IRAN SANCTIONS AND INTERNATIONAL SECURITY
Statement before the
U.S. House of Representatives Committee on Foreign Affairs
Subcommittee on the Middle East and South Asia
Ilan Berman
Vice President for Policy
American Foreign Policy Council
October 23, 2007
Chairman Ackerman,
Congressman Pence, distinguished members of the Subcommittee:
It is an honor and a
privilege to appear before you today to discuss the issue of sanctions against Iran, as well
as their potential implications for regional security. In recent months, the
question of what to do about Iran’s
expanding nuclear ambitions, and when to do it, has taken center stage on the
agenda of policymakers in Washington.
This discussion is all
the more urgent because of Iran’s apparent proximity to
“the bomb.” In February of this year, Director of National Intelligence Mike
McConnell told the Senate Armed Services Committee that the U.S. intelligence community estimated that Iran could
field a nuclear weapon by “early to mid next decade.”[1]
Today, however, new evidence suggests that the Islamic Republic may be much
closer to an atomic capability than originally thought. Officials in Paris have told reporters that they believe Iran will have
nearly 3,000 uranium enrichment centrifuges running by the end of this month.
They base their assessments on a new analysis by the UN's atomic watchdog, the
International Atomic Energy Agency, which states that the Iranian regime is
expected to have 18 separate centrifuge cascades—totaling nearly 3,000
centrifuges in all—operational by late October.[2]
The finding is significant, and ominous. Nuclear
experts say that 3,000 centrifuges represents a key atomic threshold. With that
number of centrifuges spinning continuously for one year, a nation can generate
enough highly-enriched uranium for one nuclear weapon. Based on these
projections, and barring any technical glitches or other unforeseen
eventualities, Iran
will have enough fissile material to field a nuclear weapon by sometime next
fall at the latest.
Currently, American
strategy is not calibrated to respond to this development. Rather, for the past
several years, the Bush administration’s approach has centered on a
slow-moving diplomatic effort to coerce Iran to abandon its nuclear
ambitions via the United Nations.
To
date, this track has tallied only modest results. In December 2006, the United
Nations Security Council passed Resolution 1737, imposing sanctions on a number
of known WMD suppliers to the Iranian regime, and setting the stage for
additional financial measures if the Iranian regime continued its nuclear
defiance.[3]
Four months later, in March of this year, the Security Council passed
Resolution 1747, which widened the scope of previous sanctions and imposed an
embargo on weapons-related trade going into and out of the Islamic Republic.[4]
More
robust action, however, has proven elusive. Despite continued Iranian
intransigence and months of deliberations, the P5+1 (the United States, Great
Britain, Russia,
China, France and Germany) have been unable to reach
consensus on supplemental sanctions against the Iranian regime. As a result of
this deadlock, passage of a new, tougher sanctions resolution against Iran by the
Security Council has been pushed off until at least November.[5]
And even that deadline could slip considerably, should major disagreements
remain.
This
state of affairs is hardly surprising. After all, two members of the Security
Council—Russia and China—are major
strategic partners of the Islamic Republic. Over the past two decades, both countries
have provided significant assistance to the Iranian nuclear effort. And while each
has demonstrated a degree of cooperativeness with regard to sanctions against Iran, neither
has been eager to impose truly comprehensive measures to curtail the Iranian
nuclear effort. This reality means that the United Nations process will at best
yield only incremental progress—and then only on those punitive measures that
are deemed acceptable by Moscow and Beijing.
Even
if Chinese and Russian cooperation is secured, another problem remains. It is already
evident that Security Council action has failed to keep pace with Iran’s nuclear
progress. Fully a third of a year elapsed between the two existing Security
Council resolutions, and the seven months since have passed without further UN
action. Iran
has used this time wisely, working diligently to add permanence to its nuclear
effort. Given the compressed timeline for Iranian nuclear acquisition now
confronting the international community, as well as the difficulty of attaining
Security Council consensus, it is highly unlikely that the United Nations will
be able to produce a resolution that significantly impacts Iranian
capabilities, or alters regime intentions, in enough time to prevent Iran from
crossing the nuclear threshold.
But
if the United Nations track is indeed moribund, what options are available to
the United States?
Conventional wisdom has it that the United States
possesses little leverage that it can bring to bear in order to deter and
contain Iran’s
nuclear ambitions. In point of fact, however, the United States has a considerable
number of economic tools at its disposal, despite its lack of trade relations
with the Islamic Republic. America’s
allies and trading partners, who almost without exception maintain extensive economic
ties to the Islamic Republic, possess even more. What has been missing so far
has been a coordinated strategy that exploits the latent vulnerabilities in the
Iranian economy. These include:
Gasoline dependency
Despite its massive oil production (some 3.8 million
barrels daily), Iran
is a voracious consumer of foreign refined petroleum, importing approximately 40 percent of its total annual
gasoline consumption from abroad. During the last Iranian calendar year (March
2006 to March 2007), it spent some $4.2 billion on gasoline purchases from
sixteen countries: the United Arab Emirates (UAE), India, the Netherlands,
France, Singapore, Turkmenistan, Azerbaijan, Sudan, Belarus, Turkey, Kuwait,
Taiwan, Spain, Sweden, Saudi Arabia, and Bulgaria.[6]
These deliveries were not surplus; the Iranian regime currently lacks a
substantial domestic strategic petroleum reserve, maintaining just 45
days worth of gasoline inside the country.[7]
And without one, even a partial cutoff
of supplies would leave Tehran
with just two options, both potentially threatening to regime stability: to
raise prices, or to limit consumption.
Notably, the Iranian regime is acutely aware of this
vulnerability, and actively attempting to eliminate it. In June, the Islamic
Republic instituted a rationing plan establishing strict monthly quotas on
gasoline for ordinary Iranians.[8]
It likewise has attempted to institute steep cuts to its petrol purchases from
abroad.[9]
And regime officials have launched a major effort to ramp up domestic refining
capacity, commissioning upgrades to existing refining facilities and the
construction of new plants (although these added capabilities are not expected
to come online until the end of the decade at the earliest).[10]
All of which suggests that while the
United States still has time to implement a petroleum embargo against the
Iranian regime, its window of opportunity to do so is closing rapidly.
Economic hierarchy
Today, the vast majority of wealth in the
Islamic Republic is concentrated in the hands of a small group of people, whose
associates and relatives dominate the Iranian economy. The most public of these
is the extended family of former Iranian president (and current Assembly of
Experts chief) Ali Akbar Hashemi Rafsanjani, which now virtually controls
copper mining in Iran,
the regime’s lucrative pistachio trade, and a number of profitable industrial
and export-import businesses.[11] A related economic power
center is Iran’s bonyads, the sprawling, largely-unregulated religious/social
foundations overseen by Iran’s
Supreme Leader. The sums controlled by these organs are enormous—estimated at
more than 30 percent of Iran’s
national GDP (and as much as two-thirds of the country’s non-oil GDP).[12] Likewise, Iran’s powerful
clerical army, the Islamic Revolution Guard Corps or Pasdaran, is a major—and growing—economic force within the Islamic
Republic, in command of numerous construction, industrial, transportation and
energy projects and enterprises valued in the billions of dollars.[13]
Given this centralized economic hierarchy,
targeted financial measures that restrict the ability of those
“super-empowered” individuals and organizations to access international
markets—and curtail their capacity to engage in commerce—are likely to have an
immediate and pronounced effect on regime decisionmaking. Such measures include
travel bans, asset freezes and account seizures. Many are already being
considered by the United Nations as part of potential “smart sanctions” against
the Iranian regime. But if consensus on their implementation cannot be
reached at the UN—and even if it is—such steps are valuable tools that could be
implemented by the United
States and its allies in their efforts to
pressure the Islamic Republic.
Foreign direct investment
Since the start of the War on Terror, Iran’s
economic fortunes have experienced a dramatic reversal. During the late 1990s,
plummeting world oil prices had left the Iranian regime virtually bankrupt.
Today, however, the energy-rich nation has reaped an unprecedented economic
windfall as a result of global political instability. As of March 2006 (the end
of Iranian calendar year 1384), officials in Tehran were publicly estimating their
country’s hard currency reserves at some $50 billion.[14]
Yet all of this has done little to diminish Iran’s need for foreign direct
investment. According to authoritative estimates, Iran’s energy sector still requires
some $1 billion annually to maintain current production levels, and $1.5
billion a year to increase this capacity.[15]
Without such sustained capital, it is believed that Iran could revert from an energy
powerhouse to a net energy importer in the span of very few years.[16]
Will it be possible
to completely cut the Iranian regime off from international commerce? The
answer is no. However, by using measures that target foreign investment and
technology transfers into Iran,
it is possible to slow the Islamic Republic’s nuclear progress, complicate its
access to foreign funding and/or force a further depletion of the hard currency
reserves amassed over the past several years. Already, the Treasury Department’s efforts—which include the
blacklisting of two Iranian state banks from the U.S. financial system and the
announcement of plans to designate the Pasdaran
as a “specially designated global terrorist”—have had considerable
effect. In recent months, a number of foreign companies and banks have given
notice that they plan to scale back, if not sever outright, their financial
dealings with the Iranian regime.[17] An
important adjunct is the effort now visible at the state and local level to
compel companies and financial institutions to scale back their level of
investment in the Islamic Republic. “Divestment” has made significant strides
since its start some two years ago; three
U.S. states—Missouri, Florida and California—have already passed laws
prohibiting their pension funds and state-owned enterprises from investing in
Iran, and a number of others (including Pennsylvania, New York, Michigan,
Massachusetts, and Georgia) have similar legislation pending or in the works.[18]
With dozens of billions of dollars in U.S.
funds still invested in companies that trade with Iran, this effort can have great
utility in reducing the Islamic Republic’s economic influence, if it becomes
harnessed by the Executive Branch as part of a comprehensive effort to economically
isolate the Iranian regime.
Trade
relationships
Today, Iran
boasts a combined total foreign trade of nearly $100 billion annually.[19]
The regime’s largest trading partners are the European Union, Japan and the United
Arab Emirates, which cumulatively account for over half
of Iran’s
total global imports and exports each year.[20]
(Germany
alone boasts more than Euro 4 billion ($5.45 billion) in trade with the Islamic
Republic.[21]) The
Iranian regime, moreover, is actively working to expand these economic
relations, and to establish new ones (particularly with the countries of the
“post-Soviet space”). It has been able
to do so without major impediments because successive U.S.
governments—irrespective of political affiliation—have consistently prioritized
bilateral trade over international security. As a result, they have repeatedly
failed to respond to violations of laws such as the Iran Libya Sanctions Act, which
are aimed at curtailing Iran’s
support for international terrorism and ability to acquire weapons of mass
destruction. In turn, waiver after waiver has convinced foreign countries and
businesses that trading with Iran
is effectively a cost-free venture.
This is deeply counter-intuitive, since the vast
majority of Iran’s trading
partners boast far more extensive economic ties with the United States. In 2004-2005,
for example, Japan’s annual
two-way trade with Iran
totaled some $3.7 billion a year, while its commerce with the United States
was sixty times that: $180 billion
annually.[22]
If forced to chose, therefore, Iran’s
trading partners will inevitably prioritize their commercial relationship with
the United States over keeping the current regime in Tehran in business. The goal of American
policy should be to compel such a choice through aggressive application of
existing legislation and new measures (such as the Iran Sanctions Enhancement
Act) that convince foreign nations that they can trade with the United States, or with Iran, but not with
both.
Today,
despite years of diplomacy and international pressure, Iran’s nuclear
effort remains resilient—and has become increasingly mature. As a result, the United States
and its allies are rapidly approaching a critical choice: whether to allow the
Islamic Republic to cross the nuclear threshold, or to use force to prevent it
from doing so. If they hope to avoid such a fateful decision, policymakers in
Washington will need to implement a serious economic warfare strategy that
leverages Iran’s latent vulnerabilities to convince the regime in Tehran that
the tangible costs of moving forward with its nuclear program far outweigh the perceived
benefits of atomic acquisition. The time to do so, however, is running out.
NOTES:
[6] “Iran
Imported Gasoline From 16 States in 2006,” Mehr (Tehran), May 20, 2007.
[10] “Iran Faces a Gasoline Time
Bomb,” Petroleum Intelligence Weekly 45, iss. 38 (2006), 4.
[15] “NIOC
Undertaking Host of Projects to Boost Oil Output,” Middle
East Economic Survey XLVIII, no. 19 (2005), as cited in
A.F. Alhajji, “Will Iran’s Nuclear Standoff Cause a World Energy Crisis? (Part 1 of 2),” Middle
East Economic Survey XLIX,
no. 13 (2006) http://www.mees.com/postedarticles/oped/v49n13-5OD01.htm.