State Department Testimony: Sanctions One Year Later

The following is testimony by Under Secretary of State for Political Affairs Wendy Sherman before the Senate Banking on October 13, 2011:

Chairman Johnson, Ranking Member Senator Shelby, Distinguished Members of

the Committee: thank you for inviting me to appear before you today to

discuss the Obama Administration's strategy to address the continued threat

posed by the Iranian regime's nuclear ambitions, its support for international

terrorism, its destabilizing activities in the region, and its human rights

abuses at home.

The world today is unified to an unprecedented degree in its concern that a

nuclear-armed Iran would undermine the stability of the Gulf region, the

broader Middle East, and the global economy. In defiance of U.N. Security

Council and IAEA Board of Governors resolutions, Iran has continued to expand

its sensitive nuclear activities, and refuses to cooperate with the IAEA,

raising strong, legitimate concerns about the purpose of the nuclear

program. Beyond the nuclear issue, Iran continues its longstanding support to

terrorist organizations such as Hizballah, Hamas, and Palestine Islamic Jihad

(PIJ), as well as by its support to newer proxy militia groups in Iraq.

But, these efforts belie a regime that is actually far more vulnerable and

weakened than it would like to project. 2011 has been a harsh wake-up for

the Islamic Republic of Iran. Iran's government has failed in its efforts to

co-opt uprisings in the Arab world and claim its 1979 revolution as

inspiration. No popular movement in the region has looked to Iran as a model for

change; the only entity that turned to Iran was another autocratic regime

in Syria trying desperately to hang on to power. Iran has further undermined

its standing among Muslims and further strained its bilateral relations in

the region by helping the failing regime of Bashar al-Asad to brutally

crack down against Syrian citizens. Misreading the stark warning message from

the Arab Awakening, Iran's government continues to arrest, imprison, and

persecute Iranians who dare to ask for accountability and transparency from

their government, as well as just and fair treatment for ethnic and

religious minorities.

To address the multifaceted challenges posed by Iran's regime, its

flouting of its nuclear obligations, its nuclear weapons ambitions, its support

for terrorism, its destabilizing activities in the region, and its human

rights abuses at home, the U.S. has led a sustained and broad international

campaign to exact steep costs for the regime and to complicate its ability

to pursue these policies. Iran today faces tough economic sanctions and

broad diplomatic pressure, and though it aspires to regional and even global

leadership, its current policies have made it an outcast among nations.

American policy regarding Iran remains unambiguous. First and foremost, we

must prevent Iran from acquiring nuclear weapons. Its illicit nuclear

activity is one of the greatest global concerns we face, and we will continue to

increase the pressure until the Iranian regime engages the international

community with seriousness and sincerity and resolves its concerns. But

pressure is not an end unto itself. It may provide the impetus to Iranian

action, but does not prescribe the measures that are necessary to build

international confidence in Iranian nuclear intent. To that end, we have offered to

meet with Iran and have proposed confidence-building and transparency

arrangements that offered practical incentives. Unfortunately, Iran has failed

time and again to reciprocate and to take advantage of these opportunities.

As a consequence, more than ever, world pressure is mounting on Iran. Last

year, the United States led a successful effort in the UN Security Council

to adopt Resolution 1929, which led to the toughest multilateral sanctions

regime Iran has ever faced. The resolution strengthened previous UN

resolutions and provided a platform upon which the European Union, Norway,

Australia, Canada, South Korea, Switzerland, and Japan implemented strict

domestic measures to bolster the measures of UNSCR 1929.

The efforts made by the Congress, by all of you, have also effectively

sharpened American sanctions, particularly against Iran's energy sector and the

regime's human rights abuses. When President Obama signed into law the

Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA,

which amended the Iran Sanctions Act of 1996) in early July, 2010, the

Administration and the Congress sent an unmistakable signal of American resolve and

purpose, expanding significantly the scope of our domestic sanctions and

maximizing the impact of new multilateral measures. Since then, the

Administration has imposed sanctions on a growing list of individuals and entities

responsible for Iran's expanding scope of unauthorized activities, and

these sanctions are raising the cost, time, and energy required for Iran to

pursue its current policies.

In September 2010, Secretary Clinton imposed the first sanctions any

administration had ever imposed under the Iran Sanctions Act. To date, the State

Department has sanctioned 10 foreign companies for doing business with Iran's energy sector. Further, CISADA's special rule has worked exactly as

intended: it gave us the flexibility and leverage to persuade multinational

energy firms Shell, Statoil, ENI, Total and INPEX to withdraw from all

significant activity in Iran. The companies also provided clear assurances that

they would not undertake any sanctionable activities in Iran's energy

sector in the future, and in doing so, forfeited billions of dollars of

investments. In addition, Repsol abandoned negotiations over several phases of the

South Pars gas field.

Other successes under CISADA include the fact that major energy traders

like Russia's Lukoil, India's Reliance, Switzerlands Vitol, Glencore, and

Trafigura, Kuwait's Independent Petroleum Group (IPG), Turkey's Tupras,

France's Total, and Royal Dutch Shell have stopped sales of refined petroleum

products to Iran. Iran has had to redirect production facilities from

valuable petrochemical export production in order to manufacture refined

petroleum for domestic sale. Furthermore, Reliance, India's largest private

refiner, announced in 2010 it would not import Iranian crude.

Investment in Iran's upstream oil and gas sector has dropped dramatically,

forcing Iran to abandon liquefied natural gas projects for lack of foreign

investment and technical expertise, after Germany's Linde, the only

supplier of gas liquefaction technology to Iran, stopped all business with it.

South Korea's GS Engineering and Construction cancelled a $1.2 billion gas

processing project in Iran. Outside of Iran, British Petroleum chose to shut

down production from a North Sea platform co-owned with the Iranian Oil

Company, to ensure compliance with EU sanctions. Trans-Adriatic Pipeline (TAP)

partners announced that the pipeline, once constructed, would not be used

to transport gas from Iran.

Iran's national airline, Iran Air, is also paying the price for having its

aircraft misused for proliferation purposes, and providing services to the

IRGC. Most major fuel providers have terminated some or all of their Iran

Air contracts, including British Petroleum, Royal Dutch Shell, Total, OMV,

and Q8. Iran Air is finding it difficult to find sources to replace these

suppliers, not to mention places to land.

Iran is increasingly isolated from the international financial system, as

Under Secretary of Treasury Cohen's testimony describes in detail. Virtually

all of the world's first-tier banks have concluded that the Iranian market

is not worth the reputational risk posed by deceptive Iranian practices.

They understand the consequences of both willfully and inadvertently

facilitating an illicit transaction, and have severely curtailed their

interactions with Iranian banks. The Administration is looking very closely at further

measures that will drive home the message that any bank doing business

with banks that do business with terrorists puts its own reputation at risk of

international sanction and condemnation.

Iran's shipping is also under international pressure. Large shipping

companies such as Hong Kong-based NYK are withdrawing from the Iranian market,

and reputable insurers and reinsurers such as Lloyd's of London, no longer

insure Iranian shipping. Iran's shipping line IRISL, has been exposed for its

complicity in the shipment of goods in violation of Security Council

resolutions, as noted by the UN's Iran Sanctions Committee. IRISL has been

sanctioned by the United States, the EU, Japan, South Korea, and others.

Difficulty in repaying loans and maintaining insurance coverage has led to the

detention of at least seven IRISL ships. Major shipbuilding companies are

refusing to build ships for IRISL. As a direct result of the international

pressure we helped build, IRISL ships have a harder time finding ports of call,

particularly in Europe.

Other major companies have voluntarily opted out of the Iranian market,

including automotive firms Daimler (German), Toyota (Japanese), and Kia (South

Korea), as well as Germany's ThyssenKrupp. Caterpillar prohibited its

non-U.S. subsidiaries from exporting to Iran. Switzerland's ABB Ltd.,

Ingersoll-Rand Plc, and Huntsman Corp. have ended business with Iran.

The result of our strategy is an Iran that is isolated economically and

finding dwindling options for doing business internationally. But,

importantly, Iran is facing these problems because of targeted sanctions and the

voluntary decision by international firms to exit the Iranian market. Our

sanctions approach continues to seek to undermine Iran's ability to engage in

illicit conduct, with measures against Iran's energy sector removing an

invaluable source of funding that Iran could apply to that conduct. In spite of

the high price of Iranian crude on world markets, Irans aggregate economy

also seems to be weakening. These effects will increase as sanctions

implementation continues to improve, especially if the recent decline in the price

of crude oil continues.

These efforts are directed toward achieving our goals of persuading Iran to

comply with its international obligations to prove the exclusively

peaceful nature of its nuclear program and to engage constructively with the P5+1.

On September 21, I participated in a meeting of the P5+1 countries in New

York, where we and our partners, including Russia and China, reiterated

longstanding and grave concerns about Irans installation of centrifuges at

the formerly-covert enrichment plant at Qom, about its stepped up production

of 20% enriched uranium, and about the possible military dimension of Iran'

s program (a concern notably shared by the IAEA). We also reconfirmed the

dual-track strategy of engagement and pressure. It was a strong and unified

statement. It concluded that the P5+1 would be willing to hold another

meeting with Iran, but only if Iran is prepared to engage more seriously in

concrete discussions aimed at resolving international concerns about its

nuclear program. If, however, Iran simply seeks to buy time to make further

progress in its nuclear program, it will face ever-stronger pressures and

ever-increasing international isolation.

We will continue to work with Congress as we implement both tracks of the

dual-track policy. We believe that, in the short term, further improvements

in international implementation, based on our current authorities, offer

the best way to increase pressure on Iran. As Congress considers additional

authorities, we would like to work with you to ensure that any additional

steps we take will strengthen the international consensus and global pressure

against Irans nuclear program. The most effective sanctions are those

taken by a large portion of the international community, which requires close

coordination with friends and allies, as well as a targeted approach.

Convincing them to take action will require us to carefully calibrate our

outreach to the individual circumstances of specific countries and sectors. It

will also require flexibility to find creative and proactive tools to

convince Iran that it cannot continue to pursue its nuclear ambitions.

Sanctions are doing more than raising the cost of continuing illicit

nuclear activity; they are finally shining a spotlight on some of the

individuals and entities perpetrating egregious human rights abuses against Iranian

citizens. Using CISADA, we have designated 11 individuals and three entities

for human rights violations, and we continue to compile more information

and evidence that will allow us to identify more murderers, torturers, and

religious persecutors. We have taken a firm stand on the Iranian regime's

violations of human rights, including the repression of religious minorities

as exemplified by the death sentence that might have been imposed on Pastor

Youcef Nadarkhani simply for following his own chosen religion had it not

been for the immediate condemnation from world leaders, religious groups,

and NGOs. At the same time, we are offering capacity-building training

programs, media access, and exchanges to help Iranian civil society strengthen

their calls for accountability, transparency, and rule of law. The Iranian

opposition's desire to operate without financial or other support from the

United States is clear. We are committed to using available and effective

diplomatic tools to assist those who want our assistance in speaking out and

defending fundamental rights and freedoms. The United States will always

support the Iranian people's efforts to stop government-sanctioned harassment,

detention, torture, imprisonment, and execution of anyone who dares

express ideological, religious, or political differences from the regime's

repressive, totalitarian vision.

We engage regularly with like-minded countries to develop shared approaches

to increase the pressure for a change in the Iranian government's

behavior. In July, the United States and United Kingdom, with the support of

Canada, imposed visa restrictions on Iranian government officials and other

individuals who were responsible for or participated in human rights abuses,

including government ministers, military and law enforcement officers, and

judiciary and prison officials. We welcome the European Union's announcement

this week of more than two dozen additional travel bans. There is absolutely

no cause for allowing petty tyrants to trot around the globe while

suffering and repression continues unabated inside Iran. International pressure

and condemnation on this point is growing: We worked with Canada to pass a UN

General Assembly resolution last year condemning Iran's human rights

abuses. This condemnation attracted a larger margin than any similar resolution

in the past eight years. It may seem small, but every pro-regime vote we

strip away on resolutions like this is one fewer fig leaf for the Iranian

regime to hide behind as they murder and torture their own people, and we will

continue to press measures large and small at every opportunity.

We were leaders in an effort in the UN Human Rights Council in March to

create a Special Rapporteur on Iran, the first country-specific human rights

rapporteur since the Council's creation. Special Rapporteur Ahmed Shaheed, a

former foreign minister of the Maldives and respected human rights

advocate, will serve as an independent and credible voice to highlight human

rights violations by the government of Iran. All of these multilateral efforts

reinforce our strong domestic actions that prove that Iran's attempts to

undermine universal rights and deceive the world only further isolate it from

the global community.

In my new role as Under Secretary for Political Affairs, I look forward to

working closely and transparently with members of Congress to prevent Iran

from acquiring nuclear weapons, curtail its support for terrorism, make it

more difficult for Iran to interfere in the region, and deter the regime

from committing human rights abuses against its own people.

Tags: Sanctions, State Department, U.S. Policy

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