and its program is not at a stage where the choice 
between a nuclear weapon and another option needs to be made. I 
recognize, saying that, that the enrichment program, which 
leaves Iran capable of developing a nuclear weapon, is 
extraordinarily dangerous for the United States. But I rest my 
argument on the fact that there is ambiguity in Iranian 
intentions, and, therefore, space for the United States to 
work.
    My second contention is that we have time. Time to think 
through our choices. There are a variety of estimates of when 
an enrichment program will reach term, and those estimates vary 
sharply. We are not in an immediate decision.
    Third, I would argue that when speaking about Iran, it is 
wrong to conclude that there is a united Iranian point of view. 
There isn't on most national decisions. There are even sharp 
disagreements with the way that Mahmoud Ahmadinejad has 
conducted himself as President.
    That said, he is a key figure, and we're going to have to 
take him into account. And his skill in manipulating Iranian 
politics has not run course.
    My fourth contention is that the United States does not 
stand alone. Our European allies are dead opposed to Iranian 
nuclear enrichment. Russia and China are on record as well. Not 
only on the nuclear issue, but on other issues related to Iran. 
The history of the use of terror; issues related to Israel and 
Palestine provide common ground.
    At heart, however, our allies want us to engage with the 
Iranians politically--to explore with Iran leadership, a basis 
of restraint. So then, Senator Lugar, as you Senator Biden, 
suggested--what are the choices before the United States?
    Many have talked about military action, I find it one 
without particular promise. I believe that military action 
would tip Iran over the edge, and we would have a nuclear 
weapon in Iran's arsenal. I also believe there would be direct 
retaliation against American interests, including our exposed 
position in Iraq. There would be a violent eruption in the 
Muslim world--there would be a most severe impact on oil 
markets--and most of all I can't believe that military action, 
as I've heard it described, is decisive, that it would deliver 
a knock-out blow.
    Similarly, sanctions don't offer a decisive outcome. They 
can be costly, they can be disruptive--they will produce a 
political reaction from Iran, that's to be anticipated. But the 
most effective sanctions, and we've used many of them up in 
deploying our policies toward Iran, are those that are short-
lived, that are multilateral and targeted.
    Now, I therefore argue that both military options and 
sanctions are arrows in our quiver--they are the backdrop to 
effective diplomacy. But our real leverage over Iran is Iran's 
isolation. For now, decades, the country has stood on the 
margins of international life, its people and its policies 
without allies, a young population demanding economic progress 
that cannot be achieved until Iran is accepted into the 
mainstream of the global economy, and has access to capital and 
technology. That leverage is our greatest point of salience in 
dealing with Iran.
    I conclude, Senator Lugar, Senator Biden, Senator Coleman, 
that the time is right to engage Iran--not just on the nuclear 
issue, but much more broadly--on the issues of terror, Iraq, 
Afghanistan, the Palestine-Israel equation, on Iran's security, 
and fundamentally, on her place in the international community.
    But I argue most carefully that trying only to engage Iran 
on one issue is bound to fail. There is a record of American 
diplomacy with Iran where we have directed ourselves at one 
question, only to find that unlinked to other questions, and 
complicated by the political dynamics in our respective 
societies those initiatives have achieved a short-term benefit 
in some cases, but have always ended in not producing a 
spreading agreement to others.
    I would argue, furthermore, that Iran may be ready to talk. 
There is a new circumstance in Iran, the clerics are more 
closely behind Ahmadinejad then was the case with his 
predecessor Khatami. They also see Iran on a more equal footing 
with the United States. The letter that Ahmadinejad sent to the 
President was bizarre in its formulations, but a sense of 
Iranian confidence that they can engage the United States, and 
in that there is moment to pause and consider.
    The United States doesn't have to apologize for a political 
dialog, diplomacy, or engagement--we've used those devices in 
the past. We engaged the Soviet Union over many, many years as 
Senator Lugar in referring to Secretary Kissinger's statement 
pointed out; we did with China in the context of the Shanghai 
Declaration--both examples of engagement where we have profound 
differences of ideology, of national interests, and of 
principle.
    But, I would argue, engagement has to begin at the top. It 
must begin, if it is to work, right at the top on this side, 
with the President. It cannot begin with a lower level 
administration initiative, unless it's identified on both sides 
with the most senior figures in the regimes, it won't work.
    I also believe it's important to think of an engagement 
setting aside the rhetoric of ``axis of evil'' and even of 
legislative considerations aimed at funding regime change in 
Iran.
    Senator Coleman, you'll forgive me if I disagree with you. 
I believe the essential national interest of the United States 
is to contain Iran's national security threats, and the 
external threat the country poses. Iran's domestic order is a 
matter that--while important to us as a matter of principle--is 
not a threat to the United States. And therefore, as Iran has 
proved countless times over its history, it changes regimes. 
And I'd like even to argue that we've seen other cases in the 
past where less pressure on an international crisis produces 
space within which politics take root and changes--political 
changes--within a society occur even more rapidly.
    Now, therefore, what do I recommend? I don't say that I 
have, Senator Lugar, a neat formula to resolve the nuclear 
crisis--I doubt Iran will renounce enrichment--but we would 
enter into cooperative, international-based arrangements for 
the production and supervised production of enriched fuel. Is 
it possible to find common ground? Is it possible to find 
common ground with Iran over Iraq and Afghanistan, where I know 
Iranian interests have been served by the elimination of Saddam 
Hussein and the Taliban? I believe so. Especially if we make it 
clear that the United States does not intend to be a permanent 
fixture in Iraq and Afghanistan, and we will not use our 
position in either country to threaten Iran.
    Can the concerns of our friends in the Sunni Arab world be 
addressed? I contend there is room for a regional conference, 
to elaborate security guarantees. Can Iran address the dangers 
posed by Hezbollah and Hamas, and can Iran be brought to be a 
more responsible player in the Israeli-Palestinian equation. 
Perhaps, but it will be difficult.
    But it is reasonable to conclude that Iran sees in Hamas 
victory in the Palestinian elections, its own vindication. And 
because Hamas is now in power, a two-state solution may be 
pursued.
    Are there any guarantees? No. But then, diplomacy is not 
only the art of the possible, diplomacy is about exploring what 
might be possible. To repeat, therefore, I argue for the option 
of engagement--not taking any of our other options off the 
table--engagement starting at the top. For anything less, I 
believe, that fails to be broad will end in failure and 
dangerous frustration for the United States.
    [The prepared statement of Ambassador Wisner follows:]

Prepared Statement of Hon. Frank G. Wisner, Vice Chairman for External 
       Affairs, American International Group, Inc., New York, NY

    The United States, the international community and Iran are in 
crisis. The crisis broke out last year in the wake of Iran's decision 
to proceed with its nuclear enrichment program and limit its 
cooperation with the International Atomic Energy Agency. But the crisis 
runs deeper. It is rooted in broad international concern over Iran's 
clandestine efforts to develop an enrichment program, which have put 
into question the spirit of Iran's compliance with the Non-
Proliferation Treaty.
    In fact, the origins of the crisis are longstanding. For over a 
quarter of a century and as a result of the overthrow of the Shah's 
regime, Iran's clerically dominated government has been at odds with 
the United States and frequently with its neighbors. The regime's 
aggressive assertion of its religious identity has frightened Sunni 
Muslim nations in the gulf, the Middle East and elsewhere in the 
region. Iran's espousal of Hezbollah and Hamas has put the country on 
the front lines of the war against terror. The Iranian leadership's 
unwillingness to accept the existence of the State of Israel has 
further undermined the ability of the United States to find common 
ground with it.
    In response to the Iranian Government's policies and the principles 
it espouses, the United States, during the Bush administration, has 
identified Iran as an opponent of the United States and a candidate for 
``regime change.'' The Congress' involvement in legislation to fund 
activities which would undermine clerical rule in Iran has sent the 
strong signal of aggressive American intent. To a nation historically 
under siege and more recently at odds with the United States, these 
threats have hit hard and have stirred broad Iranian insecurities.
    I come to this meeting over the future of American policy toward 
Iran, having read Iran's history closely and having followed 
attentively its recent actions and our relationship. I bring to this 
session my 37 years of experience in our Nation's diplomatic service as 
well as a 4-year association with ``track two'' discussions with 
knowledgeable Iranians. These discussions have been organized under the 
auspices of the United Nations Association of the United States (UNA-
USA). The results have been regularly shared with officials of the U.S. 
Government.
    In addition, I represented the United States Government in 1997 in 
discussions with Russia's authorities over the transfer of missile 
technology from the Russian Federation to Iran. This said, I have no 
access to official intelligence on Iran, its nuclear program nor the 
workings of Iranian domestic politics.
    In presenting my conclusions today, I do not speak for the American 
International Group, where I serve as vice chairman, external affairs. 
My views are entirely my own.
    I intend, in the course of my testimony, to answer four questions: 
(1) Will Iran develop a nuclear weapon? (2) Is that outcome imminent? 
(3) Is Iran's leadership united behind the development of a nuclear 
weapon? and (4) What is the way ahead for the United States?
Will Iran develop a nuclear weapon?
    The answer to that question is not obvious. It is clear Iran 
believes it has the right to enrich uranium and fuel a nuclear power 
system. Iran further argues that this right is part of its commitment 
to the NPT. It is also true that Iran has pursued a nuclear ambition 
since the days of the Shah. Finally, it is obvious that Iran has 
developed its fuel enrichment system clandestinely and in violation of 
its international obligations.
    It is my view that Iran has not made a nuclear weapons decision and 
that its house is divided on the subject. There are Iranians who 
believe Iran would be better off with a nuclear weapon; there are 
others who argue that a weapon will increase the dangers which Iran 
faces. Virtually all Iranians, including those who live outside the 
country, share the opinion that their country needs nuclear power and 
that an enrichment program is a legitimate assertion of the nation's 
right. Moreover, the nuclear program has become in Iranian eyes a 
question of national honor and prestige.
    It is possible that Iran will proceed down the path of enrichment, 
stopping just short of a nuclear weapon, leaving open the option to 
acquire such a capacity. Given Iran's dangerous record on other fronts 
and the lack of confidence in its government's behavior, that outcome 
is unacceptable to the United States and our friends in Europe. In a 
word, we must deal with the nuclear issue and seek to contain it.
Is a weapon imminent?
    Again, I advise caution in concluding that the United States faces 
an immediate, threat. Estimates of the time it would take Iran to 
assemble adequate amounts of fissionable material vary sharply. Like 
you, I have seen figures that range from 3 to 10 years, depending on 
the urgency with which Iran pursues the goal, the technology and 
resources available to it and the international environment. The design 
and weaponization of a nuclear device is another matter but not one for 
``tomorrow morning.'' I argue, therefore, that we have time to 
consider, carefully, our strategy for dealing with the very real threat 
which Iran's enrichment program poses. There need be no rush to 
judgment; and we have time to explore and exercise the option of 
diplomacy.
    Let me make this point in a different way.
Is Iran's leadership united behind the development of a nuclear weapon?
    Once again my experience leads me to be careful about concluding 
Iran's leadership and political class are united. Those, who state with 
confidence that they know Iran's intentions, have been consistently 
wrong. Our insights into the politics of the clerical regime are 
limited; our estrangement from Iran has impeded serious analysis of 
political trends and developments. This state of affairs is regrettable 
and I suggest it is in the interests of the United States to increase 
the attention we pay to Iran, its politics, economics, and social 
trends--within government and in academic and research communities.
    It is my view that Iran's leadership, broadly defined, is not 
united on a wide range of issues of national importance, including 
nuclear weaponization. Power is divided. The Supreme Leader retains 
control over Iran's Revolutionary Guards, its intelligence services and 
the nuclear program. Mahmoud Ahmadinejad--the President and author of 
deeply offensive and inflammatory statements about Israel, the region, 
Iran's nuclear intentions, and the United States--does not directly 
control these institutions and programs. But he won the election to the 
Presidency with a solid majority and with clerical sympathy. Today he 
is playing Iranian politics with consummate skill. Ahmadinejad will be 
a significant factor in Iranian politics for years to come. He has 
developed a strong base among young Iranians and he appeals effectively 
to the street's instincts. Moreover he enjoys substantial standing with 
the Supreme Leader and the Guardians. In the election campaign and his 
brief time in office, Ahmadinejad has eclipsed the reformers; his 
leverage in Iranian politics is rising. This said, so are his opponents 
who are questioning the President's assertions about national security 
policy and his profligate interventions in the economy.
    Finally, it has been my experience that the exercise of power has 
the potential of educating its holders in the realities of 
international and domestic life. This has been Iran's recent 
experience. The country's original revolutionary fervor has run thin. 
We are in Ahmadinejad's early days. There is more to come, but the 
present situation of crisis strengthens the Iranian President's hand. 
There is reason, therefore, to lessen, if we can, the intensity of the 
present crisis.
What are the United States choices?
    I suggest that the nuclear standoff with Iran will play out over a 
period of time--months if not years. There are no quick fixes and we 
need the time to examine, select, and pursue our options. The U.N. 
Security Council is divided. Our European friends, deeply opposed to 
Iran's nuclear program, seek a diplomatic resolution.
    Is there a military solution to enrichment? There is no obvious way 
to deal with Iran's intention to proceed with nuclear enrichment. It is 
my view that military action can only disrupt Iranian facilities. Worse 
yet, the consequences of an American attack on Iranian intentions will 
be severe. If Iran's leaders have not crossed the nuclear threshold, 
they would in the wake of American military action. We would have to 
anticipate direct Iranian retaliation against our forces in Iraq and 
other American targets in the gulf and the Middle East--if not beyond. 
I have not seen any evidence that our intelligence is adequate to 
pinpoint Iran's nuclear enrichment system and make it vulnerable to a 
decisive military strike.
    The political consequences of an American attack would be even more 
devastating. I can assure you that there will be an eruption of protest 
across the Muslim world; public opinion in allied nations would be 
hostile and our standing in international fora would be undermined. We 
must also calculate the economic consequences. I have no way to predict 
where the price of oil will go in the wake of military action against 
Iran or countermoves which impeded the Strait of Hormuz.
    Military action should always be the last choice--and never 
excluded. But I do not believe that we have reached the end of the road 
and can, therefore, justify or appropriately use military force to stop 
Iran's enrichment program.
Will economic sanctions deter Iran?
    The United States has committed the majority of its sanctions 
arsenal against Iran in the past and has few decisive instruments left. 
While the possibility of greater allied cooperation in the face of a 
nuclear threat is somewhat better, our allies have been hard to bring 
along in the past. Ordinary trade sanctions will be very difficult to 
enforce, given Iran's long borders and proximity to trading entrepots, 
like Dubai. Financial sanctions come at the cost of disruption of our 
complicated, international financial system. Sanctions against the 
movement of Iranian officials are hardly significant. Sanctions 
generally work when they are targeted, short term and multilateral. It 
is hard to imagine the Iranian nuclear crisis being either of short 
duration or subject to resolution only through the imposition of 
sanctions.
The case for engagement
    The first choice in conflict resolution should be diplomacy. There 
are diplomatic options available to the United States.
    Does this mean that military means or sanctions have no place in 
addressing the crisis we face with Iran? Of course not. They are and 
must remain arrows in our quiver. Diplomacy, without strength and the 
ability to deliver pressure, is rarely successful. For the moment, 
military force and additional sanctions are more effective as threats 
which its leaders must contemplate.
    Our leverage lies elsewhere. Iran is an isolated nation. Apart from 
a few states, like Syria, whose association with Iran is based on 
tactical considerations, Iran has few friends and no allies. If the 
international community, notably Russia and China, are divided from us 
about how to deal with Iran, there are no divisions over the issue of 
Iran's nuclear pretensions nor her historic sponsorship of violence in 
her region. Cut off from acceptance within the international community, 
Iran is also isolated in the mainstream of world economics. She sells 
oil but she receives virtually no investment. Existing sanctions, 
especially those put in place by the United States, limit foreign 
capital flows. And these sanctions can be deepened. Iran receives 
little to no technology and will not as long as she continues to stand 
outside the norms of acceptable international behavior.
    Iran's isolation, born of her policies of confrontation, aggravates 
her perception of threat and preoccupies her leaders and 
intelligentsia. At heart, they know that Iran cannot force her way into 
respectability, partnership, and security. Sooner or later, Iran must 
meet all of us ``half way'' or she will remain threatened and denied 
the capital flows, investment partnerships, and technology her lagging 
economy and highly dissatisfied and deprived population requires. In a 
word, Iran's understanding of her isolation and our capacity to sustain 
and intensify it are powerful weapons in addressing the nuclear crisis 
we face and the other threats Iran poses to our interests. Equally, our 
willingness to offer a path away from isolation is a powerful tool.
Then how do we deal with Iran?
    Our ability to respond militarily is ``on the table'' and it should 
remain there. Sanctions are in place and selectively, for example, a 
multilateral agreement aimed at the denial of official credits, can be 
added over time. We have drawn our ``lines in the sand'' and the time 
is right to move on and engage Iran politically.
    The time is right, moreover, to signal that the United States not 
only seeks agreement which will contain the nuclear crisis but that we 
are prepared to consider normalizing relations, provided, of course, 
that Iran is similarly disposed and acts accordingly. Engagement, 
through diplomatic dialog, means addressing the broad array of issues 
that divide Iran from us and the international community--the issues 
that leave her marginalized and insecure--in other words, the issues 
that undergird distrust of Iran.
    The questions, which we and Iran must address, are obvious and they 
deal with subjects of vital importance to the United States--Iran's 
nuclear pretensions; the future of Iraq and Afghanistan; the security 
of the gulf; the prevalence of terror in the Middle East; political 
instability in the Arab East; and peace between Israel and Palestine. 
The United States plays a very special role in Iran's thinking. The 
questions she wishes to address with us are her isolation; the 
sanctions' regimes she faces; her search for acceptance in the 
international community and her insecurity in a deeply troubled region. 
In particular, Iran needs access to the international economy if she is 
to provide employment for her young.
    Our record of engagement with Islamic Iran is a poor one. Past 
attempts, born of initiatives to address a single issue, have failed. 
They will fail again if we and Iran do not address the totality of our 
relationship and if we and Iran are not prepared to set, as an ultimate 
objective, the normalization of our relationship. And that means, 
simply stated, a reciprocal readiness to live in peace and mutual 
respect, no matter how sharply divided we are over our view of each 
others' political systems.
    History is replete with examples of the United States finding a 
working basis for our relationships with those from whom we were 
sharply divided over ideology, national ambition, and questions of 
vital national security concern. I have in mind our ability to find 
common ground, through detente, with the erstwhile Soviet Union and 
through the Shanghai Communique, with the People's Republic of China.
    Engagement begins with a commitment at the top of our political 
system. On our side, it starts with an undertaking by the President to 
a normalized relationship. It means a willingness to set aside the 
rhetoric of ``axis of evil'' and measures legislatively mandated to 
undermine Iran's regime. Our concerns are legitimately with Iran's 
external ambitions and absent any confidence in those ambitions, its 
nuclear intentions. Its domestic orientation is another question. 
Iranians have changed their regimes in the past and they will do so 
again. In a situation of greater peace and security, that day may even 
come sooner. Our objective must be the stability of the region and our 
interests there--not Iran's domestic order. We have our principles; the 
clerics have theirs. Let's see on whose side history sits.
    I believe there is an opportunity today to pursue engagement with 
Iran. Based on my assessment of Iran's policies, I conclude that Iran's 
clerical leaders are more comfortable with the country's elected 
government and are willing to give it the freedom to maneuver 
internationally, including with us. This was not the case in Khatami's 
time. In addition Iran's leaders are less intimidated by our ability to 
deliver on the threats they feel we have articulated. They know we are 
bogged down in Iraq. Therefore they feel they can approach us on a more 
equal footing. Our European allies want us to enter the dialog; Russia 
and China clearly share that view. I suspect they would welcome a 
signal the United States is ready to seek normalized relations with 
Iran and to live in peace.
    Ahmadinejad's recent letter, as bizarre and objectionable as its 
contents are, is based on a sense of self confidence. It deserves an 
answer--not rejection. We are under no obligation to reply to the terms 
which the letter offers. We are free to state our case and spell out 
our objectives for a dialog.
    I do not have a neat formula to resolve the nuclear crisis. I doubt 
Iran will renounce enrichment but will it enter into cooperative, 
internationally based arrangements for the production and supervision 
of enriched fuel. Is it possible to find common ground over Iraq and 
Afghanistan where Iranian interests have been served by the elimination 
of Saddam and the Taliban? I believe so, especially if we make it clear 
the United States does not intend to be a permanent fixture in Iraq or 
Afghanistan and that we will not use our position in either country to 
threaten Iran. Can the concerns of Sunni Arabs be addressed? I contend 
there is room for a regional conference to elaborate security 
guarantees. Can Iran address the dangers posed by Hezbollah and Hamas 
and can Iran be brought to be a more responsible player in the Israeli-
Palestinian equation? Perhaps, but it will be difficult. But it is 
reasonable to conclude Iran sees in Hamas' victory in the Palestinian 
elections a vindication and because Hamas is now in power, a two-state 
solution can be pursued.
    This said, I return to my core contention: The starting point in 
negotiations with Iran is our willingness to seek normalization.
    The United States must deal with the nuclear crisis. We have time, 
leverage, and the authority to do so. But to repeat, our approach 
should be a broad one; aimed at a full exploration of the several 
issues of concern to us and with the objective of a normalized 
relationship. The history of America's dealings with Iran should make 
it clear that anything less will lead to frustration.

    The Chairman. Well, thank you very, very much, Ambassador 
Wisner, for that comprehensive statement.
    We appreciate having you, Dr. Nasr, with us today, and ask 
that you proceed.

 STATEMENT OF DR. VALI R. NASR, PROFESSOR OF NATIONAL SECURITY 
        AFFAIRS, NAVAL POSTGRADUATE SCHOOL, MONTEREY, CA

    Dr. Nasr. Good morning, Senator Lugar. Senator Lugar, 
Senator Biden, Senator Coleman it's a privilege being here and 
contributing to these proceedings.
    I would limit my comments to discussing the role that 
democracy promotion as a policy fits into the context of 
dealing with Iran's nuclear threat. It is safe to say that 
between 2001 and 2005, the United States has looked to regime 
change and democratization as a way of solving the outstanding 
issues between the United States and Iran, and particularly the 
nuclear issue at some point. It was hoped that the example of 
Iraq would undermine the bureaucratic regime in Iran, and some 
expected that the Presidential elections that happened in June 
2005 would exacerbate tensions within Iran, and would provide 
for a Ukrainian moment.
    However, the elections defied expectations, and the United 
States now faces a much more aggressive and overconfident 
regime in Iran. Despite significant change in the direction of 
Iranian politics, United States policy still continues to look 
at democracy and regime change as a solution to the immediate 
problems that Iran poses. There are a number of inherent 
problems in this approach.
    One is that the scope of intensification of Iran's nuclear 
program over the past year, and the escalation of the rhetoric 
around it, requires a much more direct and focused policy to 
address the specific threats in areas of concern that the 
United States has. Democracy and democratization does not 
amount to such a policy--it's a blunt instrument.
    It's also increasingly doubtful--at least to me, who has 
observed these things for awhile--that there is actually a 
credible democracy movement in Iran right now. It is unlikely 
to have an impact on the regime behavior or its decisionmaking 
in the small window of opportunity that exists to correct 
Iran's path on the nuclear issue. It is also likely that the 
policy of conflating democracy promotion with the nuclear issue 
is not likely to be compatible together, and is likely to 
interfere with one another. First of all, it confuses the 
United States message, as it debases democracy as a means to 
deal with a nuclear issue--and this has impact, not only on 
Iran, but actually on the broader region, and its perception of 
the meaning of the United States promotion of democracy.
    And it also makes it less likely that Iran will abandon its 
nuclear program if it believes that it's the cover for regime 
change. As a number of Iranian senior leaders have expressed, 
this is a veiled effort to change a regime, and, therefore, why 
compromise?
    There is no doubt that Iran has many of the ingredients of 
democracy--it has a young population, viable civil society--we 
all have seen the positive statistics. But these social factors 
have not produced democracy in Iran.
    The Iranian society, to many of us, may look like Eastern 
Europe in the 1980s, but the Iranian Government does not look 
like the Eastern European governments of the 1980s. The 
conservative leadership in Iran today--unlike Eastern European 
governments of the 1980s--is confident, it's in control, and 
it's not completely alienated from its society--it is confident 
in the fact that it won the 2005 elections, at least in its own 
estimation, relatively comfortably.
    The rise in the price of oil has allowed it to combine 
nationalism with radicalism, with anti-Americanism, and with 
populism in a manner that's also evident in Hugo Chavez's 
Venezuela or even Morales' Bolivia.
    Now, since the 2005 election the prodemocracy voices in 
Iran have been demoralized and marginalized. They have lost 
their access to power by losing the Presidency in Iran, they 
don't have political parties, they are saddled with infighting 
and they don't have a program. There is no issue around it with 
which they can galvanize, and there are no election dates on 
the horizon in the next 5 years that they can rally around. An 
escalation of tensions between Iran and the United States, and 
especially the prospects of sanctions and military action 
against Iran has created a ``rally to the flag'' phenomenon in 
Iran. War and nationalist favor does not favor democracy. A 
strong demand for democracy in Iran should not be confused with 
a strong democratic movement in Iran.
    It is fair to conclude, in fact, that democracy in the 
short run is not the solution to the pressing problems in 
United States-Iran relations. There is no credible democratic 
partner to work with, there is no clear opening, there is no 
clear elections to rally around.
    At the same time it is possible that contending with the 
pressing issues facing United States-Iran relations, as 
Ambassador Wisner has mentioned, may require engaging Iran 
directly. And that engagement inevitably will lead to the 
Iranian Government demanding security guarantees which would 
involve that regime change should be off the table.
    United States policymakers must realize that 
democratization is a long, long process in Iran. It is not a 
solution to short-run problems. At a time of escalating 
tensions between the United States and Iran, overt support for 
democracy in Iran will be counterproductive. It will cast 
democracy advocates as ``unpatriotic'' and is likely to be 
futile. In a time of war and nationalism, democracy will surely 
lose to nationalism.
    The imperative of solving the short-run crisis in Iran-
United States relations requires that democracy be specifically 
decoupled from the long--the short-run policies and the 
requirements of dealing with the nuclear issue be specifically 
decoupled from the long-run goal of democracy promotion.
    Democracy promotion should remain the U.S. objective, and 
the United States should continue to lend its moral authority 
to advocating its cause. However, it should not be a substitute 
for, or interfere with, directly dealing with the problems at 
hand, including the question of engaging Iran. In the case of 
the Soviet Union, we ought to remember that the overt policy of 
pushing for democracy followed the diplomatic engagement phase, 
and did not substitute it. Thank you very much.
    [The prepared statement of Dr. Nasr follows:]

  Prepared Statement of Dr. Vali Nasr, Professor of National Security 
            Affairs, Naval Postgraduate School, Monterey, CA

    Iran, today, presents a serious foreign policy challenge to the 
United States. The growing prominence of security concerns: Escalation 
of tensions over Iran's continued development of a nuclear capability, 
the country's role in Iraq and Afghanistan and support for Hamas and 
Hezbollah have preoccupied United States foreign policy. The election 
of a hard-line President in Iran in 2005, who has adopted a belligerent 
rhetoric, has added urgency to contending with these challenges.
    The U.S. policy between 2001 and 2005 was focused on promotion of 
democracy in Iran with the hope that such a transition would result in 
a breakthrough in United States-Iran relations, and that in turn would 
solve the above-mentioned challenges. It was hoped that the example of 
democracy in Iraq would undermine theocracy. Many observers looked to 
the Presidential elections of 2005 in Iran as an opening: Expecting 
that it would exacerbate internal tensions in Iran and produce a 
``Ukrainian moment.''
    The election results defied expectations. The reformist lost, and 
the most radical conservative forces won. The turnout was higher than 
expetced, and despite electoral irregularities there were no wide-
spread protests and a new militant and hard-line President assumed 
power, and quickly escalated tensions with the West. The United States 
now confronted a more aggressive Iran at a time when the Iraq war was 
taxing America's military capability, constricting its ability to deter 
Iran.
    Iran in particular intensified its campaign to acquire nuclear 
capability, and after the breakdown of negotiations with the EU3 became 
less cooperative with IAEA and less willing to compromise. It, in fact, 
adopted a policy of deliberately escalating tensions, believing that it 
had ample room to push for maximum gains.
    It became clear that the priority for U.S. policy in its relations 
with Iran would have to be first and foremost, containment of its 
nuclear program; and in addition, contending with Iran's regional 
role--in particular in Iraq and Palestinian territories.
    United States policy has, since 2005, continued to look to 
democracy as a solution to the Iranian challenge. There are inherent 
problems in this approach:
    1. The scope of intensification of Iran's nuclear program requires 
a more direct and focused policy to address specific threats and 
concerns. Democratization does not amount to such a policy.
    2. It is increasingly doubtful that there is, in fact, a credible 
democracy movement in Iran, and if it is likely to have an impact on 
regime behavior or decisionmaking in the small policymaking window that 
is available to the United States to deal with the nuclear issue.
    3. It is also likely that democracy promotion and contending with 
security concerns regarding Iran may not be compatible with each other, 
and, in fact, may interfere with one another.

                    PROSPECTS FOR DEMOCRACY IN IRAN

    Iran, today, has many ingredients of democracy. It has an educated 
youth (some 70 percent of the population), who are receptive to Western 
ideas, thousands of activist NGOs, more women in universities than men, 
and the level of cultural dynamism that is unique in the Middle East. 
Persian is today, after English and Mandarin Chinese, the third most 
popular language on the Internet, and there are over 80,000 Iranian 
blogs. There are hundreds of widely read newspapers, magazines, and 
periodicals, and there is relatively easy access to outside sources of 
information. One third of Iranians listen to BBC Radio, and BBC's 
Persian Web site, at one point, received 450,000 hits a day. Iranians 
watch everything from CNN to Al-Jazeera on satellite TV. Although 
unelected authorities screen election candidates, and there are deep 
flaws in electoral politics, still Iranians are more familiar with the 
rudiments of elections than their neighbors. Iranians take the 
campaigning and voting seriously. The voting age is 15. An entire 
generation has now grown up with ballots and electioneering, promises 
from politicians, and the ideals of democracy as well as its mechanics.
    These social factors, however, have not produced democracy. 
Conversely, over the past 5 years Iran has witnessed growing power of 
conservative forces that since the 2005 elections are consolidating 
their hold on power. The conservative leadership comprise of clerics 
and Revolutionary Guards commanders, and their allies in the 
bureaucracy, media, and private sector. They now control all 
institutions of power--the executive, legislature, and judiciary--and 
are in command of key decisionmaking bodies. Their political ethos 
combines loyalty to the ideals of the revolution with an ascendant 
nationalism that sees Iran as a regional power. Although Iranian 
society may look like Eastern Europe of 1980s the Iranian Government 
does not.
    The conservative leadership in Iran unlike Eastern European 
governments of 1980s is not completely alienated from society, and 
hence isolated and vulnerable. The ruling regime in Iran is confident 
and in control, and has a base of support of around 20 percent (a 
steady number in election after election), and far from feeling under 
pressure is confident of its own legitimacy and ability to govern. It 
sees itself as capable to confronting social opposition. The 
conservative leadership has proven itself capable to defending its own 
prerogative to power. It combines nationalism with revolutionary 
ideology with populism to mobilize the poor in its own support and 
marginalize the more affluent middle classes that demand democracy. The 
rising price of oil has made such an approach possible. In this regard 
the Iranian regime resembles Hugo Chavez's regime in Venezuela or Evo 
Morales' in Bolivia.
    Since the 2005 elections Iran's prodemocracy forces are demoralized 
and marginalized. They have lost their access to power and are excluded 
from all state institutions. They are disorganized. They lack political 
parties, and infighting has prevented them from forming a united front 
before the regime. They do not have a program of action or a platform 
that could challenge the current government's foreign policy or 
populist economic policies. In addition there is no wedge issue around 
which they could mobilize their followers, organize demonstrations, and 
build a movement. There is no major election on the calendar for the 
next 5 years--nothing to rally around. Escalation of tensions between 
United States and Iran--and especially the prospects of sanctions and a 
military strike on Iran--has moreover, created a rally to the flag 
phenomenon in Iran--war and nationalist fervor do not favor democracy. 
As strong as the demand for democracy is in Iran the democracy movement 
is weak. It poses no palpable threats to regime stability.

                     CONTENDING WITH THE CHALLENGE

    In the past 5 years the challenges posed by Iran to U.S. policy 
have not gone away, they have in fact grown. The prospect for democracy 
has in the meantime faded. It is fair to conclude that democracy is not 
in the short run a solution to the pressing problems in United States-
Iranian relations. There is no democratic partner organization, no 
clear opening, or an election to rally around.
    At the same time it is possible that contending with pressing 
issues in United States-Iranian relations will require engaging Iran 
more directly. Any conversation between the United States and Iran that 
yields results will have to contend with security guarantees that will 
be sought by Iran. A key element of such a guarantee is likely to be a 
removal of a U.S. threat to regime survival in Iran. Such a guarantee 
will run counter to the goal of democracy promotion. Hence, not only 
will democracy not solve the security challenges facing the United 
States, but rather, the solution to those challenges will adversely 
impact democracy promotion. Three considerations are important at this 
juncture:
    1. U.S. policymaking must realize that democratization is a long-
run process in Iran. It will not address short-run problems.
    2. At a time of escalating tensions between the United States and 
Iran overt U.S. support for democracy in Iran will be 
counterproductive. It will cast democracy advocates as unpatriotic. It 
is also likely to be futile as prodemocracy forces are unlikely to 
engage the United States at a time when the United States and Iran are 
in conflict. Faced with a choice between democracy or nationalism the 
Iranian population will likely choose nationalism, and prodemocracy 
forces will likely follow the same trend.
    3. The imperative of solving short-run crises requires that 
policies directed at solving them be decoupled from the long-run goal 
of democracy promotion.
    Democracy promotion should remain a U.S. objective, and the United 
States should continue to lend its moral authority to advocating its 
cause. However, the United States should not see this as a short-run 
policy or a solution to the nuclear crisis. Democracy promotion should 
not be a substitute for diplomacy.

    The Chairman. Thank you very much, Dr. Nasr.
    Let me suggest at this point--the vote has just commenced--
that we take a recess before beginning with our next testimony 
so we may then hear it in full, without apprehension. I 
apologize to you.
    Senator Biden. This is highly unusual. I'm going to have 
to--from 10:15 to about 20 minutes of--not be present. Would it 
be appropriate if you allowed me, in the first half of this, to 
just ask two questions to the two witnesses who have already 
spoken? Because I may not be able to get back, and I'm anxious 
to hear the other testimony as well, but if I could just, there 
are two thoughts I have and I just want to ask the two 
witnesses now, would that be appropriate?
    The Chairman. That would be fine.
    Senator Biden. I probably won't take more than 7 minutes 
and I will recess until you come back, and then I'll try to 
come back by quarter of.
    The Chairman. Fine, very good. I will vote while you're 
raising your questions.
    Senator Biden. I appreciate it very much.
    The Chairman. And then I'll come back.
    Senator Biden. Thank you, thank you very much.
    Again, I apologize to the other two witnesses--I hope I get 
back in time to be able to follow up with questions to you as 
well.
    Dr. Nasr, I am very, very impressed with your testimony, as 
would not surprise you, since it coincides with my thinking, 
but you expressed it in a way that is more, I think, concise 
and coherent than anyone I've heard do it.
    I'd also point out that I've listened to you a long time; a 
year ago you predicted that the Sunni problem in Iraq would be 
the problem that we would be having to confront. I think you 
were prescient there, unfortunately, and so, I want to ask you 
about the democracy movement and then, Mr. Ambassador, if you 
could chime in, I'd appreciate it as well, because they don't 
seem to be at odds, they seem to be convergent here.
    More than a few witnesses pointed out that--I try to figure 
out what's going on and what the thinking of the administration 
is as it deals with a whole range of foreign policy problems. I 
try because we only have one President at a time, we have one 
foreign policy at a time, and the success of that foreign 
policy is critical to the interest of all Americans, so I try 
very hard to understand the underpinning of this approach that 
the administration is taking with regard to both North Korea 
and Iran and they're different.
    But you mentioned something that no witness has that I can 
recall thus far--and that is that the underlying thesis here 
was, and I mean this in a positive way, now this is not a 
criticism. The neoconservative intellectuals argued that by the 
demonstrable show of force, also the shock and awe of going 
into Iraq, and doing it almost in the face of the moral 
disapprobation of the world--most of the world, anyway--would 
have a salvatory impact upon world regimes which we consider 
rogues, and I would argue not incorrectly, North Korea and 
Iran. And prior to us going into Iraq, there was in Iran a 
vibrant--not pro-Western--but vibrant democratic movement that 
the clerics were fearful of crushing in the cold view of the 
whole world for the previous 6 or 7 years.
    And then along came our effort in Iraq--and my view and I 
would like you both to comment on this--my view was it had the 
exact opposite impact. Once it was clear that we were occupied 
in Iraq and would be for some time, in the clear light of day, 
for all the world to see, there was almost a challenge that you 
had the clerics in Tehran saying, ``Watch us crush this 
movement. Everybody looking? Take a good look at what we're 
about to do.'' And they purged the list of those who could run. 
They purged the moderates of anybody who appeared to have any 
genuine small ``d'', democratic instincts, again, I'm not 
confusing democrat with pro-Western. And now this policy of 
democratization, to use your phrase, being used as a blunt 
instrument--we don't have a whole lot to work with. And, it 
seems as though it's read, specifically, as a means by which 
you change regimes.
    My observation of having gotten deeply involved in trying 
to become educated on Persian culture, on Iran--in particular 
over the last 30 years, I was a product of Dr. Fatimi and 
others--I've observed that there is a pretty wide consensus in 
Iran that they live in a dangerous neighborhood, and even those 
democrats with a small ``d'' think having nuclear weapons is 
not a bad idea. And the only thing I've ever observed that 
unites Iranians is a direct assault on, or a perceived threat, 
to their national unity, their nationalism.
    And so having said all of that--why is it different, why 
can the administration make, if it's true, a shift in a policy 
on North Korea, if this New York Times article by Sanger is 
correct--including beginning negotiations on a peace treaty, a 
peace treaty--that's what it says. How can they argue that any 
direct discussions--not even negotiations--with Tehran is 
antithetical to U.S. interests when North Korea is a nation 
that has 400 percent more fissile material than they had just 5 
years ago. A nation that has a nuclear capacity, a nation that 
has engaged in proliferation, a nation that has, in fact, been 
at war with us? How can you square that circle? Talk to me 
about the sort of--we're missing something here in terms of the 
rationale. The foreign policy imperatives of this 
administration. Or do we have two different administrations? Do 
we have one group focusing on Korea, and another group focusing 
on Iran?
    I realize that's a very broad statement as well as 
question, but talk to me a little bit about--what are these 
guys thinking?
    Dr. Nasr. Thank you, Senator Biden. Since I haven't been 
part of the decisionmaking, I cannot speak for what leads to 
the current position. But what I can say is the confusion that 
is core of having to achieve what we want within the nuclear 
issue and promotion of democracy is actually hampering us. But 
I think the point, if I may push further, you mention regarding 
where the people of Iran will stand in terms of a response to a 
United States position, and I think a critical issue is that we 
have to realize that the people of Iran are a strategic asset 
in that region for the United States. Because it is the only 
population in the region that does not carry, or harbor, deep-
seated ideological anti-Americanism.
    Senator Biden. And that's the amazing thing.
    Dr. Nasr. That's the amazing thing, absolutely. And we 
should think that our policy should not be focused only on what 
the regime does, but whether or not we will keep or lose that 
population.
    Second, I think whether or not the people of Iran will 
rally to the flag, support their government or not, depends on 
whether they think the policies of the international community 
are reasonable, just, and legitimate. And therefore, even if it 
were to come to a military action, if they were to assume that 
the United States did not exhaust every possible option, it did 
not pursue a course that, in their mind, was reasonable, then 
they will support that government. And I think to support 
Ambassador----
    Senator Biden. That's an interesting nuance difference.
    Dr. Nasr. I do believe to support Ambassador Wisner's 
position--one of the wisdoms of at least engaging in Iran is 
that it makes our case with the people of Iran much stronger.
    Senator Biden. Ambassador, do you have any comment? And by 
the way, I'd invite any comment from any--I know you haven't 
testified yet, but if you want to--and I really want to 
apologize for going out of order like this, but this is such an 
important hearing, I'm being selfish here, trying to get 
information.
    Ambassador Wisner. Senator, thanks. I think I find myself 
as constrained as Dr. Vali Nasr in trying to interpret a policy 
that at heart I don't agree with. But, I start from the premise 
that Dr. Vali Nasr laid out, and that is that there really 
isn't a democratic opposition to be worked with, even if you 
are an advocate of regime change--it's divided, dispirited, and 
the assault on the nuclear issue is an assault on national 
honor that has a habit of unifying Iranians.
    But when I look at the administration's response, I detect 
two quite different courses of thinking. The first is a matter 
of principle, and a reading or misreading--I would assert--of 
our own history in the cold war. And that is: If one states 
American principles, a deep belief in democracy, over time that 
by standing firm, the walls will crumble and the regimes hidden 
behind them will fail. And that is one reading of what happened 
at the end of the cold war. I don't happen to share that view. 
But it is deeply viewed as an outgrowth of American principle, 
if you stand firm on eternal truths like democracy, eventually 
those standing behind the walls will take heart, and we will 
have kept the faith with young Iranians for the future.
    The second view that I sense inside the administration is 
much more tactical. What is the right way to engage Iran today? 
Is it by being extremely firm, of showing very little light 
until Iran makes categorical statements about its enrichment 
program? To stand firm in order to put backbone in the allied 
position and to bring Russia and China on board by a strong 
view of American intention--it's a tactical view, not an 
ideological view, in the expectation that in seeing strength, 
Iran will then move toward that strength and try to accommodate 
it. Again, I remain to be persuaded this is the effective way--
--
    Senator Biden. I thank you very much, the Chairman is back 
and I only have a few minutes to vote. Ms. Nanay and Mr. 
Phillips, I read your testimony, I'm anxious to get back and 
engage you--I know the views are not uniform here, and I'm 
very--I have an open mind about, I'm just perplexed as to 
what's--anyway, I thank you. Thank you very much.
    The Chairman. We'll now proceed to Ms. Nanay.

  STATEMENT OF MS. JULIA NANAY, SENIOR DIRECTOR, PFC ENERGY, 
                         WASHINGTON, DC

    Ms. Nanay. Good morning, again, thank you for letting me 
testify before this committee. PFC Energy, the firm that I work 
for, is a strategic advisory firm, and we advise the petroleum 
industry on the oil markets and various aspects of investment 
risk related to the global petroleum environment.
    Let me say that I'm coming before the panel as a petroleum 
expert and I know the committee has other issues that override 
this sector, but I'm not here to address those.
    Let me start with the fact--and this is very important--
that Iran is an important oil producer and supplier of oil to 
world markets. At a time when oil supplies are tight and prices 
are high, Iran is a significant source of oil for world 
markets.
    The timing of today's hearings is important because the 
industry is troubled by difficulties in many parts of the world 
in oil, including the nationalization trends which we're 
watching in Latin America. Lower oil production and exports 
being forecasted for Venezuela, production disruptions in 
Nigeria, and slowing production in Russia and so on--this is an 
extremely volatile period for oil markets and for oil prices.
    Now, uncertainty over the ability of the markets to supply 
the world's oil requirements, if Iran's oil supplies were 
disrupted, has kept the oil markets on edge.
    If you see the day-to-day volatility, which is what we 
watch closely, it's driven by news about Iran. The more that 
Iran is in the news and the more that the United States presses 
for sanctions and holds out the threat of military action, the 
higher that oil prices stay. Any news about the easing of 
tension leads to a price drop. Any news that military action 
takes place will drive oil prices up over $90 or $100 a barrel. 
In fact, estimates of the Iran premium in today's oil price run 
as high as $15 a barrel, and oil prices have been hovering 
around $70 a barrel.
    Another point is that sanctions work if everyone 
participates, but it's difficult to impose sanctions on crude 
oil and petroleum products--like gasoline imports to Iran, 
because there can be leakages, and not all countries or 
companies observe sanctions.
    Short of disrupting Iran's oil trade with sanctions on oil 
exports, which would drive up oil prices and certainly 
negatively impact the United States economy, there's really 
limited impact to be gained for the world's community from any 
other additional sanctions on Iran's oil and gas industry.
    In a market where companies and countries seek to secure 
their economic lifelines through access to oil and gas, the 
idea that you can create a foolproof sanction system targeted 
at any oil and gas producer today is just a nonstarter. There 
will always be those who violate the sanctions.
    If we talk about cutting off gasoline imports to Iran, we 
have to remember that Iran has demonstrated extraordinary 
resiliency over the last 25 years when it comes to outside 
pressure and sanctions. It would find a way around the gasoline 
sanctions. At the very least, the gasoline that is currently 
smuggled to neighboring countries--because Iran's domestic 
gasoline prices are heavily subsidized and very low--these 
smuggled amounts would be eliminated, and they're very 
substantial. Energy subsidies in Iran amount to as much as $11 
billion a year. The government, of course, would be forced to 
address this already controversial subsidy program which 
imposes high costs on the country's economy. So, in fact, if we 
try to attach sanctions to gasoline imports, you could have 
side effects which probably could be useful for Iran.
    Unless there are major disruptions caused by some sort of 
military intervention or sanctions on Iran's exports, I don't 
see Iran itself as stopping or cutting back the flow of oil to 
its customers. Iran would be reluctant to jeopardize 
contractual relationships, nor would they want to lose the 
revenues. Iran's oil exports of 2.4 million barrels per day 
fetch over $50 a barrel for the government, and this results in 
huge revenues for the budget. Iran will earn over $50 billion 
on oil exports this year alone.
    The United States buys no oil from Iran. Japan may be 
Iran's largest customer, followed closely by China. In fact, 
Japan and China take about a third of Iran's oil exports. Any 
disruption in oil supplies from Iran would probably hit Japan 
the hardest.
    In conclusion, the United States has to weigh carefully 
what it wants to gain from additional sanctions. The cutoff of 
gasoline imports could be just another item on another long 
list of sanctions already imposed on Iran. This certainly 
creates problems for the government, but then as we've seen the 
government adjusts, and its power isn't seriously undermined, 
its behavior isn't changed, and certainly it doesn't do what 
the United States wants it to do because of sanctions. In fact, 
it may not even affect the government's position on nuclear 
enrichment. Therefore, when I look at the oil sector, I see 
that the United States has very few options, or none, that it 
can pursue.
    Thank you.
    [The prepared statement of Ms. Nanay follows:]

    Prepared Statement of Julia Nanay, Senior Director, PFC Energy, 
                             Washington, DC

    Good morning. Senator Lugar and distinguished members of this 
committee, it is a pleasure to come before you today to address such an 
important topic. My name is Julia Nanay and I am a senior director at 
PFC Energy. PFC Energy is a strategic advisory firm, based in 
Washington, DC. We are advisors to the petroleum industry on oil 
markets and various aspects of investment risks related to the global 
petroleum environment.

        IRAN IS A MAJOR RISK FACTOR DRIVING ENERGY PRICES HIGHER

    The timing of today's hearing is important as it occurs in an 
extremely volatile period for oil markets. Here are some of the 
headlines from the news over the course of just a few days May 3-May 
12: Oil hovered near $75 a barrel, within striking distance of record 
highs, because of mounting tension over Iran's nuclear plans; oil held 
steady near $70 a barrel after major powers failed to come up with a 
strategy for containing Iran's nuclear ambitions; oil fell below $70 a 
barrel on hopes tension over Iran's nuclear ambition will ease after 
Iran's President made an unprecedented move to contact Washington.
    Uncertainty over the ability of the markets to supply the world's 
oil requirements if Iran's oil supplies were reduced has kept oil 
markets on edge. The day-to-day volatility in today's oil markets is 
driven by the news about Iran. The more that Iran is in the news and 
the more that the United States presses for sanctions and holds out the 
possibility of military action, the higher that oil prices stay. Any 
news about the easing of tensions and possible talks between the United 
States and Iran causes the price to drop. Estimates of the Iran premium 
in today's oil price run as high as $15 a barrel.

                     IRAN'S PRODUCTION AND EXPORTS

    Iran's oil production capacity today is about 4 million barrels per 
day. Its oil production is estimated to average 3.8-3.9 million barrels 
per day. The country's OPEC quota is 4.11 million barrels per day. 
Iran's oil exports have held steady at 2.4-2.5 million barrels per day, 
without any significant drops related to tensions over the nuclear 
problem. Iran's oil export policies have not changed.
    Since President Ahmadinejad was elected in June 2005, however, no 
new contracts for oil or gas development have been signed. Production 
from Iran's existing old oil fields is being depleted and without 
significant new investment, oil production declines of at least 200,000 
bbl/d per year are foreseen. Iran has been unable to meet its OPEC 
quota because of the lag in capacity expansion plans. The Iran Libya 
Sanctions Act (ILSA) prohibits U.S. investment in Iran's oil and gas 
sector and has discouraged many Western companies from investing.
    One solution being promoted by the Government of Iran is to dip 
into the Oil Stabilization Fund to finance oil and gas developments. 
One idea floated in Iran is to take loans from the Oil Stabilization 
Fund to spend on oil and gas fields, using future revenues to repay the 
loans. Information on the actual level of this fund is difficult to 
come by since the government has been drawing against it for various 
purposes. The Oil Stabilization Fund does not show up in Iran's 
national budget. It is run as an account at the Central Bank by a 
handful of senior government officials. A better way to look at the Oil 
Stabilization Fund would be to refer to it as a hard currency reserve 
account.
    The threat of additional sanctions on Iran's oil and gas sector and 
the rumors about possible military action are keeping foreign investors 
away from Iran. This could lead to less oil being available from this 
country over time, depending on how long the current standoff 
continues. In a period of increasingly tight oil markets, this will 
keep a floor under oil prices.

                    COUNTRIES THAT BUY OIL FROM IRAN

    The United States buys no oil from Iran. According to a report from 
the Joint Economic Committee of Congress in March 2006, 56 percent of 
Iran's oil exports are to Asia and 29 percent to Europe. The remainder 
goes to Africa, the Middle East and Latin America. Japan and China 
together buy over 800,000 bbl/d of Iran's oil exports or over one-
third. Japan is particularly dependent on Iran and the Middle East in 
general since it imports every barrel it uses and over 90 percent of 
its imports come from the Middle East. China purchases less oil from 
Iran than Japan and its oil import sources are more diversified. Angola 
and Russia are both large suppliers of oil to China. Japan, therefore, 
is most vulnerable to any supply interruptions from Iran.
    Worries about oil disruptions from Iran are forcing Japanese and 
Chinese buyers to try to diversify their import sources. Japanese 
refiners have changed their purchasing patterns to reduce Iranian 
volumes. Both Japan and China are making overtures to Russia to open up 
East Siberia to their companies and to allow them to help finance and 
build new East Siberian export pipelines. This could pose a challenge 
to Western buyers of Russian crude and gas as these resources could be 
diverted from the West to feed Asian buyers clamoring for non-Middle 
East supplies. Chinese companies are also becoming increasingly active 
in Africa. In a recent bidding round in Angola, China's Sinopec offered 
a signature bonus of $1.1 billion for two deepwater blocks offshore 
significantly outbidding U.S. companies in a region that in the past 
was the preserve of the United States and European oil industry. U.S. 
efforts to further isolate Iran are being felt in ways big and small in 
global petroleum markets as international investors scramble to 
diversify away from the Middle East.
    Still, unless there are major disruptions caused by some sort of 
military intervention or sanctions on Iran's oil exports, Iran itself 
is unlikely to stop or cut back the flow of oil to its customers. For 
one thing, it would be reluctant to jeopardize its contractual 
relationships; for another, it would not want to lose the revenues. For 
every barrel of the 2.4 million barrels a day that Iran exports, it 
earns over $50 a barrel. Iran's net oil export revenues in 2005 were 
close to $47 billion and it will earn over $50 billion in 2006.

                         IRAN IMPORTS GASOLINE

    Despite being OPEC's second largest oil producer, Iran has a 
deficit in refining capacity to manufacture gasoline. Iran uses about 
422,000 bbl/d of gasoline and imports 170,000 bbl/d of it, paying 
upward of $4 billion in 2006 for these imports. Gasoline is heavily 
subsidized in Iran, with the price set at under 40 cents per gallon; 
$2.6 billion was withdrawn from the Oil Stabilization Fund last year to 
pay for gasoline imports.
    Again according to a report from the Joint Economic Committee of 
Congress in March 2006, an estimated 25 percent of Iran's gasoline 
imports come from Persian Gulf countries, 15 percent from India, and 
the remainder from a variety of sources, including France, Turkey, 
Singapore, the Netherlands, and China.
    At the same time, volumes equivalent to as much as half of the 
amount of Iran's gasoline imports are being smuggled abroad. Subsidized 
prices at home make it lucrative for smugglers to move this product out 
of the country, with Iraq being a favored market along with Pakistan. 
Many people in border areas earn a living from smuggling gasoline.
    Iran is looking into rationing gasoline, so that low prices would 
apply to a certain level of purchases by each car owner after which the 
full cost of the gasoline would be paid. This two-tier pricing system 
is still being discussed but it could be implemented later in 2006.
    If gasoline import sanctions were imposed, one affect would be to 
cut down on smuggling and another, to alleviate the traffic pollution 
problems in Tehran. Gasoline import sanctions might cast the United 
States in a negative light since unlike other oil and gas sanctions, 
their impact would fall directly on Iran's people.

             U.S. POLICY OPTIONS IN THE OIL AND GAS SECTOR

    About 60 percent of Iran's export earnings come from the oil and 
gas sector and 40 to 50 percent of the government's revenues. 
Investments in Iran's oil and gas sector are already dramatically 
reduced and timetables delayed due to the sanctions currently in place, 
as well as weak terms on offer under the buyback contract model. Short 
of disrupting Iran's oil trade with sanctions on oil exports, which 
would drive up oil prices and negatively impact the U.S. economy, there 
is limited impact to be gained for the world community from any other 
additional sanctions on Iran's oil and gas industry. In a market where 
companies and countries seek to secure their economic lifelines through 
access to oil and gas, the idea that you can create a fool-proof 
sanctions system targeted at any oil and gas producer is a nonstarter. 
There will always be those who violate the sanctions.
    Sanctions on gasoline imports would be disruptive and would result 
in creating dislocations in Iran's economy. However, their impact would 
be offset to some extent by the likely elimination of the smuggling of 
gasoline to neighboring countries. Such targeted sanctions will have 
their own unintended consequences of probably encouraging the smuggling 
of gasoline from such offshore sources as Dubai from where many 
products already enter Iran.
    The United States has to weigh carefully what it wants to gain from 
such sanctions. The cutoff of gasoline imports could just be another 
item on a list of sanctions already imposed on Iran, which certainly 
creates problems for the government but then results in adjustments 
without seriously undermining the government's power or changing its 
behavior with regard to nuclear enrichment.

                    IRAN-PAKISTAN-INDIA GAS PIPELINE

    Finally, just a few words about the status of this pipeline. This 
is a project that has been talked about for many years and it is still 
being discussed. Let's put it in the context of the Baku-Tblisi-Ceyhan 
oil pipeline which at 1,780 km is 1,000 kms shorter than the 2,775 km 
Iran-Pakistan-India pipeline. It took almost a decade for BTC to be 
realized from first project appraisal and this is a pipeline that had 
private oil company investment and where BP took a strong lead. 
Constructing and financing such multibillion dollar projects is 
difficult and expensive and it takes serious commitment from all 
parties. With an estimated $7 billion price tag, the Iran-Pakistan-
India pipeline still has a long way to go before it can be considered a 
serious project. While the energy is clearly needed by Pakistan and 
India, there is no agreement in place yet among the three countries to 
build the pipeline, with the question of who would pay for it not even 
addressed.

    The Chairman. Thank you very much for your testimony.
    Mr. Phillips.

  STATEMENT OF JAMES A. PHILLIPS, RESEARCH FELLOW FOR MIDDLE 
  EASTERN AFFAIRS IN THE DOUGLAS AND SARAH ALLISON CENTER FOR 
FOREIGN POLICY STUDIES, THE HERITAGE FOUNDATION, WASHINGTON, DC

    Mr. Phillips. Thank you, Mr. Chairman, for this opportunity 
to testify today. I think the efforts of the United States and 
its allies to dissuade Iran from pursuing its long-sought goal 
of attaining nuclear weapons have so far failed to yield 
satisfactory results. Iran made temporary tactical concessions 
in October 2003 under strong international pressure--to 
temporarily freeze its uranium enrichment operations and enter 
into diplomatic negotiations led by the EU3 to temporarily 
diffuse the crisis. But Tehran later dropped the charade of 
negotiations after it apparently concluded that the 
international situation had shifted in its favor for reasons 
that those testifying before me have mentioned--rising oil 
prices, the United States commitment in Iraq and Afghanistan--
and I think the incoming Ahmadinejad government which had 
bitterly criticized previous Iranian governments for those 
negotiations.
    Thus far, Iran has escaped paying any significant price for 
its apparent violations of its commitments under the Nuclear 
Non-Proliferation Treaty, and failure to fully cooperate with 
the IAEA, and I would contend that it won't negotiate seriously 
on the fate of its programs until its started to pay a price.
    Therefore, the United States should mobilize an 
international coalition to raise the diplomatic, economic, and 
domestic political--
as well as potential military--costs to Tehran of continuing to 
flout its obligations under its nuclear safeguard agreements. 
This coalition of the willing should seek to isolate the 
Ahmadinejad regime, weaken it through targeted economic and 
other sanctions, and explain to the Iranian people why their 
government's nuclear policies will impose economic costs and 
possible military risks on them.
    Yes; we should contain Iran's military power, but I don't 
think we should abandon the possibility of democratic change. 
If Tehran persists in its drive for nuclear weapons, despite 
these escalating pressures, I think then the United States 
should consider military options to set back the Iranian 
nuclear weapons program.
    I think the United States must continue to push in the 
strongest possible sanctions in the U.N. Security Council. But 
experience has demonstrated that Washington can not rely on the 
United Nations to halt the nuclear program. Russia and China--
who have extensive economic, military, and energy ties to 
Iran--may veto, delay, or dilute any effective resolution. The 
United States should, therefore, make fallback contingency 
plans to work with the EU3, the broader EU community and 
Japan--other interested countries--to work on sanctions outside 
the U.N. framework, if necessary.
    An international ban on the import of Iranian oil is a 
nonstarter for reason that Ms. Nanay has mentioned. It's 
unrealistic to expect oil importers to stop importing Iranian 
oil in a tight, high-priced oil market. I think, instead, the 
focus should be on denying Iran loans, foreign investment, and 
favorable trade deals. Washington should cooperate with other 
countries to deny Iran loans from international financial 
institutions, such as the World Bank, and try to block proposed 
pipelines out of Iran, such as the one considered for India and 
Pakistan.
    In addition to economic sanctions, the United States should 
press its allies and other countries to ban nuclear assistance, 
arms sales, and the export of dual-use technology to Iran. 
Symbolic sanctions, such as travel ban on Iranian officials or 
a ban on Iranian participation in international sports events 
would be important to drive home to the Iranian people that the 
international opposition to Iran's nuclear program is 
widespread and not just an artificial issue created by the 
United States as their government claims.
    The United States should also support Iran's democratic 
opposition. Iran has a well-educated group of young reformers 
who seek to replace the current monocracy with a genuine 
democracy that is accountable to the Iranian people. Yes; they 
are weak and divided, but they constitute, I think, Iran's best 
long-term hope, and the United States should not turn its back 
on them. The United States should not try to play favorites 
among the various Iranian opposition groups, but it should 
encourage them to cooperate under the umbrella of the broadest 
possible coalition. And I think we have to be really humble 
about our ability to spark democratic change, but in the long 
run, I think it's something that cannot be ruled out.
    The United States Government should also launch a public 
diplomacy campaign to explain to the Iranian people how the 
regime's nuclear weapons program and hard-line policies hurt 
their economic and national interests. Iran's regime has 
tightened its grip on the media in recent years, shutting down 
more than 100 independent newspapers, jailing journalists, 
closing down Web sites and arresting bloggers. The United 
States and its allies should work to defeat the regime's 
suppression of the independent media, by increasing Farsi 
broadcasts by government-sponsored media such as the Voice of 
America and Radio Farda, and other information sources. The 
free flow of information is an important prerequisite for the 
free flow of political ideas, and the Iranian people need 
access to information about the activities of the democratic 
opposition groups both within and outside Iran, and the plight 
of dissidents.
    Finally, I think the United States must be prepared for the 
use of military force as a last resort. There's no guaranteed 
policy that can halt the Iranian nuclear program short of war, 
and even a military campaign may only delay Iran's acquisition 
of nuclear weapons. But United States policymaking regarding 
the Iranian nuclear issue inevitably boils down to a search for 
the least bad option, and as potentially costly and risky as a 
preventative war against Iran would be, allowing Iran to 
acquire nuclear weapons would result in far heavier potential 
costs and risks.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Phillips follows:]

  Prepared Statement of James A. Phillips, Research Fellow for Middle 
   Eastern Affairs, the Douglas and Sarah Allison Center for Foreign 
        Policy Studies, the Heritage Foundation, Washington, DC

    Thank you, Mr Chairman and distinguished members of the committee, 
for this opportunity to discuss U.S. policy regarding Iran's nuclear 
program.
    The efforts of the United States and its allies to dissuade Iran 
from pursuing its long-sought goal of attaining a nuclear weapons 
capability have so far failed to yield satisfactory results. Iran made 
temporary tactical concessions in October 2003 under strong 
international pressure to temporarily freeze its uranium enrichment 
operations and submit to increased inspections of its nuclear 
facilities by the International Atomic Energy Agency (IAEA). Tehran 
feared that referral to the Security Council could result in diplomatic 
isolation, economic sanctions, or possible military attack. It 
undoubtedly also was motivated by the examples set by the rapid 
overthrow of the Taliban regime in Afghanistan in 2001 and Saddam 
Hussein's regime in Iraq in early 2003 by U.S.-led coalitions.
    Tehran made enough tactical concessions to stave off international 
sanctions and engage the European Union in diplomatic negotiations led 
by Britain, France, and Germany (the EU3) to temporarily defuse the 
crisis. But Tehran later dropped the charade of negotiations after it 
apparently concluded that the international situation had shifted in 
its favor. It now apparently believes that it is in a much stronger 
position due to the continued need for U.S. military forces in Iraq and 
Afghanistan; the rise in oil prices which has given it greater 
bargaining leverage with oil importers; and its diplomatic cultivation 
of China and Russia, which can dilute or veto resolutions brought 
before the U.N. Security Council.
    The installation of a new hard-line government led by President 
Mahmoud Ahmadinejad in August 2005 also was a major factor that led 
Tehran to renege on its agreement with the EU3. Iran's new President is 
firmly committed to Iran's nuclear program and vehemently criticized 
Iran's previous government for making too many concessions in past 
negotiations with the EU3. Shortly thereafter Iran resumed operations 
at the Isfahan uranium conversion facility, converting yellowcake into 
uranium hexafluoride, a preliminary step before enrichment. In January 
2006 Iran announced its intention to resume uranium enrichment 
activities and removed IAEA seals at its Natanz facility. Iran remains 
determined to develop a complete nuclear fuel cycle, which would 
eventually give it the fissile material for a nuclear weapons 
capability. Thus far, Iran has escaped paying any significant price for 
its apparent violations of its commitments under the NPT and failure to 
fully cooperate with the IAEA.
    The United States should mobilize an international coalition to 
raise the diplomatic, economic, domestic political, and potential 
military costs to Tehran of continuing to flout its obligations under 
its nuclear safeguards agreements. This ``coalition of the willing'' 
should seek to isolate the Ahmadinejad regime, weaken it through 
targeted economic sanctions, explain to the Iranian people why their 
government's nuclear policies will impose economic costs and military 
risks on them, contain Iran's military power, and encourage democratic 
change. If Tehran persists in its drive for nuclear weapons despite 
these escalating pressures, then the United States should consider 
military options to set back the Iranian nuclear weapons program.

                THE GROWING THREAT OF AHMADINEJAD'S IRAN

    Mahmoud Ahmadinejad rose up through the ranks of the Islamic 
Revolutionary Guard Corps (IRGC), the praetorian guard dedicated to 
advancing and exporting the revolution that Ayatollah Ruhollah Khomeini 
inspired in Iran in 1978-1979. Ahmadinejad is a true believer in 
Khomeini's radical vision of Iran's role as the vanguard of a global 
Islamic revolution. He has lambasted the United States as ``a failing 
power'' and a threat to the Muslim world.
    In sharp contrast to his predecessor, former President Mohammad 
Khatami, who advocated a conciliatory ``dialog of civilizations'' but 
was blocked by the strong opposition of the ideological hard-liners, 
Ahmadinejad has returned to the fiery rhetoric of the Khomeini era. In 
September he delivered a truculent speech at the United Nations, 
warning foreign governments against meddling in Iranian affairs. On 
October 26, he made a venomous speech attacking Israel in which he 
quoted Khomeini: ``As the Imam said, Israel must be wiped off the 
map.''
    Ahmadinejad's vehement return to Khomeini's radical line has been 
accompanied by a purge of pragmatists and reformers within the regime. 
Forty of Iran's senior ambassadors have been recalled from overseas 
posts, including diplomats who were involved in the EU3 negotiations in 
Britain, France, Germany, and at the United Nations in Geneva. 
Ahmadinejad has appointed many of his IRGC cronies to key positions 
throughout the government.
    Iran also has been increasingly aggressive in stirring up trouble 
inside Iraq. In October, the British Government charged that the 
Iranians had supplied sophisticated bombs with shaped charges capable 
of penetrating armor to clients in Iraq who used them in a series of 
attacks on British forces in southern Iraq. Iran also has given 
discreet support to insurgents such as Moqtada al-Sadr, who twice has 
led Shiite uprisings against coalition forces and the Iraqi Government.
    Iranian hard-liners undoubtedly fear that a stable democratic Iraq 
would present a dangerous alternative model of government that could 
undermine their own authority. They know that Iraq's preeminent Shiite 
religious leader, Grand Ayatollah Ali al-Sistani, whose religious 
authority is greater than that of any member of Iran's ruling clerical 
regime, rejects Khomeini's radical ideology and advocates traditional 
Shiite religious doctrines. Although Iran continues to enjoy 
considerable influence with many Iraqi Shiites, particularly with 
Iraq's Supreme Council for the Islamic Revolution in Iraq and the Dawa 
Party, the moderate influence of Sistani dilutes their own 
revolutionary influence. Therefore, Tehran plays a double game in Iraq, 
using the young firebrand al-Sadr to undermine Sistani and keep 
pressure on the U.S. military to withdraw, while still maintaining good 
relations with Shiite political parties who revere Sistani and need 
continued American support.
    In addition to its destabilizing role in Iraq, Iran continues to be 
the word's leading sponsor of terrorism. Secretary of State, 
Condoleezza Rice, recently called Iran ``the central banker'' of 
international terrorism. It has close ties to the Lebanon-based 
Hezbollah terrorist group, which it organized and continues to finance, 
arm, and train. Tehran also has supported a wide variety of Palestinian 
terrorist groups, including Fatah, Hamas, and Palestinian Islamic 
Jihad, as well as Afghan extremists such as Gulbuddin Hekmatyar. Iran 
was involved in the 1996 Khobar Towers bombing, which killed 19 
American military personnel deployed in Saudi Arabia. Moreover, Iran 
reportedly continues to give sanctuary to elements of al-Qaeda, 
including at least one of Osama bin Laden's sons, Saad bin Laden, and 
Saif al-Adil, a top operations coordinator.
    This long and deep involvement in terrorism, continued hostility to 
the United States, and repeated threats to destroy Israel, provide a 
strong warning against the dangers of allowing such a radical regime to 
develop nuclear weapons.

     LEADING AN INTERNATIONAL RESPONSE TO IRAN'S NUCLEAR CHALLENGE

    Diplomatic efforts centered on the United Nations to pressure Iran 
to abandon its clandestine nuclear efforts are unlikely to solve the 
problem, in part due to the institutional weaknesses of the U.N. 
Security Council, where a lack of consensus often leads to paralysis or 
lowest common denominator policies that are not effective. 
Nevertheless, the Bush administration must resolutely press the 
diplomatic case at the Security Council to set the stage and improve 
the U.S. position in the push for possible diplomatic and economic 
sanctions targeted at Iran's recalcitrant regime, or, as a last resort, 
possible future military action.
    Another goal should be to make sure that the end result of the 
Security Council's interactions with Iran clearly lays the 
responsibility of any failure on Tehran, not Washington. Washington 
should seek to focus the Security Council debate on the critical 
issue--the threat posed by Iran's nuclear program--not the broader 
question of whether to seek a multilateral ``grand bargain'' with an 
untrustworthy revolutionary power that exploited and sabotaged past 
American efforts to stage a rapprochement under the Carter and Reagan 
administrations and failed to respond to the tentative detente offered 
by the Clinton administration. Getting drawn into a multilateral dialog 
with Iran through the auspices of the United Nations would allow Iran 
to divert attention from its safeguard violations and history of 
terrorism, while subjecting the United States to growing international 
pressure to bribe Iran with diplomatic carrots to comply with 
international legal commitments that it already has violated and could 
renege on again in the future.
    Iran already has provided ample evidence that it has no intention 
to fully cooperate with the IAEA or end the uranium enrichment 
activities that eventually will give it a nuclear weapons capability. 
If it merely seeks a nuclear power capability for economic reasons, as 
it insists, then it would not have rejected the Russian offer to enrich 
uranium at facilities in Russia, which would have saved it considerable 
costs in building and operating uranium enrichment facilities. 
Moreover, Iran also would have received additional economic benefits 
from the EU3 if it had not broken off those negotiations.
    Under these circumstances, the EU3's recent undertaking to put 
together a new package of incentives for Iran is the triumph of wishful 
thinking over experience. Beginning a new round of negotiations while 
Iran continues to work to perfect its uranium enrichment technology 
will enable Tehran to buy time for its nuclear weapons program, 
forestall sanctions, and weaken the perceived costs of violating the 
nuclear nonproliferation regime in the eyes of other countries who may 
consider following Iran's path. To change Iran's course, the EU3 should 
be considering larger disincentives, not just larger incentives.
Forge a coalition to impose the strongest possible sanctions on the 
        Iranian Regime
    Although it has greatly benefited from the recent spike in world 
oil and natural gas prices, Iran's economic future is not a promising 
one. The mullahs have sabotaged economic growth through the expansion 
of state control of the economy, economic mismanagement, and 
corruption. Annual per capita income is only about two-thirds of what 
it was at the time of the 1979 revolution. The situation is likely to 
get worse as President Ahmadinejad follows through on his populist 
promises to increase subsidies and give Iran's poor a greater share of 
Iran's oil wealth.
    Iranians are sending large amounts of their capital out of the 
country due to fears over the potentially disastrous policies of the 
new government. Shortly after Ahmadinejad gave his October 26 speech 
threatening Israel, Iran's stock market plunged to its lowest level in 
2 years. Many Iranian businessmen understand, even if Ahmadinejad does 
not, that Iran's economic future depends on access to world markets, 
foreign investment, and trade.
    The United States should push for the strongest possible sanctions 
at the U.N. Security Council. But experience has demonstrated that 
Washington cannot rely on the United Nations to halt the Iranian 
nuclear program. Russia and China, who have extensive economic, 
military, and energy ties to Iran, may veto or dilute any effective 
resolution. The United States, therefore, should make contingency plans 
to work with Britain, France, Germany, the European Union, and Japan to 
impose sanctions outside the U.N. framework if necessary.
    An international ban on the import of Iranian oil is a nonstarter. 
It is unrealistic to expect oil importers to stop importing Iranian oil 
in a tight, high-priced oil market. Instead, the focus should be on 
denying Iran loans, foreign investment, and favorable trade deals. 
Washington should cooperate with other countries to deny Iran loans 
from international financial institutions such as the World Bank and to 
deny Iran loans for a proposed natural gas pipeline to India via 
Pakistan.
    Although Iran is one of the world's leading oil exporters, it is 
also an importer of gasoline due to mismanagement and inadequate 
investment in its refinery infrastructure. An international ban on 
gasoline exports to Iran would deprive Tehran of approximately 40 
percent of its daily gasoline consumption. This would significantly 
drive up the price of Iranian gasoline and underscore to the Iranian 
people the shortsighted policies of Iran's ruling regime.
    In addition to economic sanctions, the United States should press 
its allies and other countries to ban nuclear assistance, arms sales, 
and the export of dual-use technology to Iran. Symbolic sanctions, such 
as a travel ban on Iranian officials or ban on Iranian participation in 
international sports events, would drive home to the Iranian people 
that international opposition to Iran's nuclear program is widespread 
and not an artificial issue created by the United States, as their 
government claims.
Support Iran's democratic opposition
    The Bush administration has correctly aligned the United States 
with the Iranian people in their efforts to build a true democracy, but 
it has held back from a policy of regime change, partly in deference to 
the EU3 negotiations with Iran about its nuclear program. However, now 
that it is clear that Iran has reneged on its promises to the EU3, 
Washington should discreetly aid all Iranian groups that support 
democracy and reject terrorism, either through direct grants or 
indirectly through nongovernmental organizations. The Iran Freedom and 
Support Act of 2005 (H.R. 282 and S. 333), currently under 
consideration by Congress would authorize such aid and tighten U.S. 
economic sanctions on Iran.
    Iran has a well-educated group of young reformers who seek to 
replace Iran's current mullahcracy with a genuine democracy that is 
accountable to the Iranian people. They have been demoralized by the 
failure of former President Khatami to live up to his promises of 
reform and his lack of support for the student uprisings of 1999, but 
are likely to be reenergized by a brewing popular disenchantment with 
the policies of Ahmadinejad's hard-liners.
    The United States and its allies should discreetly support all 
Iranian opposition groups that reject terrorism and advocate democracy 
by publicizing their activities internationally and within Iran, giving 
them organizational training indirectly through Western NGOs, and 
inviting them to attend international conferences and workshops outside 
Iran, preferably in European or other countries where Iranians could 
travel relatively freely with minimal fear of being penalized upon 
their return to Iran.
    Educational exchanges with Western students would be an important 
avenue for bolstering and opening up communication with Iran's restive 
students, who historically have played a leading role in Iran's reform 
movements. Women's groups also could play a key role in strengthening 
support for political reforms among young Iranian women, a key element 
opposing the restoration of harsh social restrictions by Iran's 
resurgent Islamic ideologues.
    The United States also should covertly subsidize opposition 
publications and organizing efforts, as it did to aid the anti-
Communist opposition during the cold war in Europe and Asia. But such 
programs should be strictly segregated from the public outreach efforts 
of the United States and its allies, to avoid putting Iranian 
participants in international forums at risk of arrest or persecution 
when they return home.
    The United States should not try to play favorites among the 
various Iranian opposition groups, but should encourage them to 
cooperate under the umbrella of the broadest possible coalition. But 
Washington should rule out support for the People's Mujahideen 
Organization (PMO), which is also known as the Mujahideen Khalq, or its 
front group, the National Council of Resistance. The PMO is a 
nondemocratic Marxist terrorist group that was part of the broad 
revolutionary coalition that overthrew the Shah, but was purged in 1981 
and aligned itself with Saddam Hussein's dictatorship.
    While this cult-like group is one of the best-organized exile 
organizations, it has little support inside Iran because of its 
alliance with arch-enemy Iraq during the Iran-Iraq war. Moreover, the 
PMO resorted to terrorism against the Shah's regime and was responsible 
for the assassinations of at least four American military officers in 
Iran during the 1970s. It demonstrated in support of the Soviet 
invasion of Afghanistan in 1979 and against the release of the American 
hostages in 1981. The United States cannot afford to support an 
organization with such a long history of terrorism, if it expects 
Tehran to halt its own terrorism.
Launch a public diplomacy campaign to explain to the Iranian people how 
        the regime's nuclear weapons program and hard-line policies 
        hurt their economic and national interests
    Iran's clerical regime has tightened its grip on the media in 
recent years, shutting down more than 100 independent newspapers, 
jailing journalists, closing down Web sites, and arresting bloggers. 
The United States and its allies should work to defeat the regime's 
suppression of independent media by increasing Farsi broadcasts by 
government-sponsored media such as the Voice of America, Radio Free 
Europe (Radio Farda), and other information sources. The free flow of 
information is an important prerequisite for the free flow of political 
ideas. The Iranian people need access to information about the 
activities of Iranian opposition groups, both within and outside Iran, 
and the plight of dissidents.
    The Internet is a growing source of unfiltered information for many 
Iranians, particularly Iranian students. Farsi is reportedly the fourth 
most popular language used online and there has been a proliferation of 
political blogs devoted to Iranian issues. The United States should 
consider ways of assisting Iranians outside the country to establish 
politically oriented Web sites that could be accessed by activists and 
other interested people inside Iran.
Mobilize allies to contain and deter Iran
    The bellicose resurgence of Iran's hard-liners, Iran's continued 
support for terrorism, and the prospective emergence of a nuclear Iran 
pose threats to many countries. President Ahmadinejad's belligerence 
gives Washington greater opportunity to mobilize other states, 
particularly those living in the growing shadow of Iranian power. The 
United States should maintain a strong naval and air presence in the 
Persian Gulf to deter Iran and strengthen military cooperation with the 
Gulf States.
    The United States and its European allies should strengthen 
military, intelligence, and security cooperation with threatened 
states, such as Iraq, Turkey, Israel, and the members of the Gulf 
Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and 
the United Arab Emirates), which was founded in 1981 to provide 
collective security for Arab States threatened by Iran. Such a 
coalition could help contain the expansion of Iranian power and 
possibly would cooperate in facilitating military action, if necessary 
against Iran.
    Washington could also offer to deploy or transfer antiballistic 
missile defense systems to threatened states, enhance joint military 
planning, and step up joint military and naval exercises. In 
particular, the United States and its allies should stage multilateral 
naval exercises to demonstrate the will and capability to defeat 
Tehran's threats to block the Strait of Hormuz, through which flow 
about one-fifth of the world's oil exports.
Prepare for the use of military force as a last resort
    A strong U.S. military posture is essential to dissuading and 
deterring Iran from fielding nuclear weapons and supporting terrorism, 
and when necessary responding decisively and effectively to Iranian 
threats. To deal with a nuclear or terrorist threat from Iran several 
military capabilities are particularly important. They include (1) 
expanding and strengthening the proliferation security initiative; (2) 
theater missile defense; (3) robust special operations forces and human 
intelligence (HUMINT) assets; (4) assured access to bases and staging 
areas in the theater for both special operations and conventional 
ground, air, and sea forces; and (5) energy security preparations.
    Proliferation security initiative (PSI). PSI is a multinational 
effort to track down and break up networks that proliferate chemical, 
biological, and nuclear weapons technologies and materials. The 
administration should field more modern capabilities that can provide 
the right intelligence, reconnaissance, surveillance, and interdiction 
assets for the U.S. military. In particular, modernization of Coast 
Guard and Naval forces that can help prevent seaborne trafficking of 
weapons material is vital.
    Theater Missile Defense (TMD). TMD is also essential. Missile 
defenses provide the means to intercept a ballistic missile in flight 
and destroy it before the missile can deliver a nuclear warhead to its 
target. The United States should work with its friends and allies to 
provide theater missile defense to countries in the region. The United 
States should continue to pursue a mix of air, land, and sea-based 
missile defense systems.
    Special Operations Forces and HUMINT. These military and 
intelligence assets provide the capacity for focused operations against 
specific targets. Today, these forces are overstretched, performing 
many missions in the global war on terrorism. The Pentagon must end the 
use of special operations for training foreign militaries and other 
tasks that can be done by conventional military units. In addition, the 
administration must bolster the ranks of the special forces and HUMINT 
assets that might be required to operate in Iran, ensuring they have 
the right language skills, area knowledge, and detailed, actionable 
intelligence.
    Theater Access. The United States must ensure it retains the means 
to deploy and sustain forces in the theater. The Pentagon should work 
to secure a variety of basing options for staging military operations. 
In addition, the military must have robust means to ensure its ability 
to operate in the gulf and defeat ``antiaccess'' weapons that Iran 
might employ such as cruise missiles, sea-based mines, terrorist 
attacks, and biological or chemical weapons.
    Energy Security Preparations. In the event of a military clash with 
the United States, Iran undoubtedly will try to follow through on its 
threats to close the Strait of Hormuz to oil tankers and disrupt oil 
exports from other Persian Gulf oil exporters. Washington should take 
immediate steps to limit the future impact of such oil supply 
disruptions by working with the Arab Gulf States to help them reduce 
the vulnerability of their oil infrastructure to Iranian military and 
terrorist attacks; pressing U.S. allies and other oil importers to 
expand their strategic oil stockpiles; encouraging Saudi Arabia to 
expand its excess oil production capacity; and asking Saudi Arabia to 
upgrade the Trans Saudi Arabian pipeline to increase its capacity and 
make preparations to bring the Iraq-Saudi pipeline back online to 
reroute oil exports away from the Persian Gulf to the Red Sea oil 
export terminals.

                THE NIGHTMARE SCENARIO OF A NUCLEAR IRAN

    There is no guaranteed policy that can halt the Iranian nuclear 
program short of war, and even a military campaign may only delay 
Iran's acquisition of a nuclear weapons capability. But U.S. 
policymaking regarding the Iranian nuclear issue inevitably boils down 
to a search for the least bad option. And as potentially costly and 
risky as a preventive war against Iran would be, allowing Iran to 
acquire nuclear weapons would result in far heavier potential costs and 
risks.
    The United States probably would be able to deter Iran from a 
direct nuclear attack on American or Israeli targets by threatening 
massive retaliation and the assured destruction of the Iranian regime. 
But there is a lingering doubt that a leader such as President 
Ahmadinejad, who reportedly harbors apocalyptic religious beliefs 
regarding the return of the Mahdi, would have the same cost-benefit 
calculus about a nuclear war as other leaders. The bellicose leader, 
who boldly called for Israel to be ``wiped off the map'' before he 
acquired a nuclear weapon, might be sorely tempted to follow through on 
his threat after he acquired one. Moreover, his regime might risk 
passing nuclear weapons off to terrorist surrogates in hopes of 
escaping retaliation for a nuclear surprise attack launched by an 
unknown attacker.
    Even if Iran could be deterred from considering such attacks, an 
Iranian nuclear breakout would undermine the NPT and trigger a nuclear 
arms race in the Middle East that could lead Saudi Arabia, Egypt, 
Turkey, Iraq, and Algeria to build or acquire their own nuclear 
weapons. Each new nuclear power would multiply the risks and 
uncertainties in an already volatile region.
    Iran also may be emboldened to step up its support of terrorism and 
subversion, calculating that its nuclear capability would deter a 
military response. An Iranian miscalculation could easily lead to a 
future military clash with the United States or an American ally that 
would impose exponentially higher costs than a war with a nonnuclear 
Iran. Even if it could not threaten a nuclear missile attack on U.S. 
territory for many years, Tehran could credibly threaten to target the 
Saudi oil fields with a nuclear weapon, thereby gaining a potent 
blackmail threat over the world economy.
    I believe that Senator John McCain was correct when he concisely 
stated: ``There is only one thing worse than the United States 
exercising a military option, and that is a nuclear-armed Iran.''

    The Chairman. Well, thank you very much, Mr. Phillips. We 
will now have a round of questions. We'll have a 10-minute 
round at this point. Let me commence by asking a general 
question. Several of you have made comments, but I want to 
explore this further.
    We have been discussing in the Senate, and I gather similar 
conversations have occurred in the House, as to what kind of 
support the United States ought to give to so-called 
prodemocracy forces in Iran. In fact, $75 million has been 
appropriated for activities of this variety, but it's not at 
all clear exactly with whom we should be interacting, and how 
these people are selected.
    We had some testimony yesterday that if, in fact, we were 
bold enough to identify persons in Iran, they, themselves, 
might be targets of the Iranian Government and persecuted for 
their interests in cooperating with us. There has been a 
diaspora of Iranians in the United States. Sometimes 
suggestions are made that we ought to be working with them, and 
helping their efforts that they may have some contact. We have 
talked about our public diplomacy efforts. Mention has been 
made of the BBC and likewise our own radio and television 
broadcasts. There are conflicting views as to the effectiveness 
of our public diplomacy. Suggestions have been made about the 
nature of who listens to BBC in Iran--what effect this may 
have. I raise these issues to begin with because there are 
currently many Americans who believe that we ought to be 
proactive, that we ought not to leave those in Iran who are 
interested in democracy simply to their own activities without 
the ability of our communication or even our money or our 
organizational ability.
    Mr. Nasr, you addressed this a good bit in your testimony, 
so let me start with you and ask you again, because you've 
touched upon this, what advice do you give to Americans who 
want to work in a prodemocracy way with Iranians, or more 
distantly through public diplomacy?
    Dr. Nasr. Senator Lugar, I think it's an important issue. I 
think we have to separate clarifying and broadcasting our 
message to the Iranian people from trying to become a part of 
their domestic political engagement in Iran.
    First of all, I don't think access to information is a 
problem in Iran. Over a third of the Iranian population already 
listens and gets its news from BBC. I've been on McNeil-Lehrer 
news hour and I've had comments from Iran of people who've seen 
it on satellite television. Iran is very different from Eastern 
Europe. The issue is not to get information to it, it is to get 
the correct information to it. And that is part of my argument; 
that it requires a clarity of purpose and message here.
    I do agree that identifying partners in Iran will put them 
in harms' way. A prominent intellectual was arrested earlier in 
April and he's being charged with being involved in 
dissemination of that $85 million in Iran because, at one 
point, he was a fellow of the National Endowment for Democracy 
in Washington, DC. I also think that as we move into the area 
of sanctions and possibly military action, credible 
prodemocracy forces in Iran will shy away from overtly 
cooperating with the United States, because like all 
politicians, they will not want to be associated, at a time of 
war, with what would be seen in Iran as the adversary.
    I think, therefore, we should support democracy in multiple 
ways, but we should be much more precise in terms of how we go 
about it, and I think the first step is actually to work on the 
kind of message we want to convey to the Iranians.
    The Chairman. Ambassador Wisner, you've dealt with several 
governments in your career on important democracy efforts, and 
I'm deeply interested in your views on this.
    Ambassador Wisner. Senator, I have very little to add to 
Vali Nasr's point, save a core contention--and that is it 
depends where you start. If the starting point is that the 
United States seeks, over time and in a reciprocal manner, to 
normalize its relations with Iran, and live in peace with Iran, 
and develop the normal connections between nations, then 
engagement with Iranian forces, academics, intellectuals has a 
context, it can work.
    If, on the other hand, your declared political purpose is 
to see an end to the regime, if you make it a key, cardinal 
point that you want to blunt its national security, then you 
don't have a basis. You don't have a political basis on which 
you can engage civil society or any other number of 
institutions, and you will be looked at as intrusive and 
hostile.
    So, I believe that engagement with Iran in a manner that 
would promote democracy over the long run is a direct result of 
the political posture we take, and we'll have a lot better luck 
if we're seen to be approaching normalization. Now, that ain't 
going to happen tomorrow morning, so what else can we do?
    I have the gravest reservations about trying to find groups 
and put money into them, for the reasons, Senator, you cited. I 
do believe that sensible news programs that have good debating 
content about different aspects that are listened to by 
Iranians using the Voice of America, other intermediaries, 
makes perfectly good sense.
    I also believe that it makes a lot of sense for Iranians 
who want to study in this country--and there are a number--to 
find opportunities to do so. Right now we have an absolutely 
bewildering array of visa restrictions that deny the access to 
this country of Iranians, whether they are businessmen or 
individuals or family trying to come for family reunification 
purposes and visits, or students. I'd like to see a relaxation 
of travel to give Iranians a chance to meet, think with us in 
dialog, and even scholarship assistance.
    My last thought is that over many years of the estrangement 
that's existed between the United States and Iran, a once 
modest force in this country, Iranian studies in our 
universities and think-tanks have lapsed, and shriveled around 
issues like just the nuclear question at the cost of serious 
analysis of Iranian society, the political dynamics. So if 
there is money to be spent, I think some could be spent at home 
on revitalizing and strengthening Iranian studies and analysis 
in American institutions.
    The Chairman. Mr. Phillips, let me ask you your take on 
this same issue.
    Mr. Phillips. Well, I think the primary responsibility--the 
absolute responsibility--to build democracy in Iran is up to 
the Iranian people and we shouldn't think that we're going to 
be able to build it from the top down from outside, it's not 
something that can be militarily imposed, it must grow 
organically from the ground up. But I think there are 
substantial consensus in Iran that they want change, and they 
want to see their regime evolve into a more accountable form 
that represents their interests. So I think it's important 
that, although Iranians are getting information from the BBC, 
that they also get information from the United States, that 
we're aware of their struggle and that we supported the 
peaceful democratic change there. Also to make it clear that 
their government which claims this nuclear issue is a dispute 
over peaceful nuclear power, that it's much more than that. Let 
them know that their government has been dealing with A.Q. 
Khan, who is not someone who sells nuclear reactors; he's 
someone who sells nuclear weapons. Let them know their 
government is harboring al-Qaeda terrorists, and do they really 
think that's a responsible position for a group that is very 
anti-Shiite, that has killed Shiites in Afghanistan and Iraq--
including many Iranians, and do they really want to bear the 
risks of what would happen if an operation against the United 
States came out of al-Qaeda in Iraq, as apparently happened to 
Saudi Arabia in 2003? I think those are the kinds of wedge 
issues that public diplomacy would be important in setting the 
stage for.
    The Chairman. Thank you.
    Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    I'm going to probe a little bit deeper, Mr. Chairman, into 
the question you raise, because I really think that's the core 
issue, one of the core issues here. And I have grave concern 
about folks in Washington, bureaucrats saying we've got $75 
million--whatever the figure is--and here's how we're going to 
spend it, and here's the impact. So, I want to probe a little 
deeper.
    Before I go, just a couple of questions. Ambassador Wisner, 
you started off by saying, not clear that, in kind of the 
underpinnings of your approach--one of them was it's not clear 
that Iran has decided to develop a nuclear weapon ambiguity. If 
it were clear, if there wasn't ambiguity, would you still 
advocate the same course of action? If, in fact, it was clear 
that Iran wants to develop and use nuclear power for a nuclear 
weapon, would you advocate for the same course of action you're 
advocating today?
    Ambassador Wisner. I shorthanded my testimony, if you have 
a chance to look at it, it goes into it in a bit more detail. 
The point I wanted to make is whether Iran, has at the end of 
the day, the intention to produce a weapon, or to enrich to a 
degree that would make civil nuclear power the outcome--both 
absent any confidence in what Iran is doing and how it intends 
use--are unacceptable outcomes from the United States and must 
be opposed. We are correct in trying to oppose an enrichment 
program.
    Now, the question is, How do you oppose it? And my answer, 
if in the hypothetical circumstance, that Iran took a decision 
that I don't think she will take because the program of 
enrichment hasn't evolved to that state, and there is a 
disagreement in Iranian society, political society, over the 
wisdom of a nuclear weapon.
    But if Iran, if you want to put the hypothetical question 
on the table, I would still argue that our options--military 
and sanction options--are not likely to be decisive. And 
however we come at it we've got to find a political way to 
engage and think through what causes Iran to produce, to 
develop a policy of confrontation, how else can you address 
that, how do you create a basis of a broader coalition 
internationally--we don't have that coalition today--therefore 
a political approach would still suggest itself to me if the 
hypothetical were to exist, and I argue we're not at that stage 
yet.
    Senator Coleman. One thing--I tried to stay through Senator 
Biden's question, I didn't get through the whole thing, we had 
a vote and it was a long question. But I do want to, at least, 
make one point for the record. The sense I got from the 
question was that somehow that our engagement of Iraq is kind 
of a, some kind of cause, has an impact on Iran's openness to 
work with democratic forces. And I would note, Mr. Chairman, 
that in 1999 before Iraq, there was a student uprising and it 
was crushed; it was crushed. I think this regime's intentions 
have been very clear. To have some linkage between what we did 
in Iraq that somehow that's empowered a movement against 
democracy is--at least history doesn't reflect that.
    Dr. Nasr, I very much agree with your vision, and it's 
clear that democracy is not a short-term effort, and I don't 
believe that those in this body--I can't speak for all my 
colleagues--but I don't think that there's a sense that the 
movement toward democracy is a short-term effort, it's a long 
term.
    But I want to probe a little deeper into the chairman's 
questions. You said that we should support democracy in 
multiple ways--could you outline a little more specifically 
what are some of the multiple ways that we can support 
democracy, understanding that this is a long-term objective?
    Dr. Nasr. The first way in which we should support 
democracy is by clearly asserting and pursuing the moral 
imperative and using the United States moral authority to do 
so. And I think that is best done by decoupling it from any 
other objective we might have. In other words, I do agree with 
the other comments that it is in the interest of Iran, it is in 
the interest of the United States, and the people of Iran 
deserve democracy, and that should be the political objective. 
But it should also be clear that this is not part and parcel of 
any other policy objective.
    There are, I do believe that the United States should put 
its views on multiple issues on the table, and communicating 
these to the people of Iran are important. I don't think they, 
by themselves, will make any difference because as I said, 
information is not the problem in Iran.
    I want to add also, much of our efforts always are 
directed--including engaging expatriate Iranians--are on the 
more affluent middle-class Iranians which already agree with 
everything you are saying. The problem is reaching the 
supporters of Ahmadinejad among the poorer, much more 
religious, much more--if you would--provincial population in 
Iran which are the ones who support him, and the ones who voted 
for him. And that actually requires thinking much more 
imaginatively with how you communicate with that population. It 
is a problem that's not only unique to Iran, we have the same 
problem also, say, with Venezuela in terms of how you go past 
the population that you already know agrees with you, to the 
one that doesn't.
    Senator Coleman. Let me ask the other, Dr. Phillips, to 
respond again with a little more specificity, are there 
diaspora groups out there that have that connection, who should 
we be listening to? Who should we be talking to who has a good 
sense of what's going on in Iran today who has the capacity to 
reach out beyond the middle-class to those who are more 
susceptible to Ahmadinejad's message.
    Dr. Nasr. Well, the diaspora group in the United States is 
very diverse----
    Senator Coleman. I would say internationally, not even in 
the United States, if we were reaching out, there's a group in 
France, in Germany, in Britain--who's out there who we should 
be talking to? Listening to?
    Dr. Nasr. There are multiple groups--they range from 
monarchists to Marxists to Islamic dissident groups--they're 
often, a factor that we often overlook is the academic group. 
Having no population in the United States which is more in 
touch with what happens in Iran than actually Iranian and 
American academics who spend time in that country.
    For instance, during the Iranian elections, other than 
American journalists, academics from the American universities 
were the larger population on the ground who was observing 
things that were happening. And it's important if you are 
aggregating information that those views be channeled into the 
way in which we think about policy.
    Senator Coleman. Dr. Phillips, again, a little more 
specificity and also the second question of who we should get, 
other than the MEK, or I think the PMO, but other than the 
Ahmadinejad cult--who else should we be engaging, and a little 
more specificity in responding to the chairman's questions 
about what is it that we can do to promote democracy?
    Mr. Phillips. I think we should be speaking to all the 
Iranian groups, with the exception of the MEK's as you 
mentioned. In my longer testimony, I think they're a terrorist 
group and they're identified with the Iraqi regime by many 
Iranians, but I think we should be not trying to pick 
favorites, we're really bad at that--so we should be helping or 
talking to all of them. Also, I would add, perhaps clerics in 
Khom who are increasingly exasperated with the regime, some of 
whom never bought into Ayatollah Khomeini's radical vision of 
the Supreme Guide or Supreme Leader. There may be back channels 
there, women's groups, labor unions--I think that could loom 
large in the future of Ahmadinejad's support, because he came 
to power promising an anticorruption drive, which he hasn't 
delivered on and there is increasing labor unrest inside Iran 
because of that.
    I think we should be publicizing wherever possible, the 
corruption of the regime, the wealth of the families around 
leading clerics. I think the Iranian people recognize this--
according to a recent visitor there that I talked to--he said 
before taxis wouldn't pick up mullahs in clerical garb, but now 
it's come to the point where buses won't even stop at the bus 
stop if they see a mullah there and I think that's an important 
sign that there is increasing disenchantment with this regime.
    But I would be very humble about the U.S. ability to spark 
or provoke an immediate democratic regime change. I think this 
is definitely a long-term process and it probably won't come 
about until after Iran has a nuclear capability, but it's 
something that we should seek to encourage in the long run.
    Senator Coleman. Ms. Nanay, I apologize, I missed your 
testimony and I know you were talking about the energy side, my 
time is just about up but if I could just ask very quickly--I 
understand Iran's infrastructure has not had a lot of 
investment, I presume they have great needs. Is that a--how 
strong of a bargaining chip is that in any discussion with 
Iranians? Any of that investment?
    Ms. Nanay. I think it's clear that for Iran the future will 
be gas. They have the second largest gas deposits in the world 
after Russia. That gas is not being developed efficiently 
today, and it's certainly not being developed for exports.
    But that being said, I think that where I agree with some 
of the other testimony is that while Iran would like those 
investments, I think the real question here is: Is U.S. policy 
regime change or not? And if it is regime change, I think 
they're willing to sit back and live with what they have today, 
with high oil prices, and go along with the investments that 
they can make as it is, and their production is at about 3.9 
million barrels a day, some say it's a little less, some say 
it's a little more--but that's substantial. And as I say, 
they're getting substantial revenues from exports.
    So, that's on the oil side, now the gas side, as I said, is 
being developed inefficiently, and maybe they'll just wait. The 
United States has very few options, I think, in terms of 
convincing Iran that they need investments in the energy sector 
right now, so just let us change your regime and then those 
investments will come--I think, if we take a policy of 
negotiations and then accept that the regime stays, and we 
negotiate with this regime, then potentially, yes, you can use 
that as a bargaining chip.
    Senator Coleman. Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Coleman.
    Senator Nelson.
    Senator Nelson. Mr. Chairman, thank you. I would like you 
all to tell me to what extent you think that the relationship 
between Iran and Hezbollah will continue and to what degree is 
there the chance that as we confront Iran on all of these other 
issues that we could get Iran to start backing off its support 
of Hezbollah, particularly to such a large degree in Lebanon?
    Dr. Nasr. The relationship, Senator, is likely to continue, 
but it has been changing. Partly because Hezbollah has its own 
interests now that it's following within Lebanon itself, it's 
relations with Iran and Syria have been viewed as a, now as a 
handicap in terms of its popularity in Lebanon, but it also 
relies significantly on financial assistance from Iran, if not 
other assistance in terms of managing its social services and 
political operations.
    Iranians view Hezbollah as a strategic asset, it is the 
only large political movement in the Arab world that is 
specifically pro-Iranian, and it is a channel for Iranian 
influence in Lebanon. Whether or not Hezbollah will be willing 
to fight Iran's fight if it comes to that, if there is, say, a 
military confrontation, is open to question. There are segments 
within Hezbollah, particularly paramilitary segments, are 
likely to be mobilized in terrorist operations. But whether the 
broader Hezbollah is willing to jeopardize its current position 
in the Lebanese Parliament and the Lebanese Government, is open 
to question.
    Mr. Phillips. Yes, I would agree, and it's generally 
underestimated the ideological component of support for 
Hezbollah, especially President Ahmadinejad who came out of the 
Revolutionary Guards which was the link with foreign 
revolutionary and terrorist groups--I think it's going to be 
very difficult to separate his regime from Hezbollah and I 
don't see economic incentives coming into that, because I think 
a lot of the decisions made by Tehran are not for economic 
reasons, and it does see Hezbollah as not only a useful club 
against Israel and other Middle Eastern states, but a potential 
weapon against the United States.
    Senator Nelson. How does the Lebanese Government perceive 
the Iranian influence of Hezbollah?
    Dr. Nasr. I think it's, Senator, at least part of it is 
tied to the larger issue in the region which has to do with the 
Sunni governments in the region now viewing developments in 
Iraq as a threat to their internal stability, because it is 
encouraging Shiites to demand more rights and privileges. The 
Lebanese Government has repeatedly renounced views that the 
Shiites are connected with Iran within Lebanon, whether they 
are Hezbollah or not, and that Iranian involvement in Lebanon 
has become part of the domestic fight, if you would, within 
Lebanon. It is very similar to the comments that were made of 
President Mubarak in Egypt of the Shiites being loyal to Iran.
    So I think the Lebanese Government is looking to limit 
Hezbollah's political power in Lebanon and it views Iran as 
providing financial, and political and foreign policy support 
to Hezbollah, and it would like to limit those powers, its way 
of managing the Shiite vote in Lebanon.
    Senator Nelson. Is there an oppor----
    Ambassador Wisner. Would you permit me, Senator Nelson to 
just add a thought? My experience with the Lebanese Government 
over the years is that it is an extraordinarily weak 
institution and it is based, fundamentally, on sectarian 
balances. No Lebanese Government in my lifetime has been 
willing to take on any sectarian element, any ethnic or 
religious component of Lebanese society because it is so 
closely balanced. Therefore, the Lebanese Government is not 
going to pick a fight with Hezbollah, or Hezbollah's Iranian 
connections.
    But I think the opposite is also true, that Hezbollah is 
part of Lebanon's corpus and the country has a way of 
assimilating politically over time, its political elements. And 
that includes Hezbollah. I think Vali Nasr made a very 
important point--Hezbollah is changing. It is no longer the 
militant--only the militant--group that faced Israel. It's also 
competing for seats in the Lebanese Parliament and for 
influence in the hitherto fore downtrodden population. So an 
attack on its connections with Iran from the outside will 
neither galvanize other Lebanese communities, or the Lebanese 
Government, or is likely to have a decisive sway inside of 
Shiite politics domestically. But working to strengthen the 
Lebanese polity, get the Lebanese to agree on common purposes--
that's the way over time, I think, you'll see Hezbollah begin 
to mitigate the role, continue to mitigate the role it's played 
in the past.
    Senator Nelson. And so, the United States should approach 
this conundrum how, in your opinion?
    Ambassador Wisner. Cautiously, quietly, and without laying 
demands on our relationship to a Lebanese State that can't bear 
those demands, that it take actions that are violent or 
disobliging or disciplinary. Versus Hezbollah in the south, we 
can make our choices about how much money we want to give, but 
to publicly condition it is something that will produce an 
impossible political circumstance for the Lebanese Government, 
and indeed, other Lebanese political forces.
    Senator Nelson. Is there any daylight between the Lebanese 
Shiites and Hezbollah, that we can lessen the influence of 
Hezbollah?
    Ambassador Wisner. I will be honest with you, Senator 
Nelson, I don't know why we have to pick enemies? There is, of 
course, a contending force, there is Amal. I would not argue 
that you have to pick friends, either. The United States can 
stand above the interplay, the fray of Lebanese politics, and 
encourage directions, as opposed to try to pick one side or 
another. They're all filled with defects.
    Senator Nelson. You all are familiar with the Hezbollah-
sponsored television station, Al-Manar, which spews out a good 
bit of hate. Just recently the administration declared this 
television station as a specially designated terrorist 
organization. It was sponsoring hate and violence and 
terrorism. And as a consequence--one consequence that I know 
that happened was that the sister radio station, which was up 
on a Spanish satellite system, was knocked off the satellite by 
the Spanish.
    Now, this is a television station and a radio station 
that's really doing some pretty bad things--they're out there 
broadcasting how to do a self-destructive vest and all of that. 
I'd like your comments on this. Both of you.
    Dr. Nasr. That is true. Al-Manar has been broadcasting not 
only contentious programs like the one you mentioned, but also 
has been having an impact on public opinion on a host of 
issues, and it's actually a very popular television site, it's 
the second most popular after Al-Jazeera in the region. And 
dealing with it is a public diplomacy, it's a media challenge, 
and not only just for the United States, it's actually a 
challenge for some of the other media outlets in the region as 
well. There has to be a sort of--United States should follow a 
policy of demanding that its content be curtailed--but it will 
be difficult to completely shut it off, mainly because it's 
very well tied to all the political and social operation of 
Hezbollah, and it has a wide viewership, not in Lebanon itself 
alone, but also in the Palestinian territories, in Iraq and all 
the way into the Persian Gulf as well.
    Senator Nelson. Are the changes in Hezbollah ultimately 
going to change the message of hate that is being broadcast 
over Al-Manar, in your opinion?
    Dr. Nasr. Ultimately, it will. This process may be slow. 
Over the period of elections that occurred in Lebanon in the 
past year, Hezbollah had to build a coalition with more 
moderate Shiite forces, particularly with Amah, the two of them 
ran under one umbrella, and won about 80 percent of the Shiite 
vote in Lebanon, which is probably 40 percent of the vote in 
the country as a whole.
    It had to make certain compromises, at least in its message 
within the community. Part of the reason Hezbollah is reluctant 
to do that was Hezbollah's popularity among the Palestinians is 
very closely attached with its very strong anti-American and 
anti-Israeli position. And when Iraq occurred, Hezbollah came 
under attack from other Arabs in Lebanon and the region for 
being complicit in Shiite empowerment in Iraq, is a vague way, 
being responsible for the loss of power by the Sunni 
population. And some days Hezbollah is trying to compensate for 
that loss of face by shoring up its credentials by toughening 
its stance on the United States and Israel and trying to divert 
attention from the fact that its sympathies in Iraq lies not 
with the insurgents, but with the Shiites.
    The Chairman. Thank you very much, Senator Nelson.
    Senator Obama.
    Senator Obama. Thank you, Mr. Chairman, and thanks to the 
panel. I apologize for having missed your initial 
presentations, but I have read them and I appreciate you being 
here.
    A lot of the questions that I would have asked have already 
been put to the panel, but I want to just touch on a couple of 
things to amplify them, if I could. The first question I'll 
direct to Dr. Nasr.
    I continue to be interested in our approach to 
democratization, and it strikes me that in an environment like 
Iran that it is possible that our funding of reformists make 
them a target, or make them actually distance themselves from 
the general population that, ultimately, they would need 
support from, to accomplish change. I know that some of these 
questions were touched on, so I don't want you to repeat 
yourself at length, but I'm just wondering if you could comment 
on the general assessment, and if that's the case, can you tell 
us what would be an appropriate way in which we're encouraging 
human rights, intellectual freedoms, and so forth without being 
heavy handed and actually undermining the very groups that we 
are trying to empower?
    Dr. Nasr. Thank you, Senator. Part of the problem rests in 
the fact that we've approached this issue in the way--based on 
the experience we had in Eastern Europe, where I believe that, 
fundamentally, the context was different.
    First of all, there were much more clear-cut political 
forces on the ground to partner with and channel the money to. 
The governments were more alienated and isolate, but also we 
had embassies and operations on the ground that could actually 
manage the money and know that it is going to the appropriate 
sources.
    We do not have a presence in Iran. It is not clear how we 
would establish a channel with the right people to send them 
money. Second, unlike Eastern Europe, or other cases like Asia 
and Latin America, the major push for democratization, at least 
through this appropriation, is coming right at the time of 
heightening tensions between the United States and Iran, with 
threat of sanctions and possibly military action on the table. 
That makes it very difficult for democrats to be able to 
cooperate with the United States overtly.
    I remember, one reformist told me that we want support, but 
we don't want it put on a bumper sticker, because it 
stigmatizes them. And they do not want to be put in a position 
politically to have to choose between nationalism and 
democracy. And that's exactly the way in which the Iranian 
Government is posing the issue. That democracy is not supported 
by the country that could eventually be the adversary of Iran 
or be dropping bombs on Iran. And the regime has begun to 
legitimate its crackdown on intellectuals and human rights 
voices in Iran by no longer saying they are putting them in 
prison because they're criticizing us, but by saying they are 
distributing this money, and, therefore, they are ``foreign 
agents.'' In that sense it could be counterproductive, you 
could actually squash that movement rather than help it.
    Senator Obama. So is there anything we can do that would be 
useful? Or should we just keep a hands off policy until some of 
the larger geopolitics have been resolved?
    Dr. Nasr. I think, Senator, now that the appropriation has 
been declared, in other words, money has been put on the table, 
it is very important to have very clear transparency and 
accounting of what the money is being spent on. Because the 
very ambiguity of where the money is going or who might get it, 
allows the Iranian regime to argue that the money's being spent 
on subversive activities or is being channeled to particular 
groups that it wants to stigmatize. So, if the money is being 
spent on broadcasting that should be clarified, if it's being 
spent on academic material, as Ambassador Wisner suggested, 
that should be clarified as well.
    Senator Obama. Ambassador, I think it was in your 
testimony, and correct me if I'm wrong here, that you were 
suggesting that engagement would be a wise course of action. 
You know, I've had conversations with folks in the State 
Department, and previously their feeling was, ironically, that 
politics inside Iran oftentimes prevented engagement. It wasn't 
just an unwillingness on the part of the United States, but, in 
fact, there was some resistance from the Iranians because it 
caused them problems if interlocutors seemed to be too friendly 
to the United States. You seemed to indicate in your testimony 
that may have shifted, because you actually think there's 
greater confidence, politically? I'm wondering if you can 
expand on that, and if there are particular openings--are you 
suggesting here that now is the time for us to, for example, in 
response to the letter from the Iranian President--to write 
back, see if we can get some sort of direct talks? Do you think 
the model that we're using with North Korea, the six-party 
talks, is a way to help the thaw, and again, I'm sure that some 
of these questions were asked before, so I apologize, but if 
there's anything you either want to reiterate, or expand upon?
    Ambassador Wisner. Senator, there is a long history of 
American attempts to engage Iran and a respectable history of 
Iranian attempts to engage the United States. It's my 
conclusion that these attempts have failed in the past. 
Obviously, over sharp differences of points of view, but, 
principally, because they were not linked coherently within a 
political objective, they were individual initiatives.
    Senator Obama. Can you explain what you mean by that?
    Ambassador Wisner. An individual initiative, for example, 
we and the Iranians talked about the American hostages in 
Lebanon, we found a basis to solve that particular problem, but 
it had no spillover effect on the range of disagreements. And 
as soon as it clashed with our electoral cycles--we were going 
into an election--the initiative dried up. We opened a 
multilateral channel of dialog with the Iranians, inside--over 
the issue of our hostages in Iran. And the Iranians took a 
number of steps that were, frankly, helpful to the United 
States over Afghanistan. That didn't lead anywhere, because it 
was in isolation.
    I would argue that solely a discussion of Iraq, in Baghdad, 
with our Ambassador in Baghdad, may reveal some interesting 
outcomes, but ultimately it's not going to effect the totality 
of the relationship, unless there's a political decision at the 
top on both sides, to aim for a different construct, to aim for 
a normalization between the two sides, and then--as we did with 
China--once we link at the top, between our President, the 
Iranian leadership, a desire, a determination to live in peace 
with one another, than you can address the subordinate portions 
of the puzzle: Iraq, Afghanistan, Palestine, Israel--but if you 
try to go at the bottom up, you will fail. You will be 
frustrated. That was the core of my contention.
    Now, do I believe that the letter should be answered? No 
and yes. The letter is very complicated for an American mind to 
get around--it's a strange formulation is about the nicest 
thing you can say. But I believe it offers the United States an 
opportunity to state our case.
    Senator Obama. Right.
    Ambassador Wisner. To put on the table what we want to talk 
about, and what we believe is important. So, I would hope that 
a way can be found to signal back that we're open for dialog, 
but here are the issues that have to be talked about. Not try 
to answer line by line the contentions that all of us would 
disagree are well founded.
    Senator Obama. Is it fair to say that such engagement, 
though, would necessarily be premised on the idea that we are 
not pursuing a regime change in Iran--as long as that is, at 
least, on the table here in Washington, then presumably we 
couldn't--it would be contradictory.
    When we engaged China, the presumption was that, for all 
their flaws, we did not have it within our power to change 
regimes, and as a consequence we approached it somewhat 
differently. It seems to me that, up until now, the 
administration's posture has been that we might, we might just 
replace the folks.
    Ambassador Wisner. Senator, you have certainly stated my 
view that a policy of regime change runs countercurrent to an 
ability to engage on the issues of vital importance to the 
United States, which are issues of national security importance 
to us. I argued that the domestic dispensation in Iran, while 
important, as a level of principle is not a national security 
threat to the United States. Therefore, we can find a way to 
live in peace--though not in agreement on principle--with the 
Iranian regime. And until you make the point that you are 
prepared to seek peace, then engagement on issues of enormous 
importance--nuclear or any other others--won't be possible.
    The Chairman. Thank you very much, Senator Obama.
    Let me commence the second round of questioning and simply 
note that we come together in large part today because we 
believe that there is the potential threat of nuclear weapons 
in Iran, a threat of this sort.
    Now, you have testified, at least some of you, that we 
ought to decouple the democracy objective from any other 
objective--in other words, if our situation is one in which the 
threat of a nuclear development is the major thing we're 
looking at, then we should look at that. The suggestion is, in 
fact, that there probably is a degree of normalization between 
our country and Iran or other countries in the world and Iran. 
It is going to be a requirement before vigorous dialog on 
democracy is likely to be productive. Furthermore, you've 
testified, Ms. Nanay, that that probably is going to be the 
case before the natural gas industry in Iran is more fully 
developed, or energy resources are available to the world. More 
dialog on democracy is productive if we are to have a degree of 
normalization. It's not easily come by, this engagement that 
brings a sense of normalization. On the other hand, a call for 
normalization is a different thing than a call for regime 
change. So, an argument could go on on that one, but at least 
some of you come down on the side that probably you talk about 
normalization as productive on the democracy scene, the energy 
scene, and maybe even with discussion of the nuclear business.
    We had some testimony yesterday that in order for serious 
thoughts about normalization to occur, there has to be at least 
some degree of economic sanction, and not just the threat of 
it, but the actualities. It was suggested by some witnesses 
yesterday that this can be more subtle than overt--
specifically, for example, with bank account changes in which 
all sorts of things get dropped in the background--likewise, 
withdrawal of foreign investment or failure of projects to 
proceed. There has been some testimony today that on those 
grounds alone, Iran is unlikely to change its mind.
    On the other hand, they offer some credibility that the 
world is not helpless in these respects, and that we can take 
steps that do not overtly harm ordinary Iranian people in the 
process of attempting to make our point.
    I ask you, first of all, Mr. Wisner, if there is any sort 
of parallel with our experience with Libya. I can recall from 
an earlier term in the Senate, being summoned by President 
Reagan to the White House. Senator Byrd and Senator Dole were 
there, and I have a photograph of us. That's why I remember who 
all was sitting around the table. President Reagan comes in and 
informs us we're going to have consultation about military 
action. That, while we are sitting here, there are American 
planes flying toward Libya, and that they were going to be over 
Libya in 3 hours. So, our conversation would have to be less 
than 3 hours, because, in fact, something's going to happen 
then.
    The implication is--although it's not a promise--that if we 
come to the conclusion that it's not a good idea, then the 
planes might be called back. They've already gone around France 
because they had difficulty getting across there and all of 
these other machinations of the time. And so we discussed this 
for about 2\1/2\ hours, and it was not a lay-down hand, because 
it was an act of war. The reason we're doing this is because an 
American soldier--or maybe more--had been killed in Germany, 
and we attributed that to Libyans. And we felt that that was a 
sufficiently hostile act to, in fact, bomb what could have been 
Muammar al-Qaddafi and his family, in addition to other targets 
that were there.
    So, that's pretty serious stuff, and as people are talking 
about overt military action, I can recall this.
    In any event, we did attack and the bombs were dropped and 
there was damage, Muammar al-Qaddafi's family suffered some 
casualties, as a matter of fact. He, himself, lived.
    I thought about that when I was asked by the State 
Department and the NSC to visit with Libya in August. I was 
invited by Muammar al-Qaddafi to come into the middle of the 
desert. And given an Air Force plane and the proper escorts, we 
got there and we had a 1\1/4\-hour-long conversation about life 
in the times. It was a productive conversation. It might not 
have been. There was no reason for him to invite me, no reason 
for the State Department to ask me to go over to Libya and see 
what you can do.
    But I mention this because this is the same man that we 
were talking about in the White House about 20 years ago. So 
times change. Libya had changed. And we can't go through all of 
the negotiations that led to their renouncing of their nuclear 
program or their chemical program. There's still cleanup to be 
done, although most of it has been carted out to Oak Ridge, TN.
    And just this week we have set up an embassy there. We are 
removing Libya from the terrorist list. This is not without 
dispute, I might add. On the other hand, my recommendation 
reflected American interests in Libya presently given Chinese 
and Indian workers populating the Corinthian Hotel in Tripoli 
and going after every last acre of the country. Lybia has 
demonstrated a change in attitude toward the Bulgarian medics, 
toward the Saudi Government, toward a whole list of things that 
were previously very legitimate foreign policy issues.
    There always has to be credibility. I would not suggest 
that an attack upon Iran is one way of establishing that, a way 
in which, perhaps, we did so in other times, but I'm asking--
after we settle the fact that we are credible--and I say we, 
the Europeans, the Russians, the Chinese, who are busy 
negotiating with them to get into a common posture--at the end 
of the day, what is your judgment that the Iranians might take 
the Libyan path? In other words, that they might decide that 
they want to be a part of the world, that they want to develop 
resources that could, in fact, enable a great deal of wealth to 
come to all of their citizens?
    Or, in fact, is there such an obsession to have nuclear 
weapons--come hell or high water--that there is really nothing 
on earth that can change their view? I will ask you, Ambassador 
Wisner, to have a try at that.
    Ambassador Wisner. Senator, it's fascinating and I listened 
with rapt attention to your memories of the past----
    The Chairman. You were on duty during that period.
    Ambassador Wisner. I was, and I remember the circumstances, 
but also your more recent engagement with the Libyan leader.
    I would be the first to argue that drawing parallels at one 
level between Iran and Libya would be a dangerous exercise--
they're such very different societies. Libya, Muammar al-
Qaddafi is the government--Iran's political realities are 
infinitely more complicated. The nuclear programs are 
different, there's so much you could draw as differences.
    But what I think is encouraging, and I believe you put your 
finger on it perfectly, with great accuracy, is that we have 
indicated there is a way forward with the United States, it's 
not just a regime of perpetual confrontation. And the same, if 
I follow Senator Biden earlier in his reference to the front 
page of the New York Times and hints--intriguing hints about 
where we might be able to go with North Korea that we are a 
nation that engages diplomatically, we look for outcomes and 
solutions.
    Now, I believe the ability of the United States to conceive 
of and use military force is without question. And I really 
warn any country that assumes we're bogged down in Iraq and 
can't use military force--we can. It's a reality and it's on 
the table. If we're defied, or threatened, or most 
particularly, if action is taken against the United States.
    Second, sanctions. We have a long list, elaborated 
painfully, of sanctions over some 20 years with Iran. Also my 
memory contains many of those features. Our ability to deal in 
sanctions is not open to question. And if, in the time ahead, 
you've got to find a new sanction, I think there are a couple, 
multilaterally, for example, the use of official credits--that 
offer some merit, if you're looking for and need fresh 
sanction.
    But I believe my colleague on the stand today put her 
finger on the key--it's not what further punishments you can 
deliver, but how you can help Iran escape a quarter of a 
century of isolation, a quarter of a century of denial in which 
she has not been able to deliver for her people the promises of 
what Iranians said was their own revolution. And that 
engagement with the United States is--in the minds of Iranians 
we play such an important role in their calculations and 
thinking at a popular level, and at a government level--
engagement with the United States is a real inducement. Not 
what punishments we can do, but what can come out in a positive 
way. And that, I feel, is the moment we are understating.
    My formula that I argued with you today, Senator, is not 
normalization as the starting point, but a determination that 
we're prepared to live in peace. And to pursue a course that 
could end in a normalization of diplomatic relations. In which 
we address, systematically, those points of difference. In the 
region, what Iran needs economically, and at the end of the day 
arrive at a point where diplomatic relations are normalized.
    But the starting point is one of respect, not challenging 
the others' legitimacy to hold office, but rather to sit down 
and work through toward the objective of a comprehensive 
solution.
    The Chairman. I thank you.
    Senator Coleman.
    Mr. Phillips. If I could just add something on that point. 
I think a Libyan model demonstrates that the use of force and 
strong diplomacy are not mutually exclusive. In fact, when 
dealing with rogue regimes, the credible threat of force 
greatly bolsters diplomacy. And I think one of the reasons that 
Colonel Qaddafi made his decision to give up WMD and disavow 
terrorism was his experience with the Reagan administration way 
back when, and also with the conclusions he drew from the Bush 
administration's intervention in Iraq, and Colonel Qaddafi told 
Prime Minister Berlusconi of Italy that the reason he gave up 
his WMD was the example of Saddam Hussein.
    So I think the disincentives are extremely important when 
dealing with these kinds of regimes. Not that they're 
necessarily similar--Iran is much more complex, much more 
difficult to ascertain which multiple power center to deal 
with, but I'd be willing to accept the Libya model in Iran if 
the Iranians would follow through the way Qaddafi did, which is 
to surrender two of his intelligence agents for trial--one of 
them is in jail. If Iran is willing to surrender Mr. Ahmad 
Sharifi, who was involved in the bombing of the 1996 Cobart 
Towers, then I'd be willing to talk to Iran further on that 
also. But I think it's important that we not just talk about 
incentives, because as President Ahmadinejad said just 
yesterday, was quoted in today's Washington Post, ``Do you 
think you are dealing with a 4-year-old child to whom you can 
give some walnuts and chocolate and get gold in return?'' He 
sees that nuclear program as gold, and until he's convinced 
it's going to cost Iran a lot of gold, he's not going to give 
that up. So I think we need to talk about disincentives and not 
just incentives.
    [Interruption.]
    The Chairman. Let me just issue a warning, once again. I'm 
sorry. We had this problem yesterday, and we'll have it again 
today, apparently. But we cannot have these interruptions. It's 
not fair to the witnesses nor to the dialog of the Senators. So 
please, just be quiet.
    Please remove the persons so we can continue with our 
hearing.
    The Chairman. Continue, Senator Coleman.
    Senator Coleman. I see regime changes and promoting 
democracy as, to me, the same concept. I mean, how do you get 
there? As Dr. Nasr says, it's a long-term process, but I think 
it's certainly in our best interest and the Iranian people.
    Dr. Nasr, your point--and a couple of times you indicated 
that--in building and promoting democracy, what it does is that 
it kind of fuels the flames of nationalism in Iran. So my 
question is, Is your sense that we should not be promoting 
democracy? That if we want to deal with the issues of Iranian 
nuclear capacity, if we want to deal with the range of other 
things that Ambassador Wisner has talked about--do we step back 
from promoting democracy?
    Dr. Nasr. We should continue to support democracy, and we 
should demand human rights for Iranians, freedom of conscience 
for intellectuals, we should demand that the political process 
in Iran move in that direction. But looking at democracy, or 
parceling democracy into our current efforts to change regime 
behavior, specifically regarding the nuclear issue--it just 
confuses, essentially, the purpose of democratization.
    I think as relations are becoming increasingly tense, with 
sanctions and military threats on the table--and you can look 
at political debates in Iran that within the regime and 
society, people are taking these extremely seriously--and 
that's partly why there probably is the letter writing that has 
begun on that side. The population is reacting, obviously by a 
rally to the flag phenomenon. Now, if democracy is combined 
into the policy that they are reacting to, into a policy of 
confrontation with the outside forces, it will immediately 
complicate and hurt the democracy future in Iran. And it's very 
likely that most of the prodemocracy forces will shy away from 
being put in that kind of a bind.
    Senator Coleman. Mr. Phillips, I assume you've had a chance 
to read Dr. Kissinger's article--do you have any reaction to 
his sense that it might be possible to devise multilateral 
venue talks with Iran on the nuclear issue and that we should 
participate?
    Mr. Phillips. I think we should definitely leave open the 
possibility of talking directly to Tehran, but I would be 
hesitant to involve the United States in U.N.-centered public 
talks. I would prefer Kissinger's own model--secret diplomacy--
because that would limit the ability of the Ahmadinejad regime 
or whatever interlocutors we have in Iran to posture and try to 
drive a wedge between the United States and its allies. I think 
direct talks--secret talks--could reduce the possibilities of 
Iran just using it as public relations purposes and kind of 
talking down the clock and involved in endless negotiations, 
kind of whipsawing the United States between its allies who 
believe more in the carrots than talking about sticks, which I 
think Iran pays more attention to.
    We've opened the possibility of talking to Iran, but I 
would draw the line at actually engaging in the sense of 
economic engagement because I think the problem there is, this 
is a state-dominated economy, it strengthens the clique in 
power and also the semiquasi-state bonyads or foundations are 
the ones who profit from any opening to the West, not the 
Iranian people, and economic engagement like that would 
strengthen the regime, not weaken it, in the long run.
    Senator Coleman. And isn't that the window we have, we have 
a regime--which is a repressive regime, which does sponsor 
terrorism around the world, kills Americans, kills people--and 
so the challenge we face is that if we engage and normalize, we 
strengthen a regime which is probably the largest state-
sponsored supporters of terrorism in the world today. And yet, 
we don't always want to be in this position, can we move it 
forward? Can we move it forward, and the challenge is how do 
you do that? Can we move it forward externally or even 
internally, not us directing, but making resources available to 
those who are seeking democracy, pushing democracy. The 
challenge is how you get there.
    Ambassador Wisner, as I listen and I've read your material, 
this kind of push ultimately into normalization--at a certain 
point there's got to be something from Iran, something from the 
regime. If the regime--and I get back to my hypothetical and I 
agree with you, it's not absolutely clear the intention--but 
there are those who would say that the discussion now is simply 
an opportunity to buy time to allow Iran to develop a nuclear 
weapon. And Iran now has a nuclear weapon, and their actions of 
supporting terrorism and, are such that that would be dangerous 
to stability in the region, and then you have Ahmadinejad and 
his comments--and I take it he's not a sole actor out there, 
he's not going solo, that his comments reflect the thinking of 
the mullahs or others in Iran, though it may not be uniform 
thinking.
    So the question is, What do we have to see--what would you 
think that we should see from Iran to give some indication of 
an approach other than what Ahmadinejad is quoted as saying in 
the paper yesterday?
    Ambassador Wisner. First of all, I listened very carefully 
about what you had to say about Iran being the principle state-
sponsor of terrorism around the world. I respect you have 
access to much more information than I do, but my assessment of 
the Iranian terrorism connection is that this connection has 
changed, metamorphosed, and over time, in some interesting ways 
that are material to us, that the threats that the United 
States is most directly faced--time of 9/11, al-Qaeda, and even 
threats of military forces with some significant, some Shiite 
sectarian groups with Iranian connections have been involved--
that the great majority are not connected to the Iranian 
Government.
    Just exactly where we and Iran stand in our views on terror 
and the connections and the groups that are involved would, to 
my judgment, be a legitimate subject for a political dialog 
with Iran.
    Let me return to the core of your contention. I've argued 
that to find out where we are with Iran, to create a political 
framework within which you can address issues of terror, 
nuclear, regional differences, Iraq, Afghanistan--you have to 
have a political vision. You have to be able to go to the 
Iranians and say, ``Hey, what's the starting point? What are we 
trying to accomplish?'' And I've argued, we're trying to live 
in peace, one with the other. And if that's the case, then how 
do we demonstrate it?
    Now we have issues that need to be addressed by the 
Iranians--they're the several we've talked about. And before we 
end up at the end state of normalization and the resumption of 
a normal relationship, and investment and a relaxation of 
sanctions, we have to get through this list of disagreements, 
and the Iranians will have to match us step for step.
    But we can't start until we lay down the core premise, see 
if there's an Iranian acceptance of it, agree on the agenda, 
and then outline what our considerations are, and what the 
Iranian reciprocal gestures we're looking for, and let them put 
their view on the table.
    I ended my remarks this morning to you saying the diplomacy 
of engagement is also about the exploration of what might be 
possible. And that's where I would like to see our policy 
heading now.
    Senator Coleman. And is the approach that you're advocating 
one because of Iran and the history and the people or is it--in 
other words, would you take the same approach with Kim Jong-Il?
    Ambassador Wisner. Let me start back--I think there is a 
respectable history of American engagement, I cited the two 
principle examples. We had the gravest differences with the 
erstwhile Soviet Union, and yet through detente, we engaged and 
figured out the areas that divided us and reduced tensions on 
those, and found common positions.
    With regard to China, Senator, when President Nixon sat 
down, he didn't try to resolve the Taiwan Straits issue, the 
first question--he created a political view--we in China would 
live side by side with each other, with respect. And then from 
there we addressed the issues that divided us. I'm suggesting 
the same approach is necessary with Iran. I would argue that if 
we're going to find our way through--if we're going to find our 
way through the nuclear thicket with North Korea, the starting 
point is a willingness to live in peace. No. 1, to not have on 
our list of pretensions, regime change in North Korea. That 
will come when it comes. But our problem is an external 
military threat posed to our troops, to our allies, and that 
you have to turn for the story, or the front page piece Senator 
Biden referred to this morning--to me is a good starting point, 
that we're prepared, after 50 years, to begin to talk about 
negotiating peace with North Korea as a handmaiden on engaging 
on the nuclear issue that divides us.
    Senator Coleman. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Coleman. We 
thank the witnesses for your excellent testimony, and the 
statements that you have made. They are a part of our permanent 
record. We look forward to your forthcoming responses to our 
additional questions for the record.
    We will continue to pursue this area in additional 
hearings, and we look forward to a continued dialog with each 
of you. The hearing is adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]