November 15, 2011

U.S. Officials Warn that New Sanctions Could be a “Boon” to Iran


Adam Szubin, Director of the Treasury’s Office of Foreign Assets Control

Washington, DC – U.S. officials warned Members of Congress at a House Oversight Subcommittee hearing that new Iran sanctions proposed in Congress could be a “boon to Iran.”

The debate on new sanctions being championed on Capitol Hill has increasingly focused on the impact such measures could have on the U.S. and international economy.

Director of the Treasury’s Office of Foreign Assets Control Adam Szubin, cautioned, “There are very real scenarios in which an oil spike might hit.”

Obama Administration officials have signaled that sanctions on Iran’s central bank and oil exports could significantly damage the economies of Europe and the U.S. But legislation has recently advanced that could force the President to impose central bank sanctions.

Subcommittee Chairman Jason Chaffetz (R-UT) called concerns about rising energy costs “mystifying.”

“Why is the price of a gallon of gas the primary driver in Obama’s quest to supposedly make sure that they don’t get a nuclear bomb for goodness sake?” Chaffetz asked.

“The price of oil is not the primary driver,” responded Szubin. “It is certainly a consideration, as it is a primary driver of the recovery that’s going on worldwide and the strength of our economy and that of many of our allies.”

But, Szubin said, “If there is a hike in the price of oil, Iran gains. If there is a spike in the price of oil…there could be profound harm to the global economic recovery and a windfall to Iran.”

On a separate panel, Foundation for Defense of Democracies’ Mark Dubowitz, a top advocate for Iran sanctions, testified that such measures were necessary to “stop the bomb.” He urged for the U.S. to sanction Iran’s central bank and also establish an “Iranian oil free zone” to require any supplier of oil to the U.S. to ensure that no Iranian crude was involved in its production.

When asked by John Tierney (D-MA), the ranking Democrat on the National Security Subcommittee, if such measures would drive up oil prices, Dubowitz acknowledged, “it is not 100% clear how energy markets will respond.” But he reasoned that these sanctions would not actually stop Iran from exporting oil. “The goal is not to go after physical supply, but keep every barrel of Iranian oil on the market but at a discounted price.”

That assertion was challenged by Suzanne Maloney of the Brookings Institute. “This sort of idea that somehow the Iranians can become a sort of niche market for only bad companies and bad countries to purchase crude oil from simply doesn’t reflect the realities of the international marketplace.”

She said the “oil free zone” proposal is unworkable because “the idea that somehow we can inspect every barrel of crude that comes into this country to ensure that not a drop of oil was produced in Iran is simply inconsistent with the way the international oil market works.”

Maloney said, “We have yet to see that this regime in Tehran is susceptible to economic pressure in terms of changing its foreign policy.”

But she warned that measures that punish countries like China and India “will make it much more difficult for us to attain the level of international cooperation necessary to drive a decisive message to Tehran.”

Ken Pollack, also of the Brookings Institute, urged for consideration of “other ways” we can bring pressure on Iran. “The sanctions have had an unprecedented impact, and yet they are not achieving our goal, and we should not assume that they will.” However, Pollack said, “It would be a mistake to scale back the sanctions” because this would send the wrong message to Iran.

Acting Deputy Assistant Secretary of State or Iran Affairs Henry Wooster said the U.S. focus is to “obtain optimal leverage” while ensuring, “we are not alienating key people we need to work with in a coalition.”

He also cautioned that Iran is not monolithic. “The Iranians remain extraordinarily interested in the United States,” he said. “Many of them are keen on rapport with the West, particularly the United States,” said Wooster. “But—and this is a big but—they don’t hold the power.” Instead, the Supreme Leader, the Revolutionary Guard, and “deeply conservative political figures,” are in charge. “But,” he noted, “beyond that circle—and that is a relatively small circle, but it’s a very powerful circle—there is room for maneuvering.”

Deputy Assistant Secretary of Defense Colin Kahl also testified, cautioning Congress that there remains time to resolve the nuclear issue.

“When you have groups estimating one year or two years until [Iran] could have a testable nuclear devise, the important caveat is it is from a decision by the Iranian government to ‘dash’ for a nuclear devise. There is no evidence that this decision has been made.”

Kahl continued, “So what is clear they are trying to do is put themselves in a position where the Supreme leader can make that decision. We do have to worry that if and when that decision is ever made, the time to actually complete a testable devise could shrink over time. So we are watching that very, very, very carefully. But I think we still do have some time.”




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