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[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]

 
                  ASSESSING ENERGY PRIORITIES IN THE 
                      MIDDLE EAST AND NORTH AFRICA

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                    THE MIDDLE EAST AND NORTH AFRICA

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 11, 2014

                               __________

                           Serial No. 113-169

                               __________

        Printed for the use of the Committee on Foreign Affairs

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/

                                 ______

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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas             ALBIO SIRES, New Jersey
TED POE, Texas                       GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona                 THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania             BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina          KAREN BASS, California
ADAM KINZINGER, Illinois             WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama                   DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas                 ALAN GRAYSON, Florida
PAUL COOK, California                JUAN VARGAS, California
GEORGE HOLDING, North Carolina       BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas            JOSEPH P. KENNEDY III, 
SCOTT PERRY, Pennsylvania                Massachusetts
STEVE STOCKMAN, Texas                AMI BERA, California
RON DeSANTIS, Florida       ALAN S. LOWENTHAL, California
TREY RADEL, Florida--resigned 1/27/  GRACE MENG, New York
    14 deg.                          LOIS FRANKEL, Florida
DOUG COLLINS, Georgia                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida
LUKE MESSER, Indiana--5/20/14 
    noon deg.
SEAN DUFFY, Wisconsin--5/
    29/14 noon deg.

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

            Subcommittee on the Middle East and North Africa

                 ILEANA ROS-LEHTINEN, Florida, Chairman
STEVE CHABOT, Ohio                   THEODORE E. DEUTCH, Florida
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
ADAM KINZINGER, Illinois             BRIAN HIGGINS, New York
TOM COTTON, Arkansas                 DAVID CICILLINE, Rhode Island
RANDY K. WEBER SR., Texas            ALAN GRAYSON, Florida
RON DeSANTIS, Florida                JUAN VARGAS, California
TREY RADEL, Florida--resigned 1/27/  BRADLEY S. SCHNEIDER, Illinois
    14                               JOSEPH P. KENNEDY III, 
DOUG COLLINS, Georgia                    Massachusetts
MARK MEADOWS, North Carolina         GRACE MENG, New York
TED S. YOHO, Florida                 LOIS FRANKEL, Florida
LUKE MESSER, Indiana--5/20/14 
    noon deg.
SEAN DUFFY, Wisconsin--5/
    30/14 noon 
                            C O N T E N T S

                              ----------                              
                                                                   Page

                                WITNESS

Mr. Amos J. Hochstein, Deputy Assistant Secretary for Energy 
  Diplomacy, Bureau of Energy Resources, U.S. Department of State     6

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Mr. Amos J. Hochstein: Prepared statement........................     9

                                APPENDIX

Hearing notice...................................................    34
Hearing minutes..................................................    35
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    36

    ASSESSING ENERGY PRIORITIES IN THE MIDDLE EAST AND NORTH AFRICA

                              ----------                              

                        WEDNESDAY, JUNE 11, 2014

                     House of Representatives,    

           Subcommittee on the Middle East and North Africa,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2172, Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen (chairman of the subcommittee) presiding.
    Ms. Ros-Lehtinen. The subcommittee will come to order. 
Thank you to all of you for being here, and thank you to our 
audience, and thank you to our witness for being here. I know 
that you are alone right now, but we hope you won't be for 
long.
    So the subcommittee will come to order. After recognizing 
myself and Ranking Member Deutch for 5 minutes each for our 
opening statements, I will therein recognize other members 
seeking recognition for 1 minute. We will then hear from our 
witnesses. And without objection, the witnesses' prepared 
statements will be made a part of the record, and members may 
have 5 days to insert statements and questions for the record 
subject to the length limitation in the rules.
    The Chair now recognizes herself for 5 minutes.
    The Middle East and North Africa region produces over 35 
percent of the world's oil supply and over 20 percent of the 
global natural gas production. We know that energy resources 
are vital for the region, and as such, they play an important 
role in the shaping of the geopolitical landscape that impacts 
our foreign policy.
    We also know that the Middle East and North Africa is one 
of the world's most volatile regions, prone to unrest, 
instability, political upheaval, and conflict. In Libya, we saw 
armed groups occupying many of the strategically important oil 
fields and export terminals for nearly a year until a partial 
agreement was reached in April. And in Iraq, we have only 
recently begun to see that country tap the potential of its 
proven oil reserves, which is the source of 90 percent of its 
budget. But now that Iraq's second-largest city, Mosul, fell 
this week to al-Qaeda-affiliated Islamic State of Iraq and the 
Levant, ISIL, and the increased deterioration of the security 
situation in that country, there is no telling what the future 
has in store for its energy sector.
    But that just highlights the problem. Most of these 
countries rely heavily on the sale of oil or gas as their main 
driver for their economies, and anything that upsets the 
delicate balance can be extremely detrimental to their economic 
outlook and has the potential to upend the global energy 
market.
    Then of course we have the recent discoveries of large 
natural gas fields off the coast of Israel. This has huge 
implications for our friend and democratic ally, the Jewish 
state of Israel, because seemingly overnight Israel has gone 
from energy dependent on some unreliable partners to now 
commanding a large sum of natural gas that can transform its 
relations with its neighbors.
    The instability in Egypt over the last few years, coupled 
with the large energy subsidies provided to Egyptians, has seen 
overconsumption in Egypt and has harmed its energy outlook. 
Both Israel and Jordan had been reliant on gas from Egypt, but 
now that Israel has the potential to export large sums of gas 
that Jordan needs, this could be an opportunity for those 
nations to strengthen their ties.
    Israel's potential could also transform its relationship 
with Egypt and other Middle Eastern countries as they look for 
regional solutions to their energy needs. Yet Israel's natural 
gas boon hasn't just affected its relationship in the Middle 
East and North Africa region, it has also seen a promising and 
expanding relationship with Greece and Cyprus. The recent 
discoveries of large hydrocarbons in the Eastern Mediterranean 
has helped forge an emerging and strategic relationship between 
these three countries, and this relationship has the potential 
to completely alter the political, economic, and security 
situation in the region. Their cooperation has the potential to 
increase the global supply of energy from friendly, more stable 
nations, and reduce the world's dependence on some of these 
rogue regimes.
    And by rogue regimes, we mean always Iran. Under this 
week's nuclear deal, the administration eased the sanctions on 
the regime and effectively allowed it to breathe life back into 
its faltering economy. The Iranian economy is dependent on its 
oil sales, and Congress had implemented a strong sanctions 
program, including several bills that I authored that imposed 
the strictest sanctions on Iran in an effort to get Iran to 
curb its illicit nuclear program.
    According to the JPOA, Iran must not exceed 1 million 
barrels a day on average for the 6-month term. News reports 
have suggested that Iran is surpassing this threshold, and if 
this pace continues, Iran will be in violation of the terms of 
the agreement. Even if that happens because we eased the 
sanctions, it will not be easy. In fact, it will be nearly 
impossible to reinstitute sanctions. Once the genie is out of 
the bottle on sanctions in Iran, that is it.
    The Foreign Affairs Committee held a hearing yesterday on 
Iran, and one of the major takeaways was that the interim deal 
and any subsequent deal rely heavily on monitoring and 
verification. Well, we do have the tools to monitor and verify 
how much Iran is exporting, yet we don't seem to be doing 
anything to respond to the violation of the terms. I hope that 
we can get an explanation on this today, as well as hearing how 
U.S. policy is adjusting to the changing landscape of the 
Middle East and North Africa's energy sector, especially now 
that developments in the U.S. have seen us move from energy 
dependence to potentially becoming a net energy exporter. The 
implications are far reaching and quickly shifting, but are our 
foreign policy objectives adjusting appropriately? We will find 
out today.
    And with that, I will turn to my good friend, the ranking 
member of our subcommittee, Mr. Deutch of Florida.
    Mr. Deutch. Thank you, Madam Chairman.
    And thanks, Deputy Assistant Secretary Hochstein, for 
appearing today.
    For decades oil was synonymous with the Middle East. Energy 
resources and needs have long had a significant impact on the 
state of play in the region. According to OPEC, its member 
countries control 81 percent of the world's proven oil 
reserves, with 66 percent of that coming from the Middle East. 
But developments over the past several years have dramatically 
altered the world's energy supply.
    For many years, critics of American foreign policy accused 
the United States of being beholden to certain Middle East oil 
producers because of our reliance on imports for our energy 
needs. The discovery of significant energy finds here in our 
own country have set us on the course toward energy 
independence. The International Energy Agency predicts the U.S. 
will be oil independent by 2035.
    Within the Middle East things on the energy front look 
quite different than they did 10 or even 5 years ago. Iraq's 
oil production, dramatically reduced during the Iraq war, has 
surged, bringing Iraq back up to the number two OPEC producer. 
Iran's oil output, dramatically impacted by economic sanctions 
aimed to cut off the financial lifeline of the regime, has been 
cut by over 60 percent. Iran is now exporting less than 1 
million barrels per day with only 6 buyers left on the market 
for Iranian oil, all of which are pledged to continue to 
significantly reduce their purchases in order avoid U.S. 
sanctions. Compare that with the 3.6 million barrels per day 
that Iraq produced in March.
    To help offset the reduction in Iranian oil, Saudi Arabia 
has increased its production, pledging to make up the 
difference to avoid a shock to oil prices. The Saudis sit on 
one-quarter of the world's oil reserves and produce roughly 8 
billion barrels per day. We hope to see a return to prewar 
levels in Libya's output, yet continued fighting and 
instability has production levels at 10 percent of capacity.
    In a stunning development, Israel, long dependent on 
imports, has found itself sitting on a tremendous amount of 
hydrocarbons. For years, Israel received most of its gas from 
the Egyptian pipeline in the Sinai. As a result of the turmoil 
in Egypt, the pipeline has been attacked 15 times since 2011. 
The finds in the Tamar and Leviathan offshore fields now stand 
to make Israel energy independent within 20 years.
    Last year, the Israeli Government voted to mark 40 percent 
of Israel's gas lines for export. Now, it is Israel that finds 
itself in the position of being the supplier to its more 
vulnerable neighbors. Israel and Jordan recently signed a deal 
for Jordan to receive $500 million worth of gas over 15 years 
from the Tamar field, which started producing last year. Jordan 
has faced a serious energy crisis, compounded by the state of 
affairs in its biggest supplier, Egypt, and the increased 
strain placed on resources by the influx of over 600,000 Syrian 
refugees. Jordan is set to begin receiving Israeli gas in 2016. 
The Leviathan field, which has yet to come on line, is said to 
be twice as big as Tamar.
    Now, the million-dollar question is, where will the Israeli 
gas go? Increased cooperation in the Eastern Mediterranean has 
made both Cyprus and Turkey attractive and logical destinations 
to reach the European market. Cyprus has announced its intent 
to build an LNG terminal, while an undersea pipeline to Turkey 
could prove cost-effective. The tensions between Israel and 
Turkey and the longstanding dispute between Cyprus and Turkey 
has made cooperation in the Eastern Mediterranean challenging. 
One wonders whether the desperate need for energy could help 
bridge some these gaps.
    U.S. based Noble Energy, the developer of the Tamar field, 
recently announced its intention to partner with a Spanish-
owned LNG plant in Egypt. The 15-year deal is reportedly worth 
$1.3 billion and would go a long way to meeting Egypt's growing 
energy needs. According to a recent report by Simon Henderson 
of the Washington Institute for Near East Policy, the likely 
route of a pipeline to Egypt from the Tamar field, located 50 
miles out to sea from the northern Israeli Port of Haifa, will 
be on the Mediterranean seabed, making it almost impervious to 
attack. While Israel has a peace treaty and diplomatic 
relations with both Egypt and Jordan, this relationship would 
be nearly unprecedented.
    All of this, of course, begs the broader question. Do the 
geopolitical implications of the world's growing energy needs 
have the potential to continue to alter relationships in the 
Middle East?
    Finally, I know that you have been actively engaged in 
resolving the maritime border dispute between Israel and 
Lebanon. I hope that you can provide us with an update as to 
how things are progressing. Deputy Assistant Secretary 
Hochstein, we look forward to hearing from you today to shed 
light into the current state of affairs and what we might 
expect in the months and years ahead.
    And I yield back.
    Ms. Ros-Lehtinen. Thank you very much, Mr. Deutch.
    Mr. Chabot of Ohio, our subcommittee chairman, is 
recognized.
    Mr. Chabot. Thank you, Madam Chair, for holding this 
important hearing this morning.
    Political unrest and unstable energy supplies in the Middle 
East and North Africa will have a serious impact global energy 
markets. This is only intensified by an enormous growing demand 
for energy in Asia--and I, of course, chair the Asia and the 
Pacific Subcommittee--and an uncertain supply of energy in 
Europe. I hope this hearing will address the changing energy 
sector in the Middle East and its effect on U.S. policy in the 
region.
    Unfortunately, I have another hearing, in Judiciary. I know 
it. It started at the same time. We have oversight over the 
FBI. So I need to go over there, too. So in case I don't get 
back to ask questions, if the panel could address a couple of 
things.
    One, I am particularly interested in how the administration 
plans to improve Iraq's reliability in the production of oil, 
especially with some of the political instability going on 
there.
    Secondly, what progress has been made in resolving the 
maritime disputes between Lebanon and Israel and the energy 
claims in the East Mediterranean.
    And thirdly, Iran is limited to a million barrels of 
production of oil a day under the Joint Plan of Action. They 
are producing 1.3. What countries are exceeding those limits, 
and what, if anything, do we plan to do about that?
    Thank you, Madam Chair.
    Ms. Ros-Lehtinen. Thank you, Mr. Chabot.
    Mr. Connolly is recognized.
    Mr. Connolly. Thank you, Madam Chairman.
    And welcome, Mr. Hochstein.
    Three things in particular strike me about this topic that 
I hope you will address. One is I hope you will put to bed the 
issue of our Iranian sanctions. Some of the President's critics 
are a little bit free and loose with implying or outright 
stating that the sanctions have been loosened to the point 
where obviously Iran can become a major supplier again. I 
believe that is not true, but I am looking forward, Mr. 
Hochstein, to a declarative statement with respect to that.
    Secondly, the shift going on here in the United States 
toward energy independence, really, we are going to rival Saudi 
Arabia as a producer, what impact does that have on the region? 
How does that change U.S. foreign policy from being dependent 
on Middle East oil to now being a net exporter potentially 
ourselves.
    And thirdly, what are we doing to help our allies identify 
alternative supplies and suppliers? You look at Turkey, 65 
percent of its crude oil comes from three countries, Iran, 
Iraq, and Saudi Arabia; 74 percent of its natural gas comes 
from Russia and Iran. How are we helping allies like Turkey 
look toward alternative sourcing for political stability 
purposes?
    Thank you, Madam chairman.
    Ms. Ros-Lehtinen. Thank you, Mr. Connolly.
    And, Dr. Yoho, would you like to make an opening statement?
    Mr. Yoho. No, ma'am, I would just like to hear the witness. 
Thank you.
    Ms. Ros-Lehtinen. Thank you. Like you said, let's go. Thank 
you. And we are so pleased to--oh, Mr. Kennedy, Mr. Kennedy, we 
are so pleased to yield the floor to Mr. Kennedy.
    Mr. Kennedy. Sorry. Thank you, Madam Chair.
    Thank you to the witness. It is great to see you again. 
Just quick three points that if you can touch on, great, and if 
not, I will follow up in the questions. New York Times piece 
today, just this morning coming out about insurgency in Syria 
has gone over and seized towns--Mosul--in northern Iraq, major 
oil pipeline and gas pipeline that is close to that city. I am 
wondering if we could get your thoughts on that and, to the 
extent that you can, comment about the continued instability in 
that region. So first.
    Second, to the extent that you can touch on the President's 
executive order and the new EPA guidelines that have come out 
and what that means in terms of some of the strategic 
importance of these sources.
    And then third--and I know this is a kind of a bigger 
topic--but you have heard from comments from some of my 
colleagues, if I can, from the Middle East looking westward. 
What other countries are looking to tap some of these countries 
as suppliers? What is China's influence here, in reaction to 
obviously the big gas deal signed between Russia and China? How 
active is China playing in the region as well? Thank you.
    Ms. Ros-Lehtinen. Thank you so much, Mr. Kennedy.
    And we are pleased to welcome our witness, Mr. Amos 
Hochstein, who is the Deputy Assistant Secretary for Energy 
Diplomacy at the Department of State. In this role, he oversees 
the Office of Middle East and Asia and issues related to energy 
and security. Mr. Hochstein has had extensive experience in 
energy policy in various high level positions, including for 
senior Members of Congress, and as a senior policy advisor in 
the House Foreign Affairs Committee.
    Welcome back, Amos. Thank you for being with us. And your 
prepared statement will be made a part of the record. Feel free 
to summarize.

STATEMENT OF MR. AMOS J. HOCHSTEIN, DEPUTY ASSISTANT SECRETARY 
    FOR ENERGY DIPLOMACY, BUREAU OF ENERGY RESOURCES, U.S. 
                      DEPARTMENT OF STATE

    Mr. Hochstein. Thank you, Madam Chair and Ranking Member 
Deutch and members of the subcommittee. Thank you for the 
opportunity to testify before you today. It is an honor and a 
privilege to appear before you not only because the issues of 
energy, as you all articulated, in the Middle East are so 
crucial at this moment, but because, as you said, Madam Chair, 
I began my career here on the committee, and it is good to be 
home.
    Energy resources play a critical role in the Middle East 
and North Africa. As you know, and as you have mentioned, for 
decades the fortunes of governments and societies in the region 
have been closely tied to the availability of energy resources 
and their ability to bring them to market. Today we find 
ourselves living in a transformational era for energy markets 
and the geopolitics of energy, and the capacity of any country 
to be dynamic and play in this changing global context will 
determine its success going forward.
    We are familiar with the energy debate here at home and 
including in that implications of the U.S. shale boom that you 
all described. That boom, together with Russia's deplorable 
actions in Ukraine, has highlighted the critical nature of 
energy plays for Europe's security and economic 
competitiveness. In my testimony today, I would like to address 
how countries in the Middle East and North Africa fit into this 
global energy puzzle and how the United States, in particular 
the State Department, is working to encourage the development 
of global LNG markets, build energy linkages in the Eastern 
Mediterranean, stabilize Libya's oil and gas sector, and 
support commercial opportunities in countries such as Algeria.
    Energy in the Middle East is a big topic and could cover 
several hours. In the 5 minutes that I have, allow me to touch 
on these subjects, and I look forward to discuss them in more 
depth in the Q&A.
    Energy demand around the world is changing rapidly. 
Consumption growth has shifted away from the traditional OECD 
markets and consuming countries and moved increasingly toward 
the world's emerging economies. Even as Europe, North America, 
and the advanced economies in Asia reach increasing levels of 
efficiency in use of energy, high growth rates in China and 
India and elsewhere have led to rises in energy consumption. 
Increasingly, we are in a world where prices and commodity 
flows are driven by the demands of emerging non-OECD consumers.
    Around the world new energy suppliers are entering the 
market. We are moving from a world with a small number of well-
defined producers, many of them in OPEC, to a world that 
welcomes new supplies and production increases from North 
America, Africa, Asia, and South America. New technology and 
improved production methods have unlocked previously 
inaccessible energy resources, fundamentally altering the 
energy landscape. North America has seen major increases in oil 
production, as has West Africa, and recent discoveries in East 
Africa and the Mediterranean are frontier areas with bountiful 
new energy and gas resources.
    New suppliers are emerging, including countries such as 
Israel, that were until very recently assumed to be bereft of 
energy resources. As all of you keenly are aware, the United 
States is in the heart of this supply shift around the world. 
We have added 2 million barrels a day of oil production just in 
the last 2 years, an amount greater than Nigeria's crude oil 
production in total. We have become the world's largest 
producer of natural gas and now anticipate that we will become 
a net exporter of LNG in 2016 and an overall net exporter of 
natural gas by 2018.
    Because these shifts in demand and supply have major global 
implications, the United States can and should continue to play 
a role in ensuring the stability and reliable flow of energy 
resources to all consumers, so it is striking to me how often I 
get asked whether increased production levels at home means we 
are becoming energy independent and disengaging from the Middle 
East.
    But let me be clear: Nothing can be further from the truth. 
Our relations and interests in the Middle East have always been 
and will continue to be strong, multifaceted, deep, complex, 
and strategic. We live in an international global economy with 
interdependent energy markets, and even if all products we at 
home consume would originate beneath our own soil and oceans, 
we would still not be ``independent.'' A disruption anywhere in 
the world would have consequences everywhere, including here at 
home. The American economy is intricately linked to the global 
market, and we are dependent on the prosperity of others, as 
they are on us.
    The Middle East is adapting to this new dynamic. We have 
already seen changes in OPEC, which shifted from exclusive 
focus on maximizing prices to an organization that is 
increasingly interested in overall market stability. Iraq is a 
country that we are, as you discussed, watching very closely 
and working with them to build improved reliability in their 
energy sector, but security is paramount, as we have tragically 
witnessed this week. In the Persian Gulf, Qatar established its 
massive LNG from a niche commodity into a globally traded 
product, and we continue to work with them.
    One area where I have personally focused much of my work 
and attention is the Eastern Mediterranean. New discoveries of 
gas offshore Israel and Cyprus and great potential in Lebanon, 
Greece, Egypt, and the Palestinian Authority have great promise 
not only for economic growth, but for regional cooperation. And 
in February of this year, the State Department facilitated a 
landmark agreement between Noble Energy from Houston selling 
gas from Israel's offshore fields to Jordan starting in 2016. I 
am happy to go into more detail as we go into the Q&A.
    But developing frontier resources is a risky and capital-
intensive undertaking, and companies will be deterred from 
making necessary investments if they believe that risk is too 
high. When investments can be made in places like North Dakota 
with little or no political risk, it becomes very difficult to 
convince boards of directors to approve investment in high-risk 
areas. In North Africa, Algeria is pursuing the next phase of 
development in its oil and gas fields and producing from its 
offshore and unconventional resources, but it has to get that 
investment climate right for that to work and to encourage 
companies to come and invest. The United States Government and 
U.S. companies are eager to help wherever we can provide the 
most useful assistance.
    In conclusion, there are exciting developments in the 
Middle East, in the Persian Gulf, and in the Eastern Med, as 
well as in North Africa. It is in our national interest for 
reasons of security and economic growth to do all we can to 
make sure these opportunities are realized and that we promote 
cooperation in this field rather than conflict. We also strive 
to ensure these resources are developed in a way that will 
benefit all the people in these countries in an open and 
transparent manner.
    Thank you again for the opportunity to testify before you 
today, and I look forward to questions you may have.
    Ms. Ros-Lehtinen. Thank you very much, Mr. Hochstein.

    [The prepared statement of Mr. Hochstein follows:]
    

                            ----------                              

    Ms. Ros-Lehtinen. And I will start with the question-and-
answer segment.
    The terms of the Joint Plan of Action limits the amount of 
oil that Iran is allowed to export, and reports indicate that 
the regime has surpassed the 1 million barrels per day that it 
must average for the first 6 months. Why is Iran, according to 
reports, exceeding this cap, and are we going to ensure that 
over the remaining months it reduces its exports to meet the 
requirements of the JPOA? Also, what countries are receiving 
all of this Iranian oil? Rumor is that Iran is shipping 
hundreds of thousands of barrels of oil to Syria. Are we 
counting and monitoring this?
    Next, the natural gas discoveries off the coast of Israel 
are a potential game changer not just for Israel, but for 
Greece and Cyprus, too, who have played important roles in 
developing Eastern Mediterranean hydrocarbons, and they will 
continue to play vital roles in its distribution. Thanks to our 
good friends from Florida, Mr. Bilirakis and our ranking 
member, Mr. Deutch, we in Congress have had many opportunities 
through their Congressional Hellenic-Israel Alliance to discuss 
what this means for Israel, for Greece, for Cyprus, for their 
relationship, how this can help improve their economies and 
security going forward.
    But the discovery of these large natural gas fields has 
also led to the speculation that Lebanon may have similar 
resources off its shores, and that, too, would be a game 
changer for that crisis-ravaged nation. However, there is a 
dispute between Lebanon and Israel over their maritime borders, 
and it appears that it is at an impasse. Could you give us an 
update about where we stand on this, what is the administration 
doing to help resolve this, and what outstanding issues remain 
to be resolved?
    And then next, last month this subcommittee held a hearing 
on the GCC about the deepening risks, the emerging challenges, 
and one of the topics that came up was the possibility of 
friction between the U.S. and some of our Gulf partners because 
they believe or they perceive that we are moving away from our 
traditional relationships and leaving them alone and out to 
dry, especially as it relates to Iran. Has this energy boon in 
the United States impacted these traditional alliances that we 
have with states in the region, particularly the Gulf states?
    Thank you, sir.
    Mr. Hochstein. Thank you, Madam Chair. Let me take those 
one at a time.
    On Iran, and I am glad you asked the question, and as you 
and your staffs are all aware, I come up here regularly in a 
classified forum to discuss specifically. So I will stick to 
what I can say here in this format.
    Under the JPOA, the agreement that was signed, the tenets 
of that agreement were that Iranian exports will remain at 
current levels, and we have worked to make sure that that 
happens. As you know, based on the congressionally mandated 
sanctions that have been rigorously implemented over the last 2 
years, Iran's exports were reduced by 50 to 60 percent, and the 
current levels that we saw, the time that we reached the JPOA, 
were somewhere in the range of 1 million to 1.1 million barrels 
a day. It is very difficult to set hard numbers when it comes 
to oil. That is over the period of 6 months of the entire time 
of the JPOA, January 20 to July 20.
    So far, as we look at the numbers, we are comfortable that 
at the moment those numbers are being kept and that Iran's 
exports are kept to that range of 1 million to a 1.1 million 
barrels a day. Part of the explanation that you see a 
discrepancy in some of the public reporting is two major 
issues. One is that in many of the countries that report their 
oil purchases from Iran, or from any country, when they say 
crude oil or oil, they lump together a number of products, and 
it is not just crude. It is crude plus other things such as 
condensates. And condensates were not included in the 
congressional sanctions for exceptions, and therefore we 
continued that process of looking at this, breaking this down 
as what is crude oil. If you isolate out the crude oil, the 
numbers are quite different.
    The second is an issue that you raised later, which is the 
Syria question, and it is true that over the last few months 
Iran has begun to direct shipments of crude oil to Syria for 
the first time. They were done every once in a while before 
that. That is because Syria's ability to get crude oil on the 
market and from traders has vanished, and as a result Iran has 
had to step in.
    But that is a very different kind of delivery because, 
unlike the other six customers that they still have, Syria 
doesn't pay. So this doesn't contribute to the overall economic 
benefit to Iran and therefore does not remove the economic 
pressure that the sanctions sought to bring. So when we look at 
what is the current levels of exports, we mean people who are 
buying.
    One more point on that, that is important to say. That even 
when they do sell these 1 million to 1.1 million barrels a day 
to these six customers, they are not getting the money and the 
access to the cash. That money is still going to accounts that 
are blocked in those countries and have to remain, under 
certain conditions, in those countries.
    So, with that, I think that we are still comfortable. We 
are concerned about some of the reports. We continue to engage 
vigorously and regularly with every single one of the countries 
that you mentioned.
    On Lebanon, you are correct, with the discoveries in 
offshore Israel and Cyprus it has become clear that many 
countries in the region want to look at their offshore, and 
Lebanon clearly has a good potential, and we think that is a 
good thing. And we are hopeful that Lebanon can reach a point 
where they can come together as a country, put together a 
transparent bid round, have international high standard oil 
companies come and explore in that region.
    There is also a dispute on the maritime boundary between 
Israel and Lebanon. It is an area of about 860 square 
kilometers. I have been going back and forth to Lebanon and 
Israel for over a year now. We have shared some ideas for a 
pathway forward between the two countries. It is quite 
difficult when you have two countries that are in a state of 
war with each other. And yet we think that there is some 
progress being made that will allow both countries to 
independently continue to explore, in the case of Israel, and 
for Lebanon to begin to explore for natural resources off its 
coast.
    It is not going to be easy. It is going to continue to be 
difficult. But we think that without some kind of mechanism 
that allows both countries to understand and live within a 
boundary that they accept, it would be difficult for companies 
to enter the Lebanese market and explore in an area that would 
have a political and legal challenge to its products.
    Ms. Ros-Lehtinen. Then the last question was on the Gulf 
states and how the energy question has impacted our 
relationship.
    Mr. Hochstein. As you and the other members of the 
subcommittee mentioned, in the Gulf energy and hydrocarbons are 
the lifeline of these countries, and they account for 
significant percentages of their economies, and many of them 
understand the need to diversify. We follow the relationships 
between these countries. These are, just like in any place in 
the world, these are both strong and complex at the same time. 
And so far we have not seen that spill over into energy issues. 
I think there is, even in areas of disputes, in some areas 
there is cooperation and others, including in energy.
    They have mechanisms and ways to talk to each other. We 
have good and strong relations with all of them. We also have 
some areas of agreement and some areas of disagreement as we do 
with many countries. So I think so far I have not seen any sign 
that there is any geopolitical change in the region that would 
lead to a change in energy capacity.
    Ms. Ros-Lehtinen. Thank you very much, sir.
    Our ranking member, Mr. Deutch, is recognized.
    Mr. Deutch. Thank you, Madam Chairman.
    Let me stick with the Gulf states for a second. The deal 
between Israel and Jordan is the first time that Israel is 
going to be an exporter to an Arab country. What have you heard 
from other exporters in the region? Has there been backlash 
from the Gulf states? What has the response been?
    Mr. Hochstein. No, on the contrary. The deal that was 
reached and that was helped mediated by the United States was 
widely covered in the Middle East and throughout the Gulf in 
the press on the day that it was announced just matter of fact, 
this is the deal. I think that when it comes to natural gas, it 
is very difficult to deliver natural gas if you don't have 
mechanisms. It is not like oil, you can just put it on a tanker 
and go. So there are very few countries that are able to fill 
the gap that was left by the terrorist attacks in the Sinai and 
the calls on Jordan.
    Mr. Deutch. When do you expect Israel to make a decision 
about the destination for its gas, and the pros and cons of an 
underwater pipeline or LNG facility via Cyprus, which would 
take years to construct, or a pipeline to Turkey? And do you 
think Turkey is clear-eyed about the approach here and the need 
for regional cooperation on these issues?
    Mr. Hochstein. So these are, as you said, I think, the 
million-dollar questions. But I think that it is important to 
separate out when we talk about the decisions, what is Israel's 
decision versus what is the business side's decision. Because 
we have two areas that have to coincide, one is the economics 
and the other is the geopolitics, and the most important and 
first and foremost that has to happen is the economics. So 
Noble Energy and Delek and Ratio, the consortium that developed 
Leviathan, the consortium for Tamar, have to decide what is in 
their economic interest to monetize their multibillion-dollar 
investments, whether it is pipelines to Egypt, pipelines to 
Turkey, and obviously Jordan is already happening, an LNG 
facility.
    But at the end of the day, once those business decisions 
are going to be made, this is an area in the world where 
government-to-government understandings or agreements are going 
to have to be reached. And what you saw in the announcement 
that was mentioned about the letter of intent that was signed 
between Noble and Union Fenosa in Egypt was not a government 
decision. It is not even a corporate agreement yet. It is a 
letter of intent that the negotiations will continue.
    From an economic perspective, two LNG facilities in Egypt 
that are basically running dry at the moment because Egypt has 
taken all its gas destined for exports and using it for 
domestic, it makes sense, if you have the infrastructure 
already built and the capital investment is there, to use that. 
Can the geopolitics manage it is the next question that we have 
to see if we can answer.
    On Turkey, there are only two ways to get a pipeline from 
offshore Israel to Turkey. One would have to go through the EEZ 
of Lebanon and Syria, which is less than likely, in my opinion, 
at the moment, or go through the EEZ of Cyprus. So for that 
there are other geopolitical hurdles that have to be reached.
    So I think we have to sometimes take a step back from 
enormous amount of statements and conferences and books that 
are being written about the potential and agree on one thing. 
The cooperation in the Eastern Mediterranean, energy is a huge 
boost for that, and that is the way that this region will 
monetize and capitalize on these new resources. But it is going 
to take a lot of work and it is going to take a lot of effort 
and creative thinking to be able to get there. We hope it is an 
incentive to solve some of the other issues that have been 
ongoing and lingering for a long time.
    Mr. Deutch. And I want to just get back to the exchange you 
had with the chairman, and I wasn't clear from the response. 
There have been press reports over the past several months that 
Iranian exports are going to be higher than the levels 
permitted, the 1 million barrels, those set forth in the JPOA. 
Are those reports accurate? Let's start with that. Are those 
reports accurate?
    Mr. Hochstein. I won't talk about the future. I am talking 
about right now as where we are today we feel comfortable that 
the crude oil exports of Iran are remaining in 1 million to 1.1 
million-barrel-a-day average, as we anticipated under the JPOA.
    Mr. Deutch. Okay. So they haven't gone over, or they have 
gone over but you are averaging it out over. How do you 
calculate that?
    Mr. Hochstein. We take a look at what is actually being 
exported. We look at crude oil, and often in some of the 
reports that you are referencing the crude oil actually means 
other products are mixed in. And we isolate out----
    Mr. Deutch. What kinds of other products?
    Mr. Hochstein. Such as condensate, which is, outside of the 
world of sanctions, that is normal for the industry to mix them 
together and to report them. It is not unusual. But since we 
are in the unusual place of isolating out crude oil only----
    Mr. Deutch. Hold on a second.
    Mr. Hochstein. Sure.
    Mr. Deutch. Outside of the world of sanctions, they combine 
them when talking about it. Is that right?
    Mr. Hochstein. It is not uncommon that countries reporting 
their customs reports would commingle crude oil with other 
products.
    Mr. Deutch. When talking about their exports?
    Mr. Hochstein. Their imports. In other words, with China 
or----
    Mr. Deutch. I understand. And here is what I am trying to 
figure out. Outside of the sanctions world, if we were trying 
to judge how many million barrels per day were being exported 
from Iran, in order to do that we would look at numbers from 
the importers, which would include condensate?
    Mr. Hochstein. In some countries they include condensate. 
In others, they separate.
    Mr. Deutch. And when they include them, what is the 
breakdown?
    Mr. Hochstein. Not all countries import condensate when 
they import crude. Some do. Sometimes it is 10 percent of it, 
20 percent of it, 5 percent of it.
    Mr. Deutch. Okay. So why does the sanctions legislation 
specifically carve out--why is it only crude? Why doesn't it 
include condensate?
    Mr. Hochstein. I am afraid that is a question I would 
probably ask----
    Mr. Deutch. Well, then let me ask you a different question. 
If we were rewriting the sanctions bill now, should it be crude 
and condensate?
    Mr. Hochstein. That is not for me to answer.
    Mr. Deutch. Let me ask a different question. One thing you 
can't speak to but we can is congressional intent. And the 
intent here, when we talk about 1 million barrels, we are 
talking about crude, condensate, whatever is typically 
included. So you are telling me that the way that this is 
analyzed, that the reason there are those who say it has been 
over 1 million barrels per day, in violation of the statute 
that would trigger sanctions, is because there is an artificial 
line being drawn between crude oil and condensate that doesn't 
typically exist outside of the sanctions world.
    Mr. Hochstein. No. Let me correct. I didn't say it is 
artificial and it is not an artificial operation.
    Mr. Deutch. Right.
    Mr. Hochstein. These are two different products that are 
used for two different things, and they are contracted 
separately. What I said was a number of countries, when they 
report in their public customs reports, they commingle some 
products and say when we imported from Saudi Arabia or from 
Iran or from other places, when we say oil, this is what we 
imported.
    Condensates are not oil, they are not crude oil, and that 
is why we don't count them together. They are a liquid product 
that you get when you extract natural gas. Some countries are 
importers of condensate only and they don't import crude oil, 
and they use it because they need it for the refining in 
gasoline, to create gasoline, when they are using crude oil 
from something else. Some countries develop gas that is very 
dry gas. Israel is a good example. Their gas doesn't include 
much condensate. The United States has a lot of condensate in 
our gas.
    So these are different products. The legislation passed by 
Congress--and we have had this conversation on a number of 
occasions with Congress--specifically says that the sanctions 
are in petroleum products, but that to count for reductions, 
for the significant reduction exception, the administration 
must look at crude oil only.
    Mr. Deutch. I am sorry, Madam Chair, can I just finish 
this?
    Ms. Ros-Lehtinen. Go right ahead.
    Mr. Deutch. So I am just confused. Let me try this again. 
We are talking about exports of--how do you define exports?
    Mr. Hochstein. Exports of crude oil.
    Mr. Deutch. No, no, no. You just said we would include 
condensate. We focus only on exports of crude oil for 
determining whether or not sanctions should be imposed, whether 
you are violating the statute, right? That is just crude oil. 
That is not condensate. But typically we are trying to get at 
the export of hydrocarbons more broadly. How else would you 
define it?
    Mr. Hochstein. Petroleum products.
    Mr. Deutch. Petroleum products. Right. So if we are talking 
about petroleum products and we are trying to limit the export 
of petroleum products because the Iranian Government uses the--
the purpose to all of this, of course, was to get at the 
lifeline of the nuclear program in Iran, which comes from the 
export of petroleum products, right, not just the export of 
crude oil.
    What are we missing by not including condensate in this 
calculation? This is actually really helpful for me because we 
have all had this question for a long time. I think we have 
actually stumbled upon something that is really helpful. If we 
meant to focus on petroleum products but the sanctions only 
apply to crude oil instead of petroleum products, if it 
included petroleum products, how much beyond the 1 million 
barrels per day are the Iranians exporting?
    Mr. Hochstein. So first let me articulate carefully. The 
Congress did in fact go after petroleum products in the 
sanctions. What I said was that what Congress created was a 
process of significant reductions before the JPOA.
    Mr. Deutch. Right, right.
    Mr. Hochstein. The sanctions were on all petroleum 
products. If you significantly reduced crude oil you got an 
exception for 180 days from sanctions, from a broader 
perspective. But you can only get that significant reduction if 
you reduced the crude oil. Had you included other products in 
that it may have been easier for countries to get that 
exception and you would have reached the opposite of what you 
were trying to achieve.
    There are consequences in each way. Condensates, as we have 
discussed, are not crude oil, and therefore you could not get 
an exception if you only reduced your condensates. You had to 
have reduced your crude oil.
    Mr. Deutch. Right.
    Mr. Hochstein. So today when we look at what the numbers 
are, when we have to look at the current levels of Iranian 
exports of crude oil, they have remained roughly at current 
levels as we have described, as we talked about in November and 
January when the JPOA was reached. And so where we are today is 
I believe that we have a lot of concerns and we are actively 
engaging, but we believe the countries have kept tight.
    Now, as far as your question of how much condensate 
actually is represented, what would the overall number be if we 
included condensates--I believe that was your question, 
correct--I think I would rather have that answer to you in a 
different forum.
    Mr. Deutch. Okay. Madam Chairman, I apologize to my 
colleagues.
    Ms. Ros-Lehtinen. No. Go right ahead.
    Mr. Deutch. But just to finish this, if I understand 
correctly then, the calculation used to reduce sanctions, the 
statute includes only the 1 million you get to in the statute, 
but in the JPOA the 1 million is used, the statute refers to it 
for one purpose. I guess what I am getting at is the statute 
uses the crude oil alone without condensate for one purpose, 
but the JPOA uses it for a different purpose, it seems to me. 
Hopefully there will be another round and we can continue this 
conversation.
    But I think we finally figured out why, for all of the 
reports that say it is supposed to be 1 million barrels per 
day, it is actually more than that. It is more than that, but 
it is condensate, and we are drawing a line between crude oil 
and condensate that most of the rest of us, I don't think, 
understood well enough to be able to do or we would have 
included it. In another setting, perhaps, we will be able to 
determine what that ultimate benefit to the Iranian Government 
is by treating crude oil and condensate differently instead of 
including all petroleum products.
    Again, with apologies to my colleagues.
    Ms. Ros-Lehtinen. No. Thank you very, very much. Thank you, 
Mr. Deutch.
    And we will go to Dr. Yoho.
    Mr. Yoho. Thank you, Madam Chair.
    Thank you, sir, for your testimony, and to my colleague 
from Florida also, his questioning there.
    Sir, what effect does the increased oil production of the 
U.S. have, do we have the ability to create energy security for 
the U.S. when we are involved in a global market like we are? 
Will it soften the increased price hikes we often see that 
disrupt our economy? Do you see that happening? I know we are 
in a global market, but with our increased production do you 
see us being able to stabilize those spikes that we see often 
with Middle East conflicts?
    Mr. Hochstein. Unfortunately, as I said in my testimony, I 
think that the term ``independent'' that is used often, in my 
opinion misused often, in natural gas we are becoming self-
reliant and we have become a net exporter. In oil, we are still 
an importer. But even if we were not, if there was a crisis 
anywhere in the world that created a major disruption, whether 
it was a national security disruption, such as a closure of a 
strait, or a natural one, if Macondo in the Gulf Coast happened 
in the Persian Gulf, that would have a significant impact on 
the global markets.
    Any impact such as those on the global markets will have 
the same impact here at home. Even if we are producing all that 
we consume here, you will still have a price shock in the 
United States. We are an integrated market, and oil and gas are 
commodities.
    Mr. Yoho. Is there a way to mitigate that or soften that if 
we were to team up with Canada more and Mexico to where we 
could supply this region that would be more isolated from a 
world market? And I understand we are all tied together, but it 
seems like it would soften that more. Because every time we see 
a spike in gas prices diesel goals up, everything on the 
shelves of the grocery stores goes up. Is there were a way, if 
we were to team and have a consortium between Canada and 
Mexico, the North Americas, to where we supplied the demand for 
our continent, in this region, we would be less affected by 
Middle Eastern conflicts. I mean, that is possible, isn't it?
    Mr. Hochstein. I think that there is no doubt that the 
increased production in the United States contributes to our 
national security and contributes to our economic security.
    Mr. Yoho. Okay.
    Mr. Hochstein. I just don't want to leave you with the 
wrong impression that somehow if there is a crisis somewhere in 
the world we are going to be immune to it. And there is a lot 
more work being done here at home and in our region, in North 
America, to work together as we always have. We signed a 
transboundary agreement for the production between the United 
States and Mexico, and the Congress ratified that just 
recently. So we are working more, but there are also signs of 
trouble here near our borders when it comes to energy security.
    Mr. Yoho. Right. There sure is.
    And then with the Keystone pipeline, do you see that as a 
positive benefit for our economy in this region as far as 
increasing exports and energy security for the United States?
    Mr. Hochstein. As you know, the Keystone pipeline is under 
review still at the State Department and with other agencies, 
and we are working on getting through that public comment 
period.
    Mr. Yoho. That is a classic example of paralysis by 
analysis, I think. We see so much of that.
    You were saying that we are an importer of crude oil, but 
yet we export about 4 million barrels a day, don't we?
    Mr. Hochstein. We are a----
    Mr. Yoho. Of gasoline.
    Mr. Hochstein. Of products.
    Mr. Yoho. Of product.
    Mr. Hochstein. Yeah, we do. We are an exporter of refined 
products, of certain refined products.
    Mr. Yoho. Okay. And then let me switch over to the Middle 
East. With the discovery of the natural gas in the Middle East 
there in the Mediterranean, the geopolitical effect that will 
have with Israel and the Arabian countries you were talking 
about, what do you see the future of that is? Do you see them 
becoming more just secure in that region and less dependent on, 
like, the other exporting gas countries?
    Mr. Hochstein. This has been an enormous boon for 
Israel's----
    Mr. Yoho. It sure has.
    Mr. Hochstein [continuing]. Economic security and national 
security, without a doubt, and we have been working very 
closely with them to try to understand how to use that and what 
their thinking is on how to maximize all the impacts that that 
could have.
    As I said earlier, I participated in and mediated along the 
discussions between Israel and Jordan to sign that first 
agreement. I think that is an example, not only the agreement 
itself, but the fact that there was very little reaction to it 
in parts of the world that we would think would have a negative 
reaction.
    There was also--it hasn't been mentioned--but there was a 
deal signed between the companies operating offshore Israel and 
the Palestinian Authority to provide natural gas to the 
Palestinian Authority as they look to build the power plant. 
That actually happened before the deal with Jordan. The first 
two export deals that have been reached between the companies 
operating offshore Israel have been with Jordan and the 
Palestinian Authority.
    So I think if we can use that as models to take energy as a 
resource for cooperation, I think that would be good for the 
region and for our own national security.
    Mr. Yoho. I agree, and I appreciate your time.
    I yield back, Madam Chair.
    Ms. Ros-Lehtinen. Thank you very much, Dr. Yoho.
    Mr. Connolly.
    Mr. Connolly. Thank you, Madam Chairman.
    Mr. Hochstein, I would like to make sure that we have 
clarity about your lengthy exchange with Mr. Deutch. What are 
condensates? Can you drink them? Can you smoke them? Can you 
fill a car up with it?
    I mean, because leaving it the way it is right now still 
allows the inference to be drawn that there is cheating going 
on, that people are taking advantage of a legal loophole to 
exceed the allowable amount of exports from Iran, and I am 
inviting you to clarify.
    Mr. Hochstein. Condensates are not a crude oil or a product 
of crude oil. They are a product of natural gas. They are a 
liquid product of natural gas. They are exported mostly 
separately and occasionally they are exported together with 
crude oil. That does not make them the same product. It was in 
the interest of the economic pressure on Iran to articulate 
that difference between crude oil and the other products, as 
the Congress did in its final legislation.
    Mr. Weber. Will the gentleman yield for just a minute?
    Mr. Connolly. Of course.
    Mr. Weber. Coming from Texas, LNG, lots of Petro-Tex 
Chemical in my district. Liquid gas, ethanes, propanes, 
propylenes, methanes, products that are used to produce plastic 
products. And that has ramifications for plastic explosives, by 
the way. But I think that is what you are looking at, and just 
to help clarify that.
    Thank you, Madam Chair.
    Mr. Connolly. Thank you, and I thank my colleague for the 
clarification.
    But given that long list my friend from Texas just ticked 
off, isn't that a loophole? Aren't we allowing Iran to earn 
export dollars with that sort of exception to the sanctions?
    Mr. Hochstein. Again, let me clarify once again. As I said 
before, it is not an exception to the sanctions. The sanctions 
are on all petroleum products and as Congress wrote them. Where 
the distinction came in is Congress articulated directly that 
crude oil should be the only product that we judge whether 
countries can receive an exception from the sanctions for a 
period of 180 days as long as they are significantly reducing. 
And I will say this provision has been enormously successful 
and has been the key component to putting that economic 
pressure on Iran that allowed us to bring their exports down by 
over 50 percent.
    Mr. Connolly. Thank you for that. That is a very important 
clarification.
    Is it the policy that the United States Government, having 
successfully negotiated phase one of a nuclear stand-down 
agreement with Iran, are we allowing them some ventilation in 
terms of crude oil products or hydrocarbon products of any kind 
beyond the limits that existed prior to that negotiated phase 
one agreement?
    Mr. Hochstein. The only thing that we have done as a result 
of the JPOA in this sector has been to no longer ask countries 
to significantly reduce, but to ask countries to remain at the 
current levels.
    Mr. Connolly. All right.
    Mr. Hochstein. That is the only thing that has changed.
    And let me just add one thing. They still don't have any 
access to the money that results from these transactions. Those 
moneys have to remain in the bank accounts in those countries.
    Mr. Connolly. Mr. Hochstein, the point politically, though, 
are there people who have perhaps unwittingly suggested that 
with that agreement the administration or the United States and 
its allies have taken sort of the boot off the neck of Iran 
with respect to sanctions. If I understand what you just said, 
your testimony is that is incorrect.
    Mr. Hochstein. We have made some modifications, but the 
only one that we have done was to say that we are staying at 
current levels. The Iranian industry----
    Mr. Connolly. Mr. Hochstein----
    Mr. Hochstein [continuing]. Is still under severe economic 
pressure.
    Mr. Connolly. Mr. Hochstein, you are a diplomat, not a 
politician. Politicians sometimes, like you, enjoy creative 
ambiguity. This is not one of those times. We need clarity. Did 
the administration agree to take its foot off the neck of Iran 
with respect to sanctions, including hydrocarbon exports, for 
any period of time as a gift or as a reward for entering into 
phase one negotiations or are the sanctions the same today with 
respect to this subject as they were prior to the agreement?
    Mr. Hochstein. The sanctions are largely the same. But I do 
have to say there was one modification to the sanctions as a 
result of the JPOA that keeps the Iranian oil exports at the 
levels that they were on the day that we entered the JPOA. They 
are not increasing, not to increase.
    Mr. Connolly. Right. We didn't increase. We froze it at the 
level that existed prior to the agreement.
    Mr. Hochstein. Correct.
    Mr. Connolly. Yeah. In other words, no change.
    Mr. Hochstein. Correct.
    Mr. Connolly. Work with me here, Mr. Hochstein. This is not 
that hard.
    Mr. Hochstein. I understand.
    Mr. Connolly. It is really not that hard. When you use 
language like ``largely intact,'' please remember the world you 
are operating in. You are going to have a whole bunch of people 
seizing on that as, ah ha, when it isn't true. What you just 
said finally is the sanctions are the same today as they were 
before the agreement, we just froze them in place rather than 
actually tightening them. Is that correct?
    Mr. Hochstein. That is correct.
    Mr. Connolly. Thank you.
    Madam Chairman, if you would allow me a little indulgence I 
would appreciate it.
    Ms. Ros-Lehtinen. Yes.
    Mr. Connolly. Could you talk a little bit, I mean, because 
this hearing is supposed to be about energy policy, not just 
about Iran or Israel, how does the growing independence, if I 
can use that word, the growing self-reliance, if you will, 
because of a huge exponential increase in domestic production 
here in the United States, how does that shift affect your job? 
I mean, when we look down the road, how will U.S. energy policy 
in the Middle East be different, say, 15 years from now, 10 
years from now than it is, say, today? Clearly, that has got to 
have some impact in our relations in the region with respect to 
energy policy.
    Mr. Hochstein. Without a doubt, we are in a new world, not 
only around the world, but in the United States. And as we look 
to transition from a major consumer to an exporter, that 
changes not only the dynamic of our own energy economy at home, 
but the position that we have broadly and globally.
    I think that people are drawing the wrong conclusions from 
that, as you have heard around in the media and even today in 
this hearing, that we are somehow changing or reducing our 
engagement in the Middle East. And as I said before, nothing 
could be further from the truth. We have very complex and 
strong relations in the Middle East and they will continue. But 
that is true globally.
    What we can do, what we are in the position to do today, in 
the years to come as we become an exporter, is think about how 
that provides part of the answer to some of the questions that 
we are seeing playing out. We would like to see a world where 
no country is reliant on a single source of energy. And if we 
can be helpful in diversifying the energy mix for countries and 
sources, I think that will benefit not only those countries, 
but our own national security and global economic security. And 
that is true whether we are talking about Europe or whether we 
are talking about nearer to home in Central America and the 
Caribbean. The reliance on a single source creates great 
political difficulties, as we have seen played out over the 
last 3 months, and the United States is going to be part of 
that as we start exporting.
    Mr. Connolly. Okay. A noble goal, and I am thinking of 
Turkey as an example as I think I said in my opening statement. 
But, so what does that mean? Does that mean the United States 
is going to try to help build alternative pipelines? Does it 
mean the United States is going to find alternative shipments, 
LNG, or whatever it may be to try to assist these countries to 
diversify and lessen their reliance on sole or primary sources 
of energy?
    Mr. Hochstein. We have and will continue to strengthen our 
work with countries to identify what other kind of 
infrastructure and mechanisms within their own regulatory 
systems that would allow and to ease that pressure and to make 
them more secure.
    Whether that is the work that we have done to help the 
southern corridor pipeline that reaches from Azerbaijan into 
Europe or the role that we played on the Baku-Tbilisi-Ceyhan 
pipeline in the 1990s, which the southern corridor is its 
match. Or if it is on the regulatory side, helping countries 
develop their own systems so that they can become bigger 
producers and more reliant.
    We have programs where the State Department works together 
with the Department of Energy in countries to improve their 
unconventional gas exploration and unconventional oil and to 
reach those kinds of goals to enhance that security but at the 
same time working on the governance side in other places in the 
world to make sure that it is done in an open and transparent 
way and that those revenues reach all people. This contributes 
to the security of the region.
    So I think the position of the United States as a major 
producer today, and potentially an exporter very soon, changes 
not only how we see ourselves, but how other countries see us 
when we are doing a variety of things around the world. It is 
important though that people understand that that is on the 
positive side, not on the negative. We are not disengaging from 
anywhere.
    Mr. Connolly. Very important. Thank you so much.
    Thank you, Madam Chairwoman.
    Ms. Ros-Lehtinen. Thank you very much.
    Mr. Weber.
    Mr. Weber. Thank you, Madam Chair.
    And forgive me, Mr. Hochstein. I wasn't here when you 
started, so some of these questions may be redundant.
    And then let me just say from reading your bio, it says you 
had 15 years of helping elected officials with energy policy, 
and I noticed there was a couple of Democrats named there. Did 
you help any Republicans?
    Mr. Connolly. Take the Fifth, take the Fifth, Mr. 
Hochstein.
    Mr. Weber. No drinking, you know, at this hearing. Leave 
the fifth under the table.
    Mr. Hochstein. I worked on the Democratic staff of the 
House Foreign Affairs Committee and with a number of other 
Democratic elected members, but continue to this day to also 
advise some Republican Members of Congress and Senators as they 
seek counsel on these issues.
    Mr. Weber. Continue to this day, but during that 15-year 
stretch, you did not?
    Mr. Hochstein. I was not employed by any Republican 
members.
    Mr. Weber. See, I am not going to give you as much leeway 
as Mr. Connolly will on your answers. I am going to get a yes 
or a no.
    In Texas we have lots of LNG and lots of oil obviously. 
Things are just bigger and better in Texas, and so we are very 
honed in and keen on energy and the kinds of benefits that it 
gives to our country and I would say internationally. With the 
current prevailing attitude that somehow fossil fuels are bad, 
and I want to make the distinction that I understand the 
difference between petroleum products, as I kind of laid out, 
and natural gas products. We see natural gas products, as you 
know, in plastic bags, plastic bottles, as I say even plastic 
explosives they have ramifications.
    So back to your comments about how we haven't relaxed the 
sanctions any more. The truth of the matter is, the sanctions 
that were in place, and I get that you said that some countries 
could not be induced to support those sanctions unless they had 
that exclusion, but the truth of the matter is, that there was 
a loophole. There was a loophole in those sanctions. Would you 
agree?
    Mr. Hochstein. No, I would not, sir.
    Mr. Weber. You would not agree. So, you think that the 
countries that were unable to go around and go ahead and export 
them, plastics, those liquids, those products, we would say 
natural gas products was okay? Would you agree that that would 
put more pressure on the sanctions, would have given them more 
teeth if they couldn't even have gotten those?
    Mr. Hochstein. I think to answer that question you have to 
fundamentally understand the structure of the sanction. The 
sanction is on all petroleum products. What allowed them to get 
an exception from sanctions was if they committed and, in fact, 
did reduce their exports of crude oil.
    Crude oil, if you look at the number, is still the lion's 
share of the exports of Iran and the lifeline of its economy, 
and those have come down. So what Congress created was a 
structure and I don't there was a loophole there, a structure 
to allow for significant reduction in the exports of Iran's oil 
products, and that did take place and that is still taking 
place.
    Mr. Weber. But they do make money by exporting things, 
those liquids, those ethanes, methanes, propylenes, propanes, 
everything that we named, they are able to make money when they 
export that stuff to help underpin their economy. True or not?
    Mr. Hochstein. No.
    Mr. Weber. How is that? They sell those products and they 
don't get paid for them?
    Mr. Hochstein. They get paid into accounts that are in 
banks in foreign countries.
    Mr. Weber. The assets are frozen?
    Mr. Hochstein. The assets then can only be used in very 
restricted ways and cannot underpin their economy, no, sir.
    Mr. Weber. Okay. So you don't think they went to work 
trying to get around those restrictions in those ways?
    Mr. Hochstein. Oh, I think they went to work very much to 
try to do that.
    Mr. Weber. I would be shocked if they didn't go different 
methods. It would be better if we said to those countries they 
absolutely couldn't get those products. You and I are going to 
have a disagreement on that point.
    Do you think that if America becomes totally energy 
sufficient, natural gas, oil, that it makes for better 
international world security?
    Mr. Hochstein. I am sorry?
    Mr. Weber. Do you think that if America becomes totally 
energy independent, self sufficient, it makes for better 
international security around the world?
    Mr. Hochstein. I think it would enhance security, if we 
enhance our production significantly as we have and continue to 
do so. I do think it would enhance security, yes.
    Mr. Weber. Okay. So if there is some alleged war on fossil 
fuels on all of the above energy policy--the truth is it has 
been 5 years since the Keystone pipeline was submitted for 
approval, that doesn't seem to support the idea that somehow 
energy independence is a good thing, does it?
    Mr. Hochstein. Again, I think you asked me the question if 
additional and more production in the United States in oil and 
gas would enhance our security. I think that further production 
would.
    Mr. Weber. But not allowing the Keystone pipeline, which 
incidentally comes into my district, doesn't add a positive 
effect to that energy independence. It only serves to detract. 
Agree or disagree; not approving the keystone pipeline?
    Mr. Hochstein. We have not reached the decision yet of 
approving or disapproving. That project is still in flux.
    Mr. Weber. Okay. Well, it is going to hamper our attempt to 
becoming energy independent, pure and simple. So I am glad to 
hear that you agree that energy independence would help us 
around the world.
    What would you say is the percentage of liquids, do you 
know, that Iran exports? When you say crude oil and the crude 
oil exports, I get they send them to Syria. We are not going to 
be able to interrupt that flow. Who else do they send them to 
that we can't interrupt?
    Mr. Hochstein. Under the guise of the legislation, there is 
a handful of countries that remain as purchasers of Iranian 
crude oil. I am happy to name them if that is what you are----
    Mr. Weber. Please.
    Mr. Hochstein. That is China, Japan, the Republic of Korea, 
India, Turkey and the Economy of Taiwan.
    Mr. Weber. Are they also able to get the liquids?
    Mr. Hochstein. They are the only countries that enjoyed a 
significant reduction exception per the legislation; and today 
of the waivers for the JPOA, they are the only countries that 
can purchase other products because they have that waiver.
    All other clients and consumers of Iran prior to the 
sanctions, there were over 20, were now reduced to only that 
handful. All others cannot buy any of the other products.
    Mr. Weber. Okay. What do you see in the foreseeable future 
for Iraqi production; crude oil?
    Mr. Hochstein. Iraq, as the chairwoman said in her opening 
remarks, Iraq just recently was able to exceed its potential 
and is starting to reach its true potential. They have exceeded 
3 million barrels a day capacity for exports. They consume 
around 600,000 barrels domestically.
    Mr. Weber. Is that a 42-gallon barrel; do you know?
    Mr. Hochstein. I believe so, but I don't know for sure.
    Mr. Weber. That's all right. Go ahead.
    Mr. Hochstein. I think that with Iraq, we have worked quite 
hard to work together with the Iraqi Government to see what we 
can do to be of assistance. It is a matter not of oil reserves, 
but rather around the infrastructure side and the investment in 
the fields. It needs an enormous amount of investment both in 
the field itself and in the infrastructure to get the oil to 
the export terminals. There is no storage capacity. It needs 
more exports infrastructure. Just the other day a new SPM 
became operational, and that will enhance it.
    But over all of that, sir, there is the cloud of events of 
the last several days of the security side.
    Mr. Weber. Assuming that they have the security, just a 
mediocre guess, average, do they come back up to full line 
production before the war in a year, 5 years, 10 years?
    Mr. Hochstein. They already exceeded the levels from before 
the war, so they are in historic levels.
    Mr. Weber. That is the 3 million barrels a day?
    Mr. Hochstein. Yes. But that does not represent the 
potential based on the reserves. It is based on the--not such 
great----
    Mr. Weber. That is the potential that I am interested in. 
Does it take them 3 years to get there, 5 years? Any idea, of 
rebuilding their infrastructure?
    Mr. Hochstein. I don't think it is a matter of years, sir. 
I think it is a matter of changing the willingness to invest, 
to borrow, and put together the kind of investment climate that 
will encourage and incentivize companies to make these multi-
billion dollar investments.
    Mr. Weber. Okay. And when that happens and that starts the 
clock running, 1 to 2 years?
    Mr. Hochstein. It would be gradual, but I think it would 
take a few more years than that, but within 1 to 2 years you 
could have significant increases.
    Mr. Weber. Okay. Final question, do you see the Israelis 
exporting to more Arab countries?
    Mr. Hochstein. I think the potential to export into Egypt 
is real, but that would require some more work between the 
companies and the countries; and I probably wouldn't want to 
guesstimate that at this point.
    Mr. Weber. Okay.
    Thank you, Madam Chair. I yield back.
    Ms. Ros-Lehtinen. Thank you so much, Mr. Weber.
    We have just a few more questions if we could follow up. 
Going back to Syria, and again this is just another example of 
what is wrong with this nuclear deal; and it goes against any 
semblance of common sense. Has the administration conveyed to 
Iran during these ongoing discussions any notion that Tehran 
must stop sending oil to Assad in Syria?
    This notion that, well, Assad is not paying so it doesn't 
matter is dangerous. Doesn't allowing Iran to continue to 
support the Assad regime work against U.S. National security 
interests in seeing an end to the conflict in Syria, an end to 
the murderous Assad regime? Are we willing to look the other 
way and say, hey, Syria doesn't pay so it doesn't change any 
equation here and if we don't push Tehran to do it now, they 
will never stop.
    Mr. Hochstein. Let me be clear that when we talked before 
about whether it counted or not, it was toward the overall 
level of exports.
    Ms. Ros-Lehtinen. Oh, no. I understand on that equation, 
but the feeling was that we are not doing anything about it 
because since it is not part of the equation, we don't worry 
about it, it is no problem. They will just keep--I can't 
believe we are in this deal with Tehran, and we know that they 
are sending all of this stuff to Assad, and it doesn't seem to 
matter.
    Mr. Hochstein. Let me correct that impression again; and if 
I said it in a way that confused the members, I apologize. It 
didn't count toward the exports. As far as our Syria policy and 
so on, I think that we have great concerns about all things 
that Iran is doing with Syria, so I wouldn't want to leave you 
with the impression that that was somehow that we were 
oblivious or did not care about any of their shipments to 
Syria. It just falls in a different category that we were not 
discussing during that exchange with Mr. Deutch.
    Ms. Ros-Lehtinen. I am sure we have a strong memo to them.
    Mr. Hochstein. And I would refer you to others who are 
sitting in the room and are negotiating with the Iranians on 
issues regarding Syria, and they would know the answers to a 
lot of these questions better than I would on the Syria front.
    Ms. Ros-Lehtinen. That is true. Thank you so much.
    And another aspect of what we had talked about. As the 
dispute over Kurdish oil export grows now that the Regional 
Government has loaded at least two oil tankers containing 1 
million barrels of Kurdish crude oil in a Turkish port city 
with the intent to sell, Iraq is warning both the KRG and the 
international community, what is the administration's policy on 
the Kurdistan Regional Government's independent oil exports, 
and what are the prospects for a negotiated settlement between 
the KRG and Baghdad, now that the elections are over and we are 
set for a new government in Iraq, and what is the 
administration doing to resolve this dispute?
    Mr. Hochstein. Thank you, Madam Chair.
    We don't take sides on this issue. Our primary objective is 
to help Iraq export as much oil as possible from all parts of 
the country, whether from the south or from the north, to 
international markets in a manner that enhances the overall 
stability and the country's economic gain for the Iraqi people.
    The Kurdistan Regional Government is seeking to sell oil 
from Iraqi Kurdistan region without approval of the central 
government in Baghdad. This oil has been stored in Turkey, but 
much of it is now loaded, as you said, on two oil tankers that 
are at sea in an attempt to find buyers for that oil.
    This may be a short-term crisis, but it begs for a much 
longer term solution; and I think that you hit the nail on the 
head. This is something that begs for a real solution of a deal 
of an arrangement that will allow both Irbil and Baghdad to 
work together and to maximize the benefits of the oil and gas 
that is in both the south, the central and the north of Iraq. 
We have been working very hard to try to explore our ideas and 
to encourage a deal, and we hope that in the process now, as 
you said in the post election, that we can reach that deal so 
that we don't have to deal with these kind of small crises.
    Ms. Ros-Lehtinen. Thank you, sir.
    Mr. Deutch.
    Mr. Deutch. Thanks, Madam Chairman.
    Just to circle back on a couple of points. Under existing 
sanctions law, a country is exempt if it makes significant 
reductions in the importation of Iranian crude oil; not 
petroleum products, crude oil; right? I just want to make sure 
I understand.
    Mr. Hochstein. Yes, purchases of Iranian crude oil.
    Mr. Deutch. Purchases of Iranian crude oil. The JPOA 
modified that so that instead of requiring the ongoing 
significant reduction, it froze the levels; right? Waived the 
requirement that there be continuing significant reductions, 
froze them at 1 million barrels per day; right?
    Mr. Hochstein. Yes. Froze them at current levels.
    Mr. Deutch. At current levels, but the number they were 
using is 1 million barrels?
    Mr. Hochstein. Roughly 1 million barrels, but the JPOA 
language that you are referencing states current levels.
    Mr. Deutch. Okay. Which, by the way, is a tweak to the 
existing law?
    Mr. Hochstein. I don't know if it is a tweak to the law 
because we didn't amend the law, but we created a waiver in 
order to impact the JPOA rule.
    Mr. Deutch. Thanks. Right. I agree with that.
    So it was crude oil that was used for that, so here's 
ultimately what I want to get back to. You had said before that 
the levels would have been frozen at the levels they were 
before the JPOA, and you just said that again now. You said 
that earlier. You said that now. Again, that is for crude oil.
    The difference, what I was trying to get at before is there 
is a difference in deciding whether or not to grant an 
exemption when you continue to see the numbers come down and 
whether they are in compliance when you have frozen it. That is 
just, again, as we look at what time the intent of the law was, 
I think it is fair to acknowledge that that difference exists.
    The real question I have is, and some of this you may need 
to get back to us on. The countries, if those six importers of 
Iranian oil, when they report, included crude oil and 
condensate in all petroleum products because you said some 
report together; some break them out. If they reported 
together, then what would we have seen to the numbers month by 
month since the JPOA went into effect?
    Mr. Hochstein. I think it is probably better to have this 
conversation, because when we look at the numbers there is 
differences in how we look at numbers, and I probably shouldn't 
get into the conversation in this open forum; but I am happy to 
come back in a classified setting and have that conversation.
    Mr. Deutch. Okay, great. We will look forward to having 
that discussion in a classified setting, and I looked forward 
to it because I think that there is, for all of the discussions 
about what has happened during the term of the JPOA and the 
levels having been frozen, distinguishing between crude oil and 
petroleum products when, I think most of us had always expected 
petroleum products and crude oil, except for my friends from 
Texas who would probably understand better, petroleum products 
and crude oil to be the same thing.
    So what is nagging at me, and I am sure the chairman as 
well, what else have they done to increase their revenue to 
their economy by perhaps selling more condensate, by perhaps 
finding other ways to technically ensure that their importers 
remain in compliance with the law while permitting them to 
increase sales? That is the discussion I will look forward to 
having unless there is anything else you would like to comment 
on, then?
    Mr. Hochstein. No, I think we are happy to have that 
conversation in another setting. I know it sounds pedantic or 
semantic, but to underpin their economy or to support their 
economy, again, those funds, whether they are coming from 
petroleum products or from crude oil, are still locked up in 
the banks overseas and not supporting their economy.
    Mr. Deutch. Well, I understand. We can discuss that further 
as well, but I appreciate your being here, and I think that the 
next discussion will be fruitful as well as we go forward.
    Thank you, Madam Chair.
    Ms. Ros-Lehtinen. Thank you so much, Mr. Deutch.
    And we want to thank you for coming here and testifying. 
And thank you to the audience and the members of press.
    And with that, the subcommittee has adjourned. Thank you.
    [Whereupon, at 11:27 a.m., the subcommittee was adjourned.]
                                     

                                     

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