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[Senate Prints 109-63]
[From the U.S. Government Publishing Office]

109th Congress                                                  S. Prt.
                            COMMITTEE PRINT                     
 2d Session                                                      109-63
_______________________________________________________________________

                                     

 
                   IRAN'S POLITICAL/NUCLEAR AMBITIONS

                        AND U.S. POLICY OPTIONS

                               __________

                            A COMPILATION OF

                        STATEMENTS BY WITNESSES

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                       One Hundred Ninth Congress

                             Second Session

                          May 17 and 18, 2006

                                     

                    U.S. GOVERNMENT PRINTING OFFICE
27-613                      WASHINGTON : 2006
_____________________________________________________________________________
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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

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

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                                                                   Page
Letter of Introduction...........................................     v

                         Day One--May 17, 2006

Senator Richard G. Lugar, Chairman, U.S. Senate Committee on 
  Foreign Relations..............................................     1

Senator Joseph R. Biden, Ranking Member, U.S. Senate Committee on 
  Foreign Relations..............................................     4

Honorable Robert J. Einhorn, Senior Adviser, Center for Strategic 
  and International Studies, Washington, DC......................     7

Dr. David Albright, President and Founder, Institute for Science 
  and International Security (ISIS), Washington, DC..............    15

Dr. Kenneth M. Pollack, Senior Fellow and Director of Research, 
  Saban Center for Middle East Policy, the Brookings Institution, 
  Washington, DC.................................................    28

Mr. Karim Sadjadpour, Iran Analyst, International Crisis Group, 
  Washington, DC.................................................    36

Dr. Patrick Clawson, Deputy Director for Research, the Washington 
  Institute for Near East Policy, Washington, DC.................    43

Dr. Geoffrey Kemp, Director of Regional Strategic Programs, The 
  Nixon Center, Washington, DC...................................    50

                         Day Two--May, 18, 2006

Senator Richard G. Lugar, Chairman, U.S. Senate Committee on 
  Foreign Relations..............................................    55

Senator Joseph R. Biden, Jr., Ranking Member, U.S. Senate 
  Committee on Foreign Relations.................................    57

Honorable Frank G. Wisner, Vice Chairman for External Affairs, 
  American International Group, Inc., New York, New York.........    59

Dr. Vali R. Nasr, Professor of Middle East and South Asia 
  Politics, Department of National Security Affairs, Naval 
  Postgraduate School, Monterey, California......................    66

Ms. Julia Nanay, Senior Director, PFC Energy, Washington, DC.....    70

Mr. James A. Phillips, Research Fellow for Middle Eastern 
  Affairs, the Douglas and Sarah Allison Center for Foreign 
  Policy Studies, the Heritage Foundation, Washington, DC........    74

                                 (iii)
?

                         LETTER OF INTRODUCTION

                              ----------                              

                                                      May 26, 2006.
Dear Colleague:
    The challenges and threats posed by Iran to the United 
States and the rest of the world continue to demand our 
attention and analysis. In order to gain a better understanding 
of how we may address these issues as they confront us, the 
Committee on Foreign Relations held a series of hearings on May 
17 and 18, 2006, entitled ``Iran's Political/Nuclear Ambitions 
and U.S. Policy Options.'' We believe that the witnesses' 
testimonies can be helpful in preparing members for subsequent 
Senate debate on this matter of national security and have 
gathered them into this committee print.
    The first panel on May 17 focused on the status of Iran's 
nuclear program. Testimony was heard from the Honorable Robert 
J. Einhorn, Senior Adviser at the Center for Strategic and 
International Studies, and Dr. David Albright, President of the 
Institute for Science and International Security. The second 
panel discussed Iran's motivations and strategies. We heard 
from Dr. Kenneth M. Pollack, the Director of Research of the 
Saban Center for Middle East Policy at The Brookings 
Institution; Mr. Karim Sadjadpour, Iran Analyst at the 
International Crisis Group; Dr. Patrick Clawson, Deputy 
Director of the Washington Institute for Near East Policy; and 
Dr. Geoffrey Kemp, Director of Regional Strategic Programs at 
The Nixon Center.
    On May 18 we heard from a variety of experts regarding U.S. 
policy options towards Iran. The panel consisted of the 
Honorable Frank G. Wisner, former Ambassador to India and 
currently Vice Chairman for External Affairs at the American 
International Group; Dr. Vali R. Nasr, Professor of National 
Security Affairs at the U.S. Naval Postgraduate School in 
Monterey, California; Ms. Julia Nanay, Senior Director at PFC 
Energy; and Mr. James A. Phillips, a Research Fellow in Middle 
Eastern Affairs at the Heritage Foundation.
            Sincerely,
                                   Richard G. Lugar,
                                           Chairman.

                                   Joseph R. Biden, Jr.,
                                           Ranking Member.

                                  (v)

                         Day One--May 17, 2006

                           Opening Statement

                        SENATOR RICHARD G. LUGAR

          Chairman, U.S. Senate Committee on Foreign Relations

                               before the

               U.S. Senate Committee on Foreign Relations

                              may 17, 2006

                              ----------                              

    The Foreign Relations Committee meets today to examine the 
situation in Iran and options for U.S. policy. We will have a 
second hearing on this topic tomorrow. As the American people 
and policy makers debate our course in Iran, I am hopeful that 
this committee can contribute by being a bipartisan forum for 
clarifying the diplomatic situation and evaluating policy 
options. Our intent is to inform our own policymaking role, as 
well as help stimulate constructive public debate.
    President Bush has announced that the United States remains 
committed to exhausting all diplomatic options with respect to 
Iran. The United States and its allies at the United Nations 
have been pressing for multilateral diplomatic and economic 
sanctions under Chapter 7. There is widespread agreement that 
Iran has sought to deceive the international community about 
its nuclear intentions. Tehran's decision to move ahead with 
uranium enrichment was condemned by the international 
community, but efforts to attain a Security Council consensus 
on a firm response to Iran's actions have not been successful.
    American policy in the near term will be defined by efforts 
to convince the international community of our commitment to 
diplomacy and to build a broad multilateral and international 
coalition against Iran's nuclear ambitions. I believe that this 
is the strategy that Iran fears most. Last minute negotiations, 
letters to President Bush, and feigned interest in compromises 
are just a few of the transparent efforts Tehran has undertaken 
to split the international community. We must overcome Iran's 
efforts with patient diplomatic spadework.
    We have stated that no option is off the table. Although 
direct talks with Iran come with difficulties and risks, we 
cannot rule out their utility, particularly as they relate to 
our primary effort to build an international coalition. 
Secretary Baker's talks with Iraqi leaders in 1991 were 
distasteful, but proved to be a gesture that displayed 
America's hope for a peaceful settlement and built 
international equity for all steps in our response. The United 
States has the diplomatic prowess to attain a strong 
multilateral response and win the international debate. We must 
be prepared to commit the time, energy, and resources necessary 
to win this diplomatic battle.
    Retaining all communication tools is also important because 
they may be necessary to avoid a tragic miscalculation by the 
Iranians. Analysts in our intelligence agencies and State 
Department do not regard the Tehran regime as irrational, but 
the framework for their decision-making is very different from 
our own. We must understand that they are interpreting our 
actions in ways that we do not always discern. If one overlays 
these perceptual differences with demagogic rhetoric, historic 
suspicion, and high political stakes, the possibility for 
miscalculation increases exponentially. Our policies and our 
communications must be clear, precise, and confident, without 
becoming inflexible. In some situations, this delicate 
diplomatic balance can best be achieved through direct 
communications.
    Some have expressed frustration with the administration's 
coalition-building approach and have advocated quick, punitive, 
and unilateral sanctions focused on international companies 
doing business in Iran. Secretary Rice has stated that such a 
policy: ``Would complicate our ability to work successfully 
with our allies to counter the threat posed by Iran. It would 
narrow in important ways the President's flexibility in the 
implementation of Iran sanctions, create tensions with 
countries whose help we need in dealing with Iran, and shift 
focus away from Iran's actions and spotlight differences 
between us and our allies. This could play into Iran's hands as 
it attempts to divide the U.S. from the international community 
as well as to sow division between the EU-3, China, and 
Russia.''
    Unilateral sanctions targeting European and Asian 
corporations do not appear to be an effective way to secure 
long-term commitments from their host governments on a 
multilateral approach to the threat posed by Iran. As such, 
they are likely to be counterproductive, as the Bush 
administration has asserted.
    As part of our diplomatic efforts, the administration 
should consider how the NATO alliance might be utilized to 
strengthen our position. NATO is the principal defense and 
security organization of the trans-Atlantic community. NATO has 
become the preeminent strategic forum for broader security 
cooperation with Japan, Australia, and members of the 
Partnership for Peace in the Caucasus and Central Asia. It also 
is facilitating closer ties with North African countries 
through the Mediterranean Dialogue. NATO is the only entity 
that has successfully developed and implemented a strategy of 
deterrence and containment against a nuclear-armed enemy. The 
Alliance provides us with an effective and experienced 
infrastructure capable of supplementing our activities at the 
U.N. and implementing an international coalition's strategy 
towards Iran.
    I would underscore a final point as the Congress and the 
administration move forward with decisions pertaining to Iran. 
Even as we work quickly, we must calibrate our response with 
the long term in mind. The issues related to Iran's pursuit of 
nuclear weapons, its role in the Persian Gulf region, and its 
impact on world energy markets will not be addressed with a 
single act or policy, be it military, economic, or diplomatic. 
The American people must know that whatever policy options are 
chosen will likely require years, if not decades, of intense 
vigilance and diplomatic follow-up.
    To assist us in our deliberations today, we welcome two 
distinguished panels of experts. The first panel will discuss 
the status of Iran's nuclear program. We are joined by the 
Honorable Robert Einhorn, a Senior Adviser at the Center for 
Strategic and International Studies and Dr. David Albright, 
President of the Institute for Science and International 
Security. Our second panel will discuss Iran's motivations and 
strategies. Joining us will be Dr. Ken Pollack, the Director of 
the Saban Center for Middle East Policy at the Brookings 
Institution; Mr. Karim Sadjadpour, an Iran expert with the 
International Crisis Group; Dr. Patrick Clawson, Deputy 
Director of the Washington Institute for Near East Policy; and 
Dr. Geoffrey Kemp, Director of Regional Strategic Programs at 
The Nixon Center.
    We thank our witnesses for being with us today, and we look 
forward to their insights.

                           Opening Statement

                      SENATOR JOSEPH R. BIDEN, Jr.

       Ranking Member, U.S. Senate Committee on Foreign Relations

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

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

                           Prepared Statement

                      HONORABLE ROBERT J. EINHORN

    Senior Adviser, Center for Strategic and International Studies, 
                             Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

                         THE IRAN NUCLEAR ISSUE

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

Evaluating recent Iranian progress
    As documented by the International Atomic Energy Agency 
(IAEA) in its report of April 28, 2006, Iran has indeed passed 
some important milestones in recent months. Since September 
2005, it has produced over 110 tonnes of uranium hexafluoride 
(UF6) at the Isfahan uranium conversion facility, 
enough gaseous uranium feedstock for over 20 nuclear weapons. 
After ending its suspension of enrichment activities in 
January, it fed UF6 into a single P-1 centrifuge 
machine, then into 10-machine and 20-machine cascades, and then 
moved quickly to a 164-machine cascade (a key building block in 
a centrifuge enrichment facility) where it successfully 
enriched uranium to around 3.6%. Meanwhile, Iran has been 
assembling two additional 164-machine cascades at its Pilot 
Fuel Enrichment Plant (PFEP), one which is about to begin 
enrichment operations and the other which should be ready by 
June. In addition, the Iranians announced that they would begin 
installing the first 3000-machine module of their industrial-
scale enrichment facility in the fourth quarter of 2006.
    On the basis of these developments, Iran's leaders are 
claiming that they have now mastered centrifuge enrichment 
technology and that it is too late to stop them. They go so far 
as to say that, even if existing nuclear facilities were 
destroyed, they have reached a stage where they could re-
generate their program quickly and confidently, with little 
loss of time. But such claims are premature.
    The Iranians have cut corners in their research and 
development effort in order to register the accomplishments 
listed in the IAEA's report. Standard practice would have 
required them to run the 164-machine cascade with 
UF6 on an uninterrupted basis for up to six months 
or more before gaining confidence in its operation. Instead of 
proceeding in parallel to assemble and operate additional 
cascades, the efficient operation of the initial cascade would 
first have been demonstrated. To verify the ability to 
manufacture centrifuges indigenously, the experimental cascade 
would have relied on machines made in Iran rather than 
imported, and it would have been heavily instrumented to 
measure performance. And before introducing UF6 into 
the cascades, any impurities in the uranium gas that could 
damage the centrifuges would have been addressed and 
eliminated.But the Iranians deviated from standard practice. 
Apparently intent mainly on demonstrating publicly the ability 
to reach a significant enrichment level, they ran the cascade 
with UF6 for less than two weeks. A significant 
portion of the experimental cascade may have consisted of 
centrifuges imported from the A.Q. Khan network rather than 
produced indigenously. Moreover, little of the equipment 
normally used to measure performance seems to have been used 
during the short experimental run. And instead of taking the 
time to fix the problems in the Isfahan conversion process that 
have produced impurities in the UF6, the Iranians 
seem to have chosen to use the impure UF6 and accept 
the risk of having to replace any centrifuges damaged as a 
result.
    Iran's research and development efforts to date seem to 
have been driven by political rather than technical 
considerations. By giving highest priority to achieving and 
announcing the ability to produce uranium enriched to 3.6%, the 
Iranians wanted to present the world with a fait accompli--to 
demonstrate that they already have an enrichment capability and 
that continued efforts to stop them would be futile. Moreover, 
fearing (despite their determined show of self-confidence) that 
they may eventually be forced to accept another freeze on their 
program, they wanted to establish the highest possible baseline 
for such a freeze--thus, accelerating the operation of the 
second and third cascades at the PFEP and starting installation 
of the 3000-machine module this year at the industrial-scale 
facility. And not least, Iran's leaders saw the early 
announcement of the enrichment breakthrough as a way of 
boosting national pride and building domestic support for the 
regime, especially in anticipation of international pressures 
and possible hardships to follow.
    Having taken a series of short-cuts largely for political 
reasons, Iran presumably will now have to do the thorough 
developmental and testing activities it would normally have 
done earlier. That will take considerable time, and is probably 
one reason why the Iranians are saying they would be prepared 
to negotiate a deferral of industrial-scale enrichment if the 
Europeans and others will agree to accept continued R&D 
activities on a pilot scale.
    So recent reports regarding progress in Iran's nuclear 
program, especially boastful accounts coming from Tehran, have 
created the somewhat misleading picture that Iran's efforts 
have accelerated to an alarming degree. While Iran has indeed 
reached some key milestones of late, the basic timelines for 
Iran achieving a nuclear weapons capability--in particular, the 
capability to produce enough HEU for a single nuclear weapon--
have not significantly changed.

Timeline for producing HEU
    One of the best recent analyses in the open literature of 
Iran's timeline for producing HEU was done by David 
Albright.\1\ Since he's a witness at today's hearing and 
available to explain his analysis, I'll just cite his 
conclusion--that whether Iran builds a clandestine enrichment 
plant with 1500 P-1 centrifuges or breaks out of the NPT and 
uses its first module of 3000 P-1 centrifuges at its 
industrial-scale facility, the earliest it could produce enough 
HEU for a single nuclear weapon would probably be three years 
from now, or 2009. Albright emphasizes that this is a worst-
case assessment and that Iran is likely to take longer if, for 
example, it needs additional time to manufacture and install 
the necessary number of centrifuges and overcome the normal 
technical difficulties that arise in seeking to operate a 
number of cascades in a single production unit.
---------------------------------------------------------------------------
    \1\ David Albright and Corey Hinderstein, ``The Clock is Ticking, 
But How Fast?'' The Institute for Science and International Security 
(ISIS), March 27, 2006.
---------------------------------------------------------------------------
    Director of National Intelligence John Negroponte seems to 
believe Iran will probably take longer than three years. In 
testimony before the Senate Intelligence Committee in February 
2006, he said that, if Iran continues its present efforts, it 
``will likely have the capability to produce a nuclear weapon 
within the next decade.'' A National Intelligence Estimate on 
Iran produced last year reportedly judged that Iran could have 
a nuclear weapon in from five to ten years.
    Large margins of uncertainty inevitably surround judgments 
of when Iran will or could have nuclear weapons or the fissile 
materials to build them. Some of the biggest unknowns relate to 
Iran's intentions--whether it is determined to produce HEU and 
acquire nuclear weapons as soon as possible; whether--and for 
how long--it is willing to stop at an LEU production capability 
while deferring decisions on HEU production and weaponization; 
or whether it is prepared to forgo, temporarily or 
indefinitely, the capability to produce even LEU in order to 
avoid penalties or gain rewards.
    Other uncertainties about the pace of Iran's nuclear 
program relate more to capabilities. If Iran cannot readily 
overcome the technical problems that typically accompany start-
up enrichment operations, the timeframe will lengthen. If, 
however, Iran can soon learn to master the much more efficient 
P-2 centrifuge design and build P-2 enrichment units, the 
timeframe will shorten. Iran's ability to procure materials, 
equipment, and technology from abroad will also affect the pace 
of its nuclear program, although imports will be much more 
important in the case of Iran's industrial-scale enrichment 
facility, which still requires large quantities of specialized 
materials and equipment, than in the case of a pilot-scale 
facility. Indeed, even if it were possible to cut off its 
access to foreign supplies, Iran probably already possesses 
within its territory all the materials and equipment it needs 
to set up a 1500- or 3000-machine centrifuge facility and 
produce enough HEU for a small nuclear weapons stockpile.
    A key variable affecting the pace of Iran's nuclear program 
is whether--and the extent to which--Iran has a clandestine 
nuclear program parallel to its overt program. Obviously, a 
successfully hidden conversion plant and enrichment facility 
would invalidate current estimates and eventually confront the 
United States and its allies with a sudden, major security 
threat. But even undetected activities of less importance 
(e.g., manufacture of centrifuge components or assembly of 
centrifuges) could have a substantial impact on timeframes for 
producing HEU or nuclear weapons.

Monitoring Iran's program--the role of the IAEA
    The IAEA plays a critical role in narrowing our 
uncertainties about Iran's nuclear program. But IAEA monitoring 
of Iran's program has serious limitations, especially given 
Tehran's decision in February to cease implementation of the 
Additional Protocol and its overall failure to meet the IAEA's 
requirements for transparency and cooperation.
    The Agency's presence in Iran, even with the less intrusive 
verification rights contained in the IAEA-Iran Comprehensive 
Safeguards Agreement (as compared to the Additional Protocol), 
provides a strong basis for monitoring declared nuclear 
facilities and activities in Iran. Agency inspectors can 
measure accurately how much UF6 is produced at Isfahan and 
verify that it is not being diverted to a covert enrichment 
plant. They know how much enriched uranium is being produced at 
Natanz and can be confident that no HEU is being produced there 
and that no Natanz-produced LEU is being sent to a covert 
enrichment facility to be further enriched to weapons grade. 
Frequent IAEA visits also enable us to keep track of progress 
in assembling and operating cascades at the PFEP, in 
constructing and operating the heavy water production plant and 
heavy-water research reactor at Arak, and in building the 
industrial-scale enrichment plant at Natanz. This information 
is crucial in understanding the nature and pace of Iran's 
acquisition of a fissile material production capability.
    While the IAEA can effectively monitor declared nuclear 
facilities and activities as long as the Agency has access to 
them, monitoring confidence drops off rapidly at undeclared 
locations or if inspectors are no longer given access to 
declared sites. In the latter case, such as in the event of NPT 
withdrawal and termination of IAEA verification, Iran could 
proceed without international scrutiny to use previously 
monitored facilities to produce fissile material, either by 
starting from natural uranium or boosting previously 
safeguarded LEU to HEU.
    Even if Iran remains in the NPT, monitoring undeclared 
locations is a formidable challenge, especially given Iran's 
20-year track record of what the IAEA calls its ``many failures 
and breaches of its obligations to comply'' with its NPT 
safeguards agreement and given its February decision no longer 
to act as if bound by the Additional Protocol. In its April 
28th report, the IAEA cites numerous ``gaps in the Agency's 
knowledge'' that have sustained or even heightened ``concern'' 
that Iran may be pursuing nuclear weapons. Among the IAEA's 
concerns are that Iran is not being honest about the extent of 
its work on P-2 centrifuges, that Iran took fuller advantage of 
a 1987 offer by A.K. Khan's network than it is admitting, that 
procurement of dual-use equipment (e.g., mass spectrometers) 
was related to a weapons program, that Iran's military is 
heavily involved in the nuclear program, that experiments with 
plutonium, polonium, and uranium metal point to a weapons 
program, and that Iran may be engaged in nuclear-related high 
explosives testing and missile re-entry vehicle design.
    These concerns, and the IAEA's judgment that Iran is not 
providing the Agency ``full transparency and active 
cooperation,'' have brought the IAEA to the sobering admission 
that it ``is unable to make progress in its efforts to provide 
assurances about the absence of undeclared nuclear material and 
activities in Iran.'' The April 28th report goes on to say that 
``additional transparency measures, including access to 
documentation, dual use equipment, and relevant individuals''--
all of which have been specifically requested by the IAEA Board 
of Governors but denied by Iran--will be required if the Agency 
is to be able to do its job.
    Iran's decision to stop implementing the Additional 
Protocol (AP) has hampered the IAEA's work. But implementation 
of the AP is not enough. The AP has its own limitations. Unlike 
what many observers believe, it does not provide for 
``anywhere, anytime'' inspections. It does not, for example, 
authorize investigation of suspected weaponization activities 
or allow access to military facilities where no nuclear 
materials are believed to be present. That is why the IAEA 
Board has several times requested, unsuccessfully, that Iran 
accept verification procedures going beyond what is required by 
the AP.The IAEA must be given stronger tools to perform its 
verification mission in Iran, and that will require action by 
the United Nations Security Council. The IAEA Director General 
should be asked to determine what additional verification 
authorities the Agency would need to carry out its mandate in 
Iran. If required, those authorities should go well beyond what 
is contained in the existing Comprehensive Safeguards Agreement 
or even the Additional Protocol. The Security Council should 
then take a decision to grant the IAEA those additional 
authorities.
    Enhanced verification tools would not be a panacea. Even if 
Iran complied with a Security Council directive to cooperate 
with them, more intrusive methods would not necessarily be 
capable of uncovering all undeclared nuclear activities. For 
example, a relatively small clandestine centrifuge enrichment 
plant (e.g., 1500 centrifuges) might still be difficult to 
detect. But stronger verification tools would give the 
international community significantly more confidence than it 
currently has in the ability to detect and deter violations.

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

Direct engagement between the U.S. and Iran
    The most effective way to offer the incentive of a more 
normal, less threatening relationship with the United States--
and indeed the only way it would be credible--is through 
direct, face-to-face discussions involving American and Iranian 
representatives. Bilateral U.S.-Iranian contacts could take 
place within the framework of a multilateral process that also 
included Britain, France, Germany, Russia, and China--analogous 
to the Six Party Talks that have provided an acceptable context 
for bilateral meetings between the U.S. and North Korea during 
the last year or so.
    The agenda for U.S.-Iranian discussions should not be 
confined to the nuclear issue. It should instead cover the full 
range of issues that divide the two countries, including U.S. 
concerns about Iran's support for Middle East terrorist groups, 
its role in Iraq, its alleged harboring of al-Qaeda operatives, 
its policies toward Israel, and its treatment of its own 
people. Iran undoubtedly will have its own list of issues and 
demands. The purpose of the talks would be to explore whether 
U.S. concerns can be met and whether the interests of the two 
countries can be reconciled. Only by addressing the broad range 
of issues can prospects for normalization be assessed. And only 
the prospect of normalized bilateral relations can provide the 
context in which Iran is likely to consider suspending its 
enrichment program and giving up its aspiration for nuclear 
weapons.
    At various times during the past decade, the U.S. and Iran 
have both been interested in bilateral engagement, but never at 
the same time. In recent weeks and months, the Iranians have 
been sending signals--however mixed and confusing--that they 
might be ready. But it is the U.S. administration that is now 
resisting.
    Asked recently whether the Bush administration is willing 
to engage directly with Iran, Secretary Rice replied: ``What is 
to be gained if Iran is not prepared to show that it is ready 
to accede to the demands of the international community?'' But 
do we really expect Iran to meet our demands even before 
sitting down to talk with us--before knowing what it might 
receive in return? Do we realistically think our current 
bargaining position is so strong?
    There seems to be a strong conviction within the 
administration that talking to the current regime in Tehran 
will give it legitimacy and sustain it in power, whereas 
pressuring and isolating it will divide the leaders from the 
people and perhaps even result in regime change and more 
acceptable policies on the nuclear issue and other issues. But 
most experts on Iran tend to believe just the opposite--that 
external pressures will unite the Iranian public behind the 
regime and its nuclear policies, while engagement will magnify 
the fissures that have begun to appear within the Iranian 
leadership and perhaps produce significant changes in policy, 
including on the nuclear issue.
    In London this Friday, the P-5 countries plus Germany are 
scheduled to meet to consider a European-drafted package 
proposal for Iran. It is an opportunity to make the major 
changes in Iran's calculation of benefits and risks that will 
be necessary to induce Tehran to give up its enrichment 
capability. To have that effect, the Russians and Chinese 
should agree that the package will require stiff penalties if 
Iran does not accept a reasonable offer. The Europeans should 
provide incentives more attractive than those contained in 
their July proposal. And the U.S. should be prepared to engage 
in direct talks with the Iranians within a multilateral 
framework.
    Such a package would be the first real test of whether Iran 
is willing to give up its quest for a nuclear weapons 
capability. If the Iranians are determined to proceed with 
their nuclear plans come what may, they will fail the test. But 
that will at least put the U.S. and the Europeans in a stronger 
position to rally the international community behind a longer-
term strategy to demonstrate to Iran that it has much to lose 
and little to gain by staying on its present course.
    Despite recent progress in Iran's enrichment program, Iran 
is still years away from being able to produce a nuclear 
weapon. But it will not be long--perhaps several months to a 
year--before Iran is confident in its ability to enrich uranium 
efficiently in overt or clandestine production units large 
enough to produce bomb quantities of HEU in less than a year. 
It is therefore important that the U.S. and the other key 
states move quickly to construct and present a package that 
gives Iran a stark choice--it can be a pariah with nuclear 
weapons or a well-integrated, respected member of the 
international community, with normal relations with the U.S., 
without them.

                           Prepared Statement

                           DR. DAVID ALBRIGHT

President and Founder, Institute for Science and International Security 
                         (ISIS), Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

    Iran is now on the verge of mastering a critical step in 
building and operating a gas centrifuge plant that would be 
able to produce significant quantities of enriched uranium for 
either peaceful or military purposes. However, Iran can be 
expected to face serious technical hurdles before it can 
produce significant quantities of enriched uranium.
    In testimony before the Senate Intelligence Committee on 
February 2, 2006, John Negroponte, Director of National 
Intelligence, stated that Iran is judged as probably having 
neither a nuclear weapon nor the necessary fissile material for 
a weapon. He added that if Iran continues on its current path, 
it ``will likely have the capability to produce a nuclear 
weapon within the next decade.'' The basis for this estimate 
remains classified, although press reports state that Iran's 
lack of knowledge and experience in building and running large 
numbers of centrifuges is an important consideration. Many 
interpret Negroponte's remark to mean that Iran will need 5-10 
years before it possesses nuclear weapons.
    Estimates of the amount of time Iran needs to get its first 
nuclear weapon are subject to a great deal of uncertainty. Many 
questions about Iran's technical nuclear capabilities and its 
plans to build nuclear weapons remain unanswered. In addition, 
the International Atomic Energy Agency (IAEA) is unable to 
verify that Iran has fully declared its nuclear activities. It 
still cannot state conclusively that Iran does not conduct 
secret uranium enrichment activities. Nonetheless, because of 
over three years of inspections, the IAEA has developed 
considerable knowledge about Iran's nuclear program and 
identified the main uncertainties in its knowledge about that 
program. The remaining uncertainties appear to exclude the 
existence of undeclared nuclear facilities large enough to 
significantly shift projections of the amount of time Iran 
would need to produce nuclear weapons. However, these 
uncertainties also suggest that Iran intends to develop a 
nuclear weapons capability, enabling it to build deliverable 
nuclear weapons once the regime's leaders make to a decision to 
do so.
    To understand the assumptions, key information, 
calculations, and uncertainties driving estimates of the 
timelines, I present two ``worst-case'' estimates of the time 
Iran would need to build its first nuclear weapon. In both of 
these estimates, which involve the production of highly 
enriched uranium (HEU) and cover the more likely scenarios, 
Iran appears to need at least three years, or until 2009, 
before it could have enough HEU to make a nuclear weapon. Given 
the technical difficulty of the task, it could take Iran 
longer.
    Before discussing these estimates, I will provide 
background information on Iran's nuclear program and discuss 
recent developments in Iran's gas centrifuge program. In 
particular, I will discuss several of Iran's recent progress 
and problems in its centrifuge program that affect these 
estimates.

Iran's Nuclear Program
    Iran has invested heavily in nuclear industries in the last 
twenty years. It has sought a wide range of items overseas, 
including nuclear reactors, uranium conversion facilities, 
heavy water production plants, fuel fabrication plants, and 
uranium enrichment facilities. Many of its overseas purchases 
were thwarted, such as multiple efforts to buy research 
reactors and an attempt to purchase a turn-key gas centrifuge 
plant from Russia in 1995. However, in general, Iran found 
suppliers to provide the wherewithal to build nuclear 
facilities. A. Q. Khan and business associates in Europe and 
the Middle East provided Iran the ability to build and operate 
gas centrifuges. Without their assistance, Iran would have 
likely been unable to develop a gas centrifuge program.
    Iran's current nuclear infrastructure is impressive. 
Although many key facilities are not finished, Iran is close to 
operating a large power reactor at Bushehr and has started or 
is close to operating several relatively large fuel cycle 
facilities. Following the end of the suspension embodied in its 
November 2004 agreement with the European Union, Iran resumed 
operating its uranium enrichment facilities at Natanz. Table 1 
summarizes the main nuclear facilities in Iran.
    Most of Iran's foreign procurement for its fuel cycle 
facilities occurred in secret, and several of the associated 
nuclear materials and facilities were not declared to the IAEA, 
as Iran was required to do under the Nuclear Non-Proliferation 
Treaty. Appendix 1 lists Iran's many violations of its 
safeguards agreement and important incidences of its lack of 
cooperation with the IAEA.
    If Iran finishes its declared nuclear facilities, it would 
have a capability to produce HEU and plutonium for nuclear 
weapons. At that point, Iran could decide to change the purpose 
of its safeguarded nuclear facilities and rapidly dedicate them 
to nuclear weapons purposes.
    Under current and expected developments, Iran's gas 
centrifuge program provides the quickest route to the 
indigenous production of nuclear explosive materials. As a 
result, the gas centrifuge program is the main focus of my 
testimony.
    However, Iran is also progressing on developing an 
indigenous method to produce plutonium. It continues to build a 
heavy water reactor at Arak, despite repeated international 
requests that Iran discontinue this project. Iranian officials 
have stated that the reactor is scheduled to be completed in 
2009, although this schedule may not be met due to problems in 
building and starting up such a reactor. When fully 
operational, the reactor is estimated to be able to produce 
about 9 kilograms of weapon-grade plutonium per year, enough 
for two nuclear weapons per year. Iran has told the IAEA that 
it does not intend to build reprocessing facilities to separate 
plutonium from this reactor. It did state that it was planning 
to build hot cells to separate ``long-lived radioisotopes,'' 
but said that it was having problems obtaining the necessary 
manipulators and lead glass windows. IAEA investigations into 
Iran's past reprocessing activities continue.
Iran Breaks the Suspension on Enrichment Activities
    Iran ended the suspension on enrichment and enrichment-
related activities in January 2006. Its actions appear aimed at 
finishing the Pilot Fuel Enrichment Plant (PFEP) at Natanz this 
year and, soon afterward, starting to install centrifuges in 
the Fuel Enrichment Plant (FEP), the main underground 
enrichment facility at Natanz slated to hold eventually about 
50,000 centrifuges.
    In early January 2006, Iran removed 52 seals applied by the 
IAEA that verified the suspension of Iran's P-1 centrifuge 
uranium enrichment program. The seals were located at the 
Natanz, Pars Trash, and Farayand Technique sites, Iran's main 
centrifuge facilities. On February 11, Iran started to enrich 
uranium in a small number of centrifuges at Natanz, bringing to 
a halt Iran's suspension of uranium enrichment that had lasted 
since October 2003. A few days earlier, Iran moved to end its 
implementation of the Additional Protocol, an advanced 
safeguards agreement created in the 1990s to fix traditional 
safeguards' inability to provide adequate assurance that a 
country does not have undeclared nuclear facilities or 
materials.
    After removing seals, Iran started to substantially 
renovate key portions of the PFEP. Iran began construction on 
the PFEP in secret in 2001, and it installed up to 200 
centrifuges in 2002 and 2003. The PFEP is designed to hold up 
to six 164-machine cascades, groups of centrifuges connected 
together by pipes, in addition to smaller test cascades, for a 
total of about 1,000 centrifuges.
    At Natanz and Farayand Technique, Iran quickly restarted 
testing centrifuge rotors and checking centrifuge components to 
determine if they are manufactured precisely enough to use in a 
centrifuge. By early March, Iran had restarted enriching 
uranium at the pilot plant in 10- and 20-centrifuge cascades.
    On April 13, 2006, Iran announced that it had produced low 
enriched uranium in its 164 machine cascade, finished in the 
fall of 2003 but never operated with uranium hexafluoride prior 
to the suspension of enrichment that started in October 2003 as 
a result of an agreement between the European Union and Iran 
reached in Tehran. Soon afterward, it announced that it had 
enriched uranium up to a level of almost 5 percent.
    Restarting the 164-machine cascade took several months. 
Iran had to repair damaged centrifuges. According to IAEA 
reports, many centrifuges crashed or broke when the cascade was 
shut down at the start of the suspension in 2003. Before 
introducing uranium hexafluoride, it had to reconnect all the 
pipes, establish a vacuum inside the cascade, and prepare the 
cascade for operation with uranium hexafluoride.
    The initial performance of the P-1 centrifuges in this 
cascade has been less than expected. Based on statements on 
state-run television on April 12, 2006 by the Gholam-Reza 
Aqazadeh, head of the Atomic Energy Organization of Iran, the 
average annualized output of the centrifuges in this cascade is 
relatively low.\1\ In the same interview, he implied that he 
expects that the average output of each P1 centrifuge will 
almost double in the main plant.
---------------------------------------------------------------------------
    \1\ The annualized average output of each centrifuge was about 1.4 
separative work units per machine per year, based on Aqazadeh's 
statement of a maximum feed rate of 70 grams per hour and the 
production of 7 grams per hour of 3.5 percent enriched uranium. The 
feed and product rate imply a tails assay of 0.4 percent. This 
relatively low output could mean that the aluminum centrifuge rotors 
are spinning at a lower speed than possible. For the main plant, he 
said that 48,000 centrifuges would produce 30 tonnes of low enriched 
uranium per year. Assuming a tails assay of 0.4 percent and a product 
of 3.5 percent enriched uranium, the estimated average output of each 
machine would be about 2.3 swu/yr. With an assumed tails assay of 0.3 
percent, the estimated output rises to 2.7 swu/yr, high for a Pakistani 
P1 design, but theoretically possible if the centrifuge is further 
optimized.
---------------------------------------------------------------------------
    In addition, the Iranians have not yet run this cascade 
continuously to produce enriched uranium. One report stated 
that the cascade operated with uranium hexafluoride only about 
half of its first month of operation, although it continued to 
operate under vacuum the rest of the time. The Iranian 
centrifuge operators do not yet have sufficient understanding 
of cascade operation and must conduct a series of longer tests 
to develop a deeper understanding of the cascade.
    The IAEA reported in April that Iran was building the 
second and third cascades at the PFEP. A senior diplomat in 
Vienna said in a recent interview that the second cascade could 
start in May and the third one could start in June. This 
schedule would allow Iran to test multiple cascades running in 
parallel, a necessary step prior to building a centrifuge plant 
composed of such cascades. The diplomat speculated that Iran 
could continue with this pattern, installing the fourth and 
fifth in July and August, respectively. He stated that the slot 
for the sixth cascade is currently being occupied by the 10- 
and 20-machine cascades.
    Iran would likely want to run its cascades individually and 
in parallel for several months to ensure that no significant 
problems develop and to gain confidence that it can reliably 
enrich uranium in the cascades. Problems could include 
excessive vibration of the centrifuges, motor or power 
failures, pressure and temperature instabilities, or breakdown 
of the vacuum. Iran may also want to test any emergency systems 
designed to shut down the cascade without losing many 
centrifuges in the event of a major failure. Absent major 
problems, Iran is expected to need roughly six months or more 
to demonstrate successful operation of its cascades and their 
associated emergency and control systems.
    Once Iran overcomes the technical hurdle of operating its 
demonstration cascades, it can duplicate them and create larger 
cascades. Iran would then be ready to build a centrifuge plant 
able to produce significant amounts of enriched uranium either 
for peaceful purposes or for nuclear weapons. However, Iran may 
encounter additional problems when it tries to build and 
operate a centrifuge plant.
    As of late April, according to the IAEA, Iran was not 
moving aggressively to finish the FEP in preparation for 
installing the first module. Earlier, it moved process tanks 
and an autoclave, used to heat uranium hexafluoride into a gas 
prior to insertion into centrifuge cascades, into the FEP at 
Natanz. Iran told the IAEA that it intends to start the 
installation of the first 3,000 P1 centrifuges, called the 
first module, in the underground cascade halls at the FEP in 
the fourth quarter of 2006. Iran still needs to finish the 
basic infrastructure, including installing electrical cables. A 
key question is whether Iran has procured or manufactured all 
the equipment it needs to finish the first module. In addition, 
questions remain about the number of centrifuges Iran has in-
hand and the quantity it would still need to manufacture 
indigenously to exacting specifications, a task that many 
countries have found challenging.
    The Uranium Conversion Facility (UCF) at Isfahan has 
continued to operate since its restart in August 2005, 
following the breakdown in the suspension mandated by the 
November 2004 agreement between Iran and the European Union. By 
late February 2006, Iran had produced about 85 tonnes of 
uranium hexafluoride, where the quantity refers to uranium 
mass. This amount had increased to about 110 tonnes in April. 
With roughly 5 tonnes needed to make enough HEU for a nuclear 
weapon, this stock represents enough natural uranium 
hexafluoride for roughly 20 nuclear weapons. Although Iran's 
uranium hexafluoride reportedly contains impurities that can 
interfere with the operation of centrifuges and reduce their 
output, IAEA experts believe that Iran can overcome this 
problem. Iran is known to be working to improve the purity of 
the uranium hexafluoride produced at the UCF. Nonetheless, if 
necessary, Iran could use its existing stock of impure 
material, if it had no other material. It could take additional 
steps to purify this uranium hexafluoride, or it could use the 
material in its own centrifuges and experience reduced output 
and a higher centrifuge failure rate.

Worst-Case Estimates
    Developing an answer to how soon Iran could produce enough 
HEU for a nuclear weapon is complicated and fraught with 
uncertainty. Beyond the technical uncertainties, several other 
important factors are unknown. Will Iran develop a nuclear 
weapons capability but produce only low enriched uranium for 
nuclear power reactors and not any highly enriched uranium? 
Will Iran withdraw from the NPT, expel inspectors, and 
concentrate on building secret nuclear facilities? How does 
Iran perceive the risks of particular actions, such as 
producing HEU in the pilot plant? What resources will Iran 
apply to finishing its uranium enrichment facilities? Will 
there be military strikes against Iranian nuclear sites?
    Before developing a timeline, it is necessary to estimate 
how much HEU Iran would need to make a nuclear weapon. Many 
assessments cite 25 kilograms of weapon-grade uranium (HEU 
containing more than 90 percent uranium 235) as the minimum 
amount necessary for a crude, implosion-type fission weapon of 
the type Iran is expected to build. However, the experience of 
similar proliferant states such as Iraq leads to lower 
quantities. In 1990, Iraq initially planned to use 15 kilograms 
of weapon-grade uranium in its implosion design. An 
unclassified design using almost 20 kilograms was calculated in 
a study co-authored by Theodore Taylor and Albright in about 
1990. Thus, an Iranian nuclear weapon could be expected to need 
about 15-20 kilograms of weapon-grade uranium. A larger 
quantity of HEU is needed than the exact amount placed into the 
weapon because of inevitable losses during processing, but such 
losses can be kept to less than 20 percent with care and the 
recovered material recycled into successive weapons. Thus, for 
the estimates presented here, a crude fission weapon is 
estimated to require 15-20 kilograms of weapon-grade uranium.

Scenario I--Clandestine Centrifuge Plant
    Iran's most direct path to obtaining HEU for nuclear 
weapons is building a relatively small gas centrifuge plant 
that can make weapon-grade uranium directly from natural 
uranium.\2\ If Iran built such a plant openly, it would be an 
acknowledgement that it seeks nuclear weapons. As a result, 
Iran is likely to pursue such a path in utmost secrecy, without 
declaring to the IAEA the facility and any associated uranium 
hexafluoride production facilities.
---------------------------------------------------------------------------
    \2\ Alternatively, Iran could secretly build a ``topping plant'' of 
about 500 centrifuges and use a stock of low enriched uranium produced 
in the pilot plant as feed to produce HEU. However, the estimated 
timeline for this alternative route is not significantly different from 
the one outlined in this scenario and is not considered further.
---------------------------------------------------------------------------
    Without the Additional Protocol in effect, however, the 
IAEA faces a difficult challenge discovering such a clandestine 
facility, even as Iran installs centrifuges at Natanz to 
produce low enriched uranium. The IAEA has already reported 
that it can no longer monitor effectively centrifuge 
components, unless they are at Natanz and within areas subject 
to IAEA containment and surveillance. When Iran halted its 
adherence to the Additional Protocol, the IAEA lost access to 
centrifuge production and storage facilities. Alternatively, 
Iran may feel less assured about successfully deceiving the 
inspectors and proceed with such a plant only after withdrawing 
from the NPT and asking inspectors to leave. In either case, 
U.S., Israeli, and European intelligence agencies would be 
unlikely to locate precisely this facility.
    The key to predicting a timeline is understanding the pace 
and scope of Iran's gas centrifuge program, for example the 
schedule for establishing a centrifuge plant large enough to 
make enough HEU for one nuclear weapon per year. Such a 
clandestine facility would require about 1,500-1,800 P1 
centrifuges with an average capacity of about 2.5-3 swus per 
year. These values for separative work are at the high end of 
the possible output of Iran's P1 centrifuge; actual values may 
be less.
    A capacity of 4,500 swus per year is sufficient to produce 
about 28 kilograms of weapon-grade uranium per year, assuming 
continuous operation and a tails assay of 0.5 percent, where 
tails assay is the fraction of uranium 235 in the waste stream. 
This is a relatively high tails assay, but such a tails assay 
is common in initial nuclear weapons programs. As a program 
matures and grows, it typically reduces the tails assay to 
about 0.4 percent and perhaps later to 0.3 percent to conserve 
uranium supplies.
    Iran has enough components for up to 5,000 centrifuges, 
according to senior diplomats in Vienna. However, other senior 
diplomats said that Iran may not have 5,000 of all components, 
and many components are not expected to pass quality control. 
In total, Iran is estimated to have in-hand enough good 
components for at least an additional 1,000 to 2,000 
centrifuges, beyond the roughly 800 centrifuges already slated 
for the pilot plant at Natanz. Iran could also build new 
centrifuge components, and in fact may have already started to 
do so.
    If Iran had decided to build a clandestine plant in early 
2006, it could assemble enough additional usable centrifuges 
for this plant of 1,500-1,800 centrifuges in about 15-18 
months, or by about mid-2007. It would need to assemble at the 
upper limit of its past rate of about 70-100 centrifuges per 
month to accomplish this goal. If necessary, Iran could also 
increase the centrifuge assembly rate, for example by 
increasing the number of shifts from one to two per day, 
according to diplomats in Vienna.
    In the meantime, Iran would need to identify a new facility 
where it could install centrifuge cascades, since it is 
unlikely to choose Natanz as the location of a secret plant. It 
would also need to install electrical, cooling, control and 
emergency equipment, feed and withdrawal systems, and other 
peripheral equipment. It would then need to integrate all these 
systems, test them, and commission the plant. Iran could start 
immediately to accomplish these steps, even before the final 
testing of the 164 machine cascades at Natanz, but final 
completion of the clandestine plant is highly unlikely before 
the end of 2007.
    Given another year to make enough HEU for a nuclear weapon, 
where some inefficiency in the plant is expected, and a few 
more months to convert the uranium into weapon components, Iran 
could have its first nuclear weapon in 2009. By this time, Iran 
is assessed to have had sufficient time to prepare the other 
components of a nuclear weapon, although the weapon may not be 
small enough to be deliverable by a ballistic missile.
    This result reflects a worst-case assessment, and Iran can 
be expected to take longer. Iran is likely to encounter 
technical difficulties that would delay bringing a centrifuge 
plant into operation. The output of its centrifuges may not 
achieve the higher value used in this assessment. Other factors 
causing delay include Iran having trouble in the manufacturing 
and installation of so many centrifuges and cascades in such a 
short time period, or Iran taking longer than expected to 
overcome difficulties in operating the cascades as a single 
production unit or in commissioning the secret centrifuge 
plant.

Scenario II--Break Out Using FEP
    Iran has stated its intention to start installing 
centrifuges in late 2006 in its first module of 3,000 
centrifuges in the underground halls of FEP at Natanz. This 
module would give Iran another way to produce HEU for nuclear 
weapons, even though the module is being designed to produce 
low enriched uranium. Once Iran has an adequate stock of LEU, 
the time to produce enough HEU for a nuclear weapon in this 
facility could be dramatically shortened.
    At above rates of centrifuge assembly, and assuming that 
Iran has or can produce enough new P1 centrifuge components and 
associated equipment, Iran could finish producing 3,000 
centrifuges for this module sometime in 2008. Although cascades 
would be expected to be built before all the centrifuges are 
assembled, Iran will probably need at least another year to 
finish this module, placing the completion date in 2009 or 
2010. Unexpected complications could delay the commissioning 
date. On the other hand, Iran could accelerate the pace by 
manufacturing, assembling, and installing centrifuges more 
quickly. Given all the difficult tasks that must be 
accomplished, however, Iran is unlikely to commission this 
module much before the start of 2009.
    If Iran decided to make HEU in this module, it would have 
several alternatives. Because of the small throughput and great 
operational flexibility of centrifuges, HEU for nuclear weapons 
could be produced by reconfiguring the cascades in the module 
or batch recycling where the cascade product is used as feed 
for subsequent cycles of enrichment in the same cascade.
    Reconfiguration could be as straightforward as connecting 
separate cascades in series and selecting carefully the places 
where new pipes interconnect the cascades. The Iranian module 
is slated to be composed of 164-centrifuge cascades operating 
together under one control system. In such a case, 
reconfiguration would not require the disassembly of the 
individual cascades, and it could be accomplished within days. 
In this case, the loss of enrichment output can be less than 
ten percent, although the final enrichment level of the HEU may 
reach only 80 percent, sufficient for use in an existing 
implosion design albeit with a lower explosive yield. With a 
reconfigured plant, and starting with natural uranium, 20 
kilograms of HEU uranium could be produced within four to six 
months. If Iran waited until it had produced a stock of LEU and 
used this stock as the initial feedstock, it could produce 20 
kilograms in about one to two months.
    Batch recycling would entail putting the cascade product 
back through the cascade several times, without the need to 
change the basic setup of the cascade. Cascades of the type 
expected at Natanz could produce weapon-grade uranium after 
roughly four or five recycles, starting with natural uranium. 
Twenty kilograms of weapon-grade uranium could be produced in 
about six to twelve months. If the batch operation started with 
an existing stock of LEU, the time to produce 20 kilograms of 
weapon-grade uranium would drop to about one to two months.
    Whether using batch recycling or reconfiguration, Iran 
could produce in 3,000 centrifuges at Natanz enough HEU for its 
first nuclear weapon in less than a year. Iran could do so in 
considerably less than a year, if it used an existing stock of 
LEU as the initial feed. It is likely that Iran would operate 
the module to make LEU so that any production of HEU would be 
expected to happen quickly.
    Using either break-out approach, Iran is not likely to have 
enough HEU for a nuclear weapon until 2009. This timeline is 
similar to that outlined in the clandestine plant scenario. In 
addition, technical obstacles may further delay the operation 
of the module in the FEP.

Conclusion
    The international community needs to be committed to a 
diplomatic solution that results in an agreement whereby Iran 
voluntarily forswears having any deployed enrichment 
capability. Looking at a timeline of at least three years 
before Iran could have a nuclear weapons capability means that 
there is still time to pursue aggressive diplomatic options, 
and time for measures such as sanctions to have an effect, if 
they become necessary.
    In the short-term, it is imperative for the international 
community to intensify its efforts to disrupt or slow Iran's 
overseas acquisition of dual-use items for its centrifuge 
program and other nuclear programs. Iran continues to seek 
centrifuge-related items aboard, but it has encountered greater 
difficulty acquiring these items because of the increased 
scrutiny by key supplier states. As Iran seeks these items in a 
larger number of countries, greater efforts will be required to 
thwart Iran from succeeding.
    It is vital to understand what Iran has accomplished, what 
it still has to learn, and when it will reach a point when a 
plan to pursue nuclear weapons covertly or openly could succeed 
more quickly than the international community could react. 
Although these estimates include significant uncertainties, 
they reinforce the view that Iran must foreswear any deployed 
enrichment capability and accept adequate inspections. 
Otherwise, we risk a seismic shift in the balance of power in 
the region.

------------------------------------------------------------------------
                Activity                             Location
------------------------------------------------------------------------
Uranium Mining and Milling.............  Saghand Mine and Mill
                                         Gchine Mine and Mill

Nuclear Research.......................  Jabr Ibn Havan Multipurpose
  & Development........................   Laboratories (JHL)
                                         Radiochemistry Laboratories of
                                          TNRC
                                         Tehran Research Reactor (TRR)
                                         Uranium Chemistry Laboratory
                                          (UCL)
                                         Research reactors at Esfahan
                                         Molybdenum, Iodine and Xenon
                                          Radioisotope Production
                                          Facility (MIX Facility)

Uranium Conversion.....................  Uranium Conversion Facility
                                          (UCF)

Centrifuge Research....................  Kalaye Electric Company
  & Development........................  Farayand Technique
  and Manufacturing....................  Pars Trash
                                         Other centrifuge manufacturing
                                          sites

Centrifuge Uranium.....................  Pilot Fuel Enrichment Plant at
  Enrichment...........................   Natanz
                                         Fuel Enrichment Plant at Natanz

Laser Uranium Enrichment...............  Lashkar Ab'ad
                                         Karaj Agricultural and Medical
                                          Center

Fuel Fabrication.......................  Fuel Fabrication Laboratory
                                          (FFL)
                                         Zirconium Production Plant
                                          (ZPP)
                                         Fuel Manufacturing Plant

Heavy Water-Related Facilities.........  Heavy Water Production Plant
                                         IR-40 Heavy Water Reactor
                                         Hot Cells

Nuclear Power Generation...............  Bushehr Nuclear Power Plant
                                          (BNPP)

Waste Disposal.........................  Anarak

Suspect Sites..........................  Parchin, Lavisan-Shian
------------------------------------------------------------------------

                Appendix 1--Iran's Safeguards Violations

    The International Atomic Energy Agency (IAEA) has found 
that Iran violated the Nuclear Non-Proliferation Treaty (NPT) 
and its related safeguards agreement for many years. Iran's 
violations and eventual--though still incomplete--cooperation 
with the IAEA can be divided into four eras or stages.

First Stage: up to mid-2002
    In the first stage, beginning in the mid-1980s to early 
1990s and continuing until mid-2002, Iran violated its 
safeguards agreement by pursuing undeclared fuel cycle 
activities with little scrutiny by the IAEA or member states. 
Although the IAEA and member states were collecting information 
about Iranian violations, they were reluctant to act publicly.

Second Stage: 2002-2003
    The second stage began in August 2002 when the National 
Council of Resistance of Iran (NCRI) made the first of many 
public revelations about secret Iranian nuclear facilities, 
revealing the Natanz and Arak nuclear sites and ended in late 
2003. After pressure from the IAEA and further public 
revelations about the Natanz site by ISIS, Iran finally allowed 
the IAEA to visit Natanz in February 2003, and that month Iran 
began to reveal some of its violations. However, the Atomic 
Energy Organization of Iran denied many of the accusations, and 
blocked access by the IAEA to suspect sites. During this time, 
Iran's leadership seemed to be torn between acting cooperative 
and protecting their nuclear secrets at all costs. Despite many 
efforts by Iran to hide its past and current activities, 
however, the IAEA, with assistance from member states, NCRI, 
and ISIS, revealed several more secret nuclear activities and 
facilities.
    In his November 2004 safeguards report to the IAEA Board of 
Governors, the Director General detailed Iran's failures to 
implement its safeguards agreement that had been uncovered 
through this period. The violations include Iran's failure to 
report activities related to nuclear material, the failure to 
declare the existence of relevant nuclear facilities, the 
failure to provide design data for a number of facilities, and 
the ``failure on many occasions to cooperate to facilitate the 
implementation of safeguards, as evidenced by extensive 
concealment activities.'' \1\
---------------------------------------------------------------------------
    \1\ International Atomic Energy Agency, ``Implementation of the NPT 
Safeguards Agreement in the Islamic Republic of Iran,'' GOV/2004/83, 15 
November 2004.
---------------------------------------------------------------------------
    According to the IAEA, Iran failed to declare six major 
activities related to nuclear material:

   Iran failed to report that it had imported natural 
        uranium (1,000 kg of UF6, 400 kg of 
        UF4, and 400 kg of UO2) from 
        China in 1991 and its transfer for processing. Iran 
        acknowledged the import in February 2003.

   It failed to report that it had used the imported 
        uranium to test parts of its uranium conversion 
        process, such as uranium dissolution, purification 
        using pulse columns, and the production of uranium 
        metal, and the associated production and loss of 
        nuclear material. Iran acknowledged this failure in 
        February 2003.

   Iran failed to report that it had used 1.9 kg of the 
        imported UF6 to test P1 centrifuges at the 
        Kalaye Electric Company centrifuge workshop in 1999 and 
        2002. In its October 2003 declaration, Iran said it 
        first fed UF6 into a centrifuge in 1999 and 
        in 2002 fed UF6 into as many as 19 
        centrifuges. Iran also failed to declare the associated 
        production of enriched and depleted uranium.

   It failed to report that in 1993 it had imported 50 
        kg of natural uranium metal, and that it used 8 kg of 
        this for atomic vapor laser isotope separation (AVLIS) 
        experiments at Tehran Nuclear Research Center from 1999 
        to 2000 and 22 kg for AVLIS experiments at Lashkar 
        Ab'ad from 2002 to 2003.\2\ Iran acknowledged these 
        activities in its October 2003 declaration.
---------------------------------------------------------------------------
    \2\ International Atomic Energy Agency, ``Implementation of the NPT 
Safeguards Agreement in the Islamic Republic of Iran,'' GOV/2003/75, 10 
November 2003, Annex 1, p. 2.

   Iran failed to report that it had used imported 
        depleted UO2, depleted U308, and 
        natural U308 to produce UO2, 
        UO3, UF4, UF6, and 
        ammonium uranyl carbonate (AUC) at the Esfahan Nuclear 
        Technology Center and the Tehran Nuclear Research 
---------------------------------------------------------------------------
        Center.

   It failed to report that it had produced 
        UO2 targets, irradiated them in the Tehran 
        Research Reactor, and then separated the plutonium from 
        the irradiated targets. Iran also failed to report the 
        production and transfer of waste associated with these 
        activities and that it had stored unprocessed 
        irradiated targets at the Tehran Nuclear Research 
        Center. In meetings with the IAEA following its October 
        2003 declaration, Iran said that it conducted the 
        plutonium separation experiments between 1988 and 1993 
        using shielded glove boxes at the Tehran Nuclear 
        Research Center.

    According to the IAEA, Iran failed to declare the existence 
of key nuclear facilities and failed to provide design 
information, or updated design information, for a number of 
facilities. Iran failed to declare the existence of the pilot 
enrichment facility at the Kalaye Electric Company workshop, 
the laser enrichment facility at Tehran Nuclear Research 
Center, and the pilot laser enrichment plant at Lashkar Ab'ad.
    Iran failed to provide design information for the 
facilities where the uranium imported in 1991 was received, 
stored, and processed, including at Jabr Ibn Hayan Multipurpose 
Laboratories, Tehran Research Reactor, Esfahan Nuclear 
Technology Center, and the waste storage facilities at Esfahan 
and Anarak. Iran also failed to provide design information for 
the facilities at the Esfahan Nuclear Technology Center and the 
Tehran Nuclear Research Center where Iran produced 
UO2, UO3, UF4, UF6 
and AUC using imported depleted UO2, depleted 
U308, and natural U308. Iran failed to 
provide design information for the waste storage facilities at 
Esfahan and Anarak in a timely manner. It failed to provide 
design information for locations where wastes resulting from 
undeclared activities were processed and stored, including the 
waste storage facility at Karaj. And it failed to provide 
design information for the Tehran Research Reactor, in relation 
to the irradiation of uranium targets, the facility at the 
Tehran Nuclear Research Center where Iran separated plutonium, 
and the center's waste handling facility.

Third Stage: End of 2003-2005
    The third stage, from October 2003 to the end of 2005, 
could be called the ``Rowhani era,'' because Hassan Rowhani, 
then head of Iran's National Security Council, took the lead 
from the Atomic Energy Organization of Iran in the fall of 2003 
and attempted to convince the international community that Iran 
would now be transparent and cooperate fully with the IAEA. 
Facing a deadline set by the IAEA Board of Governors, on 
October 21, 2003 Iran made an extensive written declaration to 
the IAEA of its past nuclear activities, which revealed a 
number of additional safeguards violations, and Iran agreed to 
sign the Additional Protocol.
    According to the IAEA Director General's November 15, 2004 
report to the Board of Governors, ``Since October 2003, Iran's 
cooperation has improved appreciably, although information has 
continued in some cases to be slow in coming and provided in 
reaction to Agency requests. Since December 2003, Iran has 
facilitated in a timely manner Agency access under its 
Safeguards Agreement and Additional Protocol to nuclear 
materials and facilities, as well as other locations in the 
country, and has permitted the Agency to take environmental 
samples as requested by the Agency.''
    However, despite better cooperation, a number of new 
questions have been raised. For example, Iran's work on 
developing P2 centrifuges, which Iran had failed to declare in 
its declaration in October 2003, is not fully understood by the 
Agency. In addition, Iran has not allowed the IAEA sufficient 
visits to suspect sites at Parchin that are involved in 
research and development of high explosives. In proceeding with 
construction of tunnels at the Esfahan Nuclear Technology 
Centre before it had told the IAEA, Iran failed to honor its 
commitment to tell the IAEA about plans to construct new 
facilities.
    Iran has not permitted the IAEA adequate information about 
and access to dual-use equipment and materials procured by the 
Physics Research Center for its Lavisan-Shian site that could 
be used in a gas centrifuge program. Except in one case, Iran 
has also refused repeated IAEA requests to interview 
individuals involved in the acquisition of these items. In the 
one case where the IAEA recently interviewed a former head of 
the Physics Research Center and took environmental samples of 
some of the equipment he presented to the inspectors, it 
detected traces of HEU on some vacuum equipment. This result 
links this equipment to the gas centrifuge program and 
contradicts Iranian denials about its relationship to the 
centrifuge program.
    In addition, the IAEA has questions about a range of 
studies and documents that could have a military nuclear 
dimension. The documents include a 15-page document that 
describes the production of uranium metal from uranium 
hexafluoride and the casting of enriched and depleted uranium 
into hemispheres, activities typically associated with a 
nuclear weapons program. Iran declared that it received the 
document unsolicited from agents of the Khan network and that 
it has never used the document. Because this document was part 
of a package of detailed documents available from the Khan 
network related to the production of nuclear weapon components 
made from depleted uranium and HEU, the IAEA remains concerned 
that Iran may have received more documents in the package and 
conducted undeclared activities associated with these 
documents.
    Another set of documents were located on a laptop computer 
that was brought out of Iran and provided to the United States, 
which in turn shared part of the information with the IAEA. The 
studies relate to a ``Green Salt Project,'' high explosives 
testing, and the design of a missile re-entry vehicle that 
appears able to carry a nuclear warhead. Although this 
information is not a smoking gun, it suggests the existence of 
a military-run nuclear weapons program. Iran has refused to 
answer questions about the last two areas and offered 
inadequate answers about the Green Salt Project.
    A number of questions from before October 2003 also remain 
unanswered, pending new information or further analysis, such 
as the source of low enriched uranium and some HEU 
contamination on Iran's P1 centrifuges and the timeline of 
Iran's plutonium separation activities.

Fourth Stage: 2006-Present
    In the fourth stage, starting in early 2006 and continuing 
until today, Iran has broken the suspension and halted its 
adherence to the Additional Protocol. The IAEA is making 
minimal progress in answering its outstanding questions and 
concerns or in confirming the absence of undeclared nuclear 
material and activities. It has also lost access to key 
centrifuge production and storage facilities, which would 
enable inspectors to determine the rate and status of Iran's 
production of centrifuges. This knowledge is especially 
relevant to concerns of a possible covert enrichment program.

                         Prepared Statement of

                         DR. KENNETH M. POLLACK

 Senior Fellow and Director of Research, Saban Center for Middle East 
           Policy, the Brookings Institution, Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

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

                      IRAN'S STRATEGIC PERSPECTIVE

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

                       MOTIVATIONS VS. PRIORITIES

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

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

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

                          SQUARING THE CIRCLE

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

                         Prepared Statement of

                          MR. KARIM SADJADPOUR

        Iran Analyst, International Crisis Group, Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

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

         I. TEHRAN'S CALCULATIONS: THE INTERNAL NUCLEAR DEBATE

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

               II. AHMADINEJAD AND THE STRUGGLE FOR POWER

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

                     III. IRAN'S DOMESTIC EVOLUTION

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

                      IMPLICATIONS FOR U.S. POLICY

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

                         Prepared Statement of

                          DR. PATRICK CLAWSON

 Deputy Director for Research, the Washington Institute for Near East 
                         Policy, Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

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

                         IRANIAN SELF-ASSURANCE

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

                         ECONOMIC VULNERABILITY

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

                BUSINESS CONFIDENCE: THE ACHILLES' HEEL

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

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

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

                            OIL'S MIXED ROLE

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

                THE LIMITATIONS OF ECONOMIC INSTRUMENTS

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

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

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

                           Prepared Statement

                           DR. GEOFFREY KEMP

Director of Regional Strategic Programs, The Nixon Center, Washington, 
                                   DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 17, 2006

                              ----------                              

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

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

    I will add a fourth issue:

   The need for continued U.S.-EU cooperation
Can Russia and China be helpful in pressuring Iran to change its 
        present course?
    There is no doubt, in my opinion, that Russia is the key 
player on this matter and that with adroit diplomacy it would 
have been possible to obtain the cooperation of the Putin 
government to put far more pressure on the Iranian regime to 
put limits on its nuclear program. In the event of Russian 
cooperation it is unlikely that China would be the lone 
dissenter to joint pressure against the Islamic Republic.
    However we have not handled the Russia portfolio with 
skill. Russia sees Iran as a cooperative partner in an unstable 
part of the world straddling the Caucuses and Central Asia. In 
contrast the U.S. policy toward Russia's ``near abroad'' is 
seen in Moscow to be provocative. The laudatory objective of 
the Bush administration is to nurture more freedom in Eurasia 
and to develop multiple pipeline routes in the context of 
energy security. However in the specific context of persuading 
Russia that it is in its interests to turn on one of its 
partners, Iran, it must be asked what it is we are offering the 
Russians to make this difficult choice worthwhile? Russians 
privately tell you that if the Americans want to deal on Iran 
then it would require some quid pro quo, such as not 
encouraging Ukraine to join NATO or not deliberately making 
provocative speeches in the region a few weeks before the G-8 
Summit in St. Petersburg. I would have to conclude that while 
there are good arguments for being critical of Russia and being 
supportive of neighbors such as Ukraine and Georgia, the Baltic 
states, and Kazakhstan, such pronouncements are 
counterproductive in the context of Iran policy.
    Seen from the Russian point of view, not only are we 
interfering in their backyard, but if we eventually improve 
relations with Iran as part of some ultimate ``grand bargain'' 
and remove economic sanctions then Russia stands to lose a 
great deal of economic leverage in that country while 
witnessing the return of the United States and all that entails 
for the region.
    A similar set of tradeoffs could be made in the context of 
China. China is not unhappy to see us struggling in the Middle 
East, even though it does not want to see a failure in Iraq. 
Neither does it want to see an Iranian nuclear program. Yet 
China, too, would need some quid pro quo to put serious 
pressure on Iran.

What are the attitudes of Iran's neighbors to the current regime?
    Iran's neighbors have different specific problems with the 
current leadership in Tehran but all are concerned about its 
nuclear program. Most of Iraq's Shi'a leaders owe a big debt to 
Iran and have nurtured close ties with the Mullahs while making 
it clear that they do not wish to establish a Shia theocracy in 
Iraq. Turkey and Iran share common concerns about the evolving 
Kurdish region in northern Iraq. The Sunni Arab states are all 
fearful of Iran's hegemonic tendencies and talk about a ``Shia 
Crescent'' running from Iran, through Iraq into Syria and 
Lebanon. The Gulf states with significant Shia populations, 
notably Saudi Arabia and Bahrain, worry about domestic 
pressure. The UAE has a long-standing territorial dispute with 
Iran. Qatar has become a firm military ally of the U.S. Oman is 
probably the least worried about Iran, though this could 
change.
    How to assess the impact of Iran's nuclear program on Gulf 
security? There is a major difference between Saudi Arabia and 
the smaller GCC countries, because of Saudi Arabia's size, 
budget, infrastructure, and regional aspirations. For instance, 
unilateral options open to the smaller Gulf states in the event 
of an Iranian bomb are very limited. Saudi Arabia, however, has 
the capacity and the wealth to consider some form of nuclear 
deterrent, most likely in cooperation with another country, 
such as Pakistan. Saudi Arabia already has Chinese SS-2 medium 
range missiles in its current inventory. It is not unreasonable 
to assume that Saudi Arabia could engage in nuclear purchases, 
either the basic fissile materials to make a bomb or a finished 
product. Furthermore, it is not only an Iranian bomb that could 
motivate Saudi Arabia to consider such an option. The 
propensity of Saudi Arabia to think about a nuclear option is 
related to the state of its relationship with the United 
States, which, until recently, was always considered the 
protector of the Kingdom in the last resort.
    Aside from Saudi Arabia's reaction, the most likely initial 
response of the gulf countries to the news of an Iranian 
nuclear weapons program will be concern about possible U.S. and 
Israeli preemptive military actions. The Bush administration 
and Israeli leaders have both made it clear that the Islamic 
Republic's possession of the bomb will be an intolerable 
threat.
    However, since the Iraqi war and the unreliability of 
western intelligence concerning Iraq's WMD programs, the case 
for preemptive war against supposedly proliferant states has 
been weakened and, therefore, the political costs of 
undertaking such action in the future have become much higher. 
If there is uncertainty with intelligence about an Iranian 
bomb, the United States and Israel will have problems garnering 
support for military action. Even if the evidence is 
overwhelming and highly convincing (i.e., Iran either tests a 
nuclear device or announces it is building the bomb), there 
will be reluctance to endorse U.S.-Israeli military action for 
fear of the chaos this could bring to the gulf and the region.

Do opportunities exist in the region for those seeking to contain Iran?
    An Iranian nuclear program means the United States will 
have strong reasons to maintain its military presence in the 
Gulf States. The nature and purpose of enhanced military 
cooperation between the United States and the Arabian Peninsula 
could take many forms. The most important component would be a 
counterdeterrent to indicate to Iran that any efforts to use 
nuclear weapons to intimidate or blackmail would be challenged 
by the United States. The credibility of this counterdeterrent 
would be linked to the vulnerability of U.S. forces and U.S. 
targets themselves to Iranian intimidation. And here we are 
referring to regional targets. Iran is not expected to deploy 
an intercontinental ballistic missile capable of striking the 
continental United States for many, many years. It is difficult 
to see under what circumstances Iran could use its nuclear 
weapons in anger, except for in some suicidal spasm similar to 
the scenarios that were heard so frequently with respect to 
Saddam Hussein and his capacity for a glorious Gotterdammerung 
ending to his fiefdom.

Need for Continued U.S.-EU Cooperation
    The Iranian Government feels sufficiently confident of its 
diplomatic position on the nuclear program, at both the United 
Nations and the IAEA, to run the risk of a major confrontation 
with the United States and Europe. The key test will be whether 
the United States and Europe can continue to address this issue 
from the same set of principles and talking points. Much will 
depend on whether the Europeans are now finally prepared to 
join the United States on imposing economic sanctions on Iran 
if pressures from the IAEA at the Security Council fail. The 
Iranian nuclear issue will be a test not only of U.S.-European 
relations, but of European resolve as well. It is important to 
note how far out on a limb the European governments, 
particularly Britain, France, and Germany, have gone in 
proposing this agreement and what a challenge they face if the 
Iranians continue their nuclear enrichment program.
    Iran's leaders appear to have calculated that they can 
withstand the diplomatic pressure they are likely to face and 
that even if sanctions are imposed Iran has the will and 
financial resources to ride them out. It remains to be seen 
what the long-term implications of this are for both Iran's 
domestic politics and its actions in Iraq. If the United States 
and Europe increase their rhetoric against the Iranians, and if 
sanctions begin to hurt Tehran, Iran may use its bargaining 
chips in Iraq at a critical moment in its post-Saddam political 
evolution. The linkage between the Iran's nuclear issue and its 
role in Iraq is becoming clearer.
    Despite Iran's gleeful defiance of the international 
community on the nuclear issue, it would be unwise for Iran's 
leaders to take their current good luck for granted. The 
Islamic Republic faces significant social and economic 
challenges that can only be made more difficult by alienating 
the West. The embarrassing and unacceptable statements by its 
new President calling for Israel's destruction, while a popular 
theme in many Islamic countries, have harmed Iran's 
international image and caused further anxiety with his 
behavior at home. Regionally, Iran has poor relations with its 
Arab neighbors, and it cannot be assumed that Iraq's Shiite 
community will remain friendly and grateful indefinitely. 
Iran's vital national interests could be helped by ending the 
standoff with the United States. Likewise, the United States 
has more to gain than lose if it adopts a more coherent and 
pragmatic policy toward the Islamic Republic.

                         Day Two--May 18, 2006

                           Opening Statement

                        SENATOR RICHARD G. LUGAR

          Chairman, U.S. Senate Committee on Foreign Relations

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 18, 2006

                              ----------                              

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

                           Opening Statement

                      SENATOR JOSEPH R. BIDEN, Jr.

       Ranking Member, U.S. Senate Committee on Foreign Relations

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 18, 2006

                              ----------                              

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

                           Prepared Statement

                       HONORABLE FRANK G. WISNER

Vice Chairman for External Affairs, American International Group, Inc., 
                           New York, New York

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 18, 2006

                              ----------                              

    The United States, the international community and Iran are 
in crisis. The crisis broke out last year in the wake of Iran's 
decision to proceed with its nuclear enrichment program and 
limit its cooperation with the International Atomic Energy 
Agency. But the crisis runs deeper. It is rooted in broad 
international concern over Iran's clandestine efforts to 
develop an enrichment program, which have put into question the 
spirit of Iran's compliance with the Non-Proliferation Treaty.
    In fact, the origins of the crisis are long standing. For 
over a quarter of a century and as a result of the overthrow of 
the Shah's regime, Iran's clerically dominated government has 
been at odds with the United States and frequently with its 
neighbors. The regime's aggressive assertion of its religious 
identity has frightened Sunni Muslim nations in the Gulf, the 
Middle East and elsewhere in the region. Iran's espousal of 
Hezbollah and Hamas has put the country on the front lines of 
the war against terror. The Iranian leadership's unwillingness 
to accept the existence of the State of Israel has further 
undermined the ability of the United States to find common 
ground with it.
    In response to the Iranian Government's policies and the 
principles it espouses, the United States, during the Bush 
administration, has identified Iran as an opponent of the 
United States and a candidate for ``regime change.'' The 
Congress' involvement in legislation to fund activities which 
would undermine clerical rule in Iran has sent the strong 
signal of aggressive American intent. To a nation historically 
under siege and more recently at odds with the United States, 
these threats have hit hard and have stirred broad Iranian 
insecurities.
    I come to this meeting over the future of American policy 
toward Iran, having read Iran's history closely and having 
followed attentively its recent actions and our relationship. I 
bring to this session my thirty-seven years of experience in 
our Nation's diplomatic service as well as a four year 
association with ``track two'' discussions with knowledgeable 
Iranians. These discussions have been organized under the 
auspices of the United Nations' Association of the United 
States (UNA-USA). The results have been regularly shared with 
officials of the United States government.
    In addition, I represented the United States Government in 
1997 in discussions with Russia's authorities over the transfer 
of missile technology from the Russian Federation to Iran. This 
said, I have no access to official intelligence on Iran, its 
nuclear program nor the workings of Iranian domestic politics.
    In presenting my conclusions today, I do not speak for the 
American International Group, where I serve as Vice Chairman, 
External Affairs. My views are entirely my own.
    I intend, in the course of my testimony, to answer four 
questions: (1) Will Iran develop a nuclear weapon; (2) Is that 
outcome imminent; (3) Is Iran's leadership united behind the 
development of a nuclear weapon and (4) What is the way ahead 
for the United States.
Will Iran develop a nuclear weapon?
    The answer to that question is not obvious. It is clear 
Iran believes it has the right to enrich uranium and fuel a 
nuclear power system. Iran further argues that this right is 
part of its commitment to the NPT. It is also true that Iran 
has pursued a nuclear ambition since the days of the Shah. 
Finally, it is obvious that Iran has developed its fuel 
enrichment system clandestinely and in violation of its 
international obligations.
    It is my view that Iran has not made a nuclear weapons 
decision and that its house is divided on the subject. There 
are Iranians who believe Iran would be better off with a 
nuclear weapon; there are others who argue that a weapon will 
increase the dangers which Iran faces. Virtually all Iranians, 
including those who live outside the country, share the opinion 
that their country needs nuclear power and that an enrichment 
program is a legitimate assertion of the nation's right. 
Moreover, the nuclear program has become in Iranian eyes a 
question of national honor and prestige.
    It is possible that Iran will proceed down the path of 
enrichment, stopping just short of a nuclear weapon, leaving 
open the option to acquire such a capacity. Given Iran's 
dangerous record on other fronts and the lack of confidence in 
its government's behavior, that outcome is unacceptable to the 
United States and our friends in Europe. In a word, we must 
deal with the nuclear issue and seek to contain it.

Is a weapon imminent?
    Again, I advise caution in concluding that the United 
States faces an immediate, threat. Estimates of the time it 
would take Iran to assemble adequate amounts of fissionable 
material vary sharply. Like you, I have seen figures that range 
from three to ten years, depending on the urgency with which 
Iran pursues the goal, the technology and resources available 
to it and the international environment. The design and 
weaponization of a nuclear device is another matter but not one 
for ``tomorrow morning.'' I argue, therefore, that we have time 
to consider carefully our strategy for dealing with the very 
real threat which Iran's enrichment program poses. There need 
be no rush to judgment; and we have time to explore and 
exercise the option of diplomacy.
    Let me make this point in a different way.
Is Iran's leadership united behind the development of a nuclear weapon?
    Once again my experience leads me to be careful about 
concluding Iran's leadership and political class are united. 
Those, who state with confidence that they know Iran's 
intentions, have been consistently wrong. Our insights into the 
politics of the clerical regime are limited; our estrangement 
from Iran has impeded serious analysis of political trends and 
developments. This state of affairs is regrettable and I 
suggest it is in the interests of the United States to increase 
the attention we pay to Iran, its politics, economics and 
social trends--within government and in academic and research 
communities.
    It is my view that Iran's leadership, broadly defined, is 
not united on a wide range of issues of national importance, 
including nuclear weaponization. Power is divided. The Supreme 
Leader retains control over Iran's Revolutionary Guards, its 
intelligence services and the nuclear program. Mahmoud 
Ahmadinejad, the President and author of deeply offensive and 
inflammatory statements about Israel, the region, Iran's 
nuclear intentions and the United States, does not directly 
control these institutions and programs. But he won the 
election to the Presidency with a solid majority and with 
clerical sympathy. Today he is playing Iranian politics with 
consummate skill. Ahmadinejad will be a significant factor in 
Iranian politics for years to come. He has developed a strong 
base among young Iranians and he appeals effectively to the 
street's instincts. Moreover he enjoys substantial standing 
with the Supreme Leader and the Guardians. In the election 
campaign and his brief time in office Ahmadinejad has eclipsed 
the reformers; his leverage in Iranian politics is rising. This 
said, so are his opponents who are questioning the President's 
assertions about national security policy and his profligate 
interventions in the economy.
    Finally, it has been my experience that the exercise of 
power has the potential of educating its holders in the 
realities of international and domestic life. This has been 
Iran's recent experience. The country's original revolutionary 
fervor has run thin. We are in Ahmadinejad's early days. There 
is more to come, but the present situation of crisis 
strengthens the Iranian President's hand. There is reason 
therefore to lessen, if we can, the intensity of the present 
crisis.

What are the United States choices?
    I suggest that the nuclear stand-off with Iran will play 
out over a period of time--months if not years. There are no 
quick fixes and we need the time to examine, select and pursue 
our options. The United Nations' Security Council is divided. 
Our European friends, deeply opposed to Iran's nuclear program, 
seek a diplomatic resolution.
    Is there a military solution to enrichment? There is no 
obvious way to deal with Iran's intention to proceed with 
nuclear enrichment. It is my view that military action can only 
disrupt Iranian facilities. Worse yet, the consequences of an 
American attack on Iranian intentions will be severe. If Iran's 
leaders have not crossed the nuclear threshold, they would in 
the wake of American military action. We would have to 
anticipate direct Iranian retaliation against our forces in 
Iraq and other American targets in the Gulf and the Middle 
East--if not beyond. I have not seen any evidence that our 
intelligence is adequate to pinpoint Iran's nuclear enrichment 
system and make it vulnerable to a decisive military strike.
    The political consequences of an American attack would be 
even more devastating. I can assure you that there will be an 
eruption of protest across the Muslim world; public opinion in 
allied nations would be hostile and our standing in 
international fora would be undermined. We must also calculate 
the economic consequences. I have no way to predict where the 
price of oil will go in the wake of military action against 
Iran or counter moves which impeded the Straits of Hormuz.
    Military action should always be the last choice--and never 
excluded. But I do not believe that we have reached the end of 
the road and can therefore justify or appropriately use 
military force to stop Iran's enrichment program.

Will economic sanctions deter Iran?
    The United States has committed the majority of its 
sanctions arsenal against Iran in the past and has few decisive 
instruments left. While the possibility of greater allied 
cooperation in the face of a nuclear threat is somewhat better, 
our allies have been hard to bring along in the past. Ordinary 
trade sanctions will be very difficult to enforce, given Iran's 
long borders and proximity to trading entrepots, like Dubai. 
Financial sanctions come at the cost of disruption of our 
complicated, international financial system. Sanctions against 
the movement of Iranian officials are hardly significant. 
Sanctions generally work when they are targeted, short term and 
multilateral. It is hard to imagine the Iranian nuclear crisis 
being either of short duration or subject to resolution only 
through the imposition of sanctions.

The case for engagement.
    The first choice in conflict resolution should be 
diplomacy. There are diplomatic options available to the United 
States.
    Does this mean that military means or sanctions have no 
place in addressing the crisis we face with Iran? Of course 
not. They are and must remain arrows in our quiver. Diplomacy, 
without strength and the ability to deliver pressure, is rarely 
successful. For the moment, military force and additional 
sanctions are more effective as threats which its leaders must 
contemplate.
    Our leverage lies elsewhere. Iran is an isolated nation. 
Apart from a few states, like Syria, whose association with 
Iran is based on tactical considerations, Iran has few friends 
and no allies. If the international community, notably Russia 
and China, are divided from us about how to deal with Iran, 
there are no divisions over the issue of Iran's nuclear 
pretensions nor her historic sponsorship of violence in her 
region. Cut off from acceptance within the international 
community, Iran is also isolated in the mainstream of world 
economics. She sells oil but she receives virtually no 
investment. Existing sanctions, especially those put in place 
by the United States, limit foreign capital flows. And these 
sanctions can be deepened. Iran receives little to no 
technology and will not as long as she to stand outside the 
norms of acceptable international behavior.
    Iran's isolation, born of her policies of confrontation, 
aggravates her perception of threat and preoccupies her leaders 
and intelligentsia. At heart, they know that Iran cannot force 
her way into respectability, partnership and security. Sooner 
or later, Iran must meet all of us ``half way'' or she will 
remain threatened and denied the capital flows, investment 
partnerships and technology her lagging economy and highly 
dissatisfied and deprived population requires. In a word, 
Iran's understanding of her isolation and our capacity to 
sustain and intensify it are powerful weapons in addressing the 
nuclear crisis we face and the other threats Iran poses to our 
interests. Equally, our willingness to offer a path away from 
isolation is a powerful tool.

Then how do we deal with Iran?
    Our ability to respond militarily is ``on the table'' and 
it should remain there. Sanctions are in place and selectively, 
for example a multilateral agreement aimed at the denial of 
official credits, can be added over time. We have drawn our 
``lines in the sand'' and the time is right to move on and 
engage Iran politically.
    The time is right, moreover, to signal that the United 
States not only seeks agreement which will contain the nuclear 
crisis but that we are prepared to consider normalizing 
relations, provided, of course, that Iran is similarly disposed 
and acts accordingly. Engagement, through diplomatic dialogue, 
means addressing the broad array of issues that divide Iran 
from us and the international community--the issues that leave 
her marginalized and insecure--in other words, the issues that 
undergird distrust of Iran.
    The questions, which we and Iran must address, are obvious 
and they deal with subjects of vital importance to the United 
States--Iran's nuclear pretensions; the future of Iraq and 
Afghanistan; the security of the Gulf; the prevalence of terror 
in the Middle East; political instability in the Arab East; and 
peace between Israel and Palestine. The U.S. plays a very 
special role in Iran's thinking. The questions she wishes to 
address with us are her isolation; the sanctions' regimes she 
faces; her search for acceptance in the international community 
and her insecurity in a deeply troubled region. In particular, 
Iran needs access to the international economy if she is to 
provide employment for her young.
    Our record of engagement with Islamic Iran is a poor one. 
Past attempts, born of initiatives to address a single issue, 
have failed. They will fail again if we and Iran do not address 
the totality of our relationship and if we and Iran are not 
prepared to set, as an ultimate objective, the normalization of 
our relationship. And that means, simply stated, a reciprocal 
readiness to live in peace and mutual respect, no matter how 
sharply divided we are over our view of each others' political 
systems.
    History is replete with examples of the United States 
finding a working basis for our relationships with those from 
whom we were sharply divided over ideology, national ambition, 
and questions of vital national security concern. I have in 
mind our ability to find common ground, through detente, with 
the erstwhile Soviet Union and through the Shanghai Communique, 
with the People's Republic of China.
    Engagement begins with a commitment at the top of our 
political system. On our side, it starts with an undertaking by 
the President to a normalized relationship. It means a 
willingness to set aside the rhetoric of ``axis of evil'' and 
measures legislatively mandated to undermine Iran's regime. Our 
concerns are legitimately with Iran's external ambitions and 
absent any confidence in those ambitions, its nuclear 
intentions. Its domestic orientation is another question. 
Iranians have changed their regimes in the past and they will 
do so again. In a situation of greater peace and security, that 
day may even come sooner. Our objective must be the stability 
of the region and our interests there--not Iran's domestic 
order. We have our principles; the clerics have theirs. Let's 
see on whose side history sits.
    I believe there is an opportunity today to pursue 
engagement with Iran. Based on my assessment of Iran's 
policies, I conclude that Iran's clerical leaders are more 
comfortable with the country's elected government and are 
willing to give it the freedom to maneuver internationally, 
including with us. This was not the case in Khatami's time. In 
addition Iran's leaders are less intimidated by our ability to 
deliver on the threats they feel we have articulated. They know 
we are bogged down in Iraq. Therefore they feel they can 
approach us on a more equal footing. Our European allies want 
us to enter the dialogue; Russia and China clearly share that 
view. I suspect they would welcome a signal the United States 
is ready to seek normalized relations with Iran and to live in 
peace.
    Ahmadinejad's recent letter, as bizarre and objectionable 
as its content are, is based on a sense of self confidence. It 
deserves an answer--not rejection. We are under no obligation 
to reply to the terms which the letter offers. We are free to 
state our case and spell out our objectives for a dialogue.
    I do not have a neat formula to resolve the nuclear crisis. 
I doubt Iran will renounce enrichment but will it enter into 
cooperative, internationally based arrangements for the 
production and supervision of enriched fuel? Is it possible to 
find common ground over Iraq and Afghanistan where Iranian 
interests have been served by the elimination of Saddam and the 
Taliban? I believe so, especially if we make it clear the 
United States does not intend to be a permanent fixture in Iraq 
or Afghanistan and that we will not use our position in either 
country to threaten Iran. Can the concerns of Sunni Arabs be 
addressed? I contend there is room for a regional conference to 
elaborate security guarantees. Can Iran address the dangers 
posed by Hezbollah and Hamas and can Iran be brought to be a 
more responsible player in the Israeli-Palestinian equation? 
Perhaps, but it will be difficult. But it is reasonable to 
conclude Iran sees in Hamas' victory in the Palestinian 
elections a vindication and because Hamas is now in power, a 
two state solution can be pursued.
    This said, I return to my core contention: the starting 
point in negotiations with Iran is our willingness to seek 
normalization.
    The United States must deal with the nuclear crisis. We 
have time, leverage and the authority to do so. But to repeat, 
our approach should be a broad one; aimed at a full exploration 
of the several issues of concern to us and with the objective 
of a normalized relationship. The history of America's dealings 
with Iran should make it clear that anything less will lead to 
frustration.

                           Opening Statement

                            DR. VALI R. NASR

    Professor of Middle East and South Asia Politics, Department of 
    national Security Affairs, Naval Postgraduate School, Monterey, 
                               California

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 18, 2006

                              ----------                              

    Iran today presents a serious foreign policy challenge to 
the United States. The growing prominence of security concerns: 
escalation of tensions over Iran's continued development of a 
nuclear capability, the country's role in Iraq and Afghanistan 
and support for Hamas and Hezbollah have preoccupied U.S. 
foreign policy. The election of a hard-line president in Iran 
in 2005, who has adopted a belligerent rhetoric, has added 
urgency to contending with these challenges.
    The U.S. policy between 2001 and 2005 was focused on 
promotion of democracy in Iran with the hope that such a 
transition would result in a break through in U.S.-Iran 
relations, and that in turn would solve the above mentioned 
challenges. It was hoped that the example of democracy in Iraq 
would undermine theocracy. Many observers looked to the 
presidential elections of 2005 in Iran as an opening: expecting 
that it would exacerbate internal tensions in Iran and produce 
a ``Ukrainian moment.''
    The election results defied expectations. The reformist 
lost, and the most radical conservative forces won. The turn-
out was higher than expetced, and despite electoral 
irregularities there were no wide-spread protests and a new 
militant and hard-line president assumed power, and quickly 
escalated tensions with the West. The United States now 
confronted a more aggressive Iran at a time when the Iraq war 
was taxing America's military capability, constricting its 
ability to deter Iran.
    Iran in particular intensified its campaign to acquire 
nuclear capability, and after the break-down of negotiations 
with the EU-3 became less cooperative with IAEA and less 
willing to compromise. It in fact, adopted a policy of 
deliberately escalating tensions, believing that it had ample 
room to push for maximum gains.
    It became clear that the priority for U.S. policy in its 
relations with Iran would have to be first and foremost, 
containment of its nuclear program; and in addition, contending 
with Iran's regional role--in particular in Iraq and 
Palestinian territories.
    U.S. policy has since 2005 continued to look to democracy 
as a solution to the Iranian challenge. There are inherent 
problems in this approach:

          1. The scope of intensification of Iran's nuclear 
        program requires a more direct and focused policy to 
        address specific threats and concerns. Democratization 
        does not amount to such a policy.

          2. It is increasingly doubtful that there is in fact 
        a credible democracy movement in Iran, and if it is 
        likely to have an impact on regime behavior or 
        decision-making in the small policy-making window that 
        is available to the U.S. to deal with the nuclear 
        issue.

          3. It is also likely that democracy promotion and 
        contending with security concerns regarding Iran may 
        not be compatible with each other, and in fact may 
        interfere with one another.

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

Contending with the Challenge
    In the past five years the challenges posed by Iran to U.S. 
policy have not gone away, they have in fact grown. The 
prospect for democracy has in the meantime faded. It is fair to 
conclude that democracy is not in the short run a solution to 
the pressing problems in U.S.-Iranian relations. There is no 
democratic partner organization, no clear opening, or an 
election to rally around.
    At the same time it is possible that contending with 
pressing issues in U.S.-Iranian relations will require engaging 
Iran more directly. Any conversation between U.S. and Iran that 
yields results will have to contend with security guarantees 
that will be sought by Iran. A key element of such a guarantee 
is likely to be a removal of U.S. threat to regime survival in 
Iran. Such a guarantee will run counter to the goal of 
democracy promotion. Hence, not only will democracy not solve 
the security challenges facing the U.S., but rather, the 
solution to those challenges will adversely impact democracy-
promotion. Three considerations are important at this juncture:

          1. U.S. policy-making must realize that 
        democratization is a long-run process in Iran. It will 
        not address short run problems.

          2. At a time of escalating tensions between U.S. and 
        Iran overt U.S. support for democracy in Iran will be 
        counterproductive. It will cast democracy advocates as 
        unpatriotic. It is also likely to be futile as pro-
        democracy forces are unlikely to engage the U.S. at a 
        time when U.S. and Iran are in conflict. Faced with a 
        choice between democracy or nationalism the Iranian 
        population will likely choose nationalism, and pro-
        democracy forces will likely follow the same trend.

          3. The imperative of solving short run crises 
        requires that policies directed at solving them be 
        decoupled from the long run goal of democracy 
        promotion.

    Democracy promotion should remain a U.S. objective, and 
U.S. should continue to lend its moral authority to advocating 
its cause. However, the U.S. should not see this as a short run 
policy or a solution to the nuclear crisis. Democracy promotion 
should not be a substitute for diplomacy.

                           Prepared Statement

                            MS. JULIA NANAY

              Senior Director, PFC Energy, Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 18, 2006

                              ----------                              

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

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

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

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

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

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

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

                           Prepared Statement

                         MR. JAMES A. PHILLIPS

   Research Fellow for Middle Eastern Affairs, the Douglas and Sarah 
  Allison Center for Foreign Policy Studies, the Heritage Foundation, 
                             Washington, DC

                               BEFORE THE

               U.S. Senate Committee on Foreign Relations

                              MAY 18, 2006

                              ----------                              

    Thank you Mr Chairman and distinguished members of the 
committee for this opportunity to discuss U.S. policy regarding 
Iran's nuclear program.
    The efforts of the United States and its allies to dissuade 
Iran from pursuing its long-sought goal of attaining a nuclear 
weapons capability have so far failed to yield satisfactory 
results. Iran made temporary tactical concessions in October 
2003 under strong international pressure to temporarily freeze 
its uranium enrichment operations and submit to increased 
inspections of its nuclear facilities by the International 
Atomic Energy Agency (IAEA). Tehran feared that referral to the 
Security Council could result in diplomatic isolation, economic 
sanctions, or possible military attack. It undoubtedly also was 
motivated by the examples set by the rapid overthrow of the 
Taliban regime in Afghanistan in 2001 and Saddam Husseinss 
regime in Iraq in early 2003 by U.S.-led coalitions.
    Tehran made enough tactical concessions to stave off 
international sanctions and engage the European Union in 
diplomatic negotiations led by Britain, France, and Germany 
(the EU-3) to temporarily defuse the crisis. But Tehran later 
dropped the charade of negotiations after it apparently 
concluded that the international situation had shifted in its 
favor. It now apparently believes that it is in a much stronger 
position due to the continued need for U.S. military forces in 
Iraq and Afghanistan; the rise in oil prices which has given it 
greater bargaining leverage with oil importers; and its 
diplomatic cultivation of China and Russia, which can dilute or 
veto resolutions brought before the U.N. Security Council.
    The installation of a new hard-line government led by 
President Mahmoud Ahmadinejad in August 2005 also was a major 
factor that led Tehran to renege on its agreement with the EU-
3. Iran's new president is firmly committed to Iran's nuclear 
program and vehemently criticized Iran's previous government 
for making too many concessions in past negotiations with the 
EU-3. Shortly thereafter Iran resumed operations at the Isfahan 
uranium conversion facility, converting yellowcake into uranium 
hexafluoride, a preliminary step before enrichment. In January 
2006 Iran announced its intention to resume uranium enrichment 
activities and removed IAEA seals at its Natanz facility. Iran 
remains determined to develop a complete nuclear fuel cycle, 
which would eventually give it the fissile material for a 
nuclear weapons capability. Thus far, Iran has escaped paying 
any significant price for its apparent violations of its 
commitments under the NPT and failure to fully cooperate with 
the IAEA.
    The U.S. should mobilize an international coalition to 
raise the diplomatic, economic, domestic political, and 
potential military costs to Tehran of continuing to flout its 
obligations under its nuclear safeguards agreements. This 
``coalition of the willing'' should seek to isolate the 
Ahmadinejad regime, weaken it through targeted economic 
sanctions, explain to the Iranian people why their government's 
nuclear policies will impose economic costs and military risks 
on them, contain Iran's military power, and encourage 
democratic change. If Tehran persists in its drive for nuclear 
weapons despite these escalating pressures, then the United 
States should consider military options to set back the Iranian 
nuclear weapons program.

The Growing Threat of Ahmadinejad's Iran
    Mahmoud Ahmadinejad rose up through the ranks of the 
Islamic Revolutionary Guard Corps (IRGC), the praetorian guard 
dedicated to advancing and exporting the revolution that 
Ayatollah Ruhollah Khomeini inspired in Iran in 1978-1979. 
Ahmadinejad is a true believer in Khomeini's radical vision of 
Iran's role as the vanguard of a global Islamic revolution. He 
has lambasted the U.S. as ``a failing power'' and a threat to 
the Muslim world.
    In sharp contrast to his predecessor, former President 
Mohammad Khatami, who advocated a conciliatory ``dialogue of 
civilizations'' but was blocked by the strong opposition of the 
ideological hardliners, Ahmadinijad has returned to the fiery 
rhetoric of the Khomeini era. In September he delivered a 
truculent speech at the United Nations, warning foreign 
governments against meddling in Iranian affairs. On October 26, 
he made a venomous speech attacking Israel in which he quoted 
Khomeini: ``As the Imam said, Israel must be wiped off the 
map.''
    Ahmadinejad's vehement return to Khomeini's radical line 
has been accompanied by a purge of pragmatists and reformers 
within the regime. Forty of Iran's senior ambassadors have been 
recalled from overseas posts, including diplomats who were 
involved in the EU-3 negotiations in Britain, France, Germany, 
and at the United Nations in Geneva. Ahmadinejad has appointed 
many of his IRGC cronies to key positions throughout the 
government.
    Iran also has been increasingly aggressive in stirring up 
trouble inside Iraq. In October, the British government charged 
that the Iranians had supplied sophisticated bombs with shaped 
charges capable of penetrating armor to clients in Iraq who 
used them in a series of attacks on British forces in southern 
Iraq. Iran also has given discreet support to insurgents such 
as Moqtada al-Sadr, who twice has led Shiite uprisings against 
coalition forces and the Iraqi government.
    Iranian hardliners undoubtedly fear that a stable 
democratic Iraq would present a dangerous alternative model of 
government that could undermine their own authority. They know 
that Iraq's pre-eminent Shiite religious leader, Grand 
Ayatollah Ali al-Sistani, whose religious authority is greater 
than that of any member of Iran's ruling clerical regime, 
rejects Khomeini's radical ideology and advocates traditional 
Shiite religious doctrines. Although Iran continues to enjoy 
considerable influence with many Iraqi Shiites, particularly 
with Iraq's Supreme Council for the Islamic Revolution in Iraq 
and the Dawa Party, the moderate influence of Sistani dilutes 
their own revolutionary influence. Therefore, Tehran plays a 
double game in Iraq, using the young firebrand al-Sadr to 
undermine Sistani and keep pressure on the U.S. military to 
withdraw, while still maintaining good relations with Shiite 
political parties who revere Sistani and need continued 
American support.
    In addition to its destabilizing role in Iraq, Iran 
continues to be the word's leading sponsor of terrorism. 
Secretary of State Condoleezza Rice recently called Iran ``the 
central banker'' of international terrorism. It has close ties 
to the Lebanon-based Hezballah terrorist group, which it 
organized and continues to finance, arm, and train. Tehran also 
has supported a wide variety of Palestinian terrorist groups, 
including Fatah, Hamas, and Palestinian Islamic Jihad, as well 
as Afghan extremists such as Gulbuddin Hekmatyar. Iran was 
involved in the 1996 Khobar Towers bombing, which killed 19 
American military personnel deployed in Saudi Arabia. Moreover, 
Iran reportedly continues to give sanctuary to elements of al-
Qaeda, including at least one of Osama bin Laden's sons, Saad 
bin Laden, and Saif al-Adil, a top operations coordinator.
    This long and deep involvement in terrorism, continued 
hostility to the United States, and repeated threats to destroy 
Israel, provide a strong warning against the dangers of 
allowing such a radical regime to develop nuclear weapons.
Leading an International Response to Iran's Nuclear Challenge
    Diplomatic efforts centered on the United Nations to 
pressure Iran to abandon its clandestine nuclear efforts are 
unlikely to solve the problem, in part due to the institutional 
weaknesses of the U.N. Security Council, where a lack of 
consensus often leads to paralysis or lowest common denominator 
policies that are not effective. Nevertheless, the Bush 
administration must resolutely press the diplomatic case at the 
Security Council to set the stage and improve the U.S. position 
in the push for possible diplomatic and economic sanctions 
targeted at Iran's recalcitrant regime, or, as a last resort, 
possible future military action.
    Another goal should be to make sure that the end result of 
the Security Council's interactions with Iran clearly lays the 
responsibility of any failure on Tehran, not Washington. 
Washington should seek to focus the Security Council debate on 
the critical issue--the threat posed by Iran's nuclear 
program--not the broader question of whether to seek a 
multilateral ``grand bargain'' with an untrustworthy 
revolutionary power that exploited and sabotaged past American 
efforts to stage a rapprochement under the Carter and Reagan 
administrations and failed to respond to the tentative detente 
offered by the Clinton administration. Getting drawn into a 
multilateral dialogue with Iran through the auspices of the 
United Nations would allow Iran to divert attention from its 
safeguard violations and history of terrorism, while subjecting 
the United States to growing international pressure to bribe 
Iran with diplomatic carrots to comply with international legal 
commitments that it already has violated and could renege on 
again in the future.
    Iran already has provided ample evidence that it has no 
intention to fully cooperate with the IAEA or end the uranium 
enrichment activities that eventually will give it a nuclear 
weapons capability. If it merely seeks a nuclear power 
capability for economic reasons, as it insists, then it would 
not have rejected the Russian offer to enrich uranium at 
facilities in Russia, which would have saved it considerable 
costs in building and operating uranium enrichment facilities. 
Moreover, Iran also would have received additional economic 
benefits from the EU-3 if it had not broken off those 
negotiations.
    Under these circumstances, the EU-3's recent undertaking to 
put together a new package of incentives for Iran is the 
triumph of wishful thinking over experience. Beginning a new 
round of negotiations while Iran continues to work to perfect 
its uranium enrichment technology will enable Tehran to buy 
time for its nuclear weapons program, forestall sanctions, and 
weaken the perceived costs of violating the nuclear non-
proliferation regime in the eyes of other countries who may 
consider following Iran's path. To change Iran's course, the 
EU-3 should be considering larger disincentives, not just 
larger incentives.

Forge a Coalition to Impose the Strongest Possible Sanctions on the 
        Iranian Regime
    Although it has greatly benefited from the recent spike in 
world oil and natural gas prices, Iran's economic future is not 
a promising one. The mullahs have sabotaged economic growth 
through the expansion of state control of the economy, economic 
mismanagement and corruption. Annual per capita income is only 
about two thirds of what it was at the time of the 1979 
revolution. The situation is likely to get worse as President 
Ahmadinejad follows through on his populist promises to 
increase subsidies and give Iran's poor a greater share of 
Iran's oil wealth.
    Iranians are sending large amounts of their capital out of 
the country due to fears over the potentially disastrous 
policies of the new government. Shortly after Ahmadinejad gave 
his October 26 speech threatening Israel, Iran's stock market 
plunged to its lowest level in two years. Many Iranian 
businessmen understand, even if Ahmadinejad does not, that 
Iran's economic future depends on access to world markets, 
foreign investment, and trade.
    The U.S. should push for the strongest possible sanctions 
at the UN Security Council. But experience has demonstrated 
that Washington cannot rely on the UN to halt the Iranian 
nuclear program. Russia and China, who have extensive economic, 
military, and energy ties to Iran, may veto or dilute any 
effective resolution. The U.S. therefore should make 
contingency plans to work with Britain, France, Germany, the 
EU, and Japan to impose sanctions outside the UN framework if 
necessary.
    An international ban on the import of Iranian oil is a non-
starter. It is unrealistic to expect oil importers to stop 
importing Iranian oil in a tight, high-priced oil market. 
Instead, the focus should be on denying Iran loans, foreign 
investment, and favorable trade deals. Washington should 
cooperate with other countries to deny Iran loans from 
international financial institutions such as the World Bank and 
to deny Iran loans for a proposed natural gas pipeline to India 
via Pakistan.
    Although Iran is one of the world's leading oil exporters, 
it is also an importer of gasoline due to mismanagement and 
inadequate investment in its refinery infrastructure. An 
international ban on gasoline exports to Iran would deprive 
Tehran of approximately 40 percent of its daily gasoline 
consumption. This would significantly drive up the price of 
Iranian gasoline and underscore to the Iranian people the 
shortsighted policies of Iran's ruling regime.
    In addition to economic sanctions, the U.S. should press 
its allies and other countries to ban nuclear assistance, arms 
sales, and the export of dual use technology to Iran. Symbolic 
sanctions, such as a travel ban on Iranian officials or ban on 
Iranian participation in international sports events, would 
drive home to the Iranian people that international opposition 
to Iran's nuclear program is widespread and not an artificial 
issue created by the United States, as their government claims.
Support Iran's Democratic Opposition.
    The Bush administration has correctly aligned the U.S. with 
the Iranian people in their efforts to build a true democracy, 
but it has held back from a policy of regime change, partly in 
deference to the EU-3 negotiations with Iran about its nuclear 
program. However, now that it is clear that Iran has reneged on 
its promises to the EU-3, Washington should discreetly aid all 
Iranian groups that support democracy and reject terrorism, 
either through direct grants or indirectly through 
nongovernmental organizations. The Iran Freedom and Support Act 
of 2005 (H.R. 282 and S. 333), currently under consideration by 
Congress would authorize such aid and tighten U.S. economic 
sanctions on Iran.
    Iran has a well-educated group of young reformers who seek 
to replace Iran's current mullahcracy with a genuine democracy 
that is accountable to the Iranian people. They have been 
demoralized by the failure of former President Khatami to live 
up to his promises of reform and his lack of support for the 
student uprisings of 1999, but are likely to be re-energized by 
a brewing popular disenchantment with the policies of 
Ahmadinejad's hard-liners.
    The U.S. and its allies should discreetly support all 
Iranian opposition groups that reject terrorism and advocate 
democracy by publicizing their activities internationally and 
within Iran, giving them organizational training indirectly 
through western NGOs, and inviting them to attend international 
conferences and workshops outside Iran, preferably in European 
or other countries where Iranians could travel relatively 
freely with minimal fear of being penalized upon their return 
to Iran.
    Educational exchanges with western students would be an 
important avenue for bolstering and opening up communication 
with Iran's restive students, who historically have played a 
leading role in Iran's reform movements. Women's groups also 
could play a key role in strengthening support for political 
reforms among young Iranian women, a key element opposing the 
restoration of harsh social restrictions by Iran's resurgent 
Islamic ideologues.
    The United States also should covertly subsidize opposition 
publications and organizing efforts, as it did to aid the anti-
communist opposition during the Cold War in Europe and Asia. 
But such programs should be strictly segregated from the public 
outreach efforts of the U.S. and its allies, to avoid putting 
Iranian participants in international forums at risk of arrest 
or persecution when they return home.
    The United States should not try to play favorites among 
the various Iranian opposition groups, but should encourage 
them to cooperate under the umbrella of the broadest possible 
coalition. But Washington should rule out support for the 
People's Mujahideen Organization (PMO), which is also known as 
the Mujahideen Khalq, or its front group, the National Council 
of Resistance. The PMO is a non-democratic Marxist terrorist 
group that was part of the broad revolutionary coalition that 
overthrew the Shah, but was purged in 1981 and aligned itself 
with Saddam Hussein's dictatorship.
    While this cult-like group is one of the best-organized 
exile organizations, it has little support inside Iran because 
of its alliance with arch-enemy Iraq during the Iran-Iraq war. 
Moreover, the PMO resorted to terrorism against the Shah's 
regime and was responsible for the assassinations of at least 
four American military officers in Iran during the 1970s. It 
demonstrated in support of the Soviet invasion of Afghanistan 
in 1979 and against the release of the American hostages in 
1981. The U.S. cannot afford to support an organization with 
such a long history of terrorism, if it expects Tehran to halt 
its own terrorism.

Launch a Public Diplomacy Campaign to Explain to the Iranian People How 
        the Regime's Nuclear Weapons Program and Hard-Line Policies 
        Hurt Their Economic and National Interests
    Iran's clerical regime has tightened its grip on the media 
in recent years, shutting down more than 100 independent 
newspapers, jailing journalists, closing down websites, and 
arresting bloggers. The U.S. and its allies should work to 
defeat the regime's suppression of independent media by 
increasing Farsi broadcasts by government sponsored media such 
as the Voice of America, Radio Free Europe (Radio Farda), and 
other information sources. The free flow of information is an 
important prerequisite for the free flow of political ideas. 
The Iranian people need access to information about the 
activities of Iranian opposition groups, both within and 
outside Iran, and the plight of dissidents.
    The internet is a growing source of unfiltered information 
for many Iranians, particularly Iranian students. Farsi is 
reportedly the fourth most popular language used online and 
there has been a proliferation of political blogs devoted to 
Iranian issues. The U.S. should consider ways of assisting 
Iranians outside the country to establish politically-oriented 
websites that could be accessed by activists and other 
interested people inside Iran.

Mobilize Allies to Contain and Deter Iran.
    The bellicose resurgence of Iran's hardliners, Iran's 
continued support for terrorism, and the prospective emergence 
of a nuclear Iran pose threats to many countries. President 
Ahmadinejad's belligerence gives Washington greater opportunity 
to mobilize other states, particularly those living in growing 
shadow of Iranian power. The United States should maintain a 
strong naval and air presence in the Persian Gulf to deter Iran 
and strengthen military cooperation with the Gulf States.
    The U.S. and its European allies should strengthen 
military, intelligence, and security cooperation with 
threatened states, such as Iraq, Turkey, Israel and the members 
of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, 
Saudi Arabia, and the United Arab Emirates), which was founded 
in 1981 to provide collective security for Arab states 
threatened by Iran. Such a coalition could help contain the 
expansion of Iranian power and possibly would cooperate in 
facilitating military action, if necessary against Iran.
    Washington could also offer to deploy or transfer anti-
ballistic missile defense systems to threatened states, enhance 
joint military planning, and step up joint military and naval 
exercises. In particular, the U.S. and its allies should stage 
multilateral naval exercises to demonstrate the will and 
capability to defeat Tehran's threats to block the Strait of 
Hormuz, through which flow about one fifth of the world's oil 
exports.

Prepare for the Use of Military Force As a Last Resort
    A strong U.S. military posture is essential to dissuading 
and deterring Iran from fielding nuclear weapons and supporting 
terrorism, and when necessary responding decisively and 
effectively to Iranian threats. To deal with a nuclear or 
terrorist threat from Iran several military capabilities are 
particularly important. They include (1) expanding and 
strengthening the proliferation security initiative; (2) 
theater missile defense; (3) robust special operations forces 
and human intelligence (HUMINT) assets; (4) assured access to 
bases and staging areas in the theater for both special 
operations and conventional ground, air, and sea forces, and; 
(5) Energy security preparations.

    Proliferation security initiative (PSI). PSI is a multi-
national effort to track down and breakup networks that 
proliferate chemical, biological, and nuclear weapons 
technologies and materials. The administration should field 
more modern capabilities that can provide the right 
intelligence, reconnaissance, surveillance, and interdiction 
assets for the U.S. military. In particular, modernization of 
Coast Guard and Naval forces that can help prevent seaborne 
trafficking of weapons material is vital.

    Theater Missile Defense (TMD). TMD is also essential. 
Missile defenses provide the means to intercept a ballistic 
missile in flight and destroy it before the missile can deliver 
a nuclear warhead to its target. The United States should work 
with its friends and allies to provide theater missile defense 
to countries in the region. The United States should continue 
to pursue a mix of air, land, and sea-based missile defense 
systems.

    Special Operations Forces and HUMINT. These military and 
intelligence assets provide the capacity for focused operations 
against specific targets. Today, these forces are 
overstretched, performing many missions in the global war on 
terrorism. The Pentagon must end the use of special operations 
for training foreign militaries and other tasks that can be 
done by conventional military units. In addition, the 
administration must bolster the ranks of the special forces and 
HUMINT assets that might be required to operate in Iran, 
ensuring they have the right language skills, area knowledge, 
and detailed, actionable intelligence.

    Theater Access. The United States must ensure it retains 
the means to deploy and sustain forces in the theater. The 
Pentagon should work to secure a variety of basing options for 
staging military operations. In addition, the military must 
have robust means to ensure its ability to operate in the Gulf 
and defeat ``anti-access'' weapons that Iran might employ such 
as cruise missiles, sea-based mines, terrorist attacks, and 
biological or chemical weapons.

    Energy Security Preparations. In the event of a military 
clash with the United States, Iran undoubtedly will try to 
follow through on its threats to close the Strait of Hormuz to 
oil tankers and disrupt oil exports from other Persian Gulf oil 
exporters. Washington should take immediate steps to limit the 
future impact of such oil supply disruptions by working with 
the Arab gulf states to help them reduce the vulnerability of 
their oil infrastructure to Iranian military and terrorist 
attacks; pressing U.S. allies and other oil importers to expand 
their strategic oil stockpiles; encouraging Saudi Arabia to 
expand its excess oil production capacity; and asking Saudi 
Arabia to upgrade the Trans Saudi Arabian pipeline to increase 
its capacity and make preparations to bring the Iraq-Saudi 
pipeline back online to reroute oil exports away from the 
Persian Gulf to the Red Sea oil export terminals.

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

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