Hearing on the Reauthorization of the Iran and Libya Sanctions Act.

Thank you, Mr. Chairman. I want to thank the subcommittee for holding this hearing on the renewal of the Iran-Libya Sanctions Act--ILSA--and for inviting me to testify before you this afternoon. The American Israel Public Affairs Committee strongly supports the efforts led by Senators Gordon Smith and Chuck Schumer to extend ILSA for another five year period.

Five years ago, when Congress unanimously enacted ILSA, it did so because Iran was the leading state sponsor of international terrorism, because it opposed the Arab - Israeli peace process, and, indeed, Israel’s very right to exist, and because it was pursuing the acquisition of weapons of mass destruction and the missiles to deliver them. Libya, for its part, was under UN Security Council-mandated sanctions for its suspected role in the downing of Pan Am 103. Today, a Libyan intelligence officer has been found guilty of murder for his involvement in Pan Am 103 in the words of the court "in furtherance of the purposes of ... Libyan Intelligence Services," yet Libya continues to refuse to acknowledge its role and to pay compensation to the families of the victims. Last week, 13 members of the Iranian backed group Hizballah were indicted for the 1996 bombing of the Khobar Towers. The indictment mentions Iran 35 times, yet Iran denies any connection to the attack. And Iran’s objectionable policies and behavior have, if anything, gotten worse. In short, all of the factors which led Congress to act initially remain true today, and both Iran and Libya deserve to remain to remain subject to the sanctions outlined in ILSA.

I want to divide my testimony today into three parts: outline what Iran is doing today, to discuss the effectiveness of ILSA, and to look at the consequences of allowing ILSA to expire.

Let me start with Iran’s state support for international terrorism. The latest State Department Report on Patterns of Global Terrorism, issued in April, again affirmed that, "Iran remained the most active state sponsor of terrorism in 2000." The

Report goes on to say that, "Iran provided increasing support (emphasis added) to numerous terrorist groups, including the Lebanese Hizballah, HAMAS, and the Palestine

Islamic Jihad," the very groups responsible for the countless terrorist attacks against innocent Israelis. The Report notes that official Iranian agencies "continue to be involved in the planning and the execution of terrorist acts," that Iran’s support for Hizballah, HAMAS, and Islamic Jihad include "funding, safehaven, training, and weapons," and that this support "continued at its already high levels following the Israeli withdrawal from Lebanon in May and during the intifadah in the fall." Moreover, in the words of the Report, "Iran continued to encourage Hizballah and the Palestinian groups to coordinate their planning and to escalate (emphasis added) their activities against Israel."

Iran is now reportedly spending $100 million annually on these groups. Iranian jetliners loaded with weaponry continue to land weekly in Damascus, where their cargoes are unloaded and trucked to Hizballah forces in southern Lebanon. Iran has recently begun supplying Hizballah with long-range 240mm mortars capable of reaching Haifa and beyond.

Late last year, Iran announced the formation of the International Anti-Zionist Movement, an eight-member alliance designed to undermine the peace process. The head of the organization is Mohsen Rezaie, the former head of the Iranian Revolutionary Guard and a close associate of Iran’s Supeme Leader, Ayatollah Khamene’i.

A statement sent by the new organization to the heads of all Islamic states said, in part, "We ask you, before the vast storm of Islamic countries, to mobilize to destroy Israel and create problems for those governments who defend it..." Rezai said that, "Iran will continue its campaign against Zionism until Israel is completely eradicated."

In January, Iranian officials met in Beirut with representatives of Hizballah, HAMAS, Islamic Jihad, and the Popular Front for the Liberation of Palestine--General

Command to discuss ways to cooperate in attacks aimed at Israel and US targets. In April, Iran hosted a follow-up session in Tehran with the leaders of these groups.

There are those who note a power struggle going on inside Iran between hard-line clerics, led by Iran’s Supreme Leader, Ayatollah Khamene’i, and supposedly moderate clerics, led by President Khatami. Whatever the reality of that struggle, it is clear that their differences do not extend to Iran’s support of international terrorism nor to their opposition to Israel’s very existence. Last December, Ayatollah Khamene’i said that,

"Iran’s stance has always been clear on this ugly phenomenon (Israel). We have repeatedly said that this cancerous tumor of a state should be removed from the region."

In February of this year, Khamene’i stated that, "It is the mission of the Islamic Republic of Iran to erase Israel from the map of the region."

And Iran’s so-called "moderate" President Khatami last year called Israel an "illegal state." Last August he told a visiting Yasir Arafat that the peace process was doomed to fail and that, "All of Palestine (emphasis added) must be liberated." On April 25, Khatami said Israel "is a parasite in the heart of the Muslim world."

Iran’s support for international terrorists goes beyond Israel, however. The State Department Report noted that Iran continued funding, training, and logistical assistance to a variety of radical groups in the Persian Gulf, Africa, Turkey, and Central Asia.

A stark example of Iran’s support for terrorism is its role in the Khobar Towers bombing in 1996 that killed 19 Americans and wounded 372. Attorney General John Ashcroft and FBI Director Louis Freeh announced on June 21 the indictment of 13 members of the pro-Iranian group Hizballah for the bombing. This indictment, which mentions Iran 35 times, describes the involvement of high Iranian government officials in the terrorist attack. The indictment reports that an Iranian military officer directed and paid the defendants to locate American sites for a terrorist attack. The indictment states "that the attack was to serve Iran by driving the Americans out of the Gulf region."

The United States Government has repeatedly reported on Iran’s efforts to acquire weapons of mass destruction and the missiles to deliver them. The CIA’s annual proliferation report to Congress has noted Iran’s clandestine nuclear weapons program for a number of years. Russia is rebuilding Iran’s nuclear power reactor at Bushehr that was damaged during the Iran - Iraq war. Iran, one of the world’s richest countries in both petroleum and natural gas has, of course, absolutely no need to develop "peaceful" nuclear power; and yet it has agreed to pay the Russians billions of dollars for just such a capability.

The Clinton Administration sanctioned a number of Russian entities for their clandestine nuclear weapons cooperation with Iran, yet the assistance continues. Just this past winter, the Clinton Administration vigorously sought to dissuade Russia from providing Iran isotope separation technology with which it could ultimately produce its own weapons-grade nuclear material. It is as yet unclear whether that transaction has been permanently shut down. China has also assisted Iran’s nuclear weapons program, and both these countries, in addition to North Korea, have aided Iran’s missile program.

A Defense Department study entitled, "Proliferation: Threat and Response," issued this past January stated that Iran is seeking the full range of weapons of mass destruction: nuclear, chemical, and biological weapons, and is expanding its missile program. Iran has already flight tested the Shahab-3, a medium range ballistic missile with a range of 900 miles--that is, a missile that can reach any point in Israel as well as hitting American forces in the region.

The study reported that Iran is eventually planning to develop intercontinental ballistic missiles that could threaten Europe and the United States directly. It added that

"Iran is striving to indigenously produce ballistic missiles and become a supplier state."

The report came to the not startling conclusion that were Iran to possess nuclear and missile capabilities, it would likely lead to increased intimidation of its Gulf neighbors and an increased willingness to confront the United States. Both American and Israeli intelligence are reported to believe that Iran could have such a capability within the next decade. The timing could be considerably shortened if Iran were to obtain the necessary fissile material from abroad.

One can only imagine what the United States and our friends in the region would confront were the clerical regime in Iran to obtain such capabilities. Imagine a nuclear-armed Iran sitting astride the Persian Gulf shipping lanes through which so much of the world’s petroleum resources flow. Imagine what Israel would confront. Imagine how much more severe would be the dangers of Iranian-supported terrorist groups emboldened by the Islamic Republics new weapons capabilities and the likelihood of Iran sharing these weapons with these very same groups. Clearly, Mr. Chairman, we believe the United States must do all it can--for our own sake and for that of our allies--to prevent such nightmare scenarios from becoming realities.

Over the course of the last five years, both the executive branch and the legislative branch of the US government have made concerted efforts to do precisely that--prevent Iran from gaining such dangerous capabilities. To demonstrate that direct American action was required to stop weapons proliferation, Congress in 1996 overwhelmingly passed the Iran-Libya Sanctions Act (ILSA), and last year enacted the Iran Nonproliferation Act, again overwhelmingly. The Clinton Administration made Russian transfers of dangerous technologies to Iran a very important item on the agenda of our bilateral relations with Moscow and engaged our allies to tighten their own nonproliferation controls. We are pleased that the Bush Administration has pledged to maintain this priority and take the necessary measures to address this serious national security problem.

ILSA was designed to deter foreign investment in Iran’s energy sector. It was based on a few simple facts: 1) Virtually all Iran’s hard currency earnings are derived from its energy exports. It is this revenue that provides Iran the wherewithal to pay for its programs to acquire weapons of mass destruction and its support of terrorism. 2) Since the fall of the Shah through 1995, the clerical regime of Iran made no investments in its own petroleum and natural gas infrastructure; as a result, its production capabilities have declined by more than a third since 1979. At the same time, its population has doubled, meaning that Iran’s export earnings per capita have dropped to about only one quarter of their level under the Shah.

Iran’s oil fields are aging. Ninety percent of its oil comes from its oldest onshore fields and their output is declining because they have not been rehabilitated by expensive water separation and gas reinjection. Senior Iranian officials have been warning since the mid-nineties that output at some reservoirs is in sharp decline after years of being pushed too hard.

If foreign investment could be prevented from reinvigorating this crucial sector to Iran, then its production capabilities would continue to decline, and with it, Iran’s ability to continue its weapons programs and its support for terrorism. Indeed, the CIA estimated in 1996 that "unless Iran starts making massive investments in oil field maintenance, it will become a net importer of oil by the year 2005 (emphasis added)."

Not surprisingly, Iran has, since 1995, sought a great deal of foreign investment. It has promoted over 50 foreign energy investment opportunities. As of the end of the year

2000, only seven substantial contracts had been secured, a success rate of 14 percent. These seven projects have netted Iran less than $10 billion, less than $2 billion a year and well below what Iran’s own planners expected. Compare that to tiny Qatar, with much fewer petroleum resources. During the same time frame, Qatar received twice as much foreign investment--$18 billion--in its energy sector.

Iran’s own government has admitted that ILSA has been effective in deterring investment. In an August, 1998 report to the UN, Iran stated that ILSA had "led to the disruption of the country’s economic system,...caused a decline in its gross national product,...[and] weakened the country’s ability to deal with its international lenders,...which impeded credit transactions." Iran went on to report that ILSA created difficulties in the petroleum and oil sector, such as "reduction in international investment, delays in...oil projects, cancellation of some tender contracts, technological shortcomings, and increased negotiating expenses." President Khatami acknowledged later in 1998 that US sanctions had "inflicted damage upon us."

In short, Mr. Chairman, ILSA is an example of sanctions legislation that has worked. There are those who will assert that foreign investment in Iran is just about to really take off. Over the past five years, I have read about any number of imminent contracts about to be signed. Most, however, never came to fruition. That is, no doubt, in part true because of Iran’s own problems in attracting foreign investment. But it is also undoubtedly true because ILSA acts as a further complication for foreign corporations trying to decide where to invest in energy development.

Indeed, ILSA is a carefully balanced piece of legislation that is narrowly and effectively targeted only at foreign energy investments in Iran. The legislation provides our government with the necessary tools to stop or at least deter this investment. The menu of sanctions from which the President must choose ranges from the minor—such as prohibiting the Export-Import Bank from extending credit to sanctioned entities—to the major—such as invoking an import ban on these foreign entities. When Royal Dutch

Shell, for example, with its hundreds of gasoline service stations in the United States, has to decide whether or not to invest in Iran, certainly ILSA requires consideration.

ILSA is a good example of how sanctions legislation should be done. While addressing an issue of vital national security interest to the United States, it does not tie the President’s hands but indeed provides great flexibility. If the President has determined that a sanctionable action has occurred, he may, if he determines that it is in the US national interest, waive the application of sanctions. ILSA also is narrowly targeted at foreign companies and does not in any way restrict agricultural or medicinal trade between American companies and Iran.

The point of ILSA is twofold: to raise the cost of Iran’s dangerous policies and to delay the time for it to acquire weapons of mass destruction. And on that score I would argue

ILSA has been very successful. Unless Iran is able to somehow obtain fissile material, it will have to master the entire nuclear fuel cycle in order to indigenously produce weapons-grade material. That is a long and costly endeavor. Raising the costs and delaying the timeline may allow for real political change in Iran. As we have seen from Iran’s continuing efforts to seek weapons of mass destruction and support terrorism, ILSA alone is not enough but it is a necessary policy tool of our government to delay Iranian success in these efforts as long as possible.

I have no doubt that the vast majority of Iranians would end clerical rule if they had the opportunity to do so. One reason so-called clerical "moderates" do so well in Iranian elections is that they are the most moderate allowed to run. They are, nevertheless, part of the clerical regime, and Iran has been experiencing considerable civil unrest over the past year in opposition to the regime. Unfortunately, we have seen no evidence whatsoever of any "moderation" in Iranian foreign or national security policy and the changes at home have been minor and are reversible. Witness the 9 Iranian Jews that have been falsely charged and imprisoned; the closing of Iranian dissident newspapers; and the arrest of dissident leaders.

In short, our hope must be that we are able to delay Iran’s acquisition of weapons of mass destruction long enough so that political change may occur. That is one of the underlying objectives of ILSA and it is based on historic experience elsewhere. In the early 1980’s, Argentina, Brazil, and Chile all had nuclear weapons programs. All were ruled by the military. The United States imposed restrictions in nuclear commerce with the three. Today, all three are democracies, and none of them have nuclear weapons programs. Delay allowed eventually for political change and an end to a nuclear proliferation threat.

Moreover, if Congress does renew ILSA for another five years, as I hope it will, it will send a new message to those now eagerly anticipating its demise. It will reinvigorate the deterrent effect of ILSA, and do so just at the start of a new administration.

Put simply, were ILSA allowed to lapse, it would be broadly interpreted by the Iranian regime, and others, as a weakening of America’s opposition to Iran’s policies and programs that threaten our vital interests. Iran has done nothing to warrant such a reward. Indeed, even those who have argued these past years that Iranian moderation was forthcoming have to admit that the Islamic Republic’s international behavior has deteriorated not improved. Its weapons development program has accelerated; its financial and arms support for terrorists has increased both quantitatively and qualitatively; and its objections to an Israel-Arab peace process are as vociferous as ever.

Based on this record, we would not only fail to derive any benefit from allowing ILSA to lapse, we would put our country and our allies at even greater risk.

Over the past three years, the United States has made it abundantly clear to Iran that we wished to improve relations. We took several unilateral steps that were all rebuffed. We eased import restrictions on some Iranian products; we provided greater ease of travel between Iran and the United States and even encouraged Americans to visit; we sought to open a dialogue with the Iranian regime--all to no avail. Hard-line clerics shut down every initiative while continuing to pursue policies and programs inimical to our interests.

But couldn’t the lapsing of ILSA be seen as a gesture of support to Iranian moderates? Quite the contrary. The expiration of ILSA would provide Iran a potential windfall by allowing unfettered foreign investment in its petroleum industry, thereby securing its petroleum capabilities--and its ability to fund its weapons programs and support of terrorism--indefinitely. It would secure the hard-liners in power. And it would be seen by moderates hoping for political change in Iran as a weakening of America’s posture against the very regime they seek to change.

Thus, Mr. Chairman, I strongly urge the Congress to renew the Iran Libya Sanctions Act. Iranian behavior demands it; ILSA has met the test and proven its effectiveness over time; and its expiration now would be a major, and totally undeserved, victory for the Islamic Republic, leading to potentially disastrous consequences to vital American national interests. We must, in short, remain vigilant and steadfast.

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