[Congressional Record Volume 141, Number 54 (Thursday, March 23, 1995)]
[Senate]
[Pages S4519-S4520]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                             REGARDING IRAN

 Mr. D'AMATO. Mr. President, I rise today to briefly discuss 
Iran. As we have all read, Iran has placed chemical weapons on disputed 
islands in the Strait of Hormuz. They have also placed at least 6,000 
troops on these islands. It is becoming very clear that Iran is not 
content with projecting its twisted criminal acts of terrorism through 
third parties. They are now, like with the case of the placement of 
Hawk missiles a few weeks ago, issuing a direct challenge to the West 
in the waterway so vital to the flow of oil: the Persian Gulf.
  As I have spoken on other occasions regarding Iran, we face a 
dangerous situation there. To compound this, we are forced to admit 
that Iran's military and terrorist operations are being subsidized by 
the purchase of Iranian oil by overseas subsidiaries of American oil 
companies, with the oil being resold overseas. This practice, stemming 
from a loophole in the regulations governing our embargo with Iran, is 
perfectly legal. This, however, does not make it morally right.
  It is precisely for this reason that I introduced S. 277, the 
Comprehensive Iran Sanctions Act of 1995. We need a total United States 
trade embargo against Iran. We can no longer subsidize vast military 
buildups and terrorist operations sponsored by Iran against United 
States interests and United States allies.
  In this regard, I ask that a statement by Prof. Patrick Clawson of 
the Institute for National Strategic Studies of the National Defense 
University, be printed in the Record, following the text of my remarks.
  In this, ``Policy Watch'' statement of the Washington Institute, 
Professor Clawson details effects of a total trade ban on Iran. I urge 
my colleagues to read it to help them determine how we might best deal 
with this burgeoning threat from Iran.
  The statement follows:
Estimating the Effects of Comprehensive United States Sanctions on Iran

                          (By Patrick Clawson)

       Secretary of Defense Perry's statements in Bahrain today 
     highlighting the ``potential threat'' of Iran's deployment of 
     ``8,000 military personnel * * * anti-ship missiles, air-
     defense missiles and chemical weapons'' on disputed Persian 
     Gulf islands will renew debate over imposing comprehensive 
     economic sanctions on Iran. A key element of that debate is 
     the argument that sanctions would have no effect on Tehran 
     but would impose a considerable burden on the United States. 
     This claim is not accurate: unilateral U.S. sanctions would 
     cost Iran money. Lost revenue could affect Iranian actions, 
     and the forgone business would be no great loss to the U.S. 
     economy.


                  how sanctions would cost iran money

       Comprehensive U.S. sanctions on Iran would reduce Iran's 
     foreign exchange receipts several ways:
       Oil Trade. Iran sells about one-fourth of its exported oil 
     to U.S.-owned firms. In the event of sanctions, Iran would 
     have to sell this oil to other oil companies. Iran would have 
     no difficulty finding other buyers for the oil, but the loss 
     of access to U.S. firms will have a price for Iran. U.S. 
     firms are prepared to offer slightly better terms than firms 
     from other countries, which is exactly the reason why Iran 
     has been selling to the U.S. companies. When it can no longer 
     sell to the U.S. firms, Iran will lose that extra margin. The 
     exact size of its margin is unclear, but most probably less 
     than $50 million per year--admittedly small relative to 
     Iran's oil income ($12-15 billion, depending on oil prices).
       Planned Oil Swaps Involving Iran and Former Soviet States. 
     The U.S.-led consortiums producing oil in Kazakhstan and 
     Azerbaijan are planning to ship oil to Iran across the 
     Caspian Sea. Iran would use that oil in its northern cities, 
     especially Tehran, while increasing the export of Iranian oil 
     from the Gulf. This swap arrangement, which could start in a 
     matter of months, is supposed to be temporary. But nothing 
     lasts as long as a temporary deal. Iran will earn several 
     tens of millions of dollars a year in profits and cost-
     savings from this arrangement. These swaps have all the 
     earmarkings of being another Conoco case--the U.S. government 
     signals the U.S. oil firms that the deal is permissible, but 
     when the public announcement is made, the political reaction 
     is such that the U.S. government has to feign shocked 
     indignation.
       Oil Field Renovation and Expansion. Iran's oil fields are 
     old; production will decline unless Iran develops more 
     difficult-to-reach offshore areas and/or uses sophisticated 
     techniques to recover more oil from aging fields. European 
     oil technology is about as good as the United States, but 
     Iran has found that U.S. firms offer good terms for oil 
     equipment, as testified by Iran's desire to use Conoco over 
     the French firm Total for developing the fields off Sirri 
     Island. Now that President Clinton has ordered U.S. firms not 
     to invest, European firms will step in, at somewhat higher 
     cost to Iran.
       Investor Confidence. Comprehensive U.S. sanctions will add 
     to the impression that Iran is a politically risky place to 
     do business. European investors and bankers are already 
     hesitant about Iran because of its heavy indebtedness, and 
     Iranian businessmen are worried about increasing government 
     restrictions. It is possible that comprehensive U.S. 
     sanctions would trigger a further run on Iranian currency, 
     which has already lost a third of its value in the last three 
     months.
       In short, sanctions would cost Iran tens of millions, if 
     not a hundred million or more dollars a year in export 
     revenues and in capital invested in the country.


           and the effect on the islamic republic's behavior

       Because comprehensive U.S. sanctions could reduce Iran's 
     income by several tens of millions of dollars each year, the 
     pressure on the Iranian budget, already under tight 
     constraints, would be even greater. This could force Iran to 
     decrease its military spending, given the difficulties of 
     making adjustments elsewhere, e.g., on food supports and 
     social welfare projects.
       Indeed, one of the unsung accomplishments of the current 
     U.S. policy towards Iran is its success in forcing Iran to 
     curtail its ambitious 1989 plan for acquiring a large-scale 
     modern military. Iran planned to buy $10 billion in arms in 
     1989-1993, primarily from the Soviet Union. The arms 
     purchases had to be cut in half when Iran was locked out of 
     world capital markets, thanks to both its own incompetent 
     economic practices and to U.S. pressure not to make 
     politically-motivated loans to Iran. The difference in 
     military potential is highly significant. Today Iran is a 
     threat in certain areas, mostly terrorism and weapons of mass 
     destruction. Had Iran carried out its 1989 plan, its 
     conventional forces would pose an even more urgent and 
     worrisome threat than they currently do.
       The impact of comprehensive U.S. sanctions should not be 
     oversold, however. While they may reduce Iranian military 
     spending some, there is no prospect that the Islamic Republic 
     would fall because of sanctions. The fate of the Islamic 
     Republic will be decided largely by internal factors, over 
     which the U.S. has little or no influence.


                  Iran's shrinking economic relevance

       Some argue that the U.S. should woo Iran because it is the 
     strategic prize in the Persian Gulf region. As far as 
     economics are concerned, this view is outdated: Iran is no 
     longer a country with great economic significance.
       Iran is not an oil superpower. Iran produces less oil today 
     than it did in 1970. While production has soared in other 
     parts of the world, it has steadily declined in Iran. In 
     1970, Iran produced almost 9 percent of the world's oil; 
     today, it produces only about 5 percent. Moreover, it has to 
     invest several billion dollars a year just to maintain its 
     present output.
       Iran is not a lucrative market. Iran's imports in 1994 were 
     little more than $12 billion, which was less than it imported 
     in 1977. Iran's imports in 1994 were less than one-half of 
     one percent of world imports, whereas in 1977, its imports 
     were 1.5 percent of the world total. The simple fact is that 
     Iran's economic importance faded along with its oil wealth.
       No one action itself will bring about the change Washington 
     wishes to see in Iran and in Iranian behavior. But the best 
     chances of success, especially over the long term, come from 
     a firm stance in defense of U.S. principles. The bitter 
     lesson of the last 15 years, learned from experiences like 
     the Iran- 
     [[Page S4520]] Contra affair, is that the United States 
     cannot expect moderation in Iranian foreign policy if it 
     extends a hand of friendship.
     

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