[Senate Hearing 113-546]
[From the U.S. Government Publishing Office]
S. Hrg. 113-546
NEGOTIATIONS ON IRAN'S NUCLEAR PROGRAM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 4, 2014
__________
Printed for the use of the Committee on Foreign Relations
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.gpo.gov/fdsys/
U.S. GOVERNMENT PRINTING OFFICE
92-937 PDF WASHINGTON : 2015
___________________________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
COMMITTEE ON FOREIGN RELATIONS
ROBERT MENENDEZ, New Jersey, Chairman
BARBARA BOXER, California BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois JEFF FLAKE, Arizona
TOM UDALL, New Mexico JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut JOHN BARRASSO, Wyoming
TIM KAINE, Virginia RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
Daniel E. O'Brien, Staff Director
Lester E. Munson III, Republican Staff Director
(ii)
C O N T E N T S
----------
Page
Albright, David, president, Institute for Science and
International Security, Washington, DC......................... 42
Prepared statement........................................... 43
Cohen, Hon. David S., Under Secretary for Terrorism and
Financing, U.S. Department of Treasury, Washington, DC......... 11
Prepared statement........................................... 13
Responses to questions submitted for the record by Senator
Bob Corker................................................. 80
Corker, Hon. Bob, U.S. Senator from Tennessee, opening statement. 3
Dubowitz, Mark, executive director, Foundation for Defense of
Democracies, Washington, DC.................................... 51
Prepared statement........................................... 52
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening
statement...................................................... 1
Sherman, Hon. Wendy, Under Secretary for Political Affairs, U.S.
Department of State, Washington, DC............................ 4
Prepared statement........................................... 7
Responses to questions submitted for the record by the
following Senators:
Robert Menendez.......................................... 77
Bob Corker............................................... 78
Jeff Flake............................................... 83
(iii)
NEGOTIATIONS ON IRAN'S
NUCLEAR PROGRAM
----------
TUESDAY, FEBRUARY 4, 2014
U.S. Senate.
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Robert
Menendez (chairman of the committee) presiding.
Present: Senators Menendez, Shaheen, Coons, Durbin, Murphy,
Kaine, Markey, Corker, Rubio, Flake, and Paul.
OPENING STATEMENT OF HON. ROBERT MENENDEZ,
U.S. SENATOR FROM NEW JERSEY
The Chairman. This hearing will come to order.
Let me begin by welcoming our panelists. Today, we have two
panels. On the first panel is Wendy Sherman, Under Secretary of
State for Political Affairs. Under Secretary Sherman is joined
this morning by David Cohen, the Under Secretary of Treasury
for Terrorism and Financing.
And we thank you both for being here.
Let me say, at the outset, that I support the
administration's diplomatic efforts. I have always supported a
two-track policy of diplomacy and sanctions. At the same time,
I am convinced that we should only relieve pressure on Iran in
exchange for verifiable concessions that will fundamentally
dismantle Iran's nuclear program--not by a month or two, but by
a year or more--and that it be done in such a way that alarm
bells will sound from Vienna to Washington, should Iran restart
its program anytime in the next 20 to 30 years. Any deal the
administration reaches with Iran must be verifiable, effective,
and prevent Iran from ever developing even one nuclear weapon.
In my view, based on the parameters described in the Joint Plan
of Action and Iranian comments in the days that have followed,
I am very concerned about Iran's willingness to reach such an
agreement.
This is not a nothing-ventured-nothing-gained enterprise.
We have placed our incredibly effective international sanctions
regime on the line without clearly defining the parameters of
what we expect in a final agreement. As Ali Akbar Salehi, the
head of Iran's nuclear agency, said last week on Iranian state
television about the agreement, ``The iceberg of sanctions is
melting while our centrifuges are also still working. This is
our greatest achievement.'' Well, frankly, it is my greatest
fear.
Salehi may be correct; the iceberg of sanctions may melt
before we have an agreement in place. That may, in fact, be the
Iranian endgame. They understand that once the international
community ceases backing sanctions, that they will have won,
regardless of whether or not we have a deal.
At the end of the day, any final deal must require Iran to
dismantle large portions of its nuclear infrastructure. Any
final deal must address Iran's advanced centrifuge research-
and-development activities that allow to more quickly and more
efficiently enrich uranium. It must eliminate the vast majority
of Iran's 20,000 centrifuges, close the Fordow facility, and
stop the heavy water reactor at Arak from ever coming online.
And it must address Iran's weaponization activities at Parchin
and possibly elsewhere, something not directly dealt with by
the Joint Plan of Action.
Experts, including David Albright, who will be on our
second panel, have said that for Iran to move from an interim
to a final agreement, it would have to close the Fordow
facility and remove between 15- and 16,000 of its 20,000
centrifuges. And, even then, we are looking at potential
breakout time of between 6 and 8 months, depending on whether
Iran has access to uranium enriched to just 3.5 percent or
access to 20-reconverted-percent enriched uranium. A final
agreement should move back the timeline for breakout to beyond
a year or more and insist on a long-term, 20-year-plus, regime
of monitoring and verification.
Now, in the light of that testimony that we are going to
hear today, President Rouhani, in an interview with Fareed
Zakaria on CNN, said, in response to the question, ``So, there
will be no destruction of centrifuges, of existing
centrifuges?'' President Rouhani's answer was, ``No, no, not at
all.'' So, that causes concern for those of us who are
concerned about what this final agreement looks like.
A final agreement that mothballs Iran's infrastructure, or
fundamentally preserves their ability to easily break out, is
not a final agreement I can support. If all we achieve is the
essence of an early warning system of Iran's future breakout
ability, and the sanctions regime has collapsed, and the only
options for this or any future President will be to accept a
nuclear-armed Iran or a military option, in my view that is not
in the national security interests of the United States. I know
that is not anyone's goal or plan, but I also think we need to
guard against wanting a deal so much that we concede more than
we gain.
At the end of the day, Iran can no longer be a nuclear-
weapons-threshold state. I have made my position quite clear,
and will continue to do so.
I have specific questions, for all of our panelists, that I
hope you will be able to answer to help assure us that this is,
in fact, ultimately, if achievable at all, the type of deal
that we can all embrace.
With that, let me recognize the distinguished ranking
Republican member, Senator Corker.
OPENING STATEMENT OF HON. BOB CORKER,
U.S. SENATOR FROM TENNESSEE
Senator Corker. Well, thank you, Mr. Chairman. And thank
you for those opening comments and your leadership on this
issue for many years. I think the efforts that you have put
forth in the past with Senator Kirk and others, candidly,
helped put us in the place that we are today. And so, I applaud
you for that, and appreciate the position you have taken.
I welcome our administration witnesses. And after reading,
Mr. Chairman, the testimony by the witnesses that are going to
come on the second panel, in many ways I wish we had that
testimony first so that we could then talk with the
administration about what neutral observers are saying about
the interim deal that has been proposed.
I want to also say--and I--but, I thank you for your
service. David, I think you have done a good job at carrying
out the sanctions that have been put in place. I do want to
talk to you a little bit about the Turkish issue and our
knowledge of that, possibly, and why we allowed that to occur,
and is the same thing getting ready to happen in Russia with
our acquiescence. I do not know, we will find out, I guess,
during this hearing.
And, Ms. Sherman, again, I thank you for your efforts and
want to say that, generally speaking, I have been disappointed
in the rhetoric from the administration about Congress'
involvement. On one hand, I think that you would readily admit
that the position that Congress has taken through the years has
helped you be in the place that you are. But, somehow, because
Congress wants to ensure that we end up with a proper end
state--been a lot of unfortunate things that have been said.
And I, too, as the chairman mentioned, support very much the
administration's effort to ensure that Iran does not have
nuclear weapons and we are able to resolve this in a peaceful
manner. Very much support that. I just think all of us have
legitimate--many of us have legitimate concerns about what has
happened.
As a matter of fact, I just want to say, relative to
Congress, I think all of us would like to work cooperatively
with the administration. And, in many ways, I think what has
happened is, the rhetoric around the sanctions piece has
actually sort of become a red herring; it has sort of been a
place where the administration can say, ``Well, sanctions will
end up keeping this deal from happening.'' Congress can keep
saying, ``Oh, we are trying to do something about it.'' And I
think it avoids the topic of you, candidly, clearly laying out
to us what the end state is that you are trying to negotiate.
And I hope today you will clearly--I just got your testimony; I
have not seen it--just came in 5 minutes ago--I hope that you
will clearly lay out what the end state is, because I think
that is what so many of us are concerned about, that this
interim deal becomes the permanent deal.
You know, if you look at Iran, they are savvy, and they
have a lot of people that are educated in our country. They
understand us, in many ways better than we understand them. And
if you look at what they are doing and what they have done in
the past is, they become--they perfect something and then they
pause. They perfect something and then they pause. And so, what
we have right now is, they have perfected--no question--the
centrifuge capabilities. I think people would say that if they
want to be a nuclear state, they can be that very quickly. And
so, we have this pause, where we have an interim agreement that
does not address all the other areas that they have the ability
to perfect over this next year. Administration officials are
already saying, ``This is not going to happen in 6 months, this
is probably going to take much longer.'' In your own
agreement--I know Carl Levin tried to limit it to 6 months in
some meetings that we had privately at the White House. But,
no, we end up with a 1-year agreement.
So, basically, we have an agreement that allows them--they
stop in an area that they have already perfected--that allows
them to continue on in other areas to be able to deliver
nuclear weapons that is not even addressed by this interim
deal. So, you can understand there is a lot of concern.
So, I hope today you will lay out clearly what the
administration will accept as the end state. I hope that you
will talk with us about it. And I hope that we will figure out
a way to cooperatively work together. Maybe what Congress
should do is pass a piece of legislation that lays out clearly
the only thing we will accept at the end. Because, again, I
think that there are concerns that members of the
administration are negotiating toward rolling interim
agreements--basically, the agreement we have now, where we have
the ability to monitor, and yet they dismantle something--as
actually the end state that some of the people and some within
the administration would wish to achieve. So, I hope you are
clear today.
I thank the chairman for having this hearing. I appreciate
him letting me talk a little bit about this on the front end.
And I look forward to both testimony and questions, and thank
you both for your service.
The Chairman. Thank you, Senator Corker.
We will start off with Secretary Sherman--your full
statements will be included in the record, without objection.
We would ask you to summarize it in 5 or so minutes so that we
can enter into a dialogue with you.
And, Secretary Sherman, you are recognized.
STATEMENT OF HON. WENDY SHERMAN, UNDER SECRETARY FOR POLITICAL
AFFAIRS, U.S. DEPARTMENT OF STATE, WASHINGTON, DC
Ms. Sherman. Thank you. Thank you, Chairman Menendez,
Ranking Member Corker, distinguished members of the committee.
And I would say, to both of you, we all have concerns, and
I very much appreciate this dialogue and our continued work
together on this most serious issue. I provide the opportunity
to provide you, today, with an update on the P5+1 and the
European Union's negotiations with Iran, which, as you know,
are coordinated by the High Representative of the European
Union. I also look forward to discussing where we are on other
important parts of our Iran policy.
I come here confident that we, as you both said, share the
same goal with regard to Iran, a goal that the President
reaffirmed just last week: to prevent Iran from obtaining a
nuclear weapon. And, thanks to a combination of what I believe
is tough diplomacy and the most comprehensive targeted
sanctions regime ever imposed on a country, with enormous
leadership here on Capitol Hill, I am certain that we are
closer today to that goal than we were just a few weeks ago. We
are not at that goal, but we have taken a first step toward it.
Over the next few minutes, I hope to explain why that is,
as well as where we will be heading in the coming months.
On November 24, 2013, we and our partners agreed with Iran
on a Joint Plan of Action. This was an important first step in
our efforts to resolve the international community's concerns
with Iran's nuclear program.
On January 20, the Joint Plan went into effect. As the
President noted, the implementation of the Joint Plan marked
the first time in a decade that Iran agreed to specific actions
that halt progress on its nuclear program and roll it back in
key respects. Indeed, the Joint Plan was explicitly designed
this way to create space for further negotiations over a long-
term comprehensive solution.
Specifically, the International Atomic Energy Agency
verified, on January 20, that, among other things, Iran stopped
producing near-20-percent enriched uranium; disabled the
configuration of the centrifuge cascades Iran has been using to
produce it; began diluting its existing stockpile of near-20-
percent enriched uranium; continued to convert near-20-percent
enriched uranium at a rate consistent with past practices; had
not installed additional centrifuges at the Natanz or Fordow
facilities; had not installed new components at the Arak
facility.
Moreover, on transparency and monitoring, the IAEA stated
that Iran has begun providing some of the information required
by the Joint Plan, and is working with the IAEA on arrangements
for increased access to its nuclear facilities.
In order to carry out its responsibilities under the Joint
Plan, the IAEA will roughly double the size of its inspection
team and install additional monitoring equipment. The size of
the team and the access afforded under the Joint Plan mean the
international community's insight into Iran's nuclear program
will be significantly enhanced.
This was an important first step. And over the next 6
months, Iran has committed itself to further actions that will
provide much more timely warning of a breakout of Iran's
declared enrichment facilities. They also add new checks
against the diversion of equipment and material for any
potential covert enrichment program.
You have rightfully asked why we should trust Iran to live
up to these commitments. As the President said, these
negotiations do not rely on trust. Any long-term deal we agree
to must be based on verifiable action that convinces us and the
international community that Iran is not building a nuclear
bomb. As my colleague, Under Secretary Cohen, will further
outline in his testimony, the United States and the EU have
also taken a series of actions to implement the targeted,
limited, and temporary sanctions relief we committed to as part
of the Joint Plan.
But, let me be clear. The Joint Plan of Action represents
merely the first step of the comprehensive solution we seek to
reach, and we seek to reach it within a 6-month timeframe.
In 2 weeks, the P5+1 political directors and the EU High
Representative and her Deputy will meet with Iran in Vienna to
begin discussions on that comprehensive solution. Our goal is
to reach a mutually agreed long-term comprehensive solution
that would ensure Iran's program will be exclusively peaceful.
This comprehensive solution will build on the initial steps we
have already begun to take.
Ultimately, the comprehensive solution would be one under
which we would verifiably be assured that Iran's nuclear
program is peaceful and that Iran will not acquire a nuclear
weapon.
So, what would a solution look like?--as you asked, Senator
Corker. Well, as the President said, we know that Iran does not
need to have an underground fortified enrichment facility like
Fordow in order to have a peaceful nuclear program. They do not
need a heavy water reactor at Arak in order to have a peaceful
nuclear program.
The JPOA also lays out basic elements of the comprehensive
solution--if I may take another minute to finish. Thank you,
Mr. Chairman.
Among other elements, the final step of a comprehensive
solution would have a specified quite-long-term duration to be
agreed upon, and it would reflect the rights and obligations of
parties to the Non-Proliferation Treaty and IAEA Safeguards
Agreement. Under the terms of the Joint Plan, Iran has also
committed itself to a number of steps before we finalize a
comprehensive solution, including, among other things,
addressing the relevant U.N. Security Council Resolutions, with
a view toward bringing the Security Council's consideration of
this matter to a satisfactory conclusion. Iran has committed to
implement agreed transparency measures and enhanced monitoring.
The Joint Commission, set up between Iran, the P5+1, and the EU
to oversee the implementation, will also serve as a forum for
discussion to facilitate the IAEA's resolution of past and
present issues of concern, which all parties understand means
the possible military dimensions of Iran's nuclear program.
Indeed, just this weekend, on the margins of the Munich
Security Conference, Secretary Kerry reiterated to Foreign
Minister Zarif the importance of Iran abiding by its
commitments under the Joint Plan, and Iran and the P5+1
countries must begin the comprehensive negotiations with good
faith. He also made clear that the United States will continue
to enforce existing sanctions.
One final issue to keep in mind with regard to the
comprehensive solution, is that under the terms of the Joint
Plan, we have agreed with Iran that the comprehensive solution
will be part of an integrated whole, where nothing is agreed
until everything is agreed. What is also important to
understand is that we remain in control over whether to accept
the terms of a final deal, or not. We have made it clear to
Iran that, if it fails to live up to its commitments, or if we
are unable to reach agreement on a comprehensive solution, we
would ask Congress to ramp up new sanctions immediately.
But, moving forward on new sanctions now, as you know, we
believe would derail the promising diplomacy I have just
outlined, alienate us from our allies, and risk unraveling the
international cohesion that has proven so essential to ensuring
that our sanctions have the intended effect.
Before I conclude, let me briefly note that our focus on
Iran's nuclear program has not deterred us from holding Iran
accountable for its human rights abuses, support for terrorism,
and interference across the region. My written testimony
includes further explanation of what we are doing on these
issues.
And I also want to emphasize that we remain committed to
bringing Robert Levinson, Saeed Abedini, and Amir Hekmati home.
This was another set of concerns that Secretary Kerry raised
this weekend directly with Foreign Minister Zarif in Munich. I
have also personally raised these cases with Iran, as did the
President in his phone call with President Rouhani in
September. We will continue to do so and use every avenue at
our disposal until these men are back home with their families
where they belong.
In sum and to finalize my statement, Mr. Chairman and
members, the P5+1's negotiations with Iran underscore that it
is possible not only to make progress on the nuclear issue, but
with Iran. We are not blind, however, to the more than 30 years
of difficult history between the United States and Iran, or
Iran's past actions and past behavior, as well as its current
behavior. But, it is crucial that we give diplomacy a chance to
succeed.
If Iran lives up to its commitments, then the world will
become a safer place. If it does not, then we retain all
options to ensure that Iran can never, and will never, obtain a
nuclear weapon. The coming months will be a test of Iran's
intentions and of the possibility of a peaceful resolution to
the crisis. We look forward to continuing to work closely with
the Congress to ensure that U.S. national security interests
are advanced.
Thank you.
[The prepared statement of Ms. Sherman follows:]
Prepared Statement of Under Secretary Wendy Sherman
Good morning, Chairman Menendez, Ranking Member Corker,
distinguished members of the committee. I appreciate this opportunity
to provide you with an update on the P5+1's negotiations with Iran over
its nuclear program. I come here confident that we share the same goal
with regard to Iran: to prevent Iran from obtaining a nuclear weapon.
Thanks to a combination of tough diplomacy and the most comprehensive
targeted sanctions regime ever imposed on a country, I am certain that
we are closer today to that goal than we were just a few weeks ago.
Over the next few minutes I hope to explain why that is, as well as
where we believe we will be heading in the coming months. I will also
update you on efforts that have not been part of the P5+1 negotiations
but are similarly important: our efforts to hold Iran accountable for
its human rights abuses, support for terrorism, and destabilizing
activities abroad.
negotiation update
We have long recognized that the Iranian nuclear program
constitutes one of the most serious threats to U.S. national security
and our interests in the Middle East. An Iranian regime armed with
nuclear weapons would destabilize the Middle East, put our allies and
partners in the region at risk, and undermine the global
nonproliferation regime. Fully aware of the seriousness of this
challenge, the P5+1 (China, France, Russia, the U.K., United States,
and Germany, coordinated by EU High Representative Catherine Ashton)
has engaged over the past months in sustained negotiations with Iran
over its nuclear program. On November 24, 2013, the P5+1 took an
important first step as part of that diplomatic push by agreeing with
Iran on a Joint Plan of Action (JPOA). This joint plan is sequenced
over the next 6 months to explicitly block near-term Iranian pathways
to a nuclear weapon, while creating space for further negotiations to
reach a long-term comprehensive solution.
A little more than 2 weeks ago, on January 20, 2014, the JPOA went
into effect. As the President noted, the implementation of the JPOA
marked the first time in a decade that Iran agreed to specific actions
that halt progress on its nuclear program and roll it back in key
respects. Specifically, the International Atomic Energy Agency (IAEA)
verified on January 20 that, among other things, Iran: has stopped
producing near-20 percent enriched uranium (UF6); disabled the
configuration of the centrifuge cascades that Iran has been using to
produce it; begun diluting its existing stockpile of near-20 percent
enriched uranium and continued to convert near-20 percent enriched
uranium to oxide for fuel plates at a rate consistent with past
practices so that it will have eliminated its entire near-20 percent
enriched uranium stockpile at the end of 6 months; had stopped
installing additional centrifuges at the Natanz or Fordow facilities;
and had not installed additional reactor components at the Arak
facility. Moreover, on transparency and monitoring, the IAEA stated
that Iran has begun providing some of the information required by the
JPOA and is working with the IAEA on arrangements for increased access
to its nuclear facilities. In order to carry out its responsibilities
under the JPOA, the IAEA will roughly double the size of its inspection
team and install additional monitoring equipment. The size of the team
and the access afforded under the JPOA mean the international
community's insight into Iran's nuclear program will be significantly
enhanced.
This was an important first step, and over the next 6 months, Iran
has committed itself to further actions that will provide much more
timely warning of a breakout at Iran's declared enrichment facilities
and will add new checks against the diversion of equipment and material
for any potential covert enrichment program. Some have rightfully asked
why we should trust Iran to live up to these commitments. As the
President said in his State of the Union speech, these negotiations do
not rely on trust; any long-term deal we agree to must be based on
verifiable actions and constraints that convince us and the
international community that Iran is not building a nuclear bomb.
As my colleague Under Secretary Cohen will further outline in his
testimony, the United States and the EU also took a series of actions
on January 20 to implement the limited, temporary, and reversible
sanctions relief we committed to as part of the JPOA, including: the
necessary steps to pause efforts to further reduce Iranian crude oil
exports, allowing the six current customers of Iranian oil to maintain
their purchases at current reduced levels for the duration of the JPOA;
and issuing the necessary waivers to suspend for the duration of the
JPOA sanctions on non-U.S. persons engaged in transactions related to
the export of petrochemical products from Iran, certain trade in gold
and precious metals to or from Iran, and the provision of goods and
services to Iran's automotive sector. In addition, the EU increased the
size of financial transfers to and from Iran that are permissible by
the EU without prior authorization.
As part of the JPOA, the administration is working with its
partners and Iran to establish a mechanism to further facilitate
payments for humanitarian transactions and to enable Iran to make
payments for medical expenses--which are already explicitly exempt from
congressional sanctions--as well as, university tuition payments for
Iranian students studying abroad, and its U.N. obligations. The United
States has also committed to license transactions for spare parts,
inspections, and associated services in Iran necessary for safety of
flight for Iran Air and nondesignated commercial Iranian airlines.
Finally, on February 1, the U.S. Government facilitated the
repatriation of $550 million in Iranian funds restricted overseas. This
transaction was part of the agreement to allow Iran to access--in
monthly installments through July 20--$4.2 billion of its own
restricted funds contingent on Iran fulfilling its commitments under
the JPOA.
Before moving on to what we expect in our next round of
negotiations with Iran, I would like to make a couple of points. First,
a number of observers have criticized the JPOA, arguing that we should
have negotiated a comprehensive solution with Iran over its nuclear
program from the outset. If we believed we could have negotiated a
comprehensive solution from the outset in a short period of time, we
would have done so. But it became apparent that such a negotiation was
going to take some time, and we wanted to make sure that during the
intervening period Iran did not move forward on the most worrisome
parts of its nuclear program. Had we not agreed on the JPOA, Iran's
stockpile of near-20 percent enriched uranium would have continued to
grow, Iran would have continued to install faster and more advanced
centrifuges, and Iran would have made progress on the Arak reactor. The
JPOA has instead committed Iran to stop the advance of its program,
roll it back in some key areas, and give us time and space to negotiate
a long-term comprehensive solution that will address our concerns in an
enduring manner.
Second, some have argued that the JPOA will weaken the
unprecedented sanctions regime we have worked with Congress to build,
and that it will give the Iranian economy enough breathing room so that
it does not feel pressure to negotiate a comprehensive solution. We
disagree. The core sanctions architecture remains firmly in place and
the relief that Iran was granted through the JPOA was explicitly and
intentionally tailored to maintain pressure and our ability to
negotiate the comprehensive solution. Our analysis indicates that the
JPOA appears unlikely to provide Iran any significant economic
benefits, especially any that could resolve the Iranian economy's many
problems. While Iran's currency appreciated after Iranian President
Rouhani's election and just after the JPOA was announced, it now stands
at about the same level as where it was at the time the JPOA was rolled
out, perhaps reflecting a more sober assessment by the market of the
limited relief it will provide. Iran's oil exports will still be
constrained at levels that are down over 60 percent since 2011. This
means that Iran will continue to lose $4-5 billion per month while the
JPOA is in effect compared to 2011. The $4.2 billion being repatriated
over the 6 months is a modest fraction of Iran's $100 billion in
foreign exchange holdings, the vast majority of which are restricted or
inaccessible. And the 6-month time frame will make it difficult for any
long-term business to take place even in the sectors for which we have
provided relief.
There is no doubt that companies are keeping an eye on Iran. We
have always said Iran and its people hold vast potential. But we--the
State Department and Treasury Department--have made, are making, and
will continue to make, very clear to countries and companies around the
world that we will vigorously enforce the vast set of sanctions that
remain in place. Indeed, on December 12, 2013, we sanctioned a number
of entities and individuals involved in the proliferation of WMD-
related material and attempts to evade U.S. sanctions against Iran. We
will remain vigilant. It is this vigilance that will keep the various
trade delegations that we have seen going to Iran aspirational rather
than practical.
comprehensive solution
Later this month, the P5+1 Political Directors will meet with Iran
to begin discussions regarding a comprehensive solution on Iran's
nuclear program. As stated in the JPOA, our goal for these negotiations
is to reach a mutually agreed long-term comprehensive solution that
would ensure Iran's nuclear program will be exclusively peaceful. Let
me be clear, the JPOA represents merely the first step of the
comprehensive solution we seek to reach. This comprehensive solution
would build on the initial steps we have already begun to take.
Ultimately, the comprehensive solution would be one under which we
would be verifiably assured that Iran's nuclear program is peaceful and
that Iran will not acquire a nuclear weapon.
As to specifics of what we envision, the President and Secretary
have recently laid down certain aspects that are indicative of what we
envision. As the President said at the Saban Forum on December 7, 2013,
we know that Iran does not need to have an underground, fortified
enrichment facility like Fordow in order to have a peaceful nuclear
program. They do not need a heavy-water reactor at Arak in order to
have a peaceful nuclear program.
The JPOA also lays out basic elements of the comprehensive
solution. Among other elements, the final step of a comprehensive
solution would have a specified long-term duration to be agreed upon
and reflect the rights and obligations of parties to the Non-
Proliferation Treaty and IAEA Safeguards Agreements. Moreover, under
the terms of the JPOA, Iran has committed itself to address the U.N.
Security Council resolutions with a view toward bringing to a
satisfactory conclusion the U.N. Security Council's consideration of
this matter. In addition, Iran has committed to implement agreed
transparency measures and enhanced monitoring. The Joint Commission set
up between Iran, the P5+1 and the EU to oversee the implementation of
the JPOA will also serve as a forum for discussion to facilitate the
IAEA's resolution of ``past and present issues of concern''--which all
parties understand means the possible military dimensions of Iran's
nuclear program.
One final issue to keep in mind with regard to the comprehensive
solution is that, under the terms of the JPOA, we have agreed with Iran
that the comprehensive solution will be part of an integrated whole
where nothing is agreed until everything is agreed. What is also
important to understand is that we remain in control over whether to
accept the terms of a final deal or not. We have made it clear to Iran
that, if it fails to live up to its commitments, or if we are unable to
reach agreement on a comprehensive solution, we would ask the Congress
to ramp up new sanctions. In that situation, we would be well-
positioned to maximize the impact of any new sanctions because
following a strong diplomatic effort we would likely have the support
of the international community, which is essential for any increased
pressure to work.
In comparison, moving forward on new sanctions now would derail the
promising diplomacy I have just outlined, alienate us from our allies,
and risk unraveling the international cohesion that has proven so
essential to ensuring that our sanctions have the intended effect.
terrorism, human rights and regional meddling
Even as we pursue negotiations of a comprehensive solution on
Iran's nuclear program, we will not relax our efforts to hold Iran
accountable for its human rights violations and abuses, support for
terrorism, and interference across the region.
We remain deeply concerned with Iran's destabilizing activities
across the region, which threaten the security of partners such as
Israel and our Gulf allies. Iran continues to fund, arm, train, and
send troops to fight alongside the Assad regime in Syria, fueling
sectarian violence and extremism. Iran also continues to arm and train
militants in Lebanon, Gaza, Iraq, Afghanistan, Yemen, and Bahrain. And
Iran and Lebanese Hezbollah continue to pursue terrorist activity
around the globe.
We are committed to working with our allies and partners to counter
this destabilizing behavior. Due in part to our efforts, we have seen
an encouraging trend in the past 2 years of increasingly firm responses
from governments around the world to stand up to Iran's and Lebanese
Hezbollah's aggressive actions. Much of this cooperation remains
sensitive and must be reserved for a classified setting, but let me
cite a few examples for you.
Together with our allies and partners, we have repeatedly
intercepted Iranian shipments of weapons to militants in Yemen,
Afghanistan, and Gaza. Just over 1 month ago, Bahraini authorities
seized a boat filled with Iranian explosives and arrested a dozen
militants meant to receive the smuggled cargo.
We have assisted the Governments of Georgia, India, Thailand,
Kenya, Nigeria, and Bulgaria in investigating Iranian and Lebanese
Hezbollah-directed terrorist attacks and plots. Wherever possible, we
have pushed these countries and their neighbors to hold Iran and
Hezbollah accountable for these egregious acts. Our diplomatic efforts
resulted in the EU's 2013 designation of Hezbollah's military wing as a
terrorist organization and the Gulf Cooperation Council's blacklisting
of Hezbollah. And here at home, in May 2013, Mansour Arbabsiar, the man
recruited by the IRGC's Quds Force to assassinate the Saudi Ambassador
to the United States, was sentenced to 25 years in prison.
Finally, we have expanded our own sanctions against Iran and its
proxies. In February 2013, under the Iran Threat Reduction and Syria
Human Rights Act, we designated 15 senior Iranian officials for
involvement in illicit nuclear activities, support for terrorism, or
human rights abuses. On January 23 of this year, we designated the
Deputy Secretary General of the Palestinian Islamic Jihad (PIJ), Ziyad
al-Nakhalah, as a Global Terrorist. Furthermore, the U.S. Government
has identified the Lebanese Canadian Bank and two Lebanese exchange
houses as financial institutions of primary money laundering concern,
because their activities facilitated the money laundering activities of
narcotics traffickers and provided support to the terrorist group
Lebanese Hezbollah.
human rights
We also continue to hold Iran accountable for its deplorable human
rights record. In her December Human Rights Day speech, National
Security Advisor Susan Rice said our support for the human rights of
all Iranians will continue, even as we test the potential for a
diplomatic resolution to the nuclear issue. With our allies, we will
continue to highlight Iran's ongoing human rights violations and
abuses.
As part of this work, the United States partnered with 85 other
countries to support and pass this year's U.N. General Assembly third
committee resolution condemning Iran's poor human rights record. We are
now working to build support for a Human Rights Council resolution to
be voted on in March to extend the mandate of the U.N. Special
Rapporteur on the Situation of Human Rights in Iran, and we will
continue to urge the international community to press Iran to allow him
to visit the country and directly observe its human rights conditions.
Every week on the Virtual Embassy Tehran Web site and in our social
media, we highlight human rights violations and abuses in Iran. We were
heartened by the September and October releases of more than 40
prisoners of conscience, including human rights lawyer Nasrin
Sotoudeh--whom we had highlighted on the Virtual Embassy and commended
publicly following her receipt of the EU Sakharov Prize in 2012. We
call on Iran to release all of its political prisoners, including Green
Movement leaders Mir Hossein Mousavi and Mehdi Karroubi, who are
approaching 3 years under house arrest with no formal charges. We will
also continue to document Iran's human rights violations and abuses in
our annual Human Rights and International Religious Freedom Reports,
drawing attention to the government's treatment of its people. We too
hear the promises of President Rouhani to his people and we will
continue to support Iranians as they call on him to fulfill these
promises and to ensure Iran meets its international human rights
obligations.
american citizens detained in iran
We also continue to call on Iran to release Saeed Abedini and Amir
Hekmati and support our efforts to bring Robert Levinson home. We
welcome Foreign Minister Zarif's comments that clemency may be possible
for Mr. Abedini and Mr. Hekmati and look forward to hearing more from
Iran about this option. We repeatedly have asked the Iranian Government
for assistance in locating Mr. Levinson, and for Iranian authorities to
permit a visit by officials of the Swiss Embassy in Tehran to determine
the well-being of Mr. Hekmati and Mr. Abedini and to release them. We
are aware of the transfer of Mr. Abedini to Rajai Shahr prison and have
concerns about his medical condition. We have asked the Iranian
authorities to address our concerns about his health and prison
conditions and transfer him back to Evin.
The President raised the three cases with Iranian President Rouhani
during their September 27 call. The Secretary has raised the issue
directly with Iranian Foreign Minister Zarif, including just this
weekend. On the sidelines of our negotiations in Geneva, I raised the
three cases with Iranian officials and urged them to address our
concerns. We have raised the issue with our international partners to
request they raise the cases directly with Iran and we will continue to
do so until they return home. They remain a top priority of the U.S.
Government and we will continue to press the Iranian Government to take
actions to allow them to reunite with their families.
conclusion
In sum, our policy and approach to Iran remains multipronged, yet
we seek one ultimate goal: an Iran that respects its international
obligations and commitments, that respect the rights of its citizens
and neighbors, and that plays a constructive role in the region. The
P5+1's negotiations with Iran underscore that it is possible to begin
making progress on this effort. We are not blind to the more than 30
years of difficult history between the United States and Iran or Iran's
past actions, but it is important that we give diplomacy a chance to
succeed. If Iran lives up to its commitments then the world will become
a safer place. If it does not, then we retain all options to ensure
that Iran cannot obtain a nuclear weapon. The coming months will be a
test of Iranian intentions, and of the possibility for a peaceful
resolution to this challenge to peace and international security.
We look forward to working closely with the Congress to advance
U.S. national security interests and prevent a nuclear-armed Iran.
The Chairman. Secretary Cohen.
STATEMENT OF HON. DAVID S. COHEN, UNDER SECRETARY FOR TERRORISM
AND FINANCING, U.S. DEPARTMENT OF TREASURY, WASHINGTON, DC
Mr. Cohen. Chairman Menendez, Ranking Member Corker,
distinguished members of the committee, thank you for the
opportunity to appear before you today to discuss the
implementation of the Joint Plan of Action.
In my testimony this morning, I will address the
administration's steps to deliver the limited, temporary, and
reversible relief in the Joint Plan, as well as our critically
important ongoing efforts to implement and enforce the vast
majority of the sanctions that remain in place.
The pressure on Iran from sanctions, sanctions built
through the collaborative efforts of Congress and the
administration along with many of our partners in the
international community, was instrumental in bringing about the
Joint Plan of Action. We are committed to ensuring that we
maintain this same pressure on Iran throughout the 6-month term
of the Joint Plan as our negotiators explore the possibility of
a long-term comprehensive solution that verifiably ensures that
Iran will not acquire a nuclear weapon.
The Joint Plan went into effect on January 20. On that day,
we issued guidance that temporarily suspended sanctions on
transactions related to the export of petrochemical products
from Iran, the provision of goods and services to Iran's
automotive sector, and certain trade in gold and other precious
metals to or from Iran. In this guidance, we made clear that
transactions associated with this relief must be initiated and
completed entirely during the 6-month period of the Joint Plan;
that is, to avoid sanctions, full performance, from contract to
delivery to payment, must begin no earlier than January 20 and
end no later than July 20.
We have also paused efforts for the next 6 months to
reduce, further, Iran's exports of crude oil to the six
jurisdictions still purchasing from Iran and began taking steps
to allow Iran to access, in eight installments spread over the
span of 6 months, $4.2 billion of its own funds currently
restricted in accounts overseas.
And finally, we are working to further facilitate
humanitarian transactions.
Notably, all of this relief is reversible. If Iran fails to
meet its commitments under the Joint Plan, we can revoke this
limited sanctions relief and, at a minimum, reinstate the
suspended sanctions.
Viewed in light of the depths to which Iran's economy has
sunk, the approximately $7 billion in relief offered by the
Joint Plan will not materially improve Iran's economy. For the
first time in 20 years, Iran will be in a recession for 2
consecutive years. It will continue to have limited or no
access to almost $100 billion in foreign exchange holdings. Its
budget deficit will remain sizable. Its currency will remain
significantly devalued; and its inflation rate, significantly
elevated.
Over the 6-month duration of the Joint Plan, Iran's
struggling economy will continue to be buffeted by sanctions,
as the core sanctions architecture remains firmly in place. We
are continuing to implement and enforce our oil sanctions,
which have driven down Iran's oil exports by more than 60
percent over the last 2 years; our financial sanctions, which
have locked up much of Iran's overseas assets; our banking
sanctions, which have largely cut off the Iranian banking
sector from the international financial system; our sanctions
on significant investment in Iran's energy sector, which has
impaired Iran's oil and gas production; and the broad trade
embargo between the United States and Iran.
Because these potent sanctions remain firmly in place, Iran
will continue to struggle to finance its imports, to fund its
government operations, and to defend the value of its currency.
In short, the continuing impact of our sanctions, and the
cumulative impact of those sanctions, means that the Iranian
economy will continue to massively underperform for the
foreseeable future.
So, while we remain committed to providing, in good faith,
all the relief agreed to under the Joint Plan, we also remain
hard at work implementing and enforcing a sanctions regime of
unprecedented force and scope. The reason is simple: We know
that intense sanctions pressure helped bring about the Joint
Plan and, likewise, will be a critical component in the
negotiations to come.
To ensure the sanctions pressure continues, we are actively
engaging with foreign banks, businesses, and governmental
counterparts. Secretary Lew, Secretary Kerry, and many others
from the administration, have reaffirmed this point, that the
sanctions relief in the Joint Plan is narrow, the sanctions
that remain in place are broad, and that we intend to enforce
our sanctions vigorously. As part of this effort, over the last
6 weeks I have traveled to the United Kingdom, Germany, Italy,
Austria, Turkey, and the United Arab Emirates, carrying this
message: Iran is not open for business.
In all of these engagements, we have made clear that we
will continue to respond to Iran's efforts to evade our
sanctions wherever they may occur. We will continue to detect,
disrupt, and disable those facilitating Iran's nuclear and
missile programs. And we will continue to target Iran's support
for terrorism and its human rights abuses.
And I say to this committee and to other observers, stay
tuned. We are poised to deploy our tools against anyone
anywhere who violates our sanctions, just as we have always
done.
Thank you.
[The prepared statement of Mr. Cohen follows:]
Prepared Statement of Under Secretary David S. Cohen
introduction
Chairman Menendez, Ranking Member Corker, and distinguished members
of the Committee, thank you for the opportunity to appear before you
today to discuss the implementation of the Joint Plan of Action (JPOA).
In my testimony this morning, I will address the administration's
steps to deliver the limited, temporary, and reversible relief in the
JPOA, as well as our critically important ongoing efforts to implement
and enforce the vast majority of the sanctions that remain in place. As
this committee knows, the pressure on Iran from sanctions--sanctions
built through the collaborative efforts of Congress and the
administration, along with many of our partners in the international
community--was instrumental in bringing about the JPOA. This
administration is committed to ensuring that we maintain this same
pressure on Iran throughout the 6-month term of the JPOA, as our
negotiators explore the possibility of a long-term, comprehensive
solution that verifiably ensures that Iran's nuclear program is
peaceful and that Iran will not acquire a nuclear weapon.
implementation of jpoa
As my colleague, Under Secretary Sherman, describes in her
testimony, the JPOA marks the first time in a decade that Iran has
committed to stop the advance of its nuclear program and roll back some
of its key elements. Iran has also committed to allow international
inspectors significant access to its various nuclear facilities. In
exchange for these steps, the P5+1 committed to limited, temporary and
reversible relief that we estimate, in total, will be worth $7 billion
to Iran.
The JPOA went into effect on January 20, when the International
Atomic Energy Agency (IAEA) confirmed that Iran had implemented its
initial nuclear-related commitments and we took steps to fulfill our
commitments under the JPOA.
In particular, on January 20, we issued guidance temporarily
suspending secondary sanctions on non-U.S. persons engaged in
transactions related to the export of petrochemical products from Iran,
certain trade in gold and other precious metals to, or from Iran, and
the provision of goods and services to Iran's automotive sector. We
also issued a statement indicating a favorable licensing policy for
transactions for repairs related to the safe operation of certain
Iranian commercial passenger aircraft.
Along with these steps, we have made clear that in order to qualify
for any of this sanctions relief the relevant transaction must be
initiated and completed entirely during the JPOA period. That is, to
avoid sanctions, the contract for the sale of petrochemicals, the
import of automotive parts, or the trade in precious metals must
commence no earlier than January 20, and full performance--including
delivery and payment--must occur no later than July 20. When the JPOA
period expires, so does the relief.
Pursuant to the JPOA, we also have paused efforts for the next 6
months to reduce further Iran's exports of crude oil to the six
jurisdictions still purchasing from Iran. Those six jurisdictions--and
only those six--will be permitted to continue to import Iranian oil at
current levels, far less than the approximately 2.5 million barrels per
day Iran was exporting 2 years ago.
And we are taking steps to allow Iran to access $4.2 billion of its
own funds currently restricted in accounts overseas. We have agreed to
a schedule that provides Iran access to these funds in eight
installments spread over the span of 6 months, with access to a portion
linked to Iran's progress in completing its dilution of near-20 percent
enriched uranium. The final installment is slated to occur on the last
day of the JPOA, July 20. Access to any of these funds, moreover, is
contingent on Iran fulfilling its commitments under the JPOA.
Lastly, we are working with our partners and Iran to establish a
mechanism to further facilitate payments for humanitarian transactions
and to enable Iran to make payments for medical expenses, university
tuition assistance for Iranian students studying abroad, and its U.N.
obligations.
All of this relief however, is reversible. It is contingent upon
Iran's continuing adherence to the nuclear steps outlined in the JPOA.
If we determine that Iran has failed to meet its commitments, we can
revoke this limited sanctions relief and, at a minimum, reinstate the
suspended sanctions.
maintaining pressure on iran
Viewed in light of the depths to which Iran's economy has sunk--
brought about in large part by the sanctions that continue to remain in
place--the approximately $7 billion in relief that Iran stands to
receive over the next 6 months will not materially affect its economy.
To the contrary, because of our ongoing active efforts to implement and
enforce the manifold U.S. and international sanctions that remain in
place, we expect the economic pressure on Iran will continue unabated
during the pendency of the JPOA.
For the first time in 20 years, Iran will be in a recession for two
consecutive years: its economy contracted 6 percent in the Iranian
fiscal year ending in March 2013, and we assess that it will contract
again this fiscal year. Iran will continue to have limited or no access
to almost $100 billion in foreign exchange holdings in accounts
overseas. Its budget deficit reached about 5 percent of GDP last year
and will remain sizable in the current budget year. And Iran's
currency, the rial, has lost around 60 percent of its value against the
dollar since 2011 while the official inflation rate is around 38
percent.
Going forward over the 6-month duration of the JPOA, Iran's economy
will continue to be buffeted by sanctions, as the core architecture of
U.S. sanctions remains firmly in place.
For example, we are continuing to implement and enforce our oil
sanctions, which have driven down Iran's oil exports by more than 60
percent over the last 2 years. These sanctions also preclude the
purchase of Iranian oil by any country other than Iran's six remaining
oil customers, who may not exceed their current purchase levels as
outlined in the JPOA and our sanctions relief. During the period of the
JPOA, the oil sanctions alone will cost Iran approximately $30 billion
in sales it cannot make.
We are continuing to implement and enforce our financial sanctions,
which require the payment for oil imported from Iran by the six current
customers to be paid into accounts that can be used only to facilitate
humanitarian transactions or bilateral trade between the importing
country and Iran. This Iranian oil revenue can neither be brought back
to Iran nor moved to third countries, except to facilitate humanitarian
trade. And since the accounts that receive the oil revenue already hold
more funds than Iran chooses to spend, the effective value of those oil
sales to Iran is far less than 100 cents on the dollar.
We are continuing to implement and enforce our banking sanctions,
which call for the exclusion from the U.S. financial system of any
foreign bank that knowingly engages in significant transactions with
designated Iranian banks. The EU is also continuing to implement and
enforce its banking sanctions, which have led to the termination of
SWIFT access for most Iranian banks. Altogether, these banking
sanctions--which all remain fully in force--have largely cut off the
Iranian banking sector from the international financial system.
We are continuing to implement and enforce the vast majority of our
sanctions on Iran's energy sector. That includes, among other things,
sanctions on significant investment in Iran's energy sector and on the
sale of significant goods or services that could be used in Iran's
energy sector.
And we are continuing to implement and enforce the broad trade
embargo between the U.S. and Iran. Outside of transactions involving
humanitarian goods, U.S. banks and businesses, including their overseas
subsidiaries, are largely forbidden from engaging in any transactions
with Iran.
Now, to be sure, since the election of President Rouhani in June,
there has been some improvement in a few economic indicators, such as
the value of the rial and the inflation rate. None of that improvement,
however, is attributable to the limited sanctions relief in the JPOA
which, of course, went into effect only 2 weeks ago. Indeed, these
indicators are largely unchanged over the past few months. Instead,
much of the uptick in these metrics occurred over the summer following
the election of President Rouhani in June; they appear to be due
largely to public optimism that the Rouhani administration would put in
place competent economic managers and obtain comprehensive sanctions
relief
While President Rouhani did, in fact, replace many of those
responsible for mismanaging the Iranian economy during President
Ahmadinejad's tenure, the JPOA does not deliver comprehensive sanctions
relief To the contrary, because the most potent sanctions remain firmly
in place, Iran's economy will remain under pressure. Most importantly,
its oil revenues will remain significantly depressed and the vast
majority of its foreign reserves will remain restricted or
inaccessible. As a result, Iran will continue to straggle to finance
its imports, to fund its govemment operations, and to defend the value
of the rial.
Even with a slight uptick here or there in some economic
indicators, the continuing impact of our core oil, banking, financial,
and energy sector sanctions--and the cumulative impact of those
sanctions--means that the Iranian economy is operating at significantly
reduced levels and will continue to massively underperform for the
foreseeable future. To get out of the hole that it is in, Iran needs
better economic management and substantial, structural economic relief
that can come only from lifting the broad sanctions that remain in
place--something the JPOA does not contemplate, but the promise of
which we assess will motivate Iran to negotiate a serious and
comprehensive solution to our concerns with Iran's nuclear program in
the next phase.
engagement with foreign counterparts and the private sector
So while we remain committed to providing, in good faith, the
relief agreed to under the JPOA, we also remain hard at work
implementing and enforcing a sanctions regime left largely intact by
the JPOA--a sanctions regime of unprecedented force and scope. The
reason is simple: We know that intense sanctions pressure helped bring
about the JPOA, and likewise will be a critical component in the
negotiations to come.
To ensure the force and scope of our sanctions, we are continuing
our longstanding efforts to work with our international counterparts in
the application and enforcement of our sanctions. This has been a
whole-of-government effort, involving officials at all levels of the
administration. Secretary Lew, for example, has met with many of his
counterparts in Europe and with literally hundreds of business and
banking executives to drive home the point that the sanctions relief in
the JPOA is narrow, that the sanctions that remain in place are broad,
and that we intend to enforce our sanctions vigorously. And over the
last 6 weeks. I have traveled to the U.K., Germany, Italy, Austria,
Turkey, and the United Arab Emirates carrying the same message: Iran is
not open for business.
In meetings with banks, businesses, and trade promotion
authorities, as well as with our governmental counterparts, I have
explained that complex, robust, and broad sanctions remain in effect.
This means, of course, that substantial legal risk remains for anyone
attempting to do business with Iran. I have pointed out in particular
that all of our banking sanctions, and all of the EU's banking
sanctions, remain in place, which means that any business looking to
get paid for delivering goods to Iran will continue to confront an
Iranian financial sector largely cut off from the SWIFT network and
mostly unable to transact internationally.
And I have also emphasized that anyone doing business with Iran
continues to incur significant reputational risk. For years, we have
exposed the complexity and sophistication of Iran's deceptive attempts
to evade sanctions to acquire material for its nuclear program--hiding
behind false front companies, deleting identifying information from
contracts and payment messages, and disguising the origin of its oil.
The line between licit and illicit Iranian business has always been
blurry at best, and that has not changed.
continued robust enforcement of sanctions
Now, we recognize that most businesspersons and bankers do not set
out intentionally to engage in sanctionable transactions. And I would
also strongly encourage anyone, anywhere who thinks now might be a good
time to test the boundaries and challenge our resolve to think again.
As President Obama has made clear, we will continue to vigorously
enforce the vast array of sanctions that are not suspended by the
JPOA--sanctions that reach Iran's energy, banking, and trade sectors,
along with its access to the international financial system. We also
will continue to target Iran's support for terrorism and human rights
abuses. And we will continue--in the days, weeks, and months ahead--to
respond to Iran's efforts to evade our sanctions, wherever they may
occur.
We know that some companies are talking to the Iranians. While
there is nothing necessarily sanctionable about just talking, if those
conversations turn into deals that exceed the narrow bounds of the
relief agreed to in the JPOA and involve sanctionable activity, we will
not hesitate to respond. Indeed, the JPOA implementation understandings
themselves explicitly recognize that we will enforce existing
sanctions.
And we are doing so. Just last week, for example. Treasury reached
a $9.5 million settlement with the Bank of Moscow to settle potential
civil liability for 69 transfers it sent to, or through, U.S. banks
that were for, or on behalf of, Bank Melli Iran ZAO, a sanctioned
Iranian entity. None of the payment messages Bank of Moscow sent
included direct references to Bank Melli Iran ZAO. Instead, the Iranian
bank was identified through the use of abbreviations while the Bank of
Moscow avoided using terms such as ``Melli,'' ``Iran,'' or the bank's
SWIFT Business Identifier Code. This settlement follows a string of
Iran-related enforcement actions we have taken over the past few weeks
and months.
Two weeks ago, we announced a landmark $152 million settlement
agreement with Clearstream Banking S.A., of Luxembourg, to settle its
potential civil liability for providing Iran with substantial and
unauthorized access to the U.S. financial system. Specifically,
Clearstream served as the intermediary through which the Central Bank
of Iran was able to maintain a beneficial ownership interest in
securities held in custody in the United States.
And before that, we reached a $33 million settlement with the Royal
Bank of Scotland and a $91 million settlement with Weatherford
International, Ltd. Both settlements involved investigations of
apparent violations of our sanctions on Iran; the latter was Treasury's
largest-ever settlement outside of the banking industry.
At the end of last year, we designated more than a dozen targets
located inside Iran and around the world--from Cyprus to Singapore--
involved in efforts to help Iran or its military procure goods and
technology for Iran's nuclear or defense sectors through front
companies and deceptive financial transactions.
And we will continue to detect, disrupt, and disable those
facilitating Iran's nuclear and missile programs by identifying front
companies, evaders, and violators and sanctioning them. We have done so
more than 600 times before and we will continue to do so during the
next 6 months.
The message should be clear: The United States is watching, and the
administration is poised to deploy our tools against anyone, anywhere,
who violates our sanctions.
conclusion
The Joint Plan of Action has created the space, over the next 6
months, to explore the possibility of a long-term, comprehensive
solution to concerns with Iran's nuclear program. Achieving that goal
will require, among many other things, that we deliver on our
commitments to provide the specific, limited relief contemplated by the
JPOA while maintaining significant pressure on Iran. And that is
precisely what we intend to do.
The Chairman. Thank you.
Secretary Sherman, so--maybe you can just answer this
``yes'' or ``no''--a final agreement would include closing the
Fordow facility.
Ms. Sherman. In all of these questions today, I am going to
be thoughtful about what I say, Senator, not because I do not
want to be direct, but I do not want to negotiate with Iran in
public so that they know what our positions are going to be at
the negotiating table. So, I will be as forthcoming as I can
be----
The Chairman. Well, some of these are so obvious. You said
in your own testimony----
Ms. Sherman. I am going to say it. I am going to answer
your question. But, I am making a statement, just in general
terms, because I do not want to frustrate the members--and be
glad to have further conversation, in a private setting, in
greater detail.
But, where Fordow is concerned, as I said in my testimony,
we see no reason for Fordow to remain an enrichment facility.
The Chairman. All right, thank you.
With reference to the Arak heavy water reactor, I would
assume that that would not be permitted to go online.
Ms. Sherman. We do not believe there is any reason for a
heavy water reactor at all in a civil nuclear program of the
type that Iran is interested in.
The Chairman. With reference to the centrifuges that
exist--which our understanding is about 20,000, at least by
published reports and other reports, David Albright, who is on
our second panel, and others, have suggested that, for a final
agreement, in addition to closing the Fordow facility, there
would be a need to remove between 15- and 16,000 of its 20,000
centrifuges. Do you agree with that estimate?
Ms. Sherman. I am not going to get into a specific number
in this setting, Senator. What I will say is, there is no doubt
that the number of centrifuges needs to be addressed.
The Chairman. Okay. And, by that, we mean that there needs
to be a reduction.
Ms. Sherman. Yes.
The Chairman. Okay.
Now, with reference--so, you will not give us a number, but
when President Rouhani says, ``No, we are not going to destroy
any centrifuges,'' you just think that is domestic consumption.
Ms. Sherman. I believe that is domestic consumption in an
opening maximalist negotiating position, and I would not expect
any less. What I will care about, what we will all care about,
what we all should care about, is what Iran does, what
commitments they make and which of those commitments can be
verified have actually taken place.
The Chairman. With reference to an area that was not frozen
in the interim deal with Iran, which is Iran's Centrifuge
Research and Development Program, which, basically, Iran can
continue its development of its more advanced centrifuges
during this whole period of time at the Natanz Pilot Program,
under the loophole in the interim agreement. And challenging,
because Iran is able to measure the enrichment level of the
product before it re-mixes it. So, at the end of the interim
period, Iran is likely to be far better positioned to deploy
reliable IR-2m centrifuges on a mass scale at its enrichment
plants, and this gain would allow Iran to make up for time
lost, very quickly. Is significantly or dramatically drawing
back on their research-and-development plans on centrifuges a
critical element of a final agreement?
Ms. Sherman. No doubt, there will be very difficult
discussions around R&D because of its significant--but, I would
say one thing, Senator. In fact, Mr. Chairman, their R&D
program was frozen, where centrifuge development is concerned,
in a couple of important ways, in the Joint Plan. First of all,
they cannot work on any advanced centrifuges that are not
listed in the November 14 IAEA report. That is really the
baseline for any continued work. So, it was frozen at the
November 14 setting. In terms of replacing any damaged
centrifuges in Fordow or Natanz, they can only do it with same-
type, not-more-advanced, centrifuges, and they cannot install
any new advanced centrifuges into the Natanz research facility.
The Chairman. Yes. But, that is not on the point that I
raised with you. So, let me read directly to you from David
Albright's testimony, which we will hear in the second panel.
``An area that was not frozen in the interim deal is Iran's
Centrifuge Research and Development Program. Iran can continue
its development of the IR-2m centrifuges at the Natanz Pilot
Plant under this loophole in the interim deal. It can enrich
uranium in a production-scale cascade of 164 IR-2m centrifuges.
And since it re-mixes the enriched uranium product with the
waste, obtaining natural uranium, no enriched uranium is
deposited into the product tanks. This re-mixing meets the
letter of the deal. However, Iran is able to measure the
enrichment level of the product before re-mixing it; thus, it
can further develop these centrifuges while hiding any results
of its progress from the IAEA, which has access only to the
product tank or the natural uranium, and does not see the
enrichment measurements. At the end of the interim period, Iran
is likely to be far better positioned to deploy reliable IR-2m
centrifuges on a mass scale at its enrichment plants. This gain
would allow Iran to make up for time lost more quickly.'' That
is--do you dispute that?
Ms. Sherman. What I would say, Senator, is, I would quite
agree with you that R&D is an area of concern. Their research
and development on advanced centrifuges is an area of concern,
and it will be something that we will be quite focused on in
the final comprehensive agreement. I am not an expert of the
quality of Dr. Albright, and I have great regard for his
assessments, and I would be glad to have our experts sit down
with you or your staff and go over the specifics of that----
The Chairman. Okay, I appreciate that.
What about Parchin? Why is Parchin--why was Parchin--
Parchin being so incredibly important for the framework under
which you are negotiating. Parchin, the world believes, is
where Iran was weaponizing its nuclear efforts; yet, in this
agreement, and the interim, the Joint Plan of Action, we have
no access to Parchin. Now, Parchin has already gone under mass
excavation by the Iranians, when the world became aware of it,
as a way, I believe, to ultimately try to cover up their
weaponization program. But, obviously, if we were negotiating
with access to Parchin, which I believe and others believe
would prove their efforts to weaponization, the framework under
which we would be negotiating would be much different, versus--
you know, a supposition versus a reality.
So, is access to Parchin, why you did not achieve it--I do
not know if you even raised it in the interim Joint Plan of
Action--is access to Parchin a critical element of your final
deal?
Ms. Sherman. Senator, we, in fact, did raise Parchin. We
raised possible military dimensions. And, in fact, in the Joint
Plan of Action, we have required that Iran come clean on its
past actions as part of any comprehensive agreement, in three
very critical ways.
First, the Joint Plan of Action says that we will work with
the IAEA to facilitate resolution of past and present issues of
concern. And that is a formula used by the IAEA in addressing
possible military dimensions, including Parchin. So, we expect,
indeed, Parchin to be resolved.
Secondly, the plan says: before the final step, there would
be additional steps in between the initial measures and the
final step, including addressing the U.N. Security Council
Resolutions, which require, in fact, dealing with issues of
past concerns.
And third, all the sanctions on over 600 individuals and
entities targeted for supporting Iran's nuclear and ballistic
missile program will remain in effect until those concerns are
addressed.
So, to summarize, yes, we have raised it----
The Chairman. And they rejected----
Ms. Sherman [continuing]. Second, they must be resolved.
The Chairman [continuing]. They rejected any access to
Parchin----
Ms. Sherman. They have not rejected it.
The Chairman. In the interim--in your Joint Plan of Action,
they rejected, during this period of time, access to it.
Ms. Sherman. No, they have not rejected it; they know it
has to be addressed, whether it--I hope it is addressed within
the 6 months while we are addressing the comprehensive
agreement. And, as you know, the IAEA will be meeting with Iran
on February 8, and these specific issues of their possible
military dimensions are very key and central to the agenda. So,
I hope, and I would urge, Iran to address Parchin during these
6 months while we are negotiating the comprehensive agreement,
because it will increase the confidence that we will actually
get to a final and comprehensive resolution.
The Chairman. Two final questions. Reuters has a report
this morning that the IAEA is exploring with Iran its
productions of polonium, which is a material that can trigger
an atomic explosion. Is this a new development or is this
something that you raised with the Iranians during your interim
negotiations?
Ms. Sherman. I am not aware of that Reuters report, so I
would have to take a look at it, Senator.
The Chairman. Well, I would ask you to respond to the
committee, look at the report----
Ms. Sherman. Sure.
The Chairman [continuing]. And respond to the committee.
One final----
Ms. Sherman. Be glad to.
The Chairman [continuing]. Question, for you, Secretary
Cohen. All of the sanctions that I have offered with Senator
Kirk, and members have supported, they always have to have at
least a 6-month period of time in order to give countries and
companies the notice required and the time for you to do the
regulations necessary to precede them. Is that a fair
statement?
Mr. Cohen. I assume so, Senator. I have not----
The Chairman. Well, you are enforcing them, and you have
had to pursue them. Have you had less than 6 months to be able
to pursue any of the sanctions that we have passed?
Mr. Cohen. Senator, I, sitting here right now, do not
recall every piece of legislation, whether any of them were
immediately effective or there was a phase-in for all of them.
We have, you know, of course, implemented the sanctions that
Congress passes as promptly as possible.
The Chairman. Well, I think it is pretty well--one can take
judicial notice of the legislation. The legislation that became
law always had a very long lead time, and then, after that, you
went to work to try to pursue it. And the problem is, to
suggest that we can quickly pass sanctions is to not recognize
that, when we pass sanctions, there are 6 months from the date
of signing before it ever goes into effect, and then, after
that, there is the whole period of time for you actually to
pursue enforcement.
So, in reality, the only effect that we have is over time.
When the Iranians, based upon testimony that has been received
and will be received today, looking at 6 to 8 weeks or 2 months
or so of their potential breakout period if a deal does not
come through, sanctions will--to enforce sanctions then will be
far beyond the scope of the window and will not be a calculus
for them. And so, that is part of the problem with suggesting
that, yes, we can pass sanctions at any time. Not simply about
passing sanctions, it is about the timeframe necessary to have
them be effective and ultimately to take effect. And that is
way beyond the window.
Senator Corker.
Senator Corker. Thank you, Mr. Chairman.
And I would just--Ms. Sherman, I appreciate, again, your
testimony. I think you know that, again, all of us want to see
a negotiated settlement. We want to see a peaceful end to this.
But, all of us are concerned--I do not know if you want to
continue on or--concerned about the way this interim deal has
been struck.
I made reference, in my opening comments, about Iran's
ability to perfect things, and pause, and then perfect other
things. Just curious, why did you all not, in this agreement,
in any way address the delivery mechanisms, the military
components of nuclear arms? Why was that left off? Since they
have reached a threshold that everyone acknowledges, they can
build a bomb. We know that. They know that. They have advanced
centrifuges. We have a major loophole in the research-and-
development area, that everyone acknowledges. And yet, we are
going to allow them, over this next year, to continue to
perfect the other piece of this, which is the delivery
mechanism. Why did we do that?
Ms. Sherman. Senator, first of all, and I should have said
this when the chairman asked the question--you know, we see
this as a first step, so we do not consider the gaps that exist
``loopholes,'' because this is not a final agreement; this is a
first step.
Senator Corker. Catherine Ashton has said that it would
take a year--she said it would take 6 months just to write up
technical documents to begin discussing. She is one of your
four partners, I know. So, we probably have a period longer
than 6 months where they can continue on. I mean, again, I just
do not understand why an interim deal would not address them
stopping the perfecting of those things that allow what they
have already perfected to be delivered.
Ms. Sherman. I would say a couple of things.
First of all, the Joint Plan of Action does address the
fact that their ballistic missiles that could be used as a
delivery mechanism for nuclear weapons must be addressed as
part of a comprehensive solution, because it is part of the
U.N. Security Council resolutions. So, it is true that, in
these first 6 months, we have not shut down all of their
production of any ballistic missile that could have anything to
do with delivery of a nuclear weapon. But, that is, indeed,
going to be part of something that has to be addressed as part
of a comprehensive agreement.
Secondly, I would say to you, Senator, that if we are
successful in assuring ourselves and the world community that
Iran cannot obtain a nuclear weapon--cannot obtain a nuclear
weapon--then them not having a nuclear weapon makes delivery
systems almost--not entirely, but almost irrelevant.
Senator Corker. Well, so let me ask you this question. I
think most neutral observers would state that all we have
really done, since they are not dismantling as you know, both
their President and Foreign Minister has made that real clear--
they are not dismantling--so, in essence, what you have done in
this interim deal is, you have given us 30 days additional time
for breakout. Thirty days. And yet, they have got a year; a
year to probably--probably longer, candidly--to develop these
delivery mechanisms.
Now, I will say--I mean, some people may debate about what
their enrichment is for. I do not think many people on this
committee think that what they have been doing is solely for
civil purposes. But, there is no debate on delivery mechanisms.
And I am just curious, why would you negotiate a deal that
allows that to continue? I do not get it. Why would you say
that would be a part of the next deal, since they have already
perfected the first part? It seems to me that being able to
deliver it is an important aspect, but apparently not so, in
your case.
Ms. Sherman. Well, Senator, you and I disagree about the
conclusion of the Joint Plan of Action. We believe that it has
set out a framework for a comprehensive agreement to ensure
that Iran does not obtain a nuclear weapon. We are not to that
comprehensive solution yet. We agreed on a 6-month program that
freezes where they are and rolls back their program in
significant ways to obtain that nuclear weapon. And, in return,
we have given very limited, temporary, and targeted sanctions
relief.
Quite frankly, if we could have negotiated a comprehensive
agreement, which you would prefer and many people would prefer,
we would have done it.
Senator Corker. Yes.
Ms. Sherman. But, quite frankly, that was impossible to do
in a short period of time. And had we, in fact, tried to
negotiate a comprehensive agreement that would have dealt with
everything that is of concern to all of us, they would have
used that time to march forward much more rapidly in their
ability to both develop a nuclear weapon and to develop the
delivery system for that nuclear weapon.
Senator Corker. Yes.
Ms. Sherman. So, this is not perfect.
Senator Corker. No, it is not.
Ms. Sherman. But, this does freeze and roll back their
program in significant ways and give us time on the clock to,
in fact, negotiate that comprehensive agreement. And, as you,
yourself, said, we can discuss what the breakout times are, in
a classified setting. It has added, relative to where we were,
some time on that clock, as well.
Senator Corker. Some time.
If I could ask just two more questions. I know this is a
topic we all care about.
Mr. Cohen, since this negotiation has begun, do you agree
that Iran's inflation rate is way down, that their currency is
way up, and that economic projections within the country are
way up, and that there are people from all over the world who
are clamoring to do business with Iran? I know you have
traveled around the world, talking to folks about what might
happen to them, but is there any question that just the
discussions have hugely uplifted the Iranian economy? Is that
correct?
Mr. Cohen. Well, Senator, I think what we have seen, in
terms of the metrics in Iran's economy, is that there was an
uptick immediately after the election of President Rouhani, in
June. And so, the value of the rial has increased somewhat
since the election of President Rouhani. Inflation has come
down since his election.
There has been, essentially, no change at all in the
inflation rate or the value of the rial since the Joint Plan of
Action was agreed to, in November----
Senator Corker. But, everybody knew those discussions were
underway.
Do you understand why there is a concern, here, that we are
alleviating sanctions? You all say 7 billion; I think no
rational person believes that that is the only effect, because,
in a market, there are expectations. I mean, that is why the
Fed, you know, buys securities and gives, you know, its
expectations. And so, people are expecting--and you can
understand why the chairman would be concerned--that what is
going to happen is, at a minimum, a series of rolling interim
deals. And I think there are many of us rightly concerned that,
at a point--especially if it takes as long as Catherine Ashton
is saying, a minimum of a year--at a point, we lose all
leverage, if you will, to really do this. Some people have even
said, ``Well, what we really ought to do is pass a resolution
on the Senate floor that says, if we do not come to a
resolution, there is a trade embargo or something that is much
stronger--not binding, but indicates that we will do
something.''
Do you understand why we have those concerns? And do you
have a way of Congress addressing those in an appropriate way,
since we put the sanctions in place in the first place?
Mr. Cohen. I certainly understand where those concerns come
from, but what I can tell you from my travels around the
world--and my colleagues report the same in their dealings--is
that the limited nature of the relief in the Joint Plan of
Action, and the sanctions that remain in place, when we explain
that and make sure that the business community, the banking
community, our governmental counterparts understand that a deal
that would be permissible under the Joint Plan has to be
commenced and concluded within this 6-month period, that anyone
shipping goods to Iran is still facing an Iranian banking
sector that is largely cut off from the international financial
sector, that investment in Iran's energy sector is still
sanctionable--when we walk through the very narrow scope of the
sanctions that have been relieved and the extensive sanctions
that remain in place, what we hear back is that there is
interest down the road, potentially, if there is a
comprehensive deal and substantial sanctions relief in the
Iranian market, but, for this period--for this 6-month period--
the interest in trying to take advantage of the narrow
suspensions of sanctions in just a few economic areas that have
been agreed to is relatively tame. So, you see these
delegations going to Tehran, but I think you also see,
importantly, the reflection that those conversations are about
what may come in the future, not what is available today.
And I should say, we are as crystal clear as possible, in
all of our engagements, that if these talks turn into something
more, if these talks turn into deals that violate the elaborate
sanctions that remain in place, that we will take action.
The Chairman. Senator Coons.
Senator Coons. Thank you, Chairman Menendez, for chairing
this hearing.
And I would like to thank Under Secretaries Sherman and
Cohen for your work and for appearing before the committee.
As you have said in your testimony, and as I agree, a
strong
and crippling sanctions regime imposed on Iran--in large part,
passed by this Congress and enforced by this administration--
have brought Iran, at last, to the negotiating table. And I
remain strongly supportive of their ongoing implementation and
enforcement. I am encouraged by your characterization of these
sanctions--enforcement and the relief in the Joint Plan of
Action--as being temporary, limited, and reversible, but intend
to be intensely engaged in ensuring that that is, in fact, the
case. As a cosponsor of the Menendez bill, I believe it is
important for us to continue to maintain the threat of stronger
and more additional sanctions in order to send a clear message
to Iran of the ramifications of noncompliance.
I have a number of concerns and unanswered questions about
the Joint Plan of Action. I will just reiterate, I share, I
think, the goal, of everyone on this committee and the
administration, of reaching an agreement that verifiably and
irrefutably denies Iran the capability to acquire a nuclear
weapons capability. I do hope a final deal can be achieved in
the next 6 months that includes the most comprehensive
inspection and verification regime possible. And I have a
number of questions I would like to ask, following up on that,
if I might.
First, as to the IAEA, I sent a letter to the President,
along with several other Senators--Mikulski, Warner,
Gillibrand, Markey--asking a number of questions, and, in
particular, focusing on what the administration will need from
Congress in the way of financial support, what the actions will
be with the IAEA, and pressing on whether there is any
progress, in terms of establishing a field office, the scope
and reach of the inspections, and what kinds of capability,
staffing, and funding it may require, so that we can have some
certainty about these allegedly novel inspection regimes. We
have very disconcerting previous examples in other countries,
where inspections failed to uncover clandestine actions, as has
previously been the case in Iran. So, I would be interested,
Under Secretary Sherman, first, on: When am I going to get an
answer to my letter? And what can we be doing to work with you
in strengthening the IAEA in their inspections?
Ms. Sherman. Thank you very much, Senator, and thank you
for your support. And thank you, along with all the members of
this committee, for leadership on supporting our efforts to
make sure that Iran cannot obtain a nuclear weapon, which, I
quite agree, is an objective we all share.
In terms of monitoring and verification, I will find out
where that letter is, and we will get it to you, tout suite,
Senator. I am sorry it is not up here before this hearing
today, and I apologize for that.
The IAEA is going to double its staff. It will have a field
office. As you note, the Joint Plan of Action gives us
unprecedented access. Before, at Natanz and Fordow, inspectors
went about once a week; now they will have daily access. On
days in which they might otherwise not be there, there will be
surveillance cameras and other monitoring techniques that will
be available that are being worked out with the IAEA. Arak,
they used to visit maybe once every 3 months; they now will
have monthly access to Arak. They are getting the DIQ--the
plans in essence--for Arak. They are getting access to
centrifuge production facilities, rotor production facilities,
to uranium mines and mills. So, it is quite an unprecedented
verification and monitoring regime.
The Director General has said there will be some increased
cost. We have increased the amount that we will make available
out of our budgeted funds to the IAEA. Other countries have
come forward, and we greatly appreciate your willingness for
Congress to take a look and ensure that the inspection,
monitoring, and verification activities can go forward, because
they are quite critical, as you point out, to verify that Iran
does what it is committed to do and, in a comprehensive
agreement, will be even more crucial.
Senator Coons. Let me ask one more question with my
remaining time. And, first, in your opening testimony, you
highlighted efforts to hold Iran accountable for its ongoing
human rights violations, public executions, support for the
Assad regime, for Hezbollah, for terrorism. And I appreciate
and salute your hard work in holding Iran accountable. This is
a regime we cannot trust. One of the most important
accomplishments, I think, of this interim Joint Plan is the
commitment to dilute the 20-percent highly enriched uranium.
And apparently, Tehran will take these steps when it has
completed necessary facilities improvements and a conversion
line. When is this scheduled to be completed? And what steps
are being taken to ensure the Iranians are not dragging their
feet or are not using this as a way to covertly enrich in some
other vehicle and in some other location?
Ms. Sherman. Couple of comments. First, on human rights, we
completely agree with you, and, in the coming weeks, the Human
Rights Report will come out, and we will detail, as clearly as
we possibly can, how we view Iran's human rights abuses, which
you have decidedly and rightly pointed out are of grave concern
to us.
In terms of the dilution and conversion, both on the 20-
percent and ensuring that the 5-percent stockpile does not get
larger than the amount agreed to by the end of the 6-month
period, the IAEA will be monitoring all of these actions. And,
on the dilution--the conversion will take all 6 months to
accomplish, because the technology only allows it to move that
quickly, but the IAEA will provide a report, on a monthly
basis, of all monitoring and verification activities, that they
will share with the Joint Commission, and we will be glad to
come up and brief the Hill, in classified session, about those
monthly reports. And so, that will be one way that we will
verify it.
The second is that, on the dilution, two of the payments of
repatriated frozen funds are tied to the dilution schedule--the
first on March 1, the second on April 15. So, Iran will not get
the funds unless the dilution is completed on the schedule
agreed to.
Senator Coons. Thank you. I very much look forward to those
classified briefings and to an answer to my letter. Thank you,
Under Secretary.
The Chairman. Senator Risch.
Senator Risch. Thank you, Mr. Chairman.
Ms. Sherman, your thank you to Senator Coons implied, I
think, when you said that you thanked us for supporting the--
this committee for supporting the efforts of the administration
in this regard--do not put me in that column. I do not want to
be thanked, because I do not support what has been done. I
think this thing is a disaster. I was stunned when I saw what
the agreement was. I have been disgusted as we have gone
forward. And I hope you will prove me dead wrong, but I do not
think I will, given the history of these people.
But, in any event, I want to focus on just a couple of
aspects.
Number one, Pastor Saeed Abedini is a constituent of mine.
He is held in jail in Iran. His only crime is being a
Christian. You know, last week I see where we showered the
Iranians with, what, $500 million. Why can we not get this guy
out of jail? You said that Secretary Kerry had a conversation
with Foreign Minister Zarif this weekend at the meeting in
Munich. Can you tell us what the substance of that conversation
was?
Ms. Sherman. Certainly, Senator.
First of all, we completely agree with you. Saeed Abedini,
Amir Hekmati, and Robert Levinson should all be home with their
families. And nothing I can say today, because they are not yet
home, will be satisfactory to you or to their families. And I
would agree with them and agree with you in that regard.
Secretary Kerry raised these situations with the Foreign
Minister, insisted that these be addressed as quickly as
possible, that there was no basis for any of the three of them
to be held. And, indeed, we are doing whatever we can, in
whatever channel we can, to bring them home as quickly as
possible.
Senator Risch. Well, Ms. Sherman, you know, that is not
good enough. Those are just words. Somebody needs to look these
people in the eye and tell them they are not getting another
penny, and they are not getting anything, until they do a very
simple act of letting three absolutely innocent Americans go
free. I hope you will convey that to the Foreign Minister, and
I would hope Secretary Kerry would convey that to the Foreign
Minister. This is absolutely outrageous, for everything we have
given to the Iranians, and them still to hold this. I mean,
this is absolute nonsense.
Let me change horses here for just a second. I keep reading
in the media about--now that the sanctions have been relaxed--
and this has been something that has been a concern of mine
from the beginning, that, now that they have been relaxed, our
partners--most, if not all, of whom were unwilling partners--
are now flooding in there with businesspeople--the French, the
Italian, the Irish, the Canadians. You have got political
people, you have got businesspeople flooding in there, ready to
do business, going back to business as usual with the Iranians.
Whose job is it going to be to put the genie back in the bottle
when this thing fails? Who is going to do this?
Ms. Sherman. Well, let me make one comment and then turn it
to Under Secretary Cohen.
A couple of things. As the Under Secretary said, every
single member--key member of our administration talks with
every country with whom we meet about enforcing and keeping the
sanctions in place and on board. And indeed, I believe, based
on the conversations I have had with many, including the
French--and Secretary Kerry has talked directly to Foreign
Minister Fabius about the trade delegation that went; it was a
private business delegation, it was not a government
delegation--about how this is not helpful in this regard, to
ensure that, in fact, it is not business as usual; as Under
Secretary Cohen said, Tehran is not open for business, because
our sanctions relief is quite temporary, quite limited, and
quite targeted--that, in fact, most of these delegations that
are going, because we talk to them all, we tell them what are
the limits of what they can do, that we will, in fact, go after
them, that we will sanction them. Does not matter whether the
countries are friend or foe; if they evade our sanctions, we
will sanction them. We have all delivered that message, not
just Treasury, but every department in our administration, in
the executive branch, that, indeed, most of these delegations
appear to be going to get themselves in line for the day that,
in fact, a comprehensive agreement is reached, if it is
reached. And we have told them all that they are putting their
reputations, themselves, and their business enterprises at risk
if they jump the gun.
Senator Risch. Well, this is exactly why those of us who
were critical of this at the beginning were so critical. The
optics of this are such that the rest of the world says, ``It
is back to business as usual.'' You can tell them what you want
to tell them, but their acts indicate that they believe it is
back to business as usual. That is the problem.
Mr. Cohen.
Mr. Cohen. I completely agree with Under Secretary Sherman,
in terms of how we have been making certain that our partners
around the world understand that whatever interest they may
have in the Iranian market someday, that is not the market
today; that what is available today in this Joint Plan of
Action is extraordinarily narrow. It is limited, as I said, to
petrochemical exports, to sale of goods to the auto sector, and
some trade in precious metals. But, even that is substantially
constrained. There is very limited economic potential today in
the Iranian business sector. That is the point that we make
over and over again in these engagements.
That point, I believe, is getting through. We have not seen
deals being done. But, even more importantly, what we have been
absolutely clear about is that we will continue to enforce our
sanctions. The implementation agreement on the Joint Plan of
Action explicitly recognizes that we have the right and that we
will fully enforce existing sanctions. And I think that message
is one that we have communicated, over the years and more
recently, in a pretty credible fashion.
Senator Risch. Well, I understand that that is the message
you are giving them. But, it sure does not look like they
believe it, because they are acting entirely differently than
what the message that you are giving them.
Thank you, Mr. Chairman. My time is up.
The Chairman. Thank you.
Senator Murphy.
Senator Murphy. Thank you, Mr. Chairman. Thank you both for
being here today.
I want to, frankly, associate myself with the opening
comments of Senator Coons. It has been the robust pursuit of
sanctions by this administration that has led us to a point
today in which we have an opportunity, a chance, to achieve a
peaceful resolution to this crisis.
Under Secretary Sherman, as you know, I was in Munich this
weekend, sat on a panel with Foreign Minister Zarif, and he
made the laughable contention that Iran was at the table today
for reasons having nothing to do with the sanctions policy.
That being said, though no one in the audience believed it,
there was a discussion there about the different trade
missions, mainly of a private nature, that have gone to Tehran.
And Secretary Kerry was there, pushing hard, as you mentioned,
back on our partners to make sure that those were simply
missions connected to potential future activities rather than
undermining of these sanctions.
And let me give you, just, my impression, and you tell me
if I am wrong.
The fact that there are groups going to Tehran or thinking
about their potential future opportunities seems to me to have
nothing to do with the interim agreement. To me, if we were to
have entered into negotiations right away on a final
settlement, the same thing would have happened. Once there was
a window into potential normalized trade relations with Iran,
there are going to be private entities that are going to start
having those discussions. And so, the idea that there are some
conversations happening about future trade opportunities seems
to be a consequence of a negotiation beginning, whether or not
there is an interim trade agreement in place. And I just want
to, from both of you, understand if that is your impression.
Mr. Cohen. I think that is exactly right, and it is--as I
was saying earlier--it is what we have been hearing from these
various trade promotion agencies, governments, the private
industries that we have been talking to, is that they are not
there, looking to do business today; what they are there for is
to see what might come in the future, because there is some
hope that these negotiations will produce a comprehensive
agreement that brings with it substantial sanctions relief.
But, that is down the road; that is not today.
Ms. Sherman. I would agree with the Under Secretary and add
one other thing which is a little counterintuitive. We hope
people do not go to Tehran. That is our preference. But, those
who go raise hopes that the Rouhani administration is going to
have to deliver on. And the only way they can deliver on those
hopes is a comprehensive agreement that we will agree to. And
that means a verifiable assurance that they are not developing,
creating, will have, obtaining a nuclear weapon. And so,
although we do not want people to go, because we think it does
send the wrong message, if they do go, it puts pressure,
perversely, on the Rouhani administration, because, as far as
we have seen today, there are not deals getting done, but,
rather, people getting first in line, in the hope that someday
there will be a deal.
Senator Murphy. And to the extent that there is enormous
economic opportunity in that country today, it is because of
the crippling nature of the sanctions that have so gravely
undermined the economy that there is such room for improvement,
should the sanctions be partially or fully lifted.
Under Secretary Sherman, just one additional question. We
do have to pay attention to the internal political dynamics in
the country, because it dictates whether or not they are
actually going to be able to get a deal. Is there any new
information about the length of the leash that Zarif and
Rouhani have been given by the Supreme Leader? Is there any
evidence that the hardliners, since the interim agreement have
been signed, are winning or losing the internal battle to be
able to allow for there to be domestic political support for a
deal that is amenable to the United States to be achieved in
this negotiation?
Ms. Sherman. We constantly ask our intelligence community
to update their assessment, and that is certainly an assessment
we should share, and will share, with you all on an ongoing
basis.
I think there is no doubt that there are hardliners in
Tehran. Sometimes that is overstated, for negotiating effect.
But, it is real and substantial. And so, I think Zarif walks a
fairly fine line.
One of the things I think we all try to be conscious of is
not to increase the space for the hardliners, while, at the
same time, not allowing Tehran to overstate the politics they
have to deal with.
Senator Murphy. Thank you, Mr. Chairman.
The Chairman. Senator Rubio.
Senator Rubio. Thank you.
So, let me describe what I think the leash is. And I do not
think this takes a tremendous amount of any secret intelligence
to arrive at it. I think the leash is--and I have stated this
in our meetings before--go and see what sanctions relief you
can get without giving up what we believe--Iranians believe is
their inherent right to enrich. Because if they can keep that
infrastructure in place, they are always one or two, three
steps away from being a nuclear-armed power.
So, here is where I am--need some clarification. Okay?
According to the administration, we have not--as part of this
Joint Plan of Action, have not recognized the right to enrich
for the Iranian Government, nor do we intend to. The document
does not say anything about recognizing a right to enrich
uranium. But, in the letter from President Rouhani to the
Supreme Leader, he states that the agreement includes, ``the
formal recognition of the nuclear rights of Iran,'' implying
that this acknowledges their right to enrich. He has said,
``Under no circumstances''--Rouhani has said this publicly--
``Under no circumstances will there ever be a deal in which we
agree to dismantle our enrichment capabilities.'' That is the
line in the sand that he has drawn on the enrichment issue.
Do we have a line in the sand on the enrichment issue?
Ms. Sherman. Our line in the sand on the enrichment issue
is that any comprehensive agreement should give us full
confidence and assurance, in a verifiable manner, that Iran
cannot obtain a nuclear weapon.
Senator Rubio. Well, so then my question is, Is a
capability to enrich, is that not, in and of itself, a
significant--just the fact that you have the infrastructure to
enrich at any level, is that not a critical capacity for a
country that has a plan to have the option of going nuclear-
armed one day?
Ms. Sherman. Every country has the potential for that
capability, and if we dismantle--and I would hope we can; I do
not know whether we will be able to--every piece of the
infrastructure that Iran has, they would still have the
knowledge. They cannot unlearn what they know. So, they would
be able to reconstitute an enrichment program, they would be
able to reconstitute their research and development, because
their scientists cannot unlearn what they have learned how to
do.
So, what we are trying to do, Senator, in a comprehensive
agreement, is to put in place the elements that will give us a
verifiable assurance that they cannot obtain a nuclear weapon.
And there are many paths to that end.
Senator Rubio. You know, I understand their scientists will
know how to do it, but you still need the infrastructure, you--
--
Ms. Sherman. Sure.
Senator Rubio [continuing]. Still need the facilities to--
--
Ms. Sherman. Sure.
Senator Rubio [continuing]. Enrich. And many countries have
scientists that know how to do it, but they do not do it,
including many of our allies. And so, we are now--potentially,
the concern is, we are going to leave in place any sort of
facilities that, when the world is distracted in 5 years on
some other thing, they can move fairly quickly.
Let me point something else out. Multiple countries have
the ability to enrich, but they do not, because they obtain it
from elsewhere, because they do not have these designs. And few
countries that enrich also have a ballistic missiles program.
So, let me ask you this question. U.N. Security Council
Resolution 1929 contains a provision referring to their
ballistic missile program. It prohibits them from acquiring an
interest in any commercial activity in another state involving
technology related to ballistic missiles, which you only build
for the purposes of delivering a nuclear warhead, that level of
expense that it brings. How is that going to be addressed?
Because is that not a key component? In essence, if they retain
a right and an infrastructure to enrich at 5 percent, but they
are building ballistic missiles, then the only thing missing
here is a quick ramp-up of the enrichment capability, and now
they are a nuclear power.
Ms. Sherman. Senator, I hope that Tehran listened very
carefully to what you said, because we agree, it would be
better for Iran to--if they want a civil nuclear program, to,
in fact, bring the fuel in from the outside and not have an
indigenous enrichment program. They would get better nuclear
cooperation, they would probably get better price, lots of
things might be better for them. And that will absolutely be on
the table in the negotiations we have with them. Because you
are quite right, there are plenty of countries who do this, who
have dignity and pride and scientists and everything else they
need for scientific and technological advancement. But, we have
said, in the Joint Plan of Action, that, depending upon where
we get in the comprehensive agreement, we are willing to
consider a very limited, very intrusive, very heavily
monitored, small, limited enrichment program, if it becomes a
necessity. But, nothing is agreed----
Senator Rubio. Right.
Ms. Sherman [continuing]. Until everything is agreed.
Senator Rubio. Well, then----
Ms. Sherman. And on your point about ballistic missiles,
indeed we have said that the U.N. Security Council resolution
has to be addressed, and ballistic missiles capable of
delivering a nuclear weapon are part of that consideration.
And the last point I would make is, if we can get--and I do
not know yet whether we will be successful--but, if we can get
to the verifiable assurance that they cannot obtain a nuclear
weapon, if we know they cannot have a nuclear weapon, then a
delivery mechanism, important as it is, is less important.
The Chairman. Senator Kaine.
Senator Kaine. Thank you, Mr. Chair.
When the interim deal was announced in November, it was
timed in an interesting way. It was the same weekend where
America was commemorating the 50th anniversary of the death of
President Kennedy. And I was with many of my colleagues at a
security conference in Nova Scotia when the deal was announced.
And a great speech of Senator Kennedy's was running through
many of our minds that weekend as television was discussing his
career. It was the graduation speech he gave at American
University a few months before he died, in the spring of 1963.
He had started aggressive diplomatic efforts to try to reduce
nuclear weapons and the nuclear competition between the United
States and the Soviet Union, and he was heavily criticized as
naive, foolish, a dupe, et cetera, for doing that. And he made
a very aggressive case for the fact that part of American
strength is strong diplomacy. And one of the phrases that he
used in that speech--and I would recommend the speech to
anyone, because it is a very interesting one that reads as if
it was written today--is that, with all appropriate
skepticism--and this is a direct quote--``we can still reduce
tension without relaxing our guard.'' Aggressive diplomacy is
needed to reduce tension, and aggressive diplomacy is needed to
solve thorny problems, but we do not have to relax our guard.
And I see what we are trying to do with Iran in that
spirit. We all want exactly the same thing. We want Iran not to
have nuclear weapons. We all will prefer if we can get to that
end diplomatically rather than having to use military force. As
a member of this committee, I recently cast a vote to use
military force to enforce what I thought was a very important
international norm. Iran should not have a nuclear weapon, and
I will cast a vote to use military force, should that be
necessary. But, everyone--everyone in this body, every one of
our allies, every one of the P5, everyone throughout the
world--would desire, if there is a diplomatic alternative, a
diplomatic path to a nonnuclear Iran, that we pursue that
path--whatever the chances of success, that we pursue that
path.
While we both want these things--a nonnuclear Iran and a
preferred diplomatic resolution to this thorny question, rather
than a military one--we have differences in tactics. And that
is to be understood. And they are good-faith differences. They
are good-faith differences. We are debating about a current
piece of legislation, and some in this body support it, and
some do not, in terms of the timing. Those who support it are
not pro-war, those who oppose it are not soft on Iran or anti-
Israel. We have a difference in tactic about what is the right
way to attain a diplomatic solution to a very thorny problem,
the diplomatic solution that is the preferred solution.
I am very clear-eyed about the Iranian threat, not only the
nuclear threat, and not only the history of past events, but
current events--human rights violations, as have been
mentioned, and current practices that are bellicose and
destabilizing of other governments in the region and beyond.
And it is the case that the sanctions that Congress has put
in place in so many--I have not been part of that legislation.
I came here after the legislation was passed, but I can praise
those who have been here for putting tough sanctions in place.
The vote in 2011 was 100-to-nothing in this body, and the
administration has been able to utilize sanctions to bring Iran
to the table, because it has crippled their economy and
isolated them in the international community.
But, the sanctions are not enough to stop an Iranian
nuclear program. And the one thing that I think you would say
if you looked at the history is that the sanctions has crippled
the economy, but, if anything, it has also, by making Iran
isolated, accelerated their path to try to develop nuclear
technology, for whatever purpose. And so, if we are going to
stop that nuclear program and that quest for nuclear weapons,
we have to either do it diplomatically or do it militarily.
I support the sanctions, and I will easily and gladly vote
for more if we cannot find an agreement. And I have some ideas
about additional ones I want to raise, either with this panel
or the second one.
But, I do think that this Joint Plan of Action and the
diplomatic efforts of the administration give us an historic
opportunity that we cannot afford to put a crosswind into the
middle of. The Joint Plan of Action and the interim agreement,
in my view, from analyzing it and reading analysis done by many
who are much smarter about me on this, slows and even reverses
aspects--not all aspects, but critical aspects of the Iranian
nuclear program, which sanctions alone has not been able to do.
And it also provides this country and our partners and all of
our allies and the entire world a better early-warning system
about whether Iran is cheating. We get more time on the clock
and a better early-warning system because of this deal.
We have to give diplomacy a chance. We have to. I think
aggressive diplomacy has been an underexercised American muscle
in the last 15 years. We have to return to the kind of
aggressive diplomacy that the Nation embraced when President
Roosevelt--Teddy Roosevelt brokered the end of the Russo-
Japanese war, won a Nobel Peace Prize for doing so. Since that
time, our strength has been measured, not just by our military
strength, not just by our economic strength, but the strength
of our moral example and the strength of our diplomat effort.
And we can be appropriately skeptical. The President has
been very candid, in talking to all of us, that it is maybe 50-
50 or whether we will find a deal that we will think would be
sufficient. And, if we do not, of course there will be greater
sanctions that we will put in place and that we will support.
But, we have got to give diplomacy a chance, not only in this
instance, but we have got to return to the tradition of
aggressive American diplomacy that has been one of the very
core elements of our power in the world. It has been
underexercised, and I am glad to see we are getting back to it.
And the last thing I will say, just quickly. There may be a
day, when this deal does not work, that we do have to
contemplate military action to stop Iran from getting a nuclear
weapon. I do not think it is that hard to contemplate that we
might be at that day at some point in the future. And, as I
have said, I will state on the record right now, if there is no
other way to stop Iran from getting a nuclear weapon than for
us to engage in military action, hopefully with others, I am
going to vote yes on that.
But, in order for us to vote yes on that, we have got to be
able to look our allies and our citizens, and especially the
men and women that we would ask to fight that battle--we would
have to be able to look them in the eye and tell them that we
had exhausted every diplomatic effort prior to undertaking that
significant step. We may have to undertake that significant
step, but we should not do it if we leave diplomatic avenues
unexplored.
Let us make this negotiation about Iran's good faith, let
us not make it about our good faith. Let us demonstrate our
good faith and put them to the test of whether they are serious
about ending their nuclear weapons program.
The Chairman. Let me thank the Senator for his thoughtful
comments. And maybe the administration can be enlightened to
understand the difference between tactics and warmongering and
fearmongering.
Senator Flake.
Senator Flake. I thank the Chair.
And I appreciate the comments of my colleague from
Virginia, and I share many of those sentiments. I have not
signed on to the new sanctions bill, here. I believe that, if
diplomacy can work, we ought to allow it to work.
I have not appreciated some of the comments from the
administration describing those who are in favor of a sanctions
bill. They are implying that they are warmongering or that they
have anything but the best motives. I think that everyone here
wants the same thing. And, for the administration or others to
describe people who have a different view, I think is unfair.
But, for myself, I hope that these negotiations will work.
There are some concerns that I have, just in terms of the
specifics. One of the criticisms of the Joint Plan of Action,
Ms. Sherman, is that it deals with known nuclear facilities in
Iran, but it is a little bit unclear as to what will happen if
we discover other facilities that were not known prior to this.
How are they covered? Are they--would the term ``any new
nuclear facility''--is that a new one or newly discovered? And
what means do we have to try to find other facilities out
there?
Ms. Sherman. Thank you very much, Senator, and thank you
for your comments.
And, Senator Kaine, thank you very much for yours.
And let me say, for the record, I do not believe any of
you, and any Senator, any Member of the House, are warmongers.
I do not believe that anyone prefers war. I understand how, as
Senator Kaine described, as Jeffrey Goldberg, in his excellent
piece, ``An Iran Hawk's Case Against New Iran Sanctions,''
describing how one gets to military action and the concerns
that we have that tactical considerations may lead us to that
choice. But, that is an issue of tactics, as you have pointed
out, not an issue of intent, and not a characterization of any
individual. So, I quite agree with that.
In terms of new nuclear facilities, we meant exactly what
the Joint Plan of Action says: There can be no nuclear
facilities, either declared or undeclared. And if we find
undeclared new nuclear facilities, then that is a cause of
grave concern to all of us, because it would be against the
compliance that is required for the Joint Plan of Action. I
cannot today tell you what our response would be, but I would
imagine it would be quite, quite concerning, and we would have
to respond in a very forceful way.
Senator Flake. All right.
Do you have concerns that, if we were to impose new
sanctions, that our partners, the P5+1, would strike their own
deal and leave us out? Is that a possibility? Is that a concern
that the administration has?
Ms. Sherman. I think that is a possibility, of course. I
think, more broadly, Senator, where our allies and partners in
the world are concerned, one of the reasons the sanctions
regime has been as effective as it has been is because people
have climbed on board with us, particularly in our unilateral
sanctions. Even when they do not believe in unilateral
sanctions, and tell us so at every opportunity, they have, in
fact, followed them, because dealing with the American banking
system is so crucial to the economy of virtually every country
in the world that they have complied even though they do not
like them.
And so, if we, in fact, do not give negotiations a chance,
they have less of an incentive to stay onboard with that
sanctions regime, and we could unwittingly create a rupture in
that sanctions enforcement and sanctions regime, which is
crucial to the kind of aggressive diplomacy that Senator Kaine
was outlining.
Senator Flake. Well, thank you. That has always been my
feeling. Unilateral sanctions rarely work. There are certain
areas, central bank sanctions on the financial sector, where we
can certainly lead there, but we always run the risk of getting
ahead of our allies or partners, somewhere where they will not
go, and then the sanctions regime will unravel. Anybody who
thinks that unilateral sanctions work very well, I would give
you Cuba as Exhibit A for a long time of unilateral sanctions
that simply have not produced the desired outcome. We need our
P5+1 partners, and others, to participate with us here. And the
stakes are obviously much higher in this regard.
So, thank you for your testimony.
The Chairman. Senator Durbin.
Senator Durbin. Thank you very much.
And I want to associate myself with the remarks of my
colleague from Virginia. I thought he articulated my point of
view in terms of the importance of these negotiations.
Let me ask you a specific question. On the issue of
enrichment capacity, it appears, at least at the outset, there
is a divergent point of view, in terms of whether or not Iran
can retain the enrichment capacity at the end of a successful
negotiation process. Any enrichment capacity--not at weapons-
grade level, but any enrichment capacity. Would you address
that?
Ms. Sherman. Sure, Senator.
There is no question it would be far preferable if Iran did
not have an indigenous enrichment capability. They will always
have the capability, because, as I said earlier, they cannot
unlearn what they know, but in terms of actually having a
program, it would be preferable if they got any fuel that they
needed from outside sources--bought it on the open market, had
international cooperation, international consortia. These would
always be preferable routes to go.
But, it may be that, at the end of a comprehensive
agreement, we have allowed for consideration of a very small,
limited enrichment program to meet practical needs, that would
be highly monitored, highly verified, with intrusive
inspections over a very long duration of time, as--potentially
as part of a comprehensive agreement.
But, what is very critical in the Joint Plan of Action is,
nothing is agreed to until everything is agreed to. So, there
is no prospect that Iran could even have such a small, limited,
and highly monitored program without us agreeing to all of that
verification, monitoring, and all of the other aspects that
would be necessary for a comprehensive agreement, including
addressing the U.N. Security Council resolution.
So, we have a long way to go, here.
Senator Durbin. Going back to Ronald Reagan's famous
``trust, but verify,'' the verification process here involves
IEAE inspectors now currently on the ground. And I believe you
testified, before I arrived, that the reports coming back are
at least encouraging, in terms of their access. Can you
elaborate on that a bit? There are those who say there are
things going on they will never be able to see and they will
never be told about. And those things could be the most
dangerous and threatening.
Ms. Sherman. There will be no way, even with military
action, to ensure that we know everything that there might be
to know. That is true in any country. Both with IAEA
inspectors, our national technical means, and other ways, we
work to know as much as we possibly can know. And the
verification and monitoring that we have put in place with the
Joint Plan of Action increases our ability to know whether
there are covert activities going on that we may not have been
aware of, not only because we have greater access, daily to
Natanz and Fordow, greater access to Arak, at least monthly,
their plans for Arak, access to uranium mines and mills, access
to their centrifuge production, all of which provide clues as
to whether something is going on somewhere else, when we can
look at the guts of all of these facilities.
So, I think we have greatly increased our ability to know
if there is something that is covert that is going on, but I am
not going to kid this panel, this committee, or the world, to
know that there is any way, ever, that any country can give you
100-percent guarantee that we know everything.
Senator Durbin. Thank you.
Mr. Chairman, since my colleague from Illinois, Senator
Kirk, has been part of the effort on enhanced sanctions, along
with Senator Menendez, I want to join in the chorus that you
have joined in, Ms. Sherman. I do not question for a moment the
motives of anyone engaged in this. We all have the same goal:
stop a nuclear Iran, keep Israel safe, stabilize and bring
peace to the Middle East. I mean, these are goals we all share.
And the approaches may be different.
I have not signed on to this bill. My feeling is that, if
these negotiations fail, there are two grim alternatives: a
nuclear Iran, or war, or perhaps both. And I want to be able to
say, at the end of the day, that we have exhausted every, every
reasonable opportunity to negotiate an alternative, short of
those two outcomes.
I would also say that those of us on this committee may
have a better appreciation for the public sentiment in America
on this subject. The most. It was not that long ago that
Senator Menendez convened us to discuss President Obama's
request for military authority when we believed, and
subsequently learned to be true, that there were massive stores
of chemical weapons in Syria. I recall that debate, and I
recall the public reaction to the suggestion that the President
would even have the authority--not boots on the ground, but the
authority to use any military action. The public sentiment was
overwhelmingly negative. The vote on this committee was 10 to
7. It was never brought to the floor, for obvious reasons.
And I will just kind of back up Senator Kaine's comments
earlier. If we believe, God forbid, that we are going to reach
some awful alternatives in the future, and want the American
people to stand by us, or even listen to us, we have to
convince them that we have exhausted every available,
reasonable opportunity to avoid conflict and avoid war. And I
think that is why many of us believe we should give these
negotiations an opportunity, even with the President's
admonition that it is a longshot, or at least a 50-50 shot, of
success.
I thank you for your work.
Thanks, Mr. Chairman.
The Chairman. Let me thank the Senator for his remarks.
And just a comment on the Syria vote, which I think was one
of the finest moments of the committee. I will say that it is
an example of having given the President authorization that
gave him the power to go to Russia and negotiate an agreement
to end the chemical weapons for which he had--in Syria--for
which he had devised a redline. And, but from a position of
strength, that likely would not have happened. And so, I think
it is important to recognize that moment in history and what it
teaches us.
Senator Paul.
Senator Paul. Thank you for your testimony.
Ms. Sherman, does the administration consider itself bound
to the comprehensive Iran sanctions of 2010 and 2012?
Ms. Sherman. If you are talking about legislation that is
been passed and signed by the President, of course.
Senator Paul. In those sanctions, they allow for
termination of sanctions once Iran has verifiably dismantled
its military, nuclear, biological, chemical, ballistic missile,
and ballistic missile launch technologies, as well as no longer
being a state sponsor of terrorism. I would consider the
administration bound, also, but realize that these are
parameters. Even though you are asking to waive these acts, the
waiver is 120 days, and you can keep asking. But, I would
expect, though, that--and would hope--that that is not going to
be the conclusion, that you just keep asking to waive these
sanctions and do whatever you want, and that you are working--I
am all for negotiation, but you are working on negotiation
within the parameters of legislation that has been passed.
My concern is--and this is a concern for the way
legislation is written, and has been written, for many things--
is that we carve out exceptions and waivers for the Presidency,
thinking, ``Oh, that is the only reasonable thing to do,'' but
these waivers become so large that you can drive a truck
through them, and they end up having no teeth, and we lose all
teeth in any legislation.
For example, I would give you Egypt. You know, we said,
``Well, we are not going to give them aid unless they are a
democracy.'' Well, turns out they are not very close to a
democracy, but the administration stamps them as a democracy.
And this happened before the coup, when it was not much of a
democracy, and it is not much of a democracy now. We had
legislation saying, ``You cannot get money when there is a
military coup,'' and we passed legislation basically expanding
that waiver to make it really have no teeth at all. And then,
in the Omnibus, we ended up passing something that has no
restrictions at all, basically, on continuing military aid
after a coup.
So, I think, really, that this is a big question, and it
should be a big legislative question, when we consider how we
write legislation and grant waivers, because I fully believe
that, no matter what the testimony is, that the administration
has shown the propensity just to do what they want, and that we
may well go through waiver after waiver after waiver; in the
end, we may get a negotiated settlement that really does not
comply with the sanctions that have been written. So, if we
want sanctions to have teeth, we want legislation to have
teeth, I think we need to be concerned about how wide and
expansive we make these waivers. And that is just a point I
would like to make.
But, I do like your comment that you say you do feel bound
by legislation, and I hope that will continue to be true.
The Chairman. Senator Shaheen.
Senator Shaheen. Thank you, Mr. Chairman.
And thank you both for being here.
Under Secretary Cohen, recently you said that Iran is not
open for business, pointing out that the majority of the
sanctions remain in place. But yet, we have seen, as I think
people have alluded to here, a great deal of interest on the
part of some of our European partners in opening trade
delegations with Iran. I sent a letter last week to Cathy
Ashton, the U.N. High Representative, and to ambassadors of all
of those countries which had expressed an interest in trade
delegations, expressing my concern about the kind of message
that that sends to Iran about where the international community
is, relative to the lessening of sanctions. And I wonder if you
could speak to whether these trade delegations actually do risk
undermining our international sanctions regime. And is the
appetite in Europe waning to continue to enforce the sanctions
that we have in place?
Mr. Cohen. Well, Senator, I have seen your letter, quite
appreciate your letter, and completely agree with your letter.
I think encouraging our counterparts in Europe--and elsewhere,
for that matter--to show restraint, to recognize that the
sanctions that remain in place are so comprehensive, so
preclusive of doing real business with Iran today that it is
not worth the effort to go to Iran to explore business deals
now.
Now, we see, of course, that some of these trade
delegations are going. What we have seen is that they are
exploring the possibility of deals if a long-term agreement is
reached and there is substantial sanctions relief that comes as
part of that.
What we have been very clear about with our partners is
that our preference is that businesses, trade delegations,
trade promotion authorities, governments show restraint right
now, that, in all events, no deals are struck now that violate
the sanctions, and that if any of that occurs, we will respond
vigorously in enforcing our sanctions.
Senator Shaheen. Excuse me for interrupting, but can you
also speak to what kind of a message it sends to Iran, these
trade delegations, and whether that lessens their interest in
continuing to negotiate at the bargaining table?
Mr. Cohen. Well, I am wary of trying to get inside the
psyche of the Iranians, but I will say that I think there is,
perhaps, a mixed message that gets to the Iranians on this. On
the one hand, it shows that there is an interest in the world
in doing business, and for sure the Iranians are trying to
elicit that interest. On the other hand, to the extent that
these trade delegations convey the message that they are
interested in business in the future, that--not today, but if
there is a comprehensive deal--I would cite the remarks of the
CEO of the Italian energy company, Eni, who, before he met with
President Rouhani in Davos, made a statement that, he said,
``The best way for sanctions to be lifted is for sanctions to
be applied now, and that we are not doing business in Iran now,
that we are looking, potentially, at the future, when there is
a comprehensive deal.''
I think that can create within Iran a dynamic, where the
Iranian business community, which is desperate to re-engage
with the world--they have been cut off from the world. I think
Senator Murphy made a good point, that part of the interest, in
Europe and elsewhere, in doing business with Iran is that the
Iranian economy is performing so far below its capacity right
now, because of sanctions, that there is a pent-up demand. And
that demand----
Senator Shaheen. Excuse me again for interrupting; I just
want to get in a final question, which is about Russia and the
suggestion that they would do an oil-for-goods deal with Iran,
and what we are doing to try to and discourage that, and to
discourage other potential countries who might be looking at
that same kind of a deal.
Mr. Cohen. We are, across the administration, working
extraordinarily hard to ensure that there is no such deal that
occurs.
And Under Secretary Sherman wants to add----
Ms. Sherman. If I may, Senator.
On the Russia-for-oil, oil-for-bartered-goods deal that was
in the newspapers, at all levels of our government, including
at the highest level, we have raised our concerns quite
directly with Russia about this, and Secretary Kerry has raised
this, as have I, quite directly with Iran. And my own sense of
this is, after a fair amount of clarity about this matter, that
nothing will move forward at this time.
We are very crystal clear that anything like such an
agreement between Russia and Iran might have potential
sanctionable action and would likely create tremendous rifts
within the P5+1, which would make coming to a comprehensive
agreement all the more difficult, if not impossible.
So, we have been very clear. My own sense is, that is not
moving forward at this time. And I think that if that is indeed
the case, that we can continue to verify is the fact, that is a
very good decision.
Senator Shaheen. Thank you.
The Chairman. Senator Markey.
Senator Markey. Thank you, Mr. Chairman, very much.
I understand that, during the 6-month period that began
January 20, the IAEA plans to issue reports each month on
Iran's compliance. I recall that, during the months leading up
to the 2003 war in Iraq, inspectors reported on their
activities much more frequently, sometimes as often as daily.
Is it possible for you to request the IAEA to provide public
updates on all activities within Iran at least on a weekly
basis, which I think would give everyone a lot more confidence
that there is no deception taking place on the part of the
Iranian Government?
Ms. Sherman. Thank you very much, Senator.
We will certainly discuss your request with the IAEA. This
is a very different circumstance than Iraq, in terms of the
extent of the program and the particulars of this situation.
The IAEA, as I said, will have daily access to Fordow and
Natanz, as well as other surveillance means that are available
to them, as well as at least monthly access to Arak and access
to uranium mines and mills, centrifuge production, and rotor
production plants. So, I think they will have great increased
visibility, way beyond anything we have had, to date. But, we
will certainly convey your thoughts.
Senator Markey. I just think it would be very important for
confidence-building, in the United States and around the world,
that it be much more frequent than the IAEA has already
announced it intends on making public. I think we all have a
right to know that, since we are running the risk and the IAEA
works for us and the world on this agreement. And I think we
should have that information, on an ongoing basis. I think it
would be very helpful.
If the IAEA determines that there are compliance concerns,
will you ensure such concerns are reported promptly to the
American people and to Congress?
Ms. Sherman. We will certainly take our responsibilities
quite seriously of your oversight.
Senator Markey. So, you will report----
Ms. Sherman. We will make you--we will--as I said earlier,
in the monthly reports we get, we will be glad to come up and
do classified briefings.
Senator Markey. So, I understand that weekly updates might
not be comprehensive, but I think it is important that we get
much more frequent briefings.
The interim deal allows Iran to produce centrifuges for the
purpose of replacing broken ones. Will inspectors be able to
verify that particular centrifuges are, in fact, broken? Will
the broken centrifuges be removed from the facilities and
provided to IAEA inspectors for examination to confirm that
they are actually no longer functioning?
Ms. Sherman. I do not know the exact mechanism, Senator,
and I will have our experts come up and give you a briefing on
what exactly the IAEA will do. But, since, indeed, one of the
details of the agreement is, they can only replace damaged
centrifuges with centrifuges of the same kind, we have asked
the IAEA to verify that is, indeed, what has occurred.
Senator Markey. Yes. I think it is important that the ratio
stay one-to-one, so the confiscation of the old centrifuges
ensure that they just not go to a garage, get fixed
immediately, and are now being installed----
Ms. Sherman. We agree.
Senator Markey [continuing]. In other places. I think it is
very important for us to know that.
The interim deal indicated that, in a final agreement,
Iran's enrichment program would be restricted to mutually
agreed parameters consistent with practical needs. Judging what
Iran's practical needs are, of course, is in the eye of the
beholder. One of their ministers has recently announced that
they need many, many, many new nuclear power plants to generate
electricity in their country. So, you were talking about the
practical needs of the Iranians, earlier. A country that flares
off 13 nuclear power plants equivalents of natural gas each
year obviously does not have many practical needs for multiple
new nuclear power plants to generate electricity. So, how are
you going to determine that, what is practical? Because,
obviously, there is a very high prevarication coefficient,
historically, in Iran, and if they plan on building 10 to 20
new nuclear power plants, their practical needs are going to be
a vastly expanded nuclear enrichment program in their country,
even if it is under tight safeguards.
Ms. Sherman. Your point is very well taken, Senator. And,
as I said, nothing is agreed until everything is agreed. So,
their practical needs are certainly an element of consideration
in a comprehensive agreement, but so are our concerns about
their ability to have a nuclear weapon, which is primary, that
they not obtain a nuclear weapon. And so, whatever the final
agreement is, that is the assurance that is most of concern to
us.
Senator Markey. I appreciate that. But, again, if they
build 10 new nuclear power plants, it would be a vast
enrichment program they would have to have. And just the
complications of monitoring such a program would be
exponentially greater. And I just think that we have to keep
that in our mind as we are going forward, because that is how
they would actually crack this inspections regime in the years
ahead, even if we got the comprehensive agreement.
And finally, since the November agreement, have you seen
signs of an uptick in Iran's support for proxies and allies
around the Middle East? Do you have reason to believe that
Iranians feel they now have greater leeway to intervene more
aggressively in the region because of the agreement that has
been reached on the nuclear program on an interim basis?
Ms. Sherman. I think it would probably be valuable to have
our intelligence community give you their assessment of exactly
that question, because we have asked that question.
I would point out that there was concern by many that they
would take the first payment of $550 million and cycle that
into support for Hezbollah in Syria. That does not appear to be
the case, and we would be glad to give you the briefing on
that.
But, more importantly, I think you have seen in the news
that Iran has visibly just provided food to those in their
society that are poor, as a way of demonstrating quite directly
that this limited, targeted, and temporary sanctions relief has
a direct impact on the people in the country, which is what
President Rouhani promised. He did not promise that money would
be used for other purposes.
Senator Markey. So, Senator Shaheen and others have raised
this issue. A hundred French executives traveled to Iran
yesterday to explore new economic openings. And the same is
true for Russia, Germany, China, down the line. I just think it
is very important for our administration to say to each of
these countries that, if there is no comprehensive agreement,
that, not only is the window going to be shut on this trade,
and that the United States is going to sanction any of the
businessmen who think they are going to cut deals, but that
additional sanctions will be put in place, and that additional
action will also, perhaps, have to be taken in order to make
sure there is no nuclear program. And I think a clear, explicit
statement of that would be very reassuring to people, just to
know that there will be no games that are going to be allowed
by any of these businessmen, and that they will be punished by
the U.S. Government.
Mr. Cohen. Senator Markey, I would just briefly say, that
is precisely the message that has been conveyed in the
engagements that we have had over the last several weeks, that,
you know, there will be no sort of wavering in the enforcement
of the sanctions. And also, if we have made the point that if a
comprehensive deal is not reached, if, for instance, Iran feels
that it does not need to reach a comprehensive deal because
they can get sanctions relief through other means, through
evasion or through trying to develop these sorts of business
activities, that the net consequence of that to all of these
businesses is going to be to their detriment. It will be much
worse than what they face today. And I think that message is
getting across.
The Chairman. Let me thank you both for your testimony and
engagement.
I will have a series of questions for the record, including
my understanding that, on the relief on oil purchases,
countries may, in fact, purchase more than their last reduced
amount. I would like to understand how we are working on that.
And, Secretary Cohen, I will be watching to see your
enforcement actions.
With that, and with the thanks of the committee, you are
both excused.
Let me call up, as our panelists leave, our next panel:
David Albright, who is the founder and president of the
Institute for Science and International Security, and Mark
Dubowitz, who is the executive director of the Foundation for
the Defense of Democracies.
As we have our witnesses depart and our new witnesses join
us, let me say that both of your statements will fully be
included in the record, and we would ask you to summarize them
in 5 minutes or so, so that we could enter into a discussion
with you.
I would ask those who are leaving to please do so quietly
so that the hearing can continue.
It is the intention of the Chair to listen to this
testimony, which I think is incredibly important to inform the
committee's judgments as we move forward, and then to briefly
recess to do our business meeting, which is held at 12 o'clock,
and then come back, for those who want to ask questions.
So, with that, Mr. Albright, please, you will start off.
STATEMENT OF DAVID ALBRIGHT, PRESIDENT, INSTITUTE FOR SCIENCE
AND INTERNATIONAL SECURITY, WASHINGTON, DC
Mr. Albright. Mr. Chairman, thank you, Ranking Member
Corker and other members of the committee. Thank you again for
inviting me.
I think it is been made clear that the Joint Plan of Action
has some significant benefits in the short run, but its success
remains uncertain, pending the negotiation of long-term
arrangements. And finally, the test of this Joint Plan of
Action will be in negotiating these long-term arrangements, a
process President Obama gives a 50-50 chance of success. And I
think it has been made clear, although I would like to state it
again, that a final agreement must create long-term, meaningful
limits on Iran's nuclear program, combined with adequate
verification sufficient to ensure that any attempt by Iran to
build nuclear weapons would be detected in a timely manner and
provide adequate time for an international response.
I would like to, first, briefly say some of the things--or
say two things about the interim agreement. One is, I do not
think it is--I would like to at least say that it does
accomplish certain things. I mean, one of the benefits of it is
that it avoids a situation that was becoming very dangerous;
namely, Iran moving toward very, very short breakout times. And
it also adds to the clock, as others have mentioned, but I
think it is the combination of those two things that needs to
be pointed out.
But, as others have stated, the agreement does have gaps.
And I think one has been mentioned, on the centrifuge R&D. And
thank you for mentioning that earlier, Chairman.
Another one I would like to mention is that Iran can
continue its illicit procurement activities. It is very
dependent on outside supply for its centrifuge program, for the
Arak reactor; and those efforts can continue; and that it is
just essentially, a gap in the deal that cannot be avoided. And
there are other problems with it.
So, it really is just a short-term deal, that it should not
be looked upon as something that should be extended. If it is
extended beyond 6 months, Iran should demonstrate that it has
made significant concessions by that point, that it is not
just, in a sense, letting the clock run, and that they reach 6
months and then it is just automatically extended.
I think I will skip over the discussion on the
weaponization. I think this committee understands, probably
better than most, the absolute need for Iran to address the
IAEA's concerns about past and possibly ongoing nuclear weapons
programs. And I think that it is very important that the
administration continue to stick to a clear policy that there
will be no comprehensive solution if those concerns are not
addressed in a very significant way.
Now, on the comprehensive solution itself, there are two
issues involved. One is adequate--or quick detection--or
detection before Iran builds a nuclear weapon. But, I think,
post the debate on Syria, there has to be enough time for an
international response, whatever that is going to be.
And I would add to that, 4 or 5 years from now, one cannot
expect any administration to, in a sense, have their finger on
the trigger, that whatever is put in place in the comprehensive
solution has to provide adequate warning so military options by
the United States are not necessary, that there has to be
enough time so there truly can be an international response
that would stop Iran, and, if the international response
includes military actions, that that start through--as it was
in the lead-up to the Iraq war in 1991. The United States was
not having to act unilaterally.
Now, in such a comprehensive solution, I think it is--we
have talked a lot about the breakout times. I mean, at ISIS, we
have recently put out a model comprehensive solution, which is
available on our Web site, where we think the breakout times
have to be at least 6 to 12 months. But, there are many other
parts of this that need to be done. One is that its stockpile--
Iran's stockpile of low-enriched uranium, whatever form it is
in--is much too large for a comprehensive solution, that having
it up to what would be 300 kilograms equivalent of near-20-
percent low enriched uranium hexafluoride is not good, even if
all that hexafluoride material has been turned into oxide. It
can be reconverted.
It is very important to block Iran's plutonium route to
nuclear weapons. I think there is much greater agreement on
that, that the Arak reactor needs to shut down--we would say,
be upgraded to a modern, white water reactor. But, Iran has not
accepted that at all.
We also believe that there is a lot of work needed to
develop constraints or provisions to limit or reduce Iran's
ability to build secret facilities to enrich uranium or
separate plutonium. Also, that Iran needs to commit to stopping
its illicit procurements of goods for its nuclear programs,
that that is often shuttled aside, as it was in the interim
agreement, but I think it is critical, in a comprehensive
solution, that Iran commit to do that, and that that be
verified.
And again, I think we believe that the duration of these
constraints needs to be 20 years. Others have suggested even
longer.
And also, we would argue that the additional protocol, by
itself, is not sufficient, that the term we use, that there has
to be additional protocol-plus, which adds in several actions.
And some of these actions were used by the IAEA in 2003 and
2004, during the period of the suspension, to really get to the
bottom of some of the duplicity of Iran.
And also, I would like to point out that even the
comprehensive solution, there is some work that needs to be
done when the constraints end. I mean, let us say it is 20
years. After 20 years, is all the constraints just removed and
Iran is free, as Senator Markey mentioned, to pursue an
enrichment program that would outfit 20 large commercial power
reactors? I mean, are we going to feel comfortable, even then?
So, I think that is a hole in it.
And I would point out that if such a program, at least in
some crude calculations that we have done at ISIS, would
involve 2 million IR-1 centrifuges. So, I think there is a need
to, as a last comment--and I apologize for going over--for the
United States to be very clear about--that it wants a very
limited program, and that it--and that, while it is talking
about 20 years, the constraints would only come off if a set of
criteria were met that guarantee Iran will not build nuclear
weapons after that time.
Thank you very much.
[The prepared statement of Mr. Albright follows:]
Prepared Statement of David Albright
The Joint Plan of Action (JPOA) negotiated between Iran and the
United States and its partners in the P5+1 accomplishes a great deal in
the short run, but its success remains uncertain, pending the
negotiation of long-term arrangements. The JPOA's interim steps, which
began on January 20, 2014, are technically sound and lengthen Iran's
breakout time to make enough weapon-grade uranium for nuclear weapons,
establish transparency over many previously opaque Iranian nuclear
activities, and freeze and even temporarily reverse key portions of the
nuclear program. The JPOA, however, leaves many key issues unsettled
regarding a long-term, comprehensive solution.
The test of the JPOA lies in negotiating these long-term
arrangements, a process President Obama gives a 50-50 chance of
succeeding. A final agreement must create long-term, meaningful limits
on Iran's nuclear program combined with adequate verification
sufficient to ensure that any attempt by Iran to build nuclear weapons
would be detected in a timely manner and provide adequate time for an
international response.
To improve the chances of success, the United States needs to
clearly state its goals and be willing to walk away from a bad deal,
particularly also if the administration judges that a deal is unlikely
in the face of Iranian delays and unreasonable demands. If a
comprehensive solution cannot be negotiated by the end of the interim
period, the United States should increase economic sanctions on Iran
and move to further its political isolation, while avoiding military
strikes. Given the relatively low chances of success, the United States
would be prudent to plan for such a possibility today. Doing so would
also reinforce a critical message to the international business
community and other governments that this crisis is not over and
sanctions have a 50-50 chance of being reapplied and strengthened.
limited interim deal
For 6 months, Iran has pledged to halt advances in major parts of
its gas centrifuge program and its Arak reactor. An important
accomplishment is that Iran is committed to eliminating its most
readily nuclear weapons-usable stock of near 20 percent low enriched
uranium through dilution or conversion into oxide form. Iran has
committed not to make, install, or stockpile centrifuges during the 6-
month period. It will not enrich in any of its approximately 1,000
installed advanced IR-2m centrifuges at the Natanz Fuel Enrichment
Plant. The IR-2m centrifuges are particularly problematic because they
can enrich three to five times faster than Iran's first generation IR-1
centrifuges, meaning far fewer are needed to make weapon-grade uranium
for nuclear weapons. The International Atomic Energy Agency (IAEA) will
have greater access to Iran's nuclear sites and information; overall
transparency will increase significantly. All these conditions mean
Iran's nuclear program will pose fewer risks in the short term.
In particular, Iran would take longer to break out, namely divert
its low enriched uranium and further enrich it to weapon-grade in
sufficient quantities for a bomb. Once all the near 20-percent low
enriched uranium is diluted or converted into oxide, the breakout
times, if Iran used its currently installed centrifuges, would lengthen
from at least 1 to 1.6 months to at least 1.9 to 2.2 months. This may
seem a small increase but with IAEA inspectors visiting daily the
Natanz and Fordow enrichment sites, this increase in breakout times
would be significant and allow the United States and its allies more
time to respond to stop Iran before it produces enough weapon-grade
uranium for a bomb. For the first time since Iran's capability to break
out began approaching dangerous levels this year, breakout times would
lengthen rather than shorten.
While the interim steps remain in place, Iran will be unable to
reach the point where it has sufficient centrifuges and near 20 percent
enriched uranium to break out and produce enough weapon-grade uranium
for a bomb without being detected. ISIS calls this dangerous threshold
``critical capability,'' and estimates that, absent a deal, Iran could
achieve this capability in mid-2014. The interim deal, by eliminating
Iran's stock of near 20 percent enriched uranium hexafluoride, will
delay by many months Iran from achieving this destabilizing threshold,
even if the constraints imposed by the deal end after 6 months.
But the interim steps are not without problems. They are limited in
nature and are all reversible. So, if no long-term comprehensive
solution is reached, Iran could resume making near 20 percent low
enriched uranium and installing more centrifuges. The IAEA monitoring,
while improved, falls far short of what is necessary for a long-term
agreement. Moreover, the increase in breakout times expected at the end
of the 6-month period may be helpful but is woefully inadequate for the
long term and must be lengthened significantly in any comprehensive
solution.
Iran can make progress on its nuclear programs during the interim
period. An area that was not frozen in the interim deal is Iran's
centrifuge research and development (R&D) program. The interim steps
are not expected to seriously affect Iran's centrifuge research and
development program. These steps may delay the final development of new
centrifuges that have not yet used uranium hexafluoride at the Natanz
Pilot Fuel Enrichment Plant. However, Iran can continue development of
several existing types of advanced centrifuges, including the IR-2m,
the IR-4, IR-6 and IR-6s.
In particular, Iran can continue its development of the IR-2m
centrifuges at the Natanz pilot plant under this loophole in the
interim deal. It can enrich uranium in a production-scale cascade of
164 IR-2m centrifuges. Since it remixes the enriched uranium product
with the waste or ``tails,'' obtaining natural uranium, no enriched
uranium is deposited into the product tanks. This remixing meets the
``letter of the deal.'' However, Iran is able to measure the enrichment
level of the product before remixing it. Thus, it can further develop
the IR-2m centrifuge while hiding any results of its progress from the
IAEA, which has access only to the product tank or the natural uranium
and does not see the enrichment measurements. At the end of the interim
period, Iran is likely to be far better positioned to deploy reliable
IR-2m centrifuges on a mass-scale at its enrichment plants. This gain
would allow Iran to make up for time lost more quickly.
The weakness of the interim deal on centrifuge R&D needs to be
fixed in the comprehensive solution. Any long-term deal needs to limit
significantly Iran's centrifuge R&D program. An unlimited program would
pose unacceptable challenges to a comprehensive solution. A centrifuge
five to ten times more capable than the IR-1 centrifuge would require
five to ten times fewer centrifuges to make the same amount of weapon-
grade uranium for nuclear weapons, allowing for much smaller
facilities, fewer personnel, and procurement of less material.
Centrifuge R&D could also lead to breakthroughs in materials or methods
that would further strengthen a secret breakout effort and make both
the implementation and verification of a comprehensive solution
extremely difficult. More significant limitations on Iran's centrifuge
R&D combined with greater transparency of this program need to be
included in the final step of a comprehensive solution, given that
Iran's development of more advanced centrifuges would greatly ease its
ability to conduct a secret breakout to nuclear weapons.
Another area not addressed in the interim deal is Iran's illicit
procurement of goods from overseas for its centrifuge program, Arak
reactor, and other nuclear programs. Iran remains highly dependent on
acquiring from abroad a range of goods needed in its nuclear programs,
such as carbon fiber, maraging steel, vacuum equipment, pumps, and
valve-related goods, among many others. ISIS's illicit nuclear trade
case studies contain many examples of this dependency and the smuggling
methods Iran uses to obtain these goods. The studies also document many
U.S. and allies' efforts to detect and stop these illegal procurements.
During the interim period, particularly with weakening sanctions, Iran
can focus on building up its supply of essential goods and alleviating
bottlenecks in certain key goods, allowing for a much more rapid
expansion of its programs at the end of the interim period.
These problems will grow the longer the interim period lasts. As a
result, the limitations of the interim deal require it to be viewed as
only temporary. It is not a substitute for a long-term solution. This
finite limit is essential to the integrity of the JPOA. By no means
should the interim steps be seen as sufficient for a long-term
resolution of the nuclear issue.
The interim deal is intended as a 6-month measure. It can with
mutual consent be extended for an additional 6-months for a total of 1
year. But this extension should be avoided unless Iran has demonstrated
significant progress on resolving core U.S. concerns. Delay works more
in the favor of Iran than it does of the United States and its allies.
addressing the iaea's concerns about military dimensions
One issue that needs to be resolved before the finalization of a
comprehensive solution is settling the IAEA's concerns about Iran's
past and possibly on-going work on nuclear weapons and other alleged
military nuclear activities. Iran has stalled on doing this for years.
U.S. officials have stated that unless Iran satisfies all the IAEA's
concerns there will be no comprehensive deal.
During the last several months, Iranian officials, including
President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif have
emphasized that Iran has never pursued or sought a nuclear bomb.
Unfortunately, the available evidence provides little reason to believe
them.
The IAEA has considerable evidence of Iranian work on
nuclear weapons prior to 2004 and some evidence suggesting that
some of that work continued afterward and may continue today.
In its November 2011 safeguards report, the IAEA provided
evidence of Iran's pre- and post-2003 nuclear weaponization
efforts. The IAEA found, ``The information indicates that prior
to the end of 2003 [the activities] took place under a
structured programme. There are also indications that some
activities relevant to the development of a nuclear explosive
device continued after 2003, and that some may still be
ongoing.''
Western intelligence agencies are united in assessing with
high confidence that Iran had a nuclear weapon program prior to
2004. They are less united about any such work after 2004.
Nonetheless, important allies Britain, France, and Germany all
assessed that nuclear weapons relevant work continued after
2003, albeit on a reduced scale.
Few doubt that Iran is capable of making a crude nuclear
explosive today for use in a nuclear test, although doubts
remain that it can mount a reliable one on a ballistic missile.
There is general agreement that the Iranian regime has not
made a decision to build a nuclear weapon. There is less
agreement whether Iran will refrain from building a nuclear
weapon in the future.
The IAEA is scheduled to meet Iran on February 8, 2014, to discuss
the next steps for Iran addressing the outstanding issues. Iran will
need to allow the IAEA to visit several sites and interview a range of
experts and officials in order to address its concerns.
The IAEA has identified several sites to Iran, but so far Iran has
refused the IAEA's requests to visit these particular sites. The most
prominent is a site at the Parchin military complex that is alleged to
have been involved in undertaking high explosive tests related to the
development of nuclear weapons. After the IAEA asked to visit this site
in early 2012, Iran undertook extensive excavation and reconstruction
at this site, compromising the IAEA's ability to settle this issue.
Iran will need to address the Parchin issue to the satisfaction of the
IAEA, which will inevitably involve more than simply allowing a visit.
Other sites include workshops that were involved in making mockups of
missile reentry vehicles suitable to hold a nuclear warhead. An
upcoming test of Iran's intentions will be whether it soon allows the
IAEA to visit Parchin and conduct followup visits and interviews at
other sites.
If Iran is unwilling to detail its past efforts to build nuclear
weapons, or at the very least acknowledge the existence of a program,
it will undermine the credibility of statements about its present-day
nuclear activities and intentions. If Iran wants the world to believe
it will not hide its nuclear activities or build nuclear weapons in the
future, the Iranian Government should reconsider its denials of ever
seeking nuclear weapons in the past.
The Iranian Government may reason that if it comes clean about its
past activities, it will be punished by the international community.
But other cases, such as South Africa, Brazil, and Libya, argue against
such a response. The key is admitting these past activities as part of
a process of placing strategic limitations on its nuclear programs and
instituting far greater transparency. The IAEA and other governments
can then develop confidence that Iran is not seeking nuclear weapons.
But if Iran seeks to continue to hide its past military nuclear
efforts, it may find that no amount of limitations and transparency on
its current programs is enough to reassure the international community.
Significant questions about its motives, such as a desire to maintain a
latent breakout capability, will likely remain. The IAEA will be
unlikely to be able to ever find that Iran is in compliance with its
safeguards obligations, which remains a key criteria at the heart of
the justification for international and regional sanctions.
The Joint Plan of Action is structured to require Iran to satisfy
the IAEA's concerns about the possible military dimensions of its
nuclear programs prior to achieving a comprehensive solution. If Iran
does not, then U.N. Security Council (UNSC) and U.S. economic sanctions
should not be removed. In the case of UNSC sanctions, only one member
state of the P5 need veto a resolution to prevent removing them, and
this state would be fully justified since the IAEA's concerns about
possible Iranian military nuclear programs are central to UNSC
resolutions.
comprehensive solution
In parallel to Iran/IAEA negotiations, the P5+1 will soon start
negotiating the provisions of the comprehensive solution. The U.S.
negotiators will face very tough resistance from Iran as they seek to
achieve a long-term comprehensive agreement that will limit Iran's most
dangerous nuclear programs and ensure adequate verification.
The over-riding goal of the negotiations of a comprehensive
solution is to establish a set of provisions, and associated
verification measures, which if Iran agreed to them would protect the
national security interests of the United States and its allies. The
resulting limited nuclear programs and extensive verification measures
would eliminate the risk of Iran breaking out to nuclear weapons at
declared or covert nuclear sites without that effort being detected in
a timely manner and without adequate time for U.S. and international
responses that would prevent Iran from succeeding in that effort. This
approach depends on the United States remaining ready for many years to
take the steps necessary to prevent Iran from obtaining nuclear
weapons.
However, the need to depend on unilateral military options to deter
or prevent breakout would not bode well for the acceptability of a
comprehensive solution. Although such options are currently threatened
as part of a U.S. policy to prevent Iran from gaining nuclear weapons,
such a policy is not realistic or preferable as a long-term solution.
Thus, there is a requirement for meaningful limits on Iran's nuclear
capabilities that provide timely warning of any move by Iran to build
nuclear weapons and greater assurances that Iran's nuclear program will
be exclusively peaceful.
The Joint Plan of Action does not grant Iran the right to enrich
uranium, but it accepts that in a comprehensive agreement Iran will
maintain a centrifuge program. However, Iran conceded that for a period
to be agreed upon, any such program would be subject to limitations on
the number of centrifuges, the location of any centrifuge plants, the
level of enrichment, and the size of stocks of enriched uranium. It
also agreed that the program must be consistent with ``practical
needs'' within ``mutually agreed parameters.''
In negotiating limitations on Iran's centrifuge and other nuclear
programs and adequate verification requirements, the United States
should be guided by several key principles, including:
Extending breakout times significantly to at least 6-12
months, reflecting the numbers and types of centrifuges and
stocks of low enriched uranium under a comprehensive solution.
This requires that Iran remove over 14,000 centrifuges at the
Natanz and Fordow enrichment sites. In the longer term, a
fraction of these centrifuges would be stored or dismantled for
use as spares and the rest would be destroyed;
Reducing and limiting Iran's stockpiles of enriched uranium
and natural uranium. In the case of near 20 percent low
enriched uranium, these stocks would need to be further reduced
from the level expected at the end of the interim period;
Blocking Iran's plutonium route to nuclear weapons;
Reducing significantly Iran's ability to build secret
facilities to enrich uranium or separate plutonium;
Ensuring that Iran commits to stopping its illicit
procurements of goods for its nuclear programs;
Achieving that any limits on Iran's nuclear programs have a
duration of at least 20 years
Implementing adequate verification that goes beyond the
Additional Protocol; and
Conditioning any end to U.N. Security Council and U.S.
economic sanctions on Iran addressing all of the IAEA's
concerns, in particular those about Iran's past and possibly
on-going nuclear weapons efforts.
The following are a list of provisions that would meet the above
principles and form the basis of a comprehensive solution able to
protect adequately national security interests. For more detail, the
reader is referred to a recent ISIS report on the necessary elements of
a comprehensive solution. For background information, the reader is
referred to the main ISIS Web site and its Iran-specific Web site.
conditions without a defined duration
The Arak reactor complex will be upgraded to a light water
reactor using low enriched uranium fuel.
Iran will not reprocess any irradiated fuel or build a
facility capable of reprocessing.
Iran will not enrich above 5 percent in the isotope uranium
235, and will not produce stocks of enriched uranium that
exceed in quantity the needs of its civilian program, noting
that it has long term LEU fuel delivery agreements with Russia
and would be expected to have additional ones with foreign
reactor vendors after the conclusion of a comprehensive
solution.
Iran will commit not to procure goods for its nuclear
programs abroad in a manner that is considered illicit
(``illicit nuclear trafficking or trade'').
conditions and parameters with a defined duration of 20 years
Iran will have only one enrichment site, the one at Natanz.
The Fordow site will be shut down or converted into a non-
centrifuge-related site.
Centrifuge research and development will only be conducted
at the one enrichment site. All centrifuge testing, with or
without nuclear material, will occur at this site. Centrifuge
research and development will be limited to centrifuges with
the theoretical equivalent enrichment output of no more than
five separative work units in kilograms uranium (swu) per year.
This is about the level of the IR-2m centrifuge.
Major centrifuge component manufacturing and storage
locations will be limited in number and identified.
Centrifuge assembly will occur only at the one enrichment
site.
The number and type of centrifuges will be limited to ensure
that breakout times are measured in many months and will be a
minimum of 6 to 12 months at all times.
In order to define a cap in practical terms, it is necessary
to first consider the case where only IR-1 centrifuges are
enriching at the Natanz Fuel Enrichment Plant. In the case of a
6-month breakout time, a cap on total number of IR-1
centrifuges at the Natanz site is derived from the condition of
the historical IR-1 centrifuge operations at the Natanz Fuel
Enrichment Plant and the size of Iran's residual stock of 3.5
and near 20 percent LEU. The estimated cap is about 4,000 IR-1
centrifuges in the case of a breakout estimate of 6 months and
fewer centrifuges in the case of a 12-month breakout estimate.
Because Iran may seek to replace the IR-1 centrifuges with
more capable ones, a more general enrichment cap is derived
from the cap on IR-1 centrifuges developed above and is
approximately 3,600 swu/year. This value serves as a general
enrichment cap regardless of the actual enrichment capacity of
any centrifuge that would replace the IR-1 centrifuge in the
future. If Iran deployed IR-2m centrifuges, for example, the
parties would need to agree upon an average centrifuge
enrichment value before deriving the number of IR-2m
centrifuges needed to produce 3,600 swu/yr. For example, if an
IR-2m centrifuge has an average enrichment output of 4 swu per
year, then the cap would be 900 IR-2m centrifuges. If Iran
deploys any other enrichment technology, such as laser
enrichment, it and any centrifuge plant would need to have a
total enrichment output at this cap or below.
In the case of the IR-1 centrifuges, centrifuge
manufacturing would be limited to the replacement of broken
centrifuges, if no spares exist (see below). For example, in
the case of IR-1 centrifuges, a stock of many thousands of
uninstalled centrifuges would be stored and then drawn upon to
replace broken ones. Thus, Iran would agree not to build any
IR-1 centrifuges until this stock is exhausted.\1\ Centrifuge
manufacturing of new centrifuges in the case of the IR-2m
centrifuge, if used for enrichment at the Natanz Fuel
Enrichment Plant, would be unnecessary, at least initially,
because any broken ones could be drawn from a surplus stock of
them. In the case of new centrifuges, Iran will not build more
centrifuges than allowed to be installed under the above
enrichment cap of 3,600 swu/year and would build more only to
replace broken ones.
---------------------------------------------------------------------------
\1\ Broken centrifuges will be replaced with centrifuges of the
same type. This should mean, for example, that an installed IR-1
centrifuge would be replaced with an IR-1 centrifuge of the same design
and enrichment capability as the one removed. A broken centrifuge is
defined as one that has a rotor assembly incapable of spinning under
power and cannot be repaired.
---------------------------------------------------------------------------
When the long-term agreement takes effect, centrifuges and
all associated cascade equipment in excess of the cap would be
turned off, so that no centrifuges are operating and the
cascades are not under vacuum. Centrifuges would be turned off
in a controlled manner so as to limit centrifuge damage.
Right after the comprehensive solution is implemented,
excess centrifuges and the cascades containing them would be
disabled in a manner so as to require at least one month to
restart any disabled cascades.
Excess centrifuges and associated cascade piping and
equipment will be scheduled for removal from Natanz and Fordow
and stored under IAEA monitoring. These centrifuges and
associated cascade items will be stored at an agreed-upon site
under IAEA monitoring, pending their use as replacements of
broken centrifuges and cascades or their destruction under
monitoring.
Iran will not build any conversion lines that can convert
enriched uranium oxide into hexafluoride form.
LEU stocks will be limited, based on a realistic civil
justification.
With regard to near 20 percent LEU, Iran will not possess
any such LEU in hexafluoride form and its total stock in
unirradiated oxide form including in fresh fuel elements
and assemblies, will be less than the equivalent of 100 kg
of near 20 percent LEU hexafluoride soon after the start of
the implementation of the comprehensive solution. It has
the equivalent of approximately 310 kg near 20 percent LEU
hexafluoride, ignoring additional production in the last
few months. A priority is achieving a reduction of the
stock soon after the start of the implementation of the
comprehensive solution to no more than the equivalent of
100 kg of near 20 percent LEU hexafluoride. During the
implementation period, this stock will be reduced further
to below the equivalent of 50 kg of near 20 percent LEU
hexafluoride.
Iran will not possess more than the equivalent of 20
tonnes of unirradiated, less than 5 percent LEU
hexafluoride, almost all of which should be in oxide form.
Of this total LEU inventory, Iran will possess no more than
1.5 tonnes LEU hexafluoride at any one time; in essence
this cap requires Iran to convert LEU hexafluoride into
oxide form.
LEU in excess of these caps will be blended down to
natural uranium or shipped abroad for storage or fuel
manufacturing. In practice, this step is likely to be
necessary only if Iran does not find a way to use this LEU
in reactors during the next decade.
Uranium mining, milling, and conversion facilities will be
limited in throughput to the actual need for enrichment or
other mutually agreed upon use.
At the beginning of the period of the comprehensive
solution, a procurement channel will be established for items
needed in Iran's nuclear programs. The list of items will be
established by mutual agreement and will include major nuclear
facilities, nuclear components, nuclear and nuclear-related
dual-use goods, and other sensitive items such as those on
watch lists. Procurements of listed items outside this channel
will be banned and considered illicit nuclear trade. This
condition will also have the benefit of more clearly
identifying procurements from North Korea to Iran as illicit.
Iran will declare to the IAEA the key exports received and
these items will be subject to IAEA verification.
Iran will not export or otherwise transfer nuclear
materials, reactors, centrifuges, reprocessing equipment, other
nuclear facilities or equipment, or the means to make such
equipment or facilities to any state, company, or other entity.
\2\
---------------------------------------------------------------------------
\2\ A model condition developed by ISIS: The state of concern
agrees not to transfer to any state or entity whatsoever, or in any way
help a state or entity obtain, nuclear weapons or explosive devices, or
components of such weapons; nuclear material; nuclear know-how or
technology; or equipment, material, goods, technology designed for,
prepared for, or that can contribute to the processing, use, or
production of nuclear materials for nuclear weapons or in sanctioned
nuclear programs.
---------------------------------------------------------------------------
By the end of the period in which the comprehensive solution
will be in force, Iran will implement an export control system
in line with the requirements of the four main export control
regimes (lists and guidance) and submit a comprehensive report
to the 1540 Committee on Iran's implementation of the
resolution. Iran will also commit not to export or otherwise
transfer reprocessing or enrichment technologies or goods to
any state or nonstate actor after the comprehensive solution
period ends.
adequate verification
The provisions in a comprehensive solution require intrusive
verification of Iran's nuclear program aimed at ensuring that Iran's
declarations are correct and complete and developing confidence in the
absence of undeclared nuclear facilities and materials. The latter
condition must include sufficient verification measures to detect the
construction and operation of secret gas centrifuge plants, a daunting
task in the best of circumstances.
Certain key aspects of the verification arrangements are already
clear. One overriding condition that will need to be accepted by Iran
is what is commonly called the ``Additional Protocol Plus'' or ``AP
Plus.'' This condition recognizes that, despite its central importance,
the Additional Protocol (AP) by itself is necessary but not sufficient
to verify any comprehensive solution. The other elements that would
comprise the ``Plus'' need to be further developed, but some have been
identified in general. One element is the verification of centrifuge
manufacturing, including the declaration and verification of key raw
materials and components. The declaration needs to include the origin
and amounts of key raw materials and the total number of major
components, including the number held in stock, the number manufactured
or procured, and their fate. Another element is the verification of
uranium obtained abroad and produced domestically; e.g. in uranium
mines and mills. A third area is the verification of any key
facilities, materials, and components associated with the former
military dimensions of Iran's nuclear programs. This step, once put in
place, would depend on Iran already having satisfied the IAEA's
concerns about the military dimensions of its nuclear programs. A
fourth step is that Iran would agree to provide the IAEA with details
of past and future imports, exports, and uses of key items listed under
INFCIRC 254 part 1 and 2 and other critical goods that are used in
Iran's nuclear programs.
goal of negotiations of comprehensive solution
As I have underlined, the over-riding goal of the negotiations of a
comprehensive solution is eliminate the risk of Iran breaking out to
nuclear weapons at declared or covert nuclear sites without that effort
being detected in a timely manner and without adequate time for U.S.
and international responses that would prevent Iran from succeeding in
that effort. In return for these concessions and adequate verification,
the United Nations Security Council, the United States, and allied
countries should in a phased and reversible manner lift the economic
sanctions currently in place against Iran.
An adequate comprehensive solution will depend on the United States
and its allies now making clear to Iran what is required of it. Thus,
this is indeed a pivotal moment. If the two sides are not able to
negotiate an agreement, the P5+1 needs to be prepared to reestablish
and increase economic sanctions on Iran. That eventuality needs to be
prepared for today.
The Chairman. Thank you. I look forward to your testimony,
which I have fully read, is very important, and I look forward
to the Q&A to flush out the nature of what such a long-term
agreement would be.
Mr. Dubowitz.
STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, FOUNDATION FOR
DEFENSE OF DEMOCRACIES, WASHINGTON, DC
Mr. Dubowitz. Great. Well, thank you, Chairman Menendez,
Ranking Member Corker, members of the committee. Thank you for
inviting me to testify. It is an honor, also, to be testifying
alongside David Albright.
We have heard the argument, administration officials have
said very clearly, Iran is not open for business. Meanwhile,
the Iranian President, the head of the nuclear program, Salehi,
are sending the opposite message, including at Davos, most
recently. Now, the administration is confident that this
sanctions architecture that you have put in place is not going
to erode. And President Obama claims, ``It is not going to be
hard for us to turn the dials back or strengthen sanctions even
further.''
Who is right? Well, regrettably, I think the administration
may be miscalculating. We are already seeing the early stages
of an in-term shift in market sentiment. This is something that
has been unintentionally but, I think, predictably triggered.
The JPOA package, estimated by the administration at $7
billion, may not sound like a lot, but, prior to the agreement,
it is important to understand, Iran had fully accessible
overseas cash reserves of only $20 billion. That $7 billion
infusion, therefore, represents a 35-percent increase in Iran's
reserves. Moreover, the $7 billion number does not account for
the psychological impact on market sentiment. Sanctions are
predicated upon a strategy of escalation, where an ever-
expanding web of restrictions spook foreign businesses. Fear
triumphed over greed as companies viewed Iran as literally an
economic minefield.
But, the tide is slowly starting to turn. While the
administration blocks new sanctions in waiting legislation, it
provides sanctions relief in key sectors of the Iranian
economy, like energy, automotive, petrochemical, precious
metals, and aviation. And this unwittingly sends a message that
Iran's economy is opening up.
These changes have sparked the beginnings of a modest,
tentative, albeit fragile, recovery, as demonstrated by key
economic indicators. And facts are stubborn things. So, let us
review this.
Iran's GDP dropped by over 4\1/2\ percent in 2012-2013,
when the toughest sanctions hit. The IMF and World Bank now
estimate that GDP will increase by about 5 percent from 2014 to
2016.
Iran's currency, a weathervane for the health of the
Iranian economy, dropped by almost 75 percent between 2010 and
2012. But, actually, it has increased by 46 percent since
Rouhani's election, and it has increased 18 percent since the
announcement of the JPOA.
There has been a dramatic drop in inflation, from an
official rate of 40 percent and an unofficial rate of over 60
percent in 2012 to a much more manageable rate of 20 percent,
and falling. The Tehran stock exchange, which reflects investor
confidence, has almost doubled since Rouhani's election. And we
have talked about all the trade delegations that have gone from
Europe. In fact, the New York Times says there have been more
in the first 2 weeks of 2014 than all of 2013.
Turkey's Prime Minister was just in Iran, and he recently
pledged to increase bilateral trade with Iran to $30 billion by
2015. And foreign companies already are flocking back to the
Iranian auto sector. That is the object of some relief. That
sector, in 2011, before sanctions hammered the industry,
contributed 700,000 jobs and almost $50 billion to Iran's
economy. It is the second-largest sector in Iran, after energy.
Petrochemical sanctions relief opens up even greater
opportunity for a sector that, before the JPOA, accounted for
the largest source of Iran's nonoil exports. And, Chairman
Menendez, you mentioned this earlier. The suspension of oil
export reductions is taking pressure off Iran's oil sector,
which was in danger of irreparable losses from the forced
closure of oil fields. Iran, in fact, is going to save over $14
billion in oil, fuel oil, and condensate revenues that it
otherwise would have lost over the next 6 months.
Now, already the White House and the administration is
being challenged by our partners. We have talked about the
Russian-Iran deal. Senator Shaheen, you are right, it is an $18
billion oil-for-goods deal. And that arrangement, which the
White House acknowledges as sanctionable, tests Washington's
will to enforce sanctions. And it may be worth even more than
$18 billion if it is exploited as an illicit finance scheme.
And we have precedent for this. The Turkey-Iran gas-for-
gold scheme, which occurred between 2012 and 2013 without
adequate administration enforcement, allowed Iran to reportedly
gain access to over $100 billion. I am also hearing from
sources that Iran may be using gold to actually finance the war
in Syria. This may be, again, an unintended consequence of
relaxing precious metals sanctions. Now, if Washington cannot
stop this Russia-Iran deal after failing to crack down on the
massive Turkish scheme, what signal does it send to others?
The administration is further cementing the impression of
an Iranian economy open for business by blocking S. 1881,
which, if passed, would have leant credibility to the
administration's message and to have helped reverse market
psychology.
However, my concern, that even these tough sanctions in
waiting that would have worked today, may be insufficient in 6
to 12 months if Iran is on pace for a sustained economic
recovery, if it has made progress on nuclear weapon and
ballistic missile development, and if Iran's leaders are
unwilling to conclude an acceptable deal. Then President Obama
may discover he cannot turn sanctions on and off like a dial.
Then the administration and Congress will need to impose a
comprehensive financial and trade embargo, within weeks, or
risk losing all economic leverage to stop Iran's nuclear-
weapons breakout capability. Congress needs to prevent Iran
from engaging in endless negotiations and legislate clear
parameters and a strict timeline for such a nuclear deal. That
work needs to begin immediately with the administration.
Thank you very much for inviting me to testify.
[The prepared statement of Mr. Dubowitz follows:]
Prepared Statement of Mark Dubowitz
Chairman Menendez, Ranking Member Corker, members of the committee,
on behalf of the Foundation for Defense of Democracies (FDD), thank you
for inviting me to testify today on the implementation of the Joint
Plan of Action with Iran and the impact of sanctions relief on the
negotiations over Iran's illicit nuclear program. I am honored to be
testifying alongside David Albright, whose work I hold in the highest
regard.
introduction
Following the announcement of the Joint Plan of Action (JPOA) and
the signing of the implementation agreement, Obama administration
officials have repeatedly stated that, despite the ``limited,
temporary, and reversible'' sanctions relief,\1\ Iran is ``not open for
business,'' \2\ that the United States is not significantly easing
sanctions on Iran,\3\ and that existing sanctions will be enforced in a
``very aggressive manner.'' \4\
At the same time, Iranian President Hassan Rouhani has been
aggressively courting foreign companies, including at a recent
appearance before the global business and political elite in Davos,
Switzerland.\5\ Iran's nuclear chief, Ali Akbar Salehi, has boasted,
``The iceberg of sanctions is melting while our centrifuges are also
still working.'' \6\
Despite this, the Obama administration and its European allies are
confident that, with the Geneva agreement that addresses Iran's illicit
nuclear program having been implemented on January 20, 2014, their
carefully constructed Iran sanctions' architecture will not be eroded--
that is, until they decide to lift the toughest sanctions in exchange
for a final nuclear agreement.
Their argument is this: Should Iran renege on the deal, the limited
concessions the United States and other world powers are offering Iran
in exchange for the dismantling of its illicit nuclear program are
easily reversible. They are also adamant that the total value of
sanctions relief is only $7 billion. ``It's not going to be hard for us
to turn the dials back or strengthen sanctions even further,''
President Obama claims, adding that he would ``work with Members of
Congress to put even more pressure on Iran, but there's no reason to do
it right now.'' \7\
Regrettably, the administration and its allies may be
miscalculating on these fronts as my testimony outlines. Bijan
Khajehpour, a Vienna-based Iranian investment manager close to the
Iranian Government, noted ``the beginnings of a `gold rush' mood in
Tehran.'' \8\ Whether or not that view is yet fully justified, he has
correctly identified the early stages of a shift in market sentiment
that the interim agreement unintentionally but predictably
triggered.\9\
Although the Obama administration is correct that most sanctions
measures remain in place, recent macroeconomic trends, changes in
market sentiment, economic gains in specific sectors subject to
sanctions relief, and worrying signals of large-scale sanctions-busting
by U.S. partners indicate that economic pressure on the Iranian
Government is diminishing. If Iran's economy recovers, the pressure on
Iran's leaders to follow through on a nuclear deal lessens. At that
point, President Obama may discover that he has lost negotiating
leverage and can't turn sanctions off-and-on like a ``dial.''
The Obama administration has already dispatched Treasury's top
sanctions official, David Cohen, to global capitals to convey the
message to policymakers and the business community that nobody should
rush to Tehran just yet.\10\ There are no more able and committed
public officials than Under Secretary Cohen and his sanctions
enforcement team. But can they restore fear in the international
markets and prevent a psychological shift, both inside and outside
Iran, which weakens American negotiating leverage?
The Obama administration is further cementing the impression of an
Iranian economy that is open for business by blocking the Nuclear
Weapon Free Iran Act, legislation cosponsored by 59 Democratic and
Republican Senators and a House bill that passed in July 2013 by a vote
of 400-20.\11\ Senators have tried to strengthen the administration's
hand by introducing ``sanctions-in-waiting'' legislation to keep a
Sword of Damocles over international markets, to enforce Iranian
nuclear compliance, and to impose an economic cost on Tehran if its
continues its terrorist and ballistic missile activities.
The proposed legislation would lend credibility to the
administration's message--that this is the wrong time for companies to
go streaming back into Iran. It would also impose a heavy price on
sanctions-busters who bet prematurely that Iran will comply with its
Geneva nuclear commitments, not launch or support terrorist attacks
directly or by its proxies against Americans, not test intermediate-
range or long-range ballistic missiles that threaten America and our
allies, and meet the international community's requirements for an
acceptable deal within 12 months.
With the White House committed to blocking any new congressional
measures, the Obama administration is making a bet that it can prevent
the unraveling of the sanctions regime and maintain a strong
negotiating hand to peacefully resolve the Iranian nuclear crisis. That
is a dangerous bet, particularly when miscalculation could mean the
most dangerous state sponsor of terrorism in the world getting its
hands on the world's most lethal weapon.
the dollar value of direct sanctions relief
The Obama administration values the Geneva sanctions relief package
at approximately $7 billion. The relief package allows for the release
of $4.2 billion in cash from frozen oil revenues; sanctions relief on
Iran's auto sector, petrochemicals sector and precious metals trade
(valued by the administration at $1.5 billion); civilian aircraft parts
relief; $400 million in Iranian Government tuition assistance for
Iranian students studying abroad; and the opening of financial channels
to facilitate humanitarian transactions.\12\ The package also includes
the suspension of congressionally mandated significant reductions in
crude oil purchases during the interim period.
An infusion of $7 billion into Iran's troubled economy might not
sound like a lot in today's world. Indeed, the administration has
argued that this direct sanctions relief is small and of little
importance for a country with an economy of $1 trillion (GDP in
purchasing power parity terms; under $500 billion in nominal GDP) and
foreign reserves worth $100 billion.\13\
These numbers, however, do not accurately reflect the full value of
the actual sanctions relief. Prior to the agreement, Iran had fully
accessible overseas cash reserves of only $20 billion.\14\ The
remainder of the $100 billion was tied up in frozen or semiaccessible
escrow accounts. As a result, the $7 billion infusion into Iran's
economy represents a 35 percent increase in Iran's fully accessible
foreign exchange reserves.
the psychology of sanctions relief
The $7 billion in sanctions relief also does not account for the
psychological impact that the Geneva deal and sanctions relief is
having on markets, business, and investors. The impact of sanctions has
always been as much psychological as it has been legal. The efficacy of
sanctions is predicated upon a strategy of escalation, and a perception
of high risk, where an ever-expanding web of restrictions effectively
spooked foreign business from investing in, or trading with, Iran. Fear
triumphed over greed as companies viewed Iran as an economic minefield.
Before November 24, 2013, when the framework agreement was signed
in Geneva, even those who could conduct legitimate business with
Iranian counterparts were hesitant to do so. Driven by fear of economic
loss and legal sanctions, they viewed the risks as too high.
But the tide is now turning. Though many legal restrictions remain
in place, greed is starting to overcome fear. Sanctions barriers, in
key sectors of Iran's economy like energy, automotive, petrochemical,
and aviation, have been significantly reduced or suspended. The White
House has blocked new congressional sanctions legislation, sending a
signal that it is no longer pursuing a strategy of sanctions
escalation, at least for now. This creates a general impression abroad
that the White House's resolve is waning, and that the risks of doing
business with Iran are diminishing.
This impression has already improved the economic climate,
resulting in some illegitimate deals as companies test the waters.\15\
With the expectation of further sanctions relief soon, others
businesses might now take risks they would not even contemplate as
recently as 3 months ago. I discuss examples of both below.
The message from Washington is muddled: on the one hand the United
States is releasing billions of dollars and lifting sanctions on key
Iranian economic sectors. On the other hand, it is telling the business
community that no one should rush back to Iran since the limited
sanctions relief on offer is only for 6 months.\16\ Despite these
warnings, the JPOA itself contemplates a 12-month negotiating period.
It also is not unreasonable to assume that, if more time is needed, the
Obama administration could agree to further extend the diplomatic
process for additional 6-month periods and offer additional sanctions
relief to keep the Iranian Government at the table. As a result of this
muddled message, businesses are looking to get back into the Iranian
market ahead of their competitors in ways that may ultimately undermine
the sanctions regime.
As a result of the current confusing environment created by the
administration's policies, in order to maintain the efficacy of
existing sanctions, Washington will have to sanction foreign sanctions-
busters, even from P5+1 partners like Russia and China, our European
allies, or key Middle Eastern countries such as Turkey. Already, as
discussed below, companies from some these countries have challenged
Washington's will to enforce existing sanctions.
market recovery and investor outlook
There has been an undeniable shift in market psychology, both among
Iranian businesses and those companies looking to do business with
Iran. The change in Iranian consumer and investor sentiment is
reflected in Iran's economic performance as reflected in modest GDP
growth, a marked increase in the value of Iran's currency, a
significant drop in inflation, and a sharp increase in the value of
Iran's stock exchange.
The Iranian economy has shown signs of modest growth and
stabilization since Rouhani's election in June 2013. Indeed, Iran has
been on a modest recovery path since its annus horribilis of 2012 and
the first half of 2013, when the Iranian economy was hit with an
asymmetric shock from sanctions targeting the Central Bank of Iran,
Iranian oil exports, access to the SWIFT international banking system,
the National Iranian Oil Company, shipping and insurance, key sectors
of the Iranian economy, and precious metals, amongst others. The poor
economic management of the Iranian economy by the Mahmoud Ahmadinejad
government further exacerbated these sanctions-induced shocks.
Key economic indicators of Iran's economic malaise and their
subsequent recovery are discussed below.
Gross Domestic Product
Iran's economy was hammered by tough sanctions measures through
2012 and early 2013. The World Bank estimates that Iran's GDP shrunk by
2.9 percent in 2012 and 1.5 percent in 2013.\17\ Iran's current account
balance as a percentage of GDP also dropped steeply from 2.8 percent to
-0.9 percent as its oil revenues fell sharply.\18\
The Institute of International Finance, which draws on data
released by the Central Bank of Iran, estimates that real Iranian GDP
contracted 5.6 percent between April 2012 and March 2013, and nominal
GDP fell to as low as $381 billion.\19\
But, Iran's economy is starting to recover as the most significant
effects of the sanctions imposed in 2012 and early 2013 have been
absorbed. Although Iran's economy remains weak, it has begun to
stabilize and adjust rather than deteriorate further. According to the
World Bank's ``Global Economic Prospects'' report, Iran's real GDP is
expected to grow by 1 percent in 2014, 1.8 percent in 2015, and another
2 percent in 2016.\20\ Similarly, the International Monetary Fund
estimates Iran's economy will grow by 1.28 percent and 1.98 percent in
2014 and 2015, respectively.\21\
While it is likely that a more competent economic team under
Rouhani would have mitigated the severity of the impact of further
sanctions, the new Iranian President and his team have benefited from a
less difficult sanctions environment than their predecessor. Sanctions
are de-escalating, direct sanctions relief is flowing, and new
sanctions, at least for the next 12 months through the Geneva interim
period, seem unlikely.
Exchange Rate
A key indicator of the economic climate in Iran, and overall
investor and consumer confidence, is the value of the rial. The black-
market rial exchange rate experienced a 3-year free fall from 10,440 to
the dollar in January 2010 to a rate of 41,000 in October 2012,
representing a loss of almost 75 percent. Since Rouhani's election,
however, the black-market exchange rate increased from 36,300 on June
15, 2013 (election day) to 24,865 (as of January 29, 2014).\22\ This
represents a more than 46 percent increase in the value of the Iranian
currency since Rouhani's election.
Since the announcement of the JPOA on November 24, 2013, the black-
market exchange rate has increased from 29,300 to 24,865 (as of January
29, 2014), representing a 18 percent increase in value. Some experts,
who see the rial as an important ``weather vane'' for the health of the
Iranian economy, have now taken the rial off their list of ``troubled
currencies,'' while acknowledging, ``Rouhani's economic progress in
Iran is tentative and likely quite fragile.'' \23\
Inflation
Rouhani claims that his administration has brought down the
inflation rate from 43 percent to 28.8 percent.\24\ The Statistical
Center of Iran recently announced that the official inflation rate for
the 2013 calendar year was 35 percent,\25\ down from the 40 percent
official year-on-year inflation rate that Iran faced before the Geneva
talks in November,\26\ and a sharp drop from Iran's estimated 62
percent unofficial monthly inflation rate in October 2012.\27\ On a
quarterly annualized basis, inflation now has fallen to about 20
percent as a result of the stabilization in the rial.\28\ The
significant reduction in Iran's punishing inflation rate is further
evidence that Iran's economy may be stabilizing from the deep recession
of 2012.\29\
Tehran Stock Exchange
Since Rouhani's election, there has also been a surge in the Tehran
Stock Exchange (TSE), representing renewed investor confidence. The TSE
index almost doubled from 45,000 to over 80,000 points.\30\ After
peaking at 89,000 at the beginning of January, the index has lost 7
percent and fallen to 81,905 by January 26,\31\ although it appears too
early to tell whether this drop indicates a renewed decline in investor
confidence, a minor correction, or fear of corruption and insider
trading. Another possible explanation for the modest drop is that the
recent loosening of financial restrictions is providing Iranians with
more investment opportunities, and so they are diversifying their
portfolios and moving money elsewhere.\32\
Trade Delegations and Future Investments
As the market psychology shifts from fear to greed, companies that
previously shied away from Iran are eyeing possible openings and re-
openings. Companies that were afraid of the financial and reputational
risks associated with doing business in Iran are reevaluating.
Since December 2013, Tehran has received trade delegations \33\ and
parliamentary missions from more than a dozen countries, all expressing
interest in business opportunities in Iran. According to The New York
Times, Iran hosted more European delegations in the first 2 weeks of
2014 than in all of 2013.\34\ German companies, which exported around
$2 billion in goods to Iran in 2013, are looking to ramp up their
Iranian activities along with their Dutch, Austrian, Italian, French,
and other European competitors.\35\ And on a visit to Tehran at the end
of January, Turkish Prime Minister Recep Tayyip Erdogan pledged to
increase bilateral trade to $30 billion by 2015,\36\ with a particular
emphasis on increasing Turkish exports to rebalance a Turkish trade
deficit with Iran valued at $4 billion in the 12 months ending August
2013.
The Director General of Iran's Trade Promotion Organization,
Mehrdad Jalalipour, noted a 70 percent increase in participation in
trade fairs in October and November compared to the previous year.\37\
Hotels throughout Tehran are reportedly ``fully booked by businessmen
from Germany, the U.K., [and] other European countries,'' \38\ notes
Sarosh Zaiwalla, the London-based lawyer who represented Bank Mellat in
its judicial challenge against EU sanctions. Chambers of Commerce are
organizing seminars to help make connections and advance business with
Iran.\39\ While it will take some time for these activities to generate
significant economic activity, they are paving the way for future
Iranian growth.
Sanctions Relief Case Study #1: Iran's Auto Sector
The JPOA grants sanctions relief to Iran's embattled auto sector,
the second-largest sector of the Iranian economy after energy. Prior to
the imposition of U.S. sanctions, Iran's auto sector was a major source
of export earnings, industrial production and assembly, employment, and
GDP. Specifically, the auto sector employed some 700,000 Iranians, or 4
percent of the total Iranian workforce,\40\ and accounted for about 10
percent of Iran's GDP,\41\ or about $50 billion.\42\
The U.S. imposed sanctions on the Iranian auto sector on June 3,
2013,\43\ because of the dominant role played by Iran's Islamic
Revolutionary Guard Corps (IRGC) in its control of Iran's major auto
companies, Khodro, Saipa, and Bahman.\44\ At the time, according to CBS
News, Obama administration officials identified the auto sector as an
important source of both revenues and dual-use equipment for the
Iranian regime and its IRGC-controlled nuclear and ballistic missile
programs.\45\
White House spokesman Jay Carney described the auto sanctions and
other measures as, ``part of President Obama's commitment to prevent
Iran from acquiring a nuclear weapon, by raising the cost of Iran's
defiance of the international community.'' \46\
The impact of these sanctions was significant. The imposition of
automotive sanctions, the rapid increase in inflation, and the
financial and economic sanctions that had already taken their toll,
further hammered the sector. According to the Washington Post, auto
production dropped by 40 percent, after its global ranking had already
fallen from 13th to 21st in just 2 years.\47\
The decline was so dramatic that Iranian-born economist Mehrdad
Emadi of the U.K.-based Betamatrix International Consultancy stated
that the ``sector has really been close to collapse because they
haven't been able to import the latest capital equipment.'' \48\
Sanctions relief afforded by the JPOA could now reverse this rapid
decline in both Iranian auto production and exports, alleviating
pressure on the Iranian regime and the IRGC.
American sanctions on ``Iran's auto industry, as well as sanctions
on associated services,'' like insurance, transportation, and financial
services, are being suspended, according to the JPOA.\49\ The White
House estimates that easing auto industry sanctions will yield Iran
only $500 million over the 6-month interim period.\50\
The $500 million valuation appears to be derived from expected
revenue from exports of Iranian cars. However, it does not account for
the total impact of a revived auto sector on the Iranian economy,
including cars produced for the domestic market, wages paid, and other
economic activity.
Automotive sanctions have impacted much more than just Iranian
export revenue. According to the Associated Press, these sanctions have
led to ``some 100,000 Iranian auto workers'' being laid off, and plants
running ``at less than half their capacity.'' \51\ With Iranian auto
companies reportedly unable to receive parts from their foreign
suppliers, the Financial Times reported that Iran's two largest state-
run carmakers, Iran Khodro and Saipa, were ``suffering from
overstaffing--or `hidden unemployment,' as the domestic media call it--
due to the decline in output.'' \52\ In July 2013, an Iranian
automotive representative noted that production units had been forced
to lay off between 30 percent and 50 percent of their workforce.\53\
Sanctions relief, then, is likely to generate direct economic value
for the Iranian economy and billions in earnings for the blacklisted
Revolutionary Guards. Any recovery in such a critical sector that
recently generated about $50 billion annually for Iran's economy will
have a multiplier effect on recovered jobs, wages paid, GDP growth, and
improved investor and consumer confidence. Indeed, employment in the
auto sector could prove to be the most politically visible form of
sanctions relief for Rouhani, who has promised to revive Iran's
struggling economy.
The projected growth of the domestic Iranian auto sector is
attracting significant interest from global auto manufacturers in
returning to partnerships with Iranian auto companies. Shortly after
the signing of the JPOA, Iran held an international automotive
conference attended by representatives from German, Indian, Japanese,
and South Korean auto companies.\54\ As a result of the JPOA, press
reports indicated that this conference garnered great interest.\55\
Global auto companies are now poised to reenter Iran and renew
business relationships.\56\ Major auto manufacturers that formerly
invested in the Iranian auto sector, such as France's PSA Peugeot
Citroen and Renault SA, have expressed optimism that they will be able
to reap significant benefits in the coming months. Indeed, Renault has
already resumed shipments to Iran's domestic auto company Iran Khodro,
while both Renault and Peugeot Citroen are reportedly interested in
resuming vehicle assembly and sales with local Iranian partners.\57\
These companies understand that Iran's auto sector is poised to
experience even greater growth on the horizon. An October study by the
Boston Consulting Group assessed that Iran had the ``theoretical
potential to attain an impressive 1.5 million in new-vehicle sales by
2020, which would make it the third-largest Beyond BRIC market.'' \58\
Such production would be ``on par with Canada's 2012 car sales and well
ahead of Italy's,'' according to Canada's Globe and Mail.\59\
The White House could be correct that Iran's auto sector will only
generate $500 million in revenue over the next 6 months. Export revenue
growth may be limited by the existing sanctions that complicate
international transactions. Growth could be further hindered by the
slow ramp-up required in domestic production. And loopholes on
insurance, transportation, and banking transactions could be closed by
rigorous enforcement. More broadly, given the depreciation of the
overall Iranian economy, it is highly unlikely that the auto sector
could return soon to its peak levels, when it was contributing about
$50 billion in annual GDP to Iran's overall economy.
But the suspension of automotive sanctions will undoubtedly
generate additional economic benefits for Iran, beyond what was
stipulated in the JPOA. It is inconceivable that the Iranian automotive
sector will fail to contribute to increased GDP over the next 6 months
through production, domestic sales, wages paid, and other economic
activity beyond the administration's estimate of $500 million in export
revenue.
Even if Iran's auto sector contributed only 10 percent of the
sector's previous $50 billion annual contribution in GDP to Iran's
overall economy, that would be worth $2.5 billion in additional
economic activity over the next 6 months. In this way, Washington may
end up providing far greater economic benefits to the Iranian
Government, and to the IRGC, than has been asserted.
Sanctions Relief Case Study #2: Iran's Petrochemical Sector
The JPOA provides sanctions relief to Iran's petrochemical sector.
According to an August 2013 ``Business Monitor International'' report,
Iran exported $11.2 billion last year in petrochemical products, and it
projects an increase of another $1 billion next year.\60\ With the
lifting of petrochemical sanctions, there is already renewed confidence
in the sector. Since October 1, 2013, the market value of companies in
this sector surged from $25 billion to $34 billion due to the gains on
the Tehran Stock Exchange, the rial appreciation, and the suspension of
U.S. sanctions.\61\ Between the middle of October and the beginning of
December, the sector grew nearly 40 percent, with a significant spike
occurring after November 17 when the P5+1 first appeared to be close to
signing an interim deal with Iran.\62\
While an increase in the market valuations of these companies
doesn't necessarily mean an increase in real economic activity, and
they could face reversals, it does suggest increased investor and
consumer confidence in a sector that, by the volume of total
production, grew by 22 percent for 2 years in a row between 2011 and
2013 and is projected to grow by almost 10 percent between 2013 and
2014 and by 10.6 percent between 2014 and 2015.\63\ In fact Iranian
customs data shows that even before the JPOA, petrochemicals were the
largest of Iran's nonoil exports in dollar terms.
Growth in Iran's petrochemical sector is particularly problematic
because the largest companies in the industry are owned or controlled
by Iran's Islamic Revolutionary Guards Corps (IRGC), the Iran
Government, and the Supreme Leader.\64\ In fact, of the 14
petrochemical companies that had been sanctioned but are now permitted
to do business abroad, Iran's Supreme Leader Ali Khamenei controls
three through his Setad business empire.\65\ The IRGC is the second-
largest shareholder in the industry after the Iranian Government
itself.\66\
Sanctions Relief Case Study #3: Iran's Oil Exports
Iran's oil exports have rebounded nearly 60 percent from historic
lows of 761,000 bpd in October 2013, to 1.2 million bpd in January
2014.\67\ This should be of particular concern to this committee, given
its involvement in congressionally mandated oil market sanctions
against Iran.
The JPOA suspended U.S. oil sanctions, which required current Iran
customers to significantly reduce their Iranian oil purchases to
qualify for an exception to sanctions. Instead, the JPOA allows oil
sales at current levels, which had already flatlined at around1 to 1.2
million barrels per day (bpd). This suspension is taking pressure off
Iran's oil sector, which had been close to running out of storage
capacity for its production surplus and was in danger of incurring
irreparable losses stemming from the forced closure of oil fields if
further reductions were enforced.
The $7 billion in sanctions relief valuation does not include the
value of this suspension of U.S. oil sanctions over the next 6 months.
FDD estimates that this concession is worth between $4.5 and $5 billion
in oil revenue that Iran would have otherwise lost had the significant
reduction sanctions continued to be enforced.\68\
Technically, this money would be required to be paid into largely
restricted escrow accounts, only available to Tehran to fund bilateral
trade with its oil buyers. However, recent revelations from Turkey
raise questions about how airtight these restrictions really are. The
Turkey-Iran ``gas-for-gold scandal'' (discussed below) revealed how
Iran was able to circumvent these restrictions to access billions of
dollars through middlemen and allegedly corrupt Turkish officials.
The $4.5 to $5 billion in projected oil revenue noted above also
does not include the real possibility that Iran will successfully
circumvent the remaining oil sanctions by selling additional crude
under the table. In fact, Rouhani's 2014 budget, which he recently
submitted to Iran's Parliament, is based on the assumption that Iran
will sell 1.5 million bpd or approximately twice October 2013
levels.\69\
Additionally, Iran is likely to benefit from sanctions relief in
related sectors. Under the Geneva agreement, Iran also benefits from
regaining access to affordable insurance policies for the
transportation of its oil and other goods.\70\ Insurance premiums on
legal shipments will not only go down, but there also is a reasonable
chance that Iran will manage to insure more than it is allowed to
export.
The reduced transaction costs may lead to additional boosts in
exports, or at least reduce the oil price discount that Iran had to
offer and the insurance premiums that Iran had to pay to sell its
crude. The suspension of shipping and insurance sanctions also means
that Iran now can cease to rely on foreign-owned vessels to transport
goods, freeing up shipping capacity to deliver its oil.
Sanctions Relief Case Study #4: Iran's Financial Sector
The JPOA's relaxation of specific sanctions related to specific
financial services is of particular value to Iran. Although this
provision of the JPOA is supposed to benefit only ``specified foreign
banks and nondesignated Iranian banks,'' \71\ the IRGC, Supreme Leader
Ali Khamenei, and the Iranian Government own at least 70 percent of the
banking sector.\72\ Sanctioned entities own many of the smaller banks
not traded on the Tehran Stock Exchange.\73\ This banking channel not
only is likely to boost trade, but also reopens a window into the
international financial system that Iran had been denied through U.S.,
European, and U.N. sanctions.
Furthermore, the EU has authorized a tenfold increase in its
authorized threshold--from =40,000 to =400,000--for transactions with
banks in Iran.\74\ Vigorous enforcement by the European Union as well
as by the U.S. Treasury will be necessary to ensure that Iran does not
exploit loopholes--as Tehran appears to have done with Turkey's state-
owned bank Halkbank, Turkish gold traders, and middlemen to access more
than $100 billion in an elaborate ``gas-for-gold'' scheme.\75\
A Case Study in Sanction Enforcement Failure: Gas-for-Gold \76\
Turkey's Islamist government is being rocked by the most sweeping
corruption scandal of its tenure. Roughly two dozen figures, including
well-connected business tycoons and the sons of top government
ministers, have been charged with a wide range of financial crimes. The
charges ballooned into a full-blown crisis on December 25 when three
ministers implicated in the scandal resigned,\77\ with one making a
dramatic call for Prime Minister Recep Tayyip Erdogan to step down.\78\
The drama surrounding two personalities was particularly notable:
Police reportedly discovered shoeboxes containing $4.5 million in the
home of Suleyman Aslan,\79\ the CEO of state-owned Halkbank.
Authorities also arrested Reza Zarrab,\80\ an Iranian businessman who
primarily deals in the gold trade, and who allegedly oversaw deals
worth almost $10 billion last year alone.\81\
The gold trade has long been at the center of controversial
financial ties between Halkbank and Iran. Research conducted in May
2013 by the Foundation for Defense of Democracies and Roubini Global
Economics revealed the bank exploited a ``golden loophole'' in the
U.S.-led financial sanctions regime designed to curb Iran's nuclear
ambitions.\82\
The scheme was elaborate, yet straightforward. The Turks exported
some $13 billion of gold to Tehran directly, or through the UAE,
between March 2012 and July 2013. In return, the Turks received Iranian
natural gas and oil. But because sanctions prevented Iran from getting
paid in dollars or euros, the Turks allowed Tehran to buy gold with
their Turkish lira--and that gold found its way back to Iranian
coffers.
This ``gas-for-gold'' scheme allowed the Iranians to replenish
their dwindling foreign exchange reserves, which had been hit hard by
the international sanctions placed on their banking system. It was
puzzling that Ankara allowed this to continue: The Turks--NATO allies
who have assured Washington that they oppose Iran's military-nuclear
program--brazenly conducted these massive gold transactions even after
the Obama administration tightened sanctions on Iran's precious metals
trade in July 2012.\83\
Turkey, however, chose to exploit a loophole that technically
permitted the transfer of billions of dollars of gold to so-called
``private'' entities in Iran. Iranian Ambassador to Turkey Ali Reza
Bikdeli recently praised Halkbank for its ``smart management decisions
in recent years [that] have played an important role in Iranian-Turkish
relations.'' \84\ Halkbank insists that its role in these transactions
was entirely legal.\85\
The U.S. Congress and President Obama closed this ``golden
loophole'' in January 2013.\86\ At the time, the Obama administration
could have taken action against Halkbank, which processed these
sanctions-busting transactions, using the sanctions already in place to
cut the bank off from the U.S. financial system. Instead, the
administration lobbied Congress to make sure the legislation that
closed this loophole did not take effect for 6 months--effectively
ensuring that the gold transactions continued apace until July 1. That
helped Iran accrue billions of dollars more in gold, further
undermining the sanctions regime.
In defending its decision not to enforce its own sanctions, the
Obama administration insisted that Turkey only transferred gold to
private Iranian citizens.\87\ The administration argued that, as a
result, this wasn't an explicit violation of its Executive order.
In the 1-year period between July 2012, when the Executive order
was issued, and July 2013, when the ``golden loophole'' was finally
closed, the Obama administration's nonenforcement of its own sanctions
reportedly provided Iran with $6 billion worth of gold. That windfall
may have been an American olive branch to Iran--extended via Turkey--to
persuade its leaders to continue backchannel negotiations \88\ with the
United States, which reportedly began as early as July 2012.\89\ It
could also have been a significant sweetener to the interim nuclear
deal eventually reached at Geneva, which provided Iran with another $7
billion in sanctions relief.
Indeed, why else would the administration have allowed the Turkish
gold trade to continue for an extra 6 months, when Congress made clear
its intent to shut it down? The ongoing corruption investigation in
Turkey could provide a window into some nagging questions about the
gas-for-gold scheme. Indeed, it could help explain why the Turkish
Government allowed Iran to stock up on gold while it was defiantly
pursuing its illicit nuclear program--and whether or not the Obama
administration could have done more to prevent it.
Case Study on Sanctions Enforcement Challenge: Russian-Iranian Oil-for-
Goods Deal
With gas-for-gold in the rear view mirror, Moscow is now posing a
similar challenge to the U.S. sanctions regime. Reuters recently
revealed a lucrative and illegal oil-for-goods deal between Russia and
Iran. The proposed deal, worth possibly $1.5 billion per month or $18
billion annually, would include Russian purchases of up to 500,000 bpd
of Iranian oil--boosting Iranian exports by as much as 50 percent--in
exchange for Russian equipment and goods.\90\ The deal would ease
further pressure on Iran's battered energy sector and at least
partially restore Iran's access to oil customers with Russian help. And
those sums don't include the potential for further Iranian-Russian
illicit finance and sanction-busting schemes that the deal could
provide, including the transfer of sanctioned nuclear, ballistic
missile, and other military equipment to Tehran, and the establishment
of Russian-Iranian financial channels to facilitate other illicit
transactions.
The administration has denounced the proposed deal as contrary to
the interim agreement and a violation of U.S. sanctions,\91\ but will
President Obama take on Vladimir Putin, on whom U.S. policy now depends
to get both Tehran and Damascus to abandon their WMD programs? If
Washington can't stop this deal, it could serve as a signal to other
countries that the United States won't risk major diplomatic disputes
at the expense of the sanctions regime.
As international companies test the waters in an environment of de-
escalating sanctions pressure, the Obama administration may find itself
facing the difficult choice of permitting sanctions-violations from
Russia, China, Turkey, and other key partners and watching the
sanctions' architecture unravel, or sanctioning companies from these
countries, including our P5+1 partners, with the potential for severe
diplomatic blowback.
the impact of iran's economic recovery on nuclear negotiations
The administration's dual policy of sanctions and negotiations with
Iran has always been based on the idea that economic sanctions can
provide leverage to get Iran to the negotiating table to reach a
comprehensive nuclear deal that stops Iran's illicit military-nuclear
program. Indeed, Secretary of State Kerry has attributed Iran's
willingness to negotiate at Geneva to the intense pressure of
international sanctions.\92\
It is a credit to the members of this committee and your colleagues
in the House that the United States has the kind of strong,
comprehensive sanctions in place that have persuaded Iran to come to
the table. Over the objections of the Obama administration and others
who argued that the sanctions against the Central Bank of Iran,
measures to reduce Iran's crude oil exports, and sanctions to force
SWIFT to expel Iranian banks, amongst others, were either unlikely to
have an effect on Iran or were too drastic to consider, you and your
colleagues understood that there was a smart way to craft these
sanctions to provide Washington with enhanced negotiating leverage.
Yet, now there is significant evidence that Iran's economy is
showing signs of stabilization and modest recovery. Whether due to the
overall global economic recovery, better economic management by the
Rouhani administration as compared to the Ahmadinejad administration,
and/or changing market psychology because of sanctions relief, the
result is that the United States may be losing the very leverage that
brought Iran to the table.
I am concerned that the P5+1 sanctions relief in exchange for
reversible nuclear concessions by Tehran will improve Iran's
negotiating position and therefore lessen the pressure on the regime to
come to a long-term, enforceable, negotiated solution. This increases
the likelihood of a deal that does not adequately address Iran's
illicit military-nuclear program, leaving Iran with the option, at a
time of its choosing, to develop an Iranian nuclear weapon, or
requiring the U.S. President or Israeli Prime Minister to use military
force to forestall that possibility.
policy recommendations
In order to preserve our negotiating leverage, the Obama
administration will need to convince global companies that it is
willing to defend the sanctions' architecture against violators and
impose punitive measures, even against key allies and partners. This
could quickly devolve into an untenable situation--putting stress on
our alliances, which could erode the leverage we hope to use to
convince Iran to make significant reductions in its nuclear program.
Congress can support the administration's efforts to shore up our
economic sanctions and our negotiating leverage by passing the Nuclear
Weapon Free Iran Act ``sanctions-in-waiting'' legislation, which many
members of this committee already support. The purpose of this
legislation is to buttress the argument that Iran is not open for
businesses, to clearly outline the conditions under which Iran will
lose existing sanctions relief (and be hit with additional sanctions)
during the interim period, and to establish broad parameters for what
constitutes an acceptable nuclear deal.
The legislation is important to pass now, rather than after a
collapse of talks, because it dangles a Sword of Damocles over
international companies considering a return to Iran. It is a crucial
instrument in preventing the shift in market psychology that already is
beginning to create economic benefits for Iran. It lays down a clear
deadline of 12 months for nuclear negotiations so that Iran does not
endlessly prolong the negotiations while reaping further economic
benefits as the passage of time weakens the existing sanctions regime
and makes companies more confident to enter the Iranian market. And it
lays down important parameters by Congress to govern what constitutes
an acceptable final deal, including precluding Iran from achieving a
nuclear weapons breakout capability and prevented it from pursuing both
uranium and plutonium pathways to a nuclear weapon.
While Iran's Foreign Minister Javad Zarif has threatened to walk
away from the table if Congress passes new legislation,\93\ it is
important to note that such a move would come with steep economic costs
for Iran. A recent economic analysis by FDD and Roubini Global
Economics estimates that new sanctions could precipitate a major
economic shock that leads to a significant depreciation of Iran's
currency, which will fuel inflation and asset bubbles, force fiscal
austerity, and send Iran back into a deep recession.\94\
Iran's economy would risk further deterioration in the following
areas:
(1) Iran would lose all of the sanctions relief promised under the
JPOA, which is worth significantly more than $7 billion.
(2) Oil exports would fall to 500,000 bpd, which would be a
reduction of approximately 500,000 bpd from current levels, or a loss
of about $9 billion in revenues over 6 months.
(3) New sanctions would also hit Iran's fuel oil, natural gas, and
condensates exports, which are valued at about $1.6 billion per month
as of May 2013.\95\ This would be a further loss of $9.6 billion in
revenues.
(4) The accelerated depletion of revenues and reserves would likely
precipitate another currency devaluation, as Iran runs out of reserves.
This would fuel inflation, with recurrent asset bubbles and busts
destabilizing the economy further.
(5) Wages would fall sharply in real terms as housing and cost of
living expenditures continue to rise.
(6) A new recession would be likely. As output falls and the
government cannot support further economic expansion, Tehran would need
to cut government spending.
(7) Across-the-board cuts would become necessary in the development
budget, just as Tehran implemented in 2012 in nonsalary current
spending. Subsidy cuts would be likely in the top three high-income
deciles of the Iranian economy.
(8) Oil income would remain limited to only bilateral arrangements,
with most oil revenues effectively locked up by sanctions.
(9) Deficit funding through internal loans would be likely, as well
as an attempt to use foreign exchange reserves and to loosen monetary
policy, particularly if other deficit abatement tools don't work.
(10) With sanctions relief negated, there would be an estimated 50
percent decrease in annual petrochemical exports from about $12 billion
to $6 billion. At minimum, Iran would lose the $1 billion based on what
the administration estimates Iran will earn in petrochemical sanctions
relief over 6 months under the JPOA.
(11) Iran would also lose potential automotive sector sanctions
relief, with a failure to make gains in exports, production, wages,
GDP, and other key indicators. This includes a loss of the
administration's projected $500 million increase from auto sanctions
relief over the next 6 months. As noted earlier, it could be far
greater than that.
(12) Other strategic sectors would suffer as a result of new
sanctions legislation. This includes engineering, construction, mining
sectors, and others.
(13) Imports would decrease to $25-$30 billion from about $40
billion, given budget and hard currency restrictions.
In other words, walking away from the negotiating table would carry
significant costs for the Iranian regime. And the longer Iran stays
away, the higher the economic costs. Zarif might walk away for show,
but unless he and Rouhani believe that they can rescue the economy
through nuclear escalation, their no-deal option is still less
attractive economically than a negotiated settlement.
With the Obama administration opposing the new Senate and House
legislation, Senators need to find some way to signal to markets and to
Iran that Congress will not accept endless negotiations, the unraveling
of the sanctions regime that took so long to establish, and a nuclear
deal that does not stop Iran's nuclear weapons breakout capability.
While the current legislation could be effective in reversing market
psychology if the sanctions-in-waiting provisions were passed today,
these sanctions may be insufficient in 6 to 12 months time if there is
no conclusive nuclear agreement and if Iran is on the path to a
sustained economic recovery.
There needs to be a serious and public discussion about what type
of sanctions will be required at that point especially since, in areas
not adequately addressed by the JPOA, Iran could gain 6 to 12 more
months to advance the military-nuclear elements of its program through
nuclear-weapon and ballistic missile research and development.\96\ If
there is no final agreement, and Tehran successfully uses the interim
period to advance this work, it could move more quickly to a nuclear
weapons breakout and Washington will have lost critical economic
leverage.
At that point, we will need a complete financial and trade embargo
implemented within weeks since Iranian nuclear physics will have far
outpaced Western economic pressure.
As Robert Einhorn and Ken Pollack have argued, ``we need to prepare
for the possibility that no agreement will be reached and Iran will
attempt to turn that eventuality to their advantage.'' \97\ Congress
needs to work with the Obama administration to develop that strategy.
And those consultations need to begin immediately.
----------------
End Notes
\1\ Treasury Department, ``Frequently Asked Questions Relating to
the Temporary Sanctions Relief to Implement the Joint Plan of Action
between the P5+1 and the Islamic Republic of Iran,'' January 20, 2014.
\2\ ``U.S. Official Warns Against Business Deals With Iran,''
Associated Press, January 27, 2014.
\3\ David Cohen, ``We're Not Easing Sanctions on Iran,'' The Wall
Street Journal, December 10, 2013.
\4\ Paul Richter, Patrick J. McDonnell & Ramin Mostaghim, ``Iran
Halts Part of Uranium Enrichment Efforts; West Loosens Sanctions,'' Los
Angeles Times, January 20, 2014.
\5\ Paul Taylor, ``Rouhani to Woo Business in Davos but Iran
Hurdles Abound,'' Reuters, January 17, 2014.
\6\ Paul Richter, Patrick J. McDonnell & Ramin Mostaghim, ``Iran
Halts Part of Uranium Enrichment Efforts; West Loosens Sanctions,'' Los
Angeles Times, January 20, 2014.
\7\ Josh Gerstein, ``Obama Speaks Out Against More Iran
Sanctions,'' Politico, December 20, 2013.
\8\ Paul Taylor, ``Rouhani to Woo Business in Davos but Iran
Hurdles Abound,'' Reuters, January 17, 2014.
\9\ Mark Dubowitz & Reuel Marc Gerecht, ``The Case for Stronger
Sanctions on Iran,'' The Wall Street Journal, November 10, 2013.
\10\ Charles Recknagel, ``As Sanctions Are Relaxed, Western
Businesses Look to Iran,'' Radio Free Europe/Radio Liberty, January 20,
2014.
\11\ Statements from the Chairman and Ranking Member of the House
Committee on Foreign Affairs as well as the full text of the
legislation, H.R. 850 Nuclear Prevention Act of 2013, are available on
the committee's Web site, accessed January 31, 2014.
\12\ The White House Office of the Press Secretary, ``Fact Sheet:
First Step Understandings Regarding the Islamic Republic of Iran's
Nuclear Program,'' November 23, 2013.
\13\ Secretary of State John Kerry, ``The P5+1's First Step
Agreement With Iran on its Nuclear Program,'' Testimony before the
House Committee on Foreign Affairs, December 10, 2013.
\14\ Mark Dubowitz & Rachel Ziemba, ``When Will Iran Run Out of
Money,'' Foundation for Defense of Democracies and Roubini Global
Economics, October 2, 2013.
\15\ Jonathan Saul & Parisa Hafezi, ``Exclusive: Iran, Russia
Negotiating Big Oil-For-Goods Deal,'' Reuters, January 10, 2014.
\16\ Benoit Faucon, Jay Solomon, and Asa Fitch, ``U.S. Warns Over
Limits of Iran Sanctions Easing,'' Wall Street Journal, January 31,
2014.
\17\ ``Country and Region Specific Forecasts and Data,'' The World
Bank, accessed online January 29, 2014.
\18\ ``Country and Region Specific Forecasts and Data,'' The World
Bank, accessed online January 29, 2014.
\19\ ``Iran: Economic Implications of Lifting Sanctions,''
Institute of International Finance, December 18, 2013.
\20\ The World Bank, ``Middle East and North Africa,'' Global
Economic Prospects, January 2014, page 71.
\21\ ``World Economic Outlook Database,'' International Monetary
Fund, October 2013.
\22\ X-Rates.com, accessed January 29, 2014.
\23\ Steve H. Hanke, ``Iran: From Hyperinflation to Stability?'',
Cato Institute, November 25, 2013.
\24\ ``Iran News Round Up,'' AEI Critical Threats, January 7, 2014.
\25\ ``Iran's Inflation Rate Hits 35%,'' Trend, January 28, 2014.
\26\ Uri Berliner, ``Crippled By Sanctions, Iran's Economy Key in
Nuclear Deal,'' NPR, November 25, 2013.
\27\ Steve H. Hanke, ``Iran: From Hyperinflation to Stability?'',
Cato Institute, November 25, 2013.
\28\ Mark Dubowitz & Rachel Ziemba, ``Early Signs of an Iranian
Economic Recovery,'' FDD Iran Sanctions Analysis, January 9, 2014.
\29\ Steve H. Hanke, ``Iran: From Hyperinflation to Stability?'',
Cato Institute, November 25, 2013.
\30\ Mark Wallace, ``Implementation of the Iran Nuclear Deal,''
Testimony before the Joint Middle East and North Africa as well as
Terrorism, Nonproliferation, and Trade Subcommittees, January 28, 2014,
page 6.
\31\ Meir Javedanfar, ``Tehran Stock Exchange Plunges, Baffling
Investors,'' Al-Monitor, January 28, 2014.
\32\ Meir Javedanfar, ``Tehran Stock Exchange Plunges, Baffling
Investors,'' Al-Monitor, January 28, 2014.
\33\ Ali Alfoneh, ``With Sanctions in Doubt, Trade Delegations
Flock to Iran,'' FDD Policy Brief, January 13, 2014.
\34\ Thomas Erdbrink, ``Sanctions Eased, Iran Gets Feelers From Old
Trading Partners,'' The New York Times, January 17, 2014.
\35\ Benjamin Weinthal, ``Germany, Inc. Heads to Tehran,'' Foreign
Policy, January 31, 2014.
\36\ ``Iran, Turkey Vow to Boost Trade to 30 Billion USD by 2015,''
Xinhua (China), January 29, 2014.
\37\ Sabairan.com, accessed January 29, 2014.
\38\ ``Iranian Bank Plans UK Claim as Pressure to Ease Sanctions
Rises,'' Reuters, January 16, 2014.
\39\ ``IRAN: Un Marchh Prometteur S'ouvre!'' Brussels Enterprises
Commerce and Industry, December 2, 2013.
\40\ Jason Rezaian, ``Iran's Automakers Stalled By Sanctions,''
Washington Post, October 14, 2013.
\41\ ``Iran Hosts 7th Intl. Auto Parts Exhibition,'' PressTV
(Iran), November 30, 2012.
\42\ Mark Dubowitz & Jonathan Schanzer, ``The Real Value of Auto
Sanctions Relief to Iran,'' FDD Iran Sanctions Analysis, December 10,
2013.
\43\ The White House, ``Executive Order--Authorizing the
Implementation of Certain Sanctions Set Forth in the Iran Freedom and
Counter-Proliferation Act of 2012 and Additional Sanctions with Respect
To Iran,'' June 3, 2013.
\44\ Mark Dubowitz & Emanuele Ottolenghi, ``Iran's Car Industry--A
Big Sanctions Buster,'' Forbes, May 13, 2013.
\45\ ``Obama Orders New Sanctions on Iran,'' CBS News, June 3,
2013.
\46\ White House Office of the Press Secretary, ``Statement by the
Press Secretary on the Announcement of Additional Sanctions Related to
Iran,'' June 3, 2013.
\47\ Jason Rezaian, ``Iran's Automakers Stalled By Sanctions,''
Washington Post, October 14, 2013.
\48\ Charles Recknagel, ``As Sanctions Are Relaxed, Western
Businesses Look To Iran,'' Radio Free Europe/Radio Liberty, January 20,
2014.
\49\ ``Joint Plan of Action,'' Geneva, November 24, 2013.
\50\ Indira A.R. Lakshmanan , ``Auto and Shipping Firms Among
Potential Iran Deal Winners,'' Bloomberg, November 25, 2013.
\51\ Ali Akbar Dareini, ``Iran Nuclear Deal Hits Gas Pedal For
Carmakers,'' Associated Press, November 30, 2013.
\52\ Monavar Khalaj, ``Iran's Car Industry Output Falls Sharply,''
Financial Times, January 23, 2013.
\53\ ``Iranian Auto Parts Workers Cut Down by Poor Economy,'' Radio
Zamaneh (Iran), July 21, 2013.
\54\ Ali Akbar Dareini, ``Iran Nuclear Deal Hits Gas Pedal For
Carmakers,'' Associated Press, November 30, 2013.
\55\ Ladane Nasseri & Alaa Shahine, ``Iran Accord Sparks Race to
Tehran as Automakers Target Deals,'' Bloomberg, November 26, 2013.
\56\ ``Renault Eyes Return to Iran When Sanctions are Lifted,''
Bloomberg, January 23, 2014.
\57\ Arron Merat, ``Renault Resumes Iran Shipments For Car
Production,'' The Telegraph, January 29, 2014.
\58\ ``Beyond BRIC: Winning the Rising Auto Markets,'' The Boston
Consulting Group, October 2013, page 6.
\59\ Eric Reguly, ``Why The Corporate World Wants Peace With
Iran,'' The Globe and Mail, November 27, 2013.
\60\ ``Iran Petrochemicals Report,'' Business Monitor
International, August 2013. (Accessed via ProQuest).
\61\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``The Geneva Joint
Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief,
December 9, 2013.
\62\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``The Geneva Joint
Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief,
December 9, 2013.
\63\ Data is available upon request.
\64\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``The Geneva Joint
Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief,
December 9, 2013.
\65\ Steve Stecklow & Babak Dehghanpisheh, ``Exclusive: Khamenei's
Business Empire Gains from Iran Sanctions Relief,'' Reuters, January
22, 2014.
\66\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``The Geneva Joint
Plan of Action and Iran's Petrochemical Sector,'' FDD Policy Brief,
December 9, 2013.
\67\ United Against a Nuclear Iran, ``Geneva Interim Agreement
Tracker,'' accessed January 29, 2014.
\68\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``Tehran's
Windfall,'' National Post, January 3, 2014.
\69\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``Tehran's
Windfall,'' National Post, January 3, 2014.
\70\ Daniel Fineren, ``Iran Nuclear Deal Shipping Insurance Element
May Help Oil Sales,'' Reuters, November 24, 2013.
\71\ ``Joint Plan of Action,'' Geneva, November 24, 2013.
\72\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``The Banking
Provisions in the Joint Plan of Action Between Iran and the P5+1,'' FDD
Policy Brief, January 10, 2014.
\73\ Emanuele Ottolenghi & Saeed Ghasseminejad, ``The Banking
Provisions in the Joint Plan of Action Between Iran and the P5+1,'' FDD
Policy Brief, January 10, 2014.
\74\ European Union, Factsheet, ``E3/EU+3 Nuclear Negotiations with
Iran: Terms of the Agreement on a Joint Plan of Action, Including
Measures to be Undertaken by the European Union,'' January 17, 2014,
page 3.
\75\ Jonathan Schanzer & Mark Dubowitz, ``Iran's Turkish Gold
Rush,'' Foreign Policy, December 26, 2013.
\76\ For more on this, see: Jonathan Schanzer & Mark Dubowitz,
``Iran's Turkish Gold Rush,'' Foreign Policy, December 26, 2013.
\77\ Orhan Coskun & Ece Toksabay, ``Hit by Scandal and
Resignations, Turk PM Names New Ministers,'' Reuters, December 25,
2013.
\78\ Orhan Coskun & Ece Toksabay, ``Hit by Scandal and
Resignations, Turk PM Names New Ministers,'' Reuters, December 25,
2013.
\79\ Suzan Fraser, ``Turkish Police Seize $4.5m Stashed In Shoe
Boxes In Bank Chief's Home: Report,'' Associated Press, December 18,
2013.
\80\ Fehim Tastekin, ``Iranian Gold Stars In Turkish Corruption
Scandal,'' Al-Monitor, December 20, 2013.
\81\ Isobel Finkel, ``Halkbank Says Role in Iran Gold Legal After
CEO Arrest,'' Bloomberg, December 23, 2013.
\82\ Gary Clark, Rachel Ziemba & Mark Dubowitz, ``Iran's Golden
Loophole,'' Roubini Global Economics and Foundation for Defense of
Democracies, May 13, 2013.
\83\ ``Executive Order 13622: Authorizing Additional Sanctions With
Respect to Iran,'' Government Printing Office, July 30, 2012.
\84\ ``Halkbank's `Smart Management Decisions' Praised by Iranian
Ambassador Bikdeli,'' Today's Zaman (Turkey), December 20, 2013.
\85\ Yeliz Candemir, ``Halkbank Says Business Transactions with
Iran Comply with Law,'' The Wall Street Journal, December 23, 2013.
\86\ U.S. Department of State, ``Fact Sheet: Iran Freedom and
Counter-Proliferation Act of 2012,'' accessed January 30, 2014.
\87\ Statement of Under Secretary of the Treasury for Terrorism and
Financial Intelligence, Testimony before the House Committee on Foreign
Affairs, May 15, 2013.
\88\ Shashank Bengali, ``U.S.-Iran Thaw Began With Months Of Secret
Meetings,'' Los Angeles Times, November 24, 2013.
\89\ Julie Pace, ``Former State Department Adviser Jake Sullivan
Reemerges As Iran Policy Player,'' Associated Press, December 23, 2013.
\90\ Jonathan Saul & Parisa Hafezi, ``Exclusive: Iran, Russia
Negotiating Big Oil-For-Goods Deal,'' Reuters, January 10, 2014.
\91\ Joao Peixe, ``Possible Iran-Russia Oil Deal Ruffles Feathers
In Washington,'' Christian Science Monitor, January 15, 2014.
\92\ ``Kerry: U.S. Will `Pause' Efforts To Restrict Iranian Oil
Sales,'' UPI, November 29, 2013.
\93\ Robin Wright, ``Exclusive: Iran's Foreign Minister Says
Sanctions Would Kill Nuclear Deal,'' TIME, December 9, 2013.
\94\ Mark Dubowitz & Rachel Ziemba, ``When Will Iran Run Out of
Money?'' Foundation for Defense of Democracies and Roubini Global
Economics, October 2, 2013.
\95\ Gary Clark, Rachel Ziemba & Mark Dubowitz, ``Iran's Golden
Loophole,'' Roubini Global Economics and Foundation for Defense of
Democracies, May 13, 2013.
\96\ Mark Dubowitz and Orde Kittrie, ``A Bad Agreement Likely to
Get Worse,'' The Wall Street Journal, November 24, 2013.
\97\ Robert Einhorn & Kenneth M. Pollack, ``Iran Nuclear Talks
Fail'' Brookings Institution's Big Bets & Black Swans--Memorandum to
the President, January 23, 2014.
The Chairman. Thank you, Mr. Dubowitz. I look forward to
exploring with you both the value and the consequences of the
sanction relief that I read in your testimony.
The committee will stand briefly in recess to conduct a
business meeting in S-116, and then we will return immediately
afterward.
And I thank this panel for their patience. It is an
incredibly important topic, a lot of interest for the
committee, and your testimony is incredibly important as part
of the record.
So, the committee stands in recess, subject to the call of
the Chair.
[Recess from 12:06 p.m. until 12:40 p.m.]
The Chairman. This hearing is reconvened.
Let me thank you both for your forbearance, and we
appreciate your willingness to hang in there with us.
Let me start with you, Mr. Albright. You have a lot in your
testimony that--I hope people will read the testimony. Some of
it is technical in nature, and I plowed through it, you know,
and--not an expert, but I plowed through it, made----
Mr. Albright. I apologize.
The Chairman. No, no, not at all. On the contrary, I think
it is incredibly important to understand. Because what a deal
ends up being that we can support depends upon what it is.
So, let me ask you some questions to further elucidate the
record and your testimony. Is there a way to significantly set
the clock backward, using a metaphor, on Iran's nuclear weapons
capability without closing Fordow or without significantly
dismantling Iran's centrifuges?
Mr. Albright. I do not believe so. I think it--at the heart
of this is a need to significantly reduce their centrifuge
program. And I think, with the Arak reactor being part of a
plutonium route, you are really confronted with the need to
shut that down. And again, it can be converted to something
else, but it--the way it is designed, according to early
Iranian declarations--I mean, we do not know the final detailed
design; they have not provided that to the International Atomic
Energy Agency yet. But, it is best configured to make weapon-
grade plutonium, and you do not want Iran to have such a
reactor.
The Chairman. And Iran could only have one enrichment site,
the one at Natanz.
Mr. Albright. Yes. And I think that--from our analysis, it
eases the verification, and it removes a site that is not
invincible, but gives Iran a sense that they can withstand a
military strike
and not have its--some number of centrifuges down that hole
destroyed.
The Chairman. I had questioned why you would bury, deep in
the mountain, an enrichment site if your purpose is for
civilian nuclear energy.
Mr. Albright. That is right. No, and there is a lot of
suspicion that it was originally designed to be a site to make
weapon-grade uranium.
The Chairman. Now, I spent some time with Secretary Sherman
going over the elements of your testimony, and maybe you could
help--for those who do not have all the nuances, help make, in
laymen's terms, the--what you describe as the loophole for--I
think, as your testimony describes--on Iran's ability to
continue the development of these IR-2 centrifuges. What
exactly does that mean, and why is that consequential?
Mr. Albright. Well, one is--is that it is--the IR-2m is a
centrifuge that is much more capable than the ones they have
deployed, the IR-1--anywhere from three to five times more
effective, and also it is more reliable. It is based on a
German-designed centrifuge that went via Pakistan to Iran, and
then Iran modified it. But, it is--at its heart, it is a more
reliable one than the
IR-1. And so, during the interim deal, they are still able to
run a production-scale cascade at the pilot plant at Natanz,
and they can just learn to operate it better, work on its
reliability, to further improve that, to gain confidence in
running it in this cascade.
They will still need to deploy it in large numbers, and
they have started to do that at the underground site. There are
1,000 deployed in six cascades. And they would still need to do
that. So, they cannot finish, but they can make significant
progress on continuing to develop this machine.
The Chairman. And one of the things you said in your
testimony, it can further develop this particularly advanced
centrifuge while hiding any results of its progress from the
IAEA.
Mr. Albright. Yes, and it is--a year or two ago, Iran told
the IAEA it was going to start enriching in that machine, and
depositing the enriched product into the product tanks, and the
IAEA would--and everyone else--would know how well the machine
works. They decided--they then, subsequently, announced they
were not going to do that. And so, the IAEA is left, in a
sense, somewhat blind about the capabilities of this machine. I
mean, is it truly that great, or is it having problems? And so,
the IAEA just does not know. I mean, I think the worry is that
they are hiding the capability from the IAEA, so we just--no
one knows, and that it is actually making progress.
The Chairman. Now, one of the--the importance of this
element of the centrifuge is--is that, you say in your
testimony, ``At the end of the interim period, Iran is likely
to be far better positioned to deploy reliable IR-2m
centrifuges, which is this more advanced centrifuges, on a mass
scale at its enrichment plants. And this gain, if there was to
be no agreement, would allow Iran to make up for time lost more
quickly.'' You go on to say, ``A centrifuge five to ten times
more capable than the IR-1 centrifuge''--I assume those are the
ones that they are using now--``would require five to ten times
fewer centrifuges to make the same amount of weapon-grade
uranium for nuclear weapons, allowing for much smaller
facilities, fewer personnel, and procurement of less material.
Centrifuge research and development could also lead to
breakthroughs in materials or methods that would further
strengthen a secret breakout effort and make both the
implementation and verification of a comprehensive solution
extremely difficult.''
Mr. Albright. Yes. I mean, and when I say ``five to ten
times,'' that is beyond the IR-2m, but they are working on such
machines. At least they have stated that, in the past, to the
international inspectors. And so, they want to have a machine
that is up to ten times--ten times the output of the current-
generation one. And those machines pose particular difficulties
for verification. If you do, as you have stated, need far fewer
of them, then you can get by with a much smaller facility. And
particularly if you are developing the skill to make them and
operate them, then you do have to worry about them. And it
would be better that they not be developed. And I think that is
our recommendation----
The Chairman. And your final conclusion of that is that,
``Development of more advanced centrifuges would greatly ease
its ability''--meaning Iran--``to conduct a secret breakout to
nuclear weapons.''
Mr. Albright. That is right. If you only need, let us say,
1,000 of them to have the capability to enrich up to weapon-
grade uranium, then you can use a much smaller facility. I
mean, Fordow, the underground one, is sized for about 3,000
centrifuges. So, if you can reduce the number--and another
thing that happens, as you learn to operate these more
sophisticated machines, you are actually advancing your skills
quite considerably, both in manufacturing and in operation. And
so, the--and one of the problems the Iranians have faced with
the IR-1s is just getting them to operate at a minimal level,
and they have faced many breakages and had troubles getting the
enriched uranium output up.
The Chairman. Now, two final questions to you. ``During the
interim period,'' you state, ``particularly with weakening
sanctions, Iran can focus on building up its supply of
essential goods and alleviating bottlenecks in certain key
goods, allowing for a much more rapid expansion of its programs
at the end of the interim period. These problems will grow the
longer the interim period lasts.'' And then you go on to say,
``Delay works more in the favor of Iran than it does of the
United States and its allies.'' Can you explain why that is the
case?
Mr. Albright. Well, if--as they--they do need to go out and
buy things. Examples would be carbon fiber. They need to buy
pumps for the Arak reactor. They need to find maraging steel.
There is a--and there is all kinds of vacuum-related equipment
that they need to buy. And they now have an opportunity to
continue that buying.
And again, sanctions and laws are designed to try to stop
them, but they have proven to be less effective than, I think,
we at ISIS thought they would be. I mean, Iranians are very
good at smuggling, and they--and while their--many of their
efforts are stopped--there is interdictions of their goods--
things are getting through. And now they have this additional
period to continue this, and it is one of the--and what they
can do is develop a stockpile of materials that then would
allow them to build many more machines. That is the bottom
line, is if they can stockpile, they can then, if the deal
breaks down, build a lot more. And it is also why we think, in
recommending the--in the comprehensive solution, that Iran
commit not to do this anymore, that they have to give up these
smuggling operations that they have mounted so effectively.
The Chairman. Mr. Dubowitz, I have questions for you, but I
am going to turn to Senator Corker, because I know he has time
constraints, and then I will come back.
Senator Corker. I want to thank you both. And I agree with
the chairman, I think your testimony today is--both in written
form and orally--is outstanding. I wish everybody on the
committee could hear it and, candidly, help the administration,
as someone paying attention.
But, Mr. Albright, I will start with you, since you
testified first. What is our current capability to detect if
Iran is enriching in a warehouse someplace that we are unaware
of?
Mr. Albright. Well, the U.S. intelligence, despite some
recent reports in the media, is pretty good on Iran. I mean, it
has found the Fordow site, and it--with its allies. I mean, it
is a combined effort. It identified sites in the early 2000.
And so, it is--and it has been willing to work with the
international inspectors, so you can have people on the ground
using intelligence information. And so, it is pretty good. But,
it is not perfect, and there is worry that, if Iran built a
secret centrifuge site, it could go undetected. And the current
arrangement with the inspectors right now, while better, is not
enough in order for the IAEA to say they can tell you that they
can find a secret site. So, there remains a risk. And that is
another reason why you want the interim deal to be short-lived
and to try to get a comprehensive solution, where the
verification arrangements are put in place that, combined with
Western intelligence, can provide much greater assurance that
there is no secret nuclear site.
Senator Corker. And based on the way these negotiations
have begun, and looking at the public comments that the P5+1
and Iran are making, and just looking through what has
occurred, what do you think is, today, the likely outcome on
July the 20th?
Mr. Albright. Well, I think it--after we released our
report, a couple of weeks ago, I must say that I cannot be very
optimistic. Iranian statements are pretty clear. I think you
quoted some of them. They appear unwilling to accept the deep
cuts in their centrifuge program that I think are necessary. I
mean, maybe they will give up or allow the Arak reactor to be
converted into another type. Maybe they will even shut down
Fordow. But, I think getting them to reduce the number of
centrifuges is going to be very tough.
I think the military-dimension side of this is going to be
tough. Iran has--resisting greatly allowing the inspectors to
go to Parchin, and they--and, in a sense, Iran has dug itself a
very deep hole. And so, I think that is going to be a tough
issue to surmount. And I think, in that case--I did appreciate,
in the legislation that you produced, that there was a
condition put in that Iran is going to have to satisfy the
IAEA's concern on past and possibly ongoing military issues. I
think the administration has said, in private settings, that
there will be no comprehensive solution unless they satisfy--
Iran satisfies the IAEA. But, one would like to see that as a
firm written statement from the administration.
Senator Corker. And do you agree with Mr. Dubowitz that, as
we move along and the economy improves and the indicators that
we now see there makes it even more difficult for us to have
leverage to cause them to--to cause us, as a country, and many
others, to overcome where they are? Do you agree with that?
Mr. Dubowitz. I do.
Senator Corker. Mr. Albright.
Mr. Dubowitz. Oh, I am sorry.
Senator Corker. Yes.
Do you agree with the comments your colleague has made
relative to----
Mr. Albright. On the----
Senator Corker. That is right.
Mr. Albright. Yes. I certainly worry that--another reason,
in my mind, where you want an interim period--is as short as
possible, with clear consequences on Iran if that period
elapses. So, I think the--now, we will have to see. I mean, I--
again, we are not--at ISIS, we are not economics specialists,
by any means, we are not sanctions experts. So, I am just
offering that.
Senator Corker. Mr. Dubowitz, you have talked, both orally
today, written testimony--I know we had a long meeting with you
yesterday. What do you think the effect of passing the
legislation Menendez and Kirk have offered, and many have
signed on to--what would the effect of that be, relative to
their economy today?
Mr. Dubowitz. Well, Senator Corker, I think the legislation
had, as its intent, to send a credible threat, to international
markets, that it is premature to go back into Iran, and that if
Iran does not satisfy the interim conditions, if it cheats on
the JPOA, if it fires off long-range ballistic missiles, if it
launches terrorist attacks against America, that all that
sanctions relief would be gone, and new sanctions would be
imposed on Iran.
And I think--most importantly, I think it sent a very clear
message that this will not be a endless process of
negotiations, that there is a 12-month clock on this. And at
the end of those 12 months, Iran has got to come to a
comprehensive nuclear deal that satisfies very clear parameters
and principles that were laid out in the legislation. Not deal
terms. It does not specify how many centrifuges Iran should be
left with. But, it has very clear end-state parameters.
And I think that is an important message to send to the
international business community and to the investors and
consumers in Iran, that, at the end of the 12-month period, if
there is no comprehensive, conclusive deal, then the sanctions
will be imposed. I think that had the legislation been passed,
that it would have given a lot of credibility to that threat.
My fear is--as expressed in my testimony, is, without that
credible threat, we are going to start to see the macroeconomic
data shifting in Iran's favor. And I think it already has. It
is modest. It is fragile. But, it is also real. And, by the end
of 12 months, if that economic recovery has become much more
substantial, then I think there is far less pressure on Iran to
negotiate. And then, my ultimate fear is raised, which is, I
think both the administration and Iran want to actually keep
perpetually rolling over this deal for additional 6- to 12-
month periods. I think it satisfies, potentially, objectives on
both sides. And I think there is a great risk in doing that,
because I think the Iranians will then gain even more economic
leverage as their recovery increases.
Senator Corker. Mr. Chairman, my staff is about to have a
heart attack because I need to be someplace else. But, if I
could ask a question that----
The Chairman. Of course.
Senator Corker [continuing]. He can answer for the record,
I would appreciate it.
You know, we have seen what happened in Turkey with the
gold-for-oil situation. We now see, it looks like, almost a
copycat kind of effort taking place or being proposed by Russia
right now. Is it your sense that the Treasury Department--that
this was an oversight? Or, do you think this was an
accommodation, relative to the negotiations that were taking
place?
Mr. Dubowitz. Well, Senator Corker, I have the absolute
greatest respect for Under Secretary Cohen and his sanctions
team at Treasury. I think they have done, you know, herculean
work in helping to enforce the sanctions that Congress has put
in place. I think that there were, potentially, other
considerations--considerations that the State Department and
the White House had--in not cracking down on what was clearly
an illicit financial money-laundering scheme, that it has--it,
purportedly, has yielded Iran over $100 billion. And, you know,
it is a long and complicated saga, about what happened and how
the administration responded and provided ``Golden Loopholes''
that were ultimately not closed until Congress finally closed
it, and then the administration insisted that there be an
additional 6 months before those precious-metals sanctions came
into effect. I think it had a lot to do with the secret
negotiations that were taking place with Iran. It had a lot to
do with having gold sanctions relief on the table at ALMATY in
February and April.
But, the conclusion of the long saga is that Iran was able
to exploit a significant ``Golden Loophole,'' was able to get
about $13 billion in gold and over $100 billion in illicit
financial transfers, and ultimately blow a major hole in the
international financial sanctions regime. I think we did not
crack down on Turkey, and perhaps that is because of President
Obama's partnership with Prime Minister Erdogan.
My fear is that, on the Iran-Russia deal, we are going to
face the same situation. And, despite Under Secretary Sherman's
assurances that everybody has read the riot act to Vladimir
Putin, I am a little concerned that Putin is not necessarily
deterred by administration riot acts.
Senator Corker. Not to be too pejorative, but I think it is
pretty understood that the administration has tied its future,
so many areas, to its relationship with Russia that it really
is difficult to sense, or even feel, that they would crack down
on this in the appropriate way. But, I hope they will. And I
appreciate your testimony.
Mr. Chairman, thank you for this great hearing today.
The Chairman. Thank you, Senator Corker, for your work and
your participation in helping us prepare it.
Let me just finish off with you, Mr. Albright, to help us
define, for the record, what a verifiable, long-term deal--the
elements of that--what it would be to ensure that Iran does not
have nuclear-weapon capability.
Mr. Albright. Well, it--I think it is a fairly long list of
provisions, so let me try to summarize.
The--talked about the Arak reactor needs to shut down.
There are also--I think, even before that, there--you have to
have commitments from Iran not to reprocess or separate
plutonium, and not to build facilities capable of doing that.
So, it is--even if the reactors--Arak reactor is shut down,
that is not enough, by itself.
You also do not want to Iran ever again enriching above 5
percent, that it would just be--it would be limited to the
types of fuel used in civil nuclear reactors or power reactors.
I have mentioned the one about procurement of goods
illicitly. The centrifuge--and also the one site--enrichment
site. I mean, centrifuge R&D is going to be important in the--
again, these would be conditions imposed for a certain
duration. We are recommending 20 years. But, you would want to
limit centrifuge R&D to, essentially, models no greater than
the IR-2m. I think you would not want to stop that one,
necessarily.
You need to limit centrifuge component manufacturing. And
so, if you reduce the size of the centrifuge program
significantly, you are going to have a lot of spares. I mean,
some would be set aside and stored, and then could be used
later as spares. So, Iran would not need to make any more of
these IR-1 centrifuges ever again. And even on the IR-2m, if
they then subsequently deployed those under this cap of an--on
the size of enrichment, they would even have some spares there.
And so, you would limit that part of the program.
One of the issues is the size of the low-enriched uranium
stockpiles, that one of the things the interim deal does is, it
moves, let us say, near-20-percent LEU hexafluoride into
another chemical form, and puts it in a different category, the
oxide form. And under the interim deal, that is seen as okay.
But, the problem is, in the long-term deal, you can take that
material and reconvert it into fluorine, and so, you do not
want Iran holding very significant stocks of that type of LEU.
And so, you would also want to cap that, and Iran would give
up, blend down, send out of country, or whatever, a significant
part of its near-20-percent LEU oxide stockpile.
You also want to get, in terms of their--you want to have
more controls over the uranium mining and milling operations,
where the--again, this is more verification, but the--Iran
would be much more open about how much is made very year, and
where it goes.
And then, in addition to verification, you would impose a
cap that--you do not want Iran mining more uranium than it
could possibly use. And so, the limits on the uranium mining
would be consistent with the centrifuge program that is
allowed.
You need conditions from Iran not to proliferate. I mean,
there are worries about Iran working with North Korea to bypass
some of these caps. And so, you would want to have some
commitments by Iran not to do that.
And then--and let me just end on the verification. The
additional protocols is a marvelous improvement in verification
for the International Atomic Energy Agency. It does not change
their rights, but it gives them many more tools, and gets
upfront agreements from the nations to allow things. But, it
has been learned, in the case of Iran, that it is just not
enough. With a country that has successfully deceived the IAEA
for many years, has refused to cooperate, that many more
conditions, or several more conditions, are going to be needed
to be imposed. And some of those would be that they--the IAEA
would have greater access to the centrifuge manufacturing
complex that remained, that the--right now, it--under the
interim deal, it can see the--where rotors are made, rotor
tubes are made, and where centrifuges are assembled. You would
want that. But, even in that case, you would want to know how
many rotor tubes have been made, how many raw materials have
been procured for those----
The Chairman. So, it is a pretty and extensive and invasive
list of----
Mr. Albright. Yes, it has to be. I think that is--that is
the lesson of the suspension period.
The Chairman. What drives me to concern is the gulf between
the list that you and the Institute have devised and others
have also said--Dennis Ross, in his article, for example--and
the gulf between that and everything that we hear in Iran, in
which President Rouhani says, ``No, we are not going to destroy
it.'' Now, maybe that is a maximalist position, as Secretary
Sherman said, but there is a huge difference between where
these two parties are at. And certainly, what--from the West's
perspective--P5+1--will be absolutely necessary to have a deal
that is verifiable and that can be embraced.
Mr. Albright. No, that is right. And the--and it also--I
think it--I think we have to plan for the deal not working or
the negotiations to fail. I mean, President Obama gave it--50-
50 chance. The Iranians gave it less of a chance. I mean,
administration officials below the President have given it
pretty low chance of success. So, I think--if that is the true
picture, then I think we do have to start putting in place some
real plans for failure. And what will happen then--and it may
turn out that it will incentivize--or give the Iranians an
incentive to compromise more.
The Chairman. Well, that brings me to you, finally, Mr.
Dubowitz. And I appreciated your work and your insights over
time.
You know, first of all, let us talk about the real value of
the sanctions relief that is being pursued under the Joint Plan
of Action. You have suggested, both in your oral and further in
your--extensively in your written testimony--that it is beyond
$7 billion. Talk a little bit about the $7 billion in the
context of what was Iran's actual available cash reserve,
versus its ultimate cash reserve.
Mr. Dubowitz. Well, thank you, Chairman Menendez.
I mean, I think, first of all, the $7 billion is not
insignificant. I mentioned that, according to our sources, Iran
only had $20 billion in fully accessible foreign exchange
reserves, and much of the money was available--was actually
locked up or was in escrow accounts, but they had $20 billion
that they could fully access. So, you are infusing $7 billion
into 20. You are increasing their fully accessible reserves by
35 percent.
The second issue--and it has really been puzzling for me--I
have not understood why the administration came out and refused
to acknowledge that there would be some shift in market
psychology, that investor and consumer sentiment may increase,
that there may be some illicit deals done with Russia or Turkey
or other countries, and that the sanctions relief may be more
than $7 billion, based on a shift in economic activity, market
sentiment. I think that the administration could easily have
acknowledged that, could easily have said to Congress, ``Look,
it is possible this is more than $7 billion; it may be actually
significantly more than $7 billion. We will do our best to
ensure that it is as little as possible.''
What it leads me to believe--and this is where I get
worried--is that the administration actually understands the
sanctions relief was significantly more than $7 billion, but
that their theory of the case is that they are trying to get
President Rouhani hooked on cash. And what I mean by that is
that they are trying to create an economic incentive for
Rouhani to compromise, and that they believe that the Iranian
people will demand it, that we will strengthen Rouhani's hand,
and that, therefore, he will have more leverage with the
Supreme Leader to negotiate a deal within 6 to 12 months; and
that when we start to see the macroeconomic indicators begin to
turn in Iran's favor--and they already are turning in Iran's
favor--that the administration will come back to you, in 3 to 6
months, and say, ``Chairman Menendez, we actually think it is a
good thing. We understand that the inflation rate is down, that
the rial-dollar exchange rate is to Iran's advantage, that the
GDP is starting to increase, that the auto sector is starting
to recover. All of that, we did not anticipate, but now we
acknowledge. And actually, that is a good thing, because it is
now incentivizing Iran to do a deal.''
The Chairman. Yes. We heard a little bit of that also in, I
think, Secretary Sherman's response to--I think it was Senator
Murphy--that she called it, ``In a perverse sense, that these
trade missions actually incentivize the regime''----
Mr. Dubowitz. Right.
The Chairman [continuing]. ``To think about what could
be.''
I look at two sectors that you talked about extensively in
your testimony, the automotive sector and the petrochemical
sector. It is interesting that relief to the petrochemical
sector actually helps the Ayatollah receive money directly
through his control of Setad, which is a conglomerate totally
controlled by the Ayatollah and for which they have several
investments in petrochemical sites. Is that a fair statement?
Mr. Dubowitz. Yes. I mean, perhaps we are trying to get the
Supreme Leader hooked on cash, as well, because if--maybe if
his holdings in the petrochemical companies that are trading on
the Tehran stock exchange increase in value, then he will start
to see economic benefit.
I mean, what I find puzzling about the sanctions relief
that has been provided is that what we have done is, we have
provided relief on key sectors of the Iranian economy. You
know, I and others had recommended that, if we were going to
provide any relief, it should have been strictly through the
return of some frozen oil revenues, not to Iran, but to be put
in other accounts, where the Iranians could spend that money in
Europe, for example. But, instead, what the administration has
done is that they have lifted sanctions on some of the most
lucrative sectors of Iran's economy, including sectors, as you
have acknowledged, controlled by the Ayatollah, controlled by
the Revolutionary Guards.
The Chairman. And, in doing so, obviously, to the extent
that they are opening those sectors, it is legitimate for the
private sector to say, ``Well, at least for this period of
time, we can be engaged in these sectors, because they are now
no longer subject to sanction.'' And is it not fair to say
that, when the administration has tried to quantify the value,
that presumes 6 months of relief for value based upon what
those sectors provided prior to the sanctions, not an
enlargement? If I were Iran, I would put the pedal to the metal
and try to maximize the petrochemical and auto sector during
this period of time so that I could actually get better
benefits and increase the parts available to me, so that, in
fact, I can move the ball forward, should an agreement not be
achieved. Is that a fair----
Mr. Dubowitz. Well, that is exactly right. I mean--and I
think--you know, again, what I find puzzling is that--let us
take the auto sector. The administration values the auto sector
relief of $500 million, on the assumption that Iran will now be
able to sell $500 million more cars--export $500 million more
in cars. Well, if you look at the Iranian auto sector in 2011,
it represented about 10 percent of Iran's total GDP, and it
contributed $50 billion to Iran's economy. Because the secret
about Iran's auto sector is not--it is not a--it does not have
huge export potential; it has huge domestic potential. It is a
country of 75 million people who want to replace their cars.
And Peugeot and Renault and major international and--auto
companies, who, by the way, were in Tehran 2 days after the
Geneva agreement was signed, recognize that enormous potential
for the auto sector.
And so, what I believe Rouhani has done is, he has bought
himself not only something that has tremendous economic
potency, but political potency, as well, where he can represent
himself as the man who saved the Iranian auto sector. And if
you look at the potential for domestic auto production, for
wages paid, for GDP actually generated, you have, over the next
6 to 12 months, more significant potential in the auto sector
than I believe the administration is acknowledging.
The other, I think, concern that I have is--you heard Under
Secretary Cohen say that they have essentially said to
international businesses, ``You have got to have your deal done
in 6 months--goods delivered, payment made within 6 months.''
And yet, you have Catherine Ashton acknowledging that this is
actually going to be a 12-month deal. And the JPOA actually
acknowledges that this can be renewed for an additional 6
months. So, if you are an international CEO, and you want to go
back into Iran's auto sector, you are not thinking of this as a
6-month deal, you are thinking of this as a 12-month deal. You
also are thinking you have got to get ahead of your
competitors, so you need to get back in there. And so, you are
starting to make those investment and business decisions, not
only even based on a 6-month window or 12-month window, but you
are probably assuming that the administration is going to renew
this interim agreement for further periods of 6 or 12 months.
And so, you have got the auto sanctions relief, and now your
opportunity to exploit a market that the Boston Consulting
Group says is the world's third most promising auto sector,
after Indonesia and Mexico.
So, this is significant sanctions relief. Again, for
nuclear concessions that is--as David Albright has said, may be
important, but are also reversible and may not get to the heart
of Iran's military nuclear program.
The Chairman. And finally, on oil relief, it seems to me--
and one of the reasons that I did not want to continue, because
I wanted to get to both of you--is that my understanding of the
oil relief is that, actually, there can be a permission to
purchase more than the latest reduction. Because what is going
to happen is, there is going to be an averaging out or a means
of the overall reductions over time. If that is the case, then
not only is the amount of money underestimated by forgoing the
additional 6 months of reductions that the law presently calls
for, which are foregone, but you also have an increase in the
amount of purchase that would be permissible for those
countries that have received exceptions. Because if you average
it out, the lowest point being the present point, but a higher
point at a different time, that means you are going to rise the
amount of oil that you can purchase.
Mr. Dubowitz. Well, that is exactly right. I mean, there
are some interesting indicators on where the oil issue may be
going. First of all, President Rouhani has assumed, in his
budget, that Iran will be exporting 1.5 million barrels per
day. So, on the assumption that President Rouhani, if he is a
better economic manager than his predecessor, is being
conservative, you would assume that he has some expectation
that, over the next 12 months, he is going to be able to export
1.5 million barrels per day.
The second interesting economic indicator is that Iran's
oil exports in October were actually down to about 760,000
barrels a day. They have now recovered, in January, to about
1.2 million. And so, you are starting to see the ``Geneva
effect'' already on Iran's oil exports as they begin to recover
from 700,000 to over a million barrels.
And a third----
The Chairman. And do you----
Mr. Dubowitz [continuing]. The third issue, if I could
just----
The Chairman. Go ahead.
Mr. Dubowitz [continuing]. Just quickly finish on this--and
that is that, you know, your legislation closed a very
important loophole that the Iranians have been exploiting,
which allowed them to export $1.6 billion a month in fuel oil
and condensates. So, over the 6-month period of the Geneva
agreement, because the legislation has not come into effect,
Iran will earn $9.6 billion in fuel oil and condensate revenue,
in addition to what they are earning on the oil side.
So, in total, you have got an oil sector that I believe the
Iranians have estimated is going to start to recover. These
barrels are going to start to flow. And I think the net effect
of this--and just to tie this into Dr. Albright's testimony,
is--if we even get a comprehensive deal with Iran, what
leverage do we have left to ensure verification and enforcement
of that deal? We are putting a lot of faith in the IAEA, and
even in the additional protocol.
You know, if you read the Pentagon's Defense Science Board
report that was recently released, you see that our history of
detection of breakout is not good. And the question is, Even if
we do detect Iranian breakout, how do we enforce it? When the
Iranians engage in what they always do, which is, they engage
in incremental cheating on their nuclear program, are we going
to have the tough sanctions still in place so that we can lower
the economic boom in order to force them back into compliance?
Or will we have traded away all our economic leverage so that
we will have no enforcement mechanism left, beyond threatening
military strikes every time the inspectors are not allowed into
a facility? And I worry about that the administration has not
done enough thinking, post deal, on what kind of enforcement
mechanism we are going to retain to ensure that the Iranians
continue to comply with their responsibilities.
The Chairman. And I think that is a critical question. When
I looked at Director of Intelligence Clappers' statement
before--
I guess it was, the Intelligence Committee that he made the
statement--that, in fact, Iran possesses, as we heard here,
Secretary Sherman say, `` We have all the knowledge.'' The
question is, Have they made the decision to finally move
forward toward nuclear weapons? Everything else is intact. So,
if you have knowledge intact, and then if you have nuclear
infrastructure intact, you are just steps away from when you
make that decision of moving forward.
And, to the extent that Iran has arrested, if it has,
itself for making that decision, it is only because of the
consequences of sanctions that have been levied and enforced
that have the Ayatollah thinking about regime change, not from
without, but from within.
And, to the extent that that equation goes by the wayside,
that there is no economic pressure to have the Ayatollah be
concerned about regime change, which is his primary purpose--to
preserve the regime, not to have it changed--then it changes,
it seems to me, the Iranian equation as to their drive to
strike the type of deal that we have defined here would be
necessary. And that is a real concern.
And ultimately, if we do not have the extensive list that
Dr. Albright has listed, and that I think others would agree
to, then we will fall short the regime's--the sanctions regime
will evaporate, and the only question for a future American
President, if Iran, having still a infrastructure that is
largely, I will say, mothballed--having the knowledge and then
making the decision, there will be no sanctions--no time to
enforce--to create--re-create an international order and have
sanctions be able to be pursued. So, that equation will be off
the table, and the only thing left for any President will be,
``Do I accept a nuclear-armed Iran, and what that means to the
whole--that whole part of the world, or do I have a military
strike?'' That is an unenviable position to be in when, in
fact, we could be in a much better position.
I see, Dr. Albright, you were leaning to try to make a
remark. I am not eliciting one, but if you have one, I am happy
to entertain it.
Mr. Albright. No, I agree with you. I am thinking about
what you were saying. And I think the--I mean, it reinforces
the need to both cut down the size of the program dramatically
and increase the verification. And I think, in the cases that
we have, that, when you have those two combinations, you can
verify it. I mean, U.S. intelligence may fail. But, again, I
would argue, it is Western intelligence, working together, and
combined with the cutback and the very intrusive verification,
can give you enough of a warning to provide sufficient time to
mount a new effort. But, if in your case, you do not cut it
back enough, then I would agree that that could be what a
future President faces: accept it or go to war.
Mr. Dubowitz. But, Chairman Menendez, I mean, I think, to
your point, you know, my concern is that the verification could
be perfect, the detection could be perfect, but if you actually
no longer have an option, beyond a military strike, then you
are in exactly the situation you have described, which is a
President--a future President who is in the position to choose
between nuclear breakout or a military response. I think what
you have done, what your committee has done, what I think you
are attempting to do with S. 1881, is, you are attempting to
retain important economic leverage, which provides for a
peaceful response to detection. It sends a message to the
Supreme Leader that, ``If you do try and cheat, and every time
you do cheat, we are going to lower the economic hammer on you,
and that is going to create the kind of domestic discontent
that you are going to have to wrestle with and that may be a
threat to your regime's survival.''
Again, my fear is that, despite the best work of David
Cohen and, you know, Peter Harrell and Amos Hochstein and all
the folks at Treasury and State who are dedicated public
servants who have done a tremendous job, that the market
dynamics are shifting, that market psychology is changing, and
that Rouhani and the Supreme Leader understand that they can
continue to diminish the efficacy of our sanctions. Because,
ultimately, greed drives markets. And if greed overrides fear,
every company armed with a battery of lawyers, or an army of
lawyers, is going to find a way back into Iran, despite the
best assurances of David Cohen and others.
The Chairman. Well, with the thanks of the committee for
both of your testimony and your work, we look forward to
continuing to engage with you as we review the progress, or
lack thereof, made in the days ahead.
The record will remain open until the close of business on
Thursday.
And this hearing is adjourned.
[Whereupon, at 1:22 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Responses of Under Secretary Wendy Sherman to Questions
Submitted by Senator Robert Menendez
Question. Does the administration have an objective for re-setting
the break-out clock for Iran's nuclear program? What specific steps are
necessary to increase Iran's break-out time to 6 months? To 1 year?
More than 1 year? Would Iran have to close the Fordow enrichment site?
How many centrifuges would Iran need to dismantle?
Answer. We are focused on achieving a long-term comprehensive
solution that resolves fully the international community's concerns
regarding Iran's nuclear program, and verifiably ensures that Iran's
nuclear program is exclusively peaceful and that Iran does not acquire
a nuclear weapon. We have always been clear in our discussions with
Iran that, as part of a comprehensive solution, Iran will be expected
to place strict limits and constraints on its nuclear program. In
particular, the JPOA specifies that the comprehensive solution would
involve a ``mutually defined enrichment programme with practical limits
and transparency measures to ensure the peaceful nature of the
programme.'' Moreover, addressing the long-term status of Fordow will
be a priority in the negotiations for the long-term comprehensive
solution. Under a comprehensive solution, Iran would also be subject to
enhanced verification and monitoring measures to verify the exclusively
peaceful nature of its nuclear program.
Question. What duration is necessary for the long-term monitoring
and verification regime of any final comprehensive agreement? Given the
extensive history of Iran's nuclear program isn't a minimum of 20 years
necessary to assure the world Iran has given up its nuclear ambitions?
Answer. Any comprehensive solution would have to be of a long-term
duration, address fully the international community's concerns
regarding Iran's nuclear program, and ensure that Iran does not acquire
a nuclear weapon. Iran would also be subject to enhanced verification
and monitoring measures for the duration of the comprehensive solution,
which would provide verifiable assurances to the international
community that Iran's nuclear activities will be exclusively peaceful.
Question. What proliferation risks remain if Arak is transformed
into a light-water reactor? Is it possible to produce weapon-grade
plutonium with a light water reactor? Over the last 30 years, we have
seen a significant decline in the U.S share of the market and in our
ability to promote national security objectives through peaceful
nuclear cooperation. What are the principal reasons behind this
decline?
Answer. The current design for the Arak heavy water research
reactor raises a number of proliferation concerns. The reactor is
designed to use natural uranium fuel, which the use of a heavy water
moderator makes possible. This design is well-suited to the production
of significant quantities of weapon-grade plutonium, and poorly suited
to the reactor's stated purpose of producing medical isotopes. This is
why the Joint Plan of Action requires that Iran make no further
advances on the Arak reactor.
A light water research reactor fueled with low-enriched uranium
will be more efficient for isotope production and less capable of
producing weapons-grade plutonium. While any reactor can in principle
be used to produce weapon-grade plutonium, a light-water reactor can be
designed to make it harder to misuse the reactor to produce weapon-
grade plutonium, and effective International Atomic Energy Agency
safeguards can make such misuse relatively easy to detect.
In his April 2009 Prague address, President Obama said that we must
develop ``a new framework for civil nuclear cooperation, including an
international fuel bank, so that countries can access peaceful power
without increasing the risks of proliferation.'' Our commitment to that
vision remains steadfast today. While we have seen a decline of the
U.S. share in the global nuclear market, particularly given the
emergence of several new suppliers, the United States is working to
reinvigorate our nuclear industry to develop a new generation of safe,
clean nuclear power plants in the United States. At the same time, we
are working with our international partners to ensure that all
countries in compliance with their international nuclear obligations
can access nuclear energy for peaceful purposes in accordance with the
highest standards of safety, security, and nonproliferation.
______
Responses of Under Secretary Wendy Sherman to Questions
Submitted by Senator Bob Corker
Question. Both you and President Obama have hinted at an endgame
for negotiations that would leave Iran with a limited domestic
enrichment capability, but as you describe it ``with staggering
constraints, monitoring, and verification,'' so that they cannot
achieve nuclear breakout without detection.
Please explain your goal for this final round of
negotiations and what it means in terms of number of
centrifuges, stockpiles, underground facilities and
weaponization activities. In other words, what are the minimum
criteria for success in this final round?
What is your strategy to negotiate an endgame that brings
Iran into compliance with six U.N. Security Council
resolutions, which not only demand full and sustained
suspension of enrichment but also prohibit Iran from
undertaking ``any activity related to ballistic missiles
capable of delivering nuclear weapons, including launches using
ballistic missile technology''? Would you accept anything less
in a final deal?
Answer. We are focused on achieving a long-term comprehensive
solution that resolves fully the international community's concerns
regarding Iran's nuclear program and verifiably ensures that Iran's
nuclear program is exclusively peaceful. We have always been clear in
our discussions with Iran that, as part of a comprehensive solution,
Iran will be expected to place strict limits and constraints on its
nuclear program. Under a comprehensive solution, Iran would also be
subject to enhanced verification and monitoring measures to verify the
exclusively peaceful nature of its nuclear program.
Furthermore, as we prepare to begin negotiations on a long-term
comprehensive solution, we have been clear Iran must address the United
Nations Security Council (UNSC) resolutions related to its nuclear
program as part of a comprehensive solution. Among the measures imposed
on Iran, UNSC Resolution 1929 bans launches of ballistic missiles
capable of delivering nuclear weapons, and thus this will be among the
issues that must be dealt with in negotiations on a comprehensive
solution.
Question. Some observers have commented that the administration's
strategy is to get Rouhani ``hooked on cash,'' so to speak, through
sanctions relief, in order to entice him toward a final deal. Is this
part of the administration's strategy? Please explain what evidence and
logic supports this theory.
Answer. Over the past several years, U.S. and international
sanctions have added substantial pressure on Iran's economy, which has
also been buffeted by the Iranian Government's mismanaged economic
policies. It is clear that sanctions incentivized Iran to come to the
table and commit to important nuclear steps under the Joint Plan of
Action (JPOA). Given that the sanctions relief we are providing is both
modest and reversible--and unlikely to be sufficient to revitalize
Iran's economy--the Iranians may be eager for more sanctions relief
soon. After all, the $7 billion of estimated relief is a drop in the
bucket compared with what remains blocked around the world, what Iran
needs each year to fund its imports, and what Iran needs to close its
budget deficit.
If Iran is prepared to take the necessary steps that give us
confidence that its nuclear program is entirely peaceful, then we are
prepared, in consultation with Congress, to offer additional sanctions
relief. But if the Iranians are unwilling to negotiate credibly toward
a comprehensive solution, we will work with Congress to increase
pressure.
Question. We all respect the enormous diplomatic challenge facing
you and your team. Your EU counterpart, Catherine Ashton, said
yesterday that you will take the necessary time to seal what will be an
``extremely difficult'' deal, even if that means extending the 6-month
timeline.
1. Explain to us exactly what will happen in 6 months, on
July 21, 2014, if you have not reached a comprehensive
agreement.
2. If you renew the interim agreement by ``mutual
consent,'' what types of sanctions relief will you have to
provide in order to keep Iran at the negotiating table, beyond
what has already been granted?
Answer. The Joint Plan of Action expires 6 months from the January
20 implementation date. There is no automatic renewal or extension of
the relief the P5+1 is providing to Iran. The plan can only be renewed
by mutual consent. If the P5+1 agree to renew it, we would have to
decide whether, and if, to provide additional relief. We want to ensure
that the first step does not become the status quo, hence the tight
timeline.
Question. The JPA describes a comprehensive agreement that will
``comprehensively lift U.N. Security Council, multilateral and national
nuclear-related sanctions.''
What is your definition of a nuclear-related sanction vs. a
non-nuclear-related sanction?
Given that you have exercised waivers of statutory
sanctions to implement the interim deal, in order to
comprehensively lift sanctions as part of a final deal, do you
intend to come to Congress for legislative action vs.
continually renewing your waivers?
Answer. We and our P5+1 partners are just beginning negotiations
with Iran on a comprehensive solution. Thus it is premature at this
stage to describe in detail the scope, timing, and nature of the
sanctions relief that might be part of the comprehensive solution. The
JPOA envisions comprehensive relief from nuclear-related sanctions, the
context of which will be subject to negotiations. We have made clear
that, for example, sanctions arising from Iran's designation as a state
sponsor of international terrorism are not on the table. We are
committed to remaining in touch with Congress as our approach to this
matter develops.
Question. This weekend, the Iranian Supreme Leader's representative
at the Islamic Revolution Guards Corps (IRGC), Ali Saeedi, boasted that
Iran's borders now ``have stretched to the Mediterranean coasts.'' How
would a comprehensive nuclear agreement affect Iran's broader ambitions
and the balance of power in the region?
Answer. Iran's senior military leadership frequently makes boastful
statements about Iran's military capabilities and claims on territorial
boundaries. We believe this to be one of them. The Joint Plan of Action
does not alter our commitment to regional security, nor the security of
our allies in the region. We entered these discussions clear-eyed about
Iran's history and destabilizing activities in the region, and will
continue to be vigilant going forward.
Per the Joint Plan of Action, Iran must address the U.N. Security
Council resolutions related to its nuclear program before a
comprehensive resolution can be reached. Among other things, U.N.
Security Council Resolution 1929 prohibits all activities involving
ballistic missiles capable of delivering nuclear weapons.
Question. The JPOA ``lays out basic elements of the comprehensive
solution. Among other elements, the final step of a comprehensive
solution would have a specified long-term duration to be agreed upon
and reflect the rights and obligations of parties to the Non-
Proliferation Treaty and IAEA Safeguards Agreements.'' Some have
suggested this amounts to a sunset clause for the comprehensive deal
you are pursuing, after which point the Iranians will be able to expand
the scope and size of their nuclear program.
What is the ``long-term duration'' you are pursuing? In
other words, how long will you demand that the Iranians abide
by the terms of the comprehensive agreement?
If nuclear expert David Albright has testified that the
comprehensive solution should have conditions without a defined
duration, and conditions that last at least 20 years, can the
administration assure us that their ``long-term duration'' will
meet these minimum criteria?
Answer. Any comprehensive solution would have to be of a long-term
duration, address fully the international community's concerns
regarding Iran's nuclear program, and ensure that Iran does not acquire
a nuclear weapon. Iran would also be subject to enhanced verification
and monitoring measures, which would provide verifiable assurances to
the international community that Iran's nuclear activities will be
exclusively peaceful.
______
Responses of Under Secretary David Cohen to Questions
Submitted by Senator Bob Corker
Question. The World Bank projects that, in addition to significant
drops in inflation, Iran's real GDP is expected to grow by 1.0 percent
in 2014, 1.8 percent in 2015, and another 2.0 percent in 2016. This is
in sharp contrast to the last 2 years where the Iranian GDP contracted
by 1.5 percent in 2013 and 2.9 percent drop in 2012.
a. How will Iran's economic improvement affect the
negotiations?
Answer. During the period covered by Joint Plan of Action (JPOA)
between the P5+1 and Iran, the United States and its allies have
retained negotiating leverage, because the vast majority of our
sanctions have remained in place and Iran's economy has not improved
enough to quench Iran's desire for further sanctions relief.
Although Iran has seen a slight improvement in a few economic
indicators, the cumulative impact of sanctions on Iran's oil, banking,
financial, and energy sectors continue to place significant strains on
the Iranian economy. Although the JPOA provided limited, temporary, and
reversible relief, the most potent sanctions remain firmly in place and
Iran's economy remains under enormous pressure. Because of the
continued economic pressure, revenues have remained significantly
depressed and Iran has continued to struggle to finance its imports,
fund government operations, and defend the value of its currency. The
burden of our sanctions is a central factor motivating Iran to
negotiate a serious and comprehensive solution to our concerns over
their nuclear program. I remain firmly committed to vigorously
enforcing these powerful sanctions as we attempt to negotiate a
comprehensive solution with Iran.
Although the World Bank projects slight growth in the Iranian
economy in coming years, it is important to put this into context. Iran
is digging itself out of an economic hole because of international
sanctions and the Iranian Government's economic mismanagement. The
Central Bank of Iran itself claimed that the Iranian economy contracted
by nearly 7 percent during the Persian year ending in March 2013 and it
contracted more than 3 percent in the first 9 months of the most recent
Persian year. Any growth in the Iranian economy in future years will be
from a greatly diminished base and will largely depend on the Iranian
Government's ability to weather the existing sanctions that remain in
place, which is not certain.
b. How are you measuring the effect of sanctions relief on
Iran's economic recovery?
Answer. We estimate that the sanctions relief contained in the JPOA
would be about $6 billion to $7 billion. This includes (1) the $4.2
billion in restricted Iranian funds that we are allowing Iran to access
in installments until July; (2) the modest additional revenue Iran
could get from exporting petrochemicals or autos during the JPOA
period, although Iran has found it difficult to initiate new contracts
given the short duration of the JPOA; and (3) the $400 million we are
enabling Iran to access from restricted funds for tuition payments.
Consistent with commitments in the JPOA, the United States has
suspended efforts to press the few remaining countries that buy Iranian
crude to further reduce their imports, and we continue to monitor
Iran's oil exports to ensure that they do not increase. The funds that
Iran is earning as a result of the pause on further reductions continue
to be paid into accounts restricted by our sanctions, so it has not
provided additional economic benefit to Iran.
Iran's purchase or sale of gold carries little economic value
because we have not allowed Iran to buy gold using funds that remain
restricted by our sanctions in overseas accounts. If Iran decides to
use its much more limited accessible reserves to buy gold, this will
simply represent the trading of one liquid asset for another, less
liquid one.
Finally, the P5+1 has facilitated humanitarian transactions,
medical payments incurred by Iranians abroad, and U.N. obligations. We
have also expedited the processing of licenses for spare parts, safety
inspections, and repairs for the safety of flight of Iranian civil
passenger aircraft. Many of these activities, particularly humanitarian
transactions, are already permitted by most United States and EU
sanctions, so we expect the economic benefit to Iran is minimal.
Perhaps most importantly, the JPOA leaves the core architecture of
our sanctions in place and does not deliver comprehensive relief. With
our most potent sanctions intact, the United States is committed to
enforcing existing sanctions on Iran's oil, banking, financial, and
energy sectors as we pursue a comprehensive solution. The pressure we
have put in place has caused the Iranian economy to massively
underperform, and we will not ease up until a comprehensive solution is
reached. Maintaining pressure on Iran helped bring about the JPOA and
has been a critical component in the negotiations with Iran.
Question. Secretary Kerry has recently expressed his concern to
Russian officials about reports that Iran and Russia are negotiating an
oil-for-goods swap worth $1.5 billion a month. You and your team are at
the vanguard of holding the current sanctions regime together.
a. Please describe in detail your efforts to prevent this
deal as well as the message you are sending to foreign business
delegations that are exploring business opportunities in Iran.
Answer. The administration has conveyed to the Russian Government
at the highest levels and in the strongest possible terms our
opposition to any potential commercial or financial activity that
triggers our sanctions and falls outside the scope of the limited
sanctions relief contemplated in the JPOA. We have also told the
Russian Government that an oil-for-goods swap could trigger U.S.
sanctions against any Russian company or financial institution
connected with this proposed deal.
More broadly, my colleagues and I have traveled the world to send
the message to foreign companies that Iran is not open for business.
Our message to foreign companies and financial institutions is simple:
We are prepared to act against anyone, anywhere, who engages in
sanctionable economic activity outside of the scope of relief provided
pursuant to the JPOA. As President Obama said on February 11, we will
fully enforce our existing sanctions for the duration of the JPOA and
will ``come down like a ton of bricks'' on those that engage in
sanctionable economic activity outside the confines of the JPOA.
b. Will you commit to enforcing sanctions on Russia should
this deal come to fruition?
Answer. No country or entity is off limits for sanctions
enforcement. The administration has told the Russian Government at the
highest levels that we are prepared to act against those involved in
sanctionable conduct. We demonstrated our resolve to act against
entities in Russia that violate our sanctions when we reached a $9.5
million settlement with the Bank of Moscow in January to settle
potential civil liability for transfers it sent to or through U.S.
banks for, or on behalf of, Bank Melli Iran ZAO, a sanctioned entity.
Our enforcement actions and designations against those that engage in
sanctionable conduct clearly signal our willingness to take action and
should deter Russian and other entities from engaging in sanctionable
activities.
Question. How much economic value would you assign to changing
market expectations in Iran? Do you consider the following evidence of
increasing market optimism--businesses flooding into Tehran, reports of
foreign companies exploring the Iranian market, Renault resuming
shipments to Iran for vehicle assembly, agreements made between Iran
and Turkey on economic, cultural, political, trade, banking, and
customs cooperation?
Answer. Positive market sentiment in Iran will be short-lived and
of negligible value absent further sanctions relief, which we will not
provide unless Iran reaches a comprehensive solution with the P5+1 that
ensures its nuclear program is exclusively peaceful.
Any improvement in the market expectations for Iran--which predated
the JPOA and likely stemmed from the election of President Rouhani--
will not fix the fundamentals of the Iranian economy. Iran is in a deep
economic hole because of our sanctions and its government's economic
mismanagement. The continuing impact of the sanctions that remain in
place is powerful. Pursuant to the JPOA, Iran will only receive limited
sanctions relief estimated to be worth about $6 billion to $7 billion.
With Iran's economy valued at about $480 billion, and the overwhelming
majority of sanctions remaining in place, this relief will not provide
the boost Iran needs to achieve significant economic growth.
The Iranian Government is intensely focused on changing the
narrative about the risks associated with doing business in Iran. To
counteract Iran's attempts to derive economic gains by attracting
foreign investment and new commercial opportunities, I have traveled
the world to convey the message that Iran is not open for business.
Throughout the JPOA's duration, I have explained to government
counterparts and private sector executives in the U.K., Germany, Italy,
Austria, Turkey, and the United Arab Emirates that we will identify,
target, and take action against those that trigger our complex and
robust sanctions that continue in effect under the JPOA. My colleagues
across the U.S. Government have carried the same message to
interlocutors in France, Russia, China, Japan, and South Korea, and
elsewhere.
Question. In February 2012, the Wall Street Journal reported that
Turkey's state-owned bank, Halkbank, was processing ``payments for
Indian refiners unable to pay Tehran for imported oil through their own
banking system for fear of retribution from Washington,'' and that the
Turkish bank was responsible for Turkey's ``gas-for-gold'' transactions
with Iran despite an Executive order issued by the Obama administration
prohibiting gold payments to the Government of Iran. As Turkey's Deputy
Prime Minister Ali Babacan frankly admitted, Turkey's ``gold exports
[to Iran] end up like payments for our natural gas purchases.''
a. Why did the Treasury Department fail to crack down on
gas-for-gold scheme before it was reported by the Wall Street
Journal?
Answer. The Wall Street Journal's November 2012 report on the
``gas-for-gold'' scheme came after the issuance of Executive Order
(E.O.) 13622, on July 30, 2012, which for the first time made
sanctionable the purchase or acquisition of precious metals, including
gold, by the Government of Iran. After E.O. 13622 was issued, and in
response to U.S. engagement with the Turkish Government and private
sector actors, Turkey's gold exports to Iran plummeted by more than 90
percent, according to Turkish customs statistics.
Treasury has a strong record of aggressively pursuing Iran's
financial networks and implementing sanctions against Iran and those
individuals and entities that violate our sanctions, though I cannot
comment on possible enforcement investigations. In the case of gold, we
quickly cracked down Iran's gold purchases when Iran's sudden increase
in gold purchases gave rise to concerns that Iran could use gold to
evade our sanctions.
b. And once it became publicly clear this activity was
ongoing, why did the administration request that the sanctions
used to plug this loophole be delayed another 6 months, thereby
granting Turkey and other countries a 6-month exemption from
the tougher gold sanctions?
Answer. Iran's ability to pay for gold imports from Turkey from the
funds generated by its oil and gas exports to Turkey was largely
restricted after the issuance of E.O. 13622. As noted above, Turkey's
gold exports to Iran plummeted by more than 90 percent, according to
Turkish customs statistics, in the months after E.O. 13622 was issued.
Congress, working jointly with the administration, ultimately
decided that a
6-month delayed implementation date was the best approach for nearly
all of the financial provisions in the Iran Freedom and Counter-
Proliferation Act of 2012 (``IFCA'')--not only the gold-related
sanctions. IFCA was introduced on the heels of the Iran Threat
Reduction and Syria Human Rights Act of 2012 (the ``TRA''). At that
time, many portions of the TRA had yet to be implemented--including
section 504 of the TRA, a cornerstone provision that restricted access
to Iranian oil proceeds except for qualifying bilateral or humanitarian
trade. Congress recognized that implementing a new round of sanctions
in IFCA before we had finished implementing the TRA would have posed
challenges, such as the ability to garner international support and
dedicate sufficient resources for effective implementation.
c. This loophole allowed Iran to receive over $100 billion,
and $1.3 billion in gold payments in the first quarter of 2013
alone. Was this loophole maintained to grease the secret
discussions with Iranian officials in Oman at that time?
Answer. The claim that Iran has been able to access more than $100
billion in a ``gas-for-gold'' scheme cannot possibly be true. This is
inconsistent with the weak macroeconomic indicators we are seeing in
Iran today and inconsistent with all-source intelligence reporting. The
cited $100 billion represents more than twice the value of Iranian oil
exports last year and is approximately the same value as Iran's total
foreign currency holdings, which are mostly restricted or inaccessible.
The $1.3 billion in Iranian gold purchases from Turkey during the
first 6 months of 2013 were largely the product of Iranian individuals
and companies attempting to find a stable store of value while facing
the depreciating value of the rial. This search for other assets is
largely what contributed to the steep decline in the rial's value in
2012 and early 2013.
Discussions with Iran in 2013 did not factor into any of the
Department of the Treasury's discussions with Congress regarding IFCA-
related sanctions on Iran.
______
Responses of Under Secretary Wendy Sherman to Questions
Submitted by Senator Jeff Flake
Question. The administration has said they will vigorously enforce
the remaining sanctions on Iran and will take action against entities
that abuse the sanctions relief. Vigorous enforcement will be crucial
to ensure companies do not reenter the Iranian market above what is it
permitted under the sanctions relief. As Under Secretary Cohen said
last week in Turkey, ``Businesses interested in engaging in Iran really
should hold off. The day may come when Iran is open for business, but
the day is not today.''
What areas of sanctions relief raise the most concern that
they might be prone to abuse by bad actors looking to make a
quick profit?
Answer. We have made abundantly clear to both foreign governments
and the private sector that, with the exception of the limited and
temporary relief offered under the Joint Plan of Action (JPOA), we will
vigorously enforce all existing sanctions on Iran throughout the
duration of JPOA implementation, including prohibitions on investment
in Iran's energy sector, the purchase of Iranian oil by new customers,
and a wide range of other commercial and financial activities. This
commitment is ironclad, and we closely track Iran's economic activities
every day. There is not one area of the sanctions relief that causes us
particular concern, as the parameters of the JPOA are narrow and
international companies know well our commitment to punishing those who
exceed them.
Question. I'm concerned that the 6 months to a year envisioned for
negotiations on a final agreement will be extended and then extended
again and the talks will just drag on. Former Secretary of Defense
Gates put it well, saying recently, ``I think there ought to be a firm
deadline at 6 months. I think the Iranians are world-class experts in
slow-rolling their negotiating partners or adversaries.''
Under Secretary Sherman, what happens in July if no
agreement is reached? Are we going to offer Iran more sanctions
relief not to restart its program? Would it be acceptable to
the administration for Iran's nuclear program to continue at
current levels?
Answer. The Joint Plan of Action expires 6 months from the January
20 implementation date. There is no automatic renewal or extension of
the relief the P5+1 is providing to Iran. The Plan can only be renewed
by mutual consent. If the P5+1 agree to renew it, we would have to
decide whether and if to provide additional relief. We want to ensure
that the first step does not become the status quo, hence the tight
timeline.
Question. White House Press Secretary Jay Carney recently said Iran
will be required, under a comprehensive solution . . . to dismantle
``significant portions of its nuclear infrastructure.'' Yet in an
interview with CNN's Fareed Zakaria, President Rouhani said there will
be no destruction of any existing centrifuges and that Iran will not
accept limitations regarding its nuclear technology research and
development.
Given these statements, what are the prospects for reaching
a final agreement that ensures Iran cannot produce a nuclear
weapon? Can you define what the dismantlement of a significant
portion of Iran's nuclear infrastructure might look like?
Answer. The P5+1 and EU will meet with Iran in Vienna on February
18 to begin negotiations on a long-term comprehensive solution that
will fully address the international community's concerns regarding
Iran's nuclear program. Such a solution would provide verifiable
assurances to the international community that Iran's nuclear
activities will be exclusively peaceful and ensure that Iran does not
acquire a nuclear weapon. We have always been clear in our discussions
with Iran that, as part of a comprehensive solution, Iran will be
expected to implement strict limits and constraints on its nuclear
program. Under the terms of the JPOA, Iran has committed itself to a
number of steps before we finalize a comprehensive solution, including,
among other things, fully resolving concerns related to the IR-40
reactor at Arak and addressing the United Nations Security Council
(UNSC) resolutions with a view toward bringing to a satisfactory
conclusion the UNSC's consideration of this matter. In addition, Iran
has committed to implement agreed transparency measures and enhanced
monitoring. The Joint Commission set up between the P5+1 and Iran to
oversee the implementation of the JPOA will also work with the
International Atomic Energy Agency to facilitate the resolution of
``past and present issues of concern''--which all parties understand
means the possible military dimensions of Iran's nuclear program.
[all]