[Note: The following paper was presented by FDI ExecutiveDirector Kenneth R. Timmerman aon May 2, 1996 at "Iran in Transition,"a 2-day seminar organized jointly by the Institute for the Study of Earthand Man at Southern Methodist University and Petro-Hunt Corporation, thatwas heldin Dallas, Texas.]
President Clinton's policy of increasing economic pressure on Iran asa means of getting the Tehran regime to moderate its behavior has beengreeted with mixed reviews. On one side of the debate, free-trade advocates,industry lobbyists, and elements who support the Islamic Republic haveforged a tactical alliance to oppose the U.S. trade embargo on Iran.
Iran's ideological supporters argue that the embargo will embitter thecurrent regime and make it even more radical; moderate elements still exist,they contend, and the U.S. should reach out to them if it hopes for change.
Industry lobbyists, seeking to sell electric power generation equipment,telecommunications gear, and to build lucrative oil and gas pipelines throughIran from the Central Asian republics of the former Soviet Union, arguethat the United States has a strategic interest in strong economic tiesto Iran. Poisoning the political well will ruin good business opportunities,and ultimately cost jobs here in the United States, their argument runs.Better to make a strategic bargain with the regime that defangs the radicalsand positions the United States to dominate the economic development ofCentral Asia, from the Caspian shelf to the Tenghiz oil fields and beyond,right down to the Persian Gulf.
I am going to take a contrarian's view here today. First, I will suggestthat factual basis behind the economic argument may be fatally flawed,and that an increasing number of government and industry analysts now acknowledgethis. Iran has become a dead-beat debtor, and was only saved from defaultthis March by a fortuitous rise in oil prices, which the futures markethas already begun to discount . With a badly damaged oil industry, sufferingfrom years of neglect, and uncertain prospects for attracting the massiveamounts of capital needed to repair existing fields and develop offshoreproduction, Iran may not succeed in emerging from its current economicmalaise. Highlighting this view in a dramatic way is a recent CIA studythat concludes Iran will become a net oil importer by the year 2005.
I will also argue, however, that economic sanctions alone are not enough,and that a real window of opportunity exists today to foster meaningfulchange in Iran, that could transform today's enemy into tomorrow's friend.
By imposing a total U.S. trade embargo on Iran on April 30, 1995 PresidentClinton crossed his Rubicon. Sanctions are the economic equivalent of war;once they are declared, there is no turning back. The question now becomes:how does the United States craft a comprehensive policy toward Iran thatwill succeed. And more fundamentally: what should be the goals of U.S.policy?
President Clinton has gone out of his way to dispel any doubts thatmight have lingered in the mind of Tehran's rulers as to his intentions.Both the President and Secretary of State Christopher have been unrelentingin their public criticism of Iran's support for international terrorism,its violent opposition to the Middle East peace process, its grotesqueviolations of human rights, and its suspected development of a clandestinenuclear weapons capability. The President is clearly hoping that increasedeconomic pressure will force Tehran to change its ways.
While this makes good common sense to a Western way of thinking - ifyou feel pain, the normal response is to try to find out how to relievethe pain - it does not seem to have had much effect on the Iranian regime.Indeed, I would argue that Iran's unrelenting support for internationalterrorism is the clearest sign yet that the sanctions have left the regimeunphased, despite the clear economic pain the sanctions have caused. Witnessthe particularly brazen way in which Foreign Minister Velayati told theEuropean "troika" visiting Tehran in early April that Iran consideredHamas suicide bombers who blew themselves up on public buses in Israelto be "freedom fighters," not terrorists.
Economics alone is unlikely to change Iranian policy. The U.S. tradeembargo on Iran has had real but limited effects. Although there are somereal chokepoints, Iran can simply go elsewhere to acquire most of the technologyit needs, for the embargo has hardly tempered the desire of Iran's majortrading partners to do business. There have been some successes, though.An investigation we at The Iran Brief conducted in January shows that thesanctions appear to have reduced Iran's oil exports by roughly 100,000b/d during the second half of 1995, leading to a direct hard currency lossof over $350 million. Iran also had to spend heavily to charter additionaltankers to bring the oil to market. And if the damage done to Iran's economythrough the devaluation of the Iranian currency, which has become virtuallyinconvertible as a result of the embargo, and the chill the U.S. sanctionshave put on foreign investment in Iran are taken into account, then Iran'slosses due to the embargo must be reckoned in the billions of dollars .(And I will have more to say about foreign investment later on.)
But Iran's ruling clergy has never shown great concern for economichardship. This outlook was summarized by Ayatollah Khomeini right at thestart, when he argued that his revolution was "not about the priceof melons." It remains unclear whether damaging Tehran's economy willhave any impact on the ruling clergy's anti-American ardor or their sponsorshipof terrorism. This is a regime that wilfully ransacked its only sourceof hard currency - the oil industry - in its revolutionary fervor in 1978-1979,and which has so thoroughly neglected basic investment in oil field maintenanceover the past 17 years that even the most optomistic estimates by the InternationalEnergy Agency bode ill for the future of the Iranian oil industry .
But the regime leaders have shown themselves to be extremely sensitiveto perceived threats from the United States. By imposing economic sanctionsand seeking to diplomatically isolate Tehran, the Clinton administrationhas thrown down the gauntlet and excited the paranoia of Tehran's leaders.They believe the United States has been on a mission for the past 17 yearsto put an end to their revolution. If past practice is any teacher, themore Tehran feels it is under pressure from the United States, the moreit will lash back at U.S. interests across the globe, including throughterrorist attacks. Dual containment - or even some form of "enhanced"containment - is therefore not a policy without risk. And its chances ofsucceeding in even its limited goals of changing the regime's behaviorare small.
Given this background, I see two possible futures as a result of ourcurrent policy:
The first I call the Rafsanjani shuffle. Faced with increasing pressurefrom radical anti-Western forces in Iran's new parliament, and growingtension with Supreme Leader Ali Khamene'i, President Rafsanjani resortsto the strategy that has served him well in the past: pre-empting his enemiesby adopting their policies. This means: more support for internationalterrorism, more disastrous economic centralism, and continued hostilitytoward the Middle East peace process and the United States. As new exportcredits from Europe and Japan become rare (because of U.S. sanctions andIran's bad credit rating), Iran's oil industry enters a state of advanceddecay. There are occasional bread riots and demonstrations of popular discontent,but these are readily repressed. Frustrated with their failure to rebuildIran, Rafsanjani and his allies consider nuclear weapons as the only credibleoption of breaking out of their isolation, and look toward a "rogues'alignment" with North Korea, Pakistan, and China. In this scenario,no U.S. policy goals are met.
The second possible future I call the Russian gambit. In this scenario,Iran heeds to siren calls of Russia when confronted with intensifying U.S.sanctions and increasingly reluctant trade partners in Europe and Japan.Moscow agrees to massive new arms sales to Iran, and builds a series ofnuclear facilities which help Iran to develop an indigenous nuclear weaponscapability using natural uranium mined in Iran. In return for Moscow'shelp, Tehran agrees to refrain from troublemaking in the Caucuses, andto cooperate with Russia to control the oil and gas export routes fromCentral Asia and the Caspian Sea. This in turn gives Moscow increased leverageover the price of oil, and encourages Communist hard-liners seeking a newcompetition with the United States. In a radical, anti-Western Iran theysee a strategic partner who can increase Russian oil revenues, challengeU.S. interests in the Persian Gulf, and enhance Moscow's image with theGCC states as potential "protector" against radical Islam. Onits side, an increasingly confident Iranian leadership begins to challengethe U.S. more brazenly in the region, both militarily and through subversionof friendly regimes. Once again, the risks of U.S. inaction are high.
So if risk be inherent in any U.S. approach toward Iran, I would arguethat we should shoot higher and seek to encourage democratic change. Byhelping the Iranian people to realize their democratic aspirations, theU.S. would contribute to regional stability and economic development. Conversely,by maintaining the status quo, or by turning back the clock to our pre-sanctionspolicy, the U.S. exposes itself and its allies to continued terrorist attacks,regional instability, and the mid-term threat of a major conventional oreven nuclear conflict.
I believe we need to craft a more comprehensive policy toward Iran,that takes into consideration all of our political, economic, and strategicinterests in the region.
Such a policy, I believe, would start by tightening the existing sanctions.As I argued before the Senate Banking Committee in March 1995, Congresscan give the administration the additional tool of import sanctions aimedat foreign companies that continue to make significant new investmentsin Iran or that sell technology to Iran that is of proliferation concern. I know all the arguments against such a step - and the State Departmenthas opposed import sanctions with rare vigor. But U.S. diplomats have alsoused the threat of sanctions to win important concessions from some ofIran's largest trading partners. It was this type of "power diplomacy,"aided by a strong Congressional stick wielded by Senator Alfonse D'Amato,that compelled Australia's Broken Hill Proprietary Corporation to withdrawfrom a pipeline project from Iran to Pakistan worth close to $4 billion,and the JGC Corporation of Japan to reconsider its participation in severalnatural gas projects. Following the passage of the D'Amato bill in theSenate, Royal Dutch Shell indicated it would not participate in any ofIran's 11 new oil and gas field development projects; and even CFP-Totalhas come into the State Department pledging not to invest in any projectsin Iran beyond its existing commitment on Sirri, which it signed once Conocowas forced to withdraw but before Congress began seriously to considerimport sanctions. I tend to agree with Senator D'Amato when he states thatimport sanctions will force foreign companies to choose between tradingwith Iran, or trading with the United States. Without such measures, yourcompetitors overseas will continue to provide a lifeline to the Tehranregime, thus ensuring the failure of U.S. policy and putting in jeopardylong-term U.S. interests.
The administration also has to address the increasingly thorny issueof Russia's growing influence in Iran, which our current policy does not.The new "strategic" relationship announced jointly by Iran andRussia in December bodes ill for U.S. interests in the region, since Russiahas shown no restraint either in its sales of conventional weaponry toIran, or in its readiness to transfer sensitive nuclear technology. AsI have just suggested, both could easily spin out of control unless morevigorous measures are taken by Washington.
Beyond increased economic and diplomatic pressure, a comprehensive policytoward Iran would include four additional measures that have so far beenabsent from the policy debate:
The administration can take several steps to encourage democrats insideIran. First, the administration should put an end to statements that theU.S. accepts the Islamic Republic as "deeply rooted" and "apermanent feature."  Instead, the U.S. should acknowledge the rightof the Iranian people to choose their own government through democraticmeans - and not through the simulacrum of democracy which current existsin Iran.
In this regard, the March-April 1996 parliamentary elections can notbe considered "democratic" by any yardstick. Iran's Council ofGuardians, which screens potential candidates, banned all opposition candidates,including those close to the regime such as former foreign minister IbrahimYazdi. Even so, in 50 circumscriptions candidates won in the first roundwho displeased the clergy, and found their election "annulled"with no explanation. And only last week, a leading "conservative"cleric in Parliament declared that the authorities would "review thecase of each every one" of its rivals who won Parliamentary seatsin the elections, hinting darkly that if the deputies didn't tow the clerics'line, they might find themselves out of a job - or even worse . Iran'sparliament is still largely dominated by the clergy, who comprise lessthan one-half of one percent of Iran's population. That we still talk of"factions" in Iran is either a remarkable statement about ourown sophistication, or our incredible gullibility. Huge segments of thepopulation have no representation whatsoever.
Statements in support of democracy by U.S. officials, broadcast overthe Farsi-language service of Voice of America and elsewhere, could havea tremendous impact on democratic forces inside Iran, who feel they havebeen forsaken in favor of clandestine operators and intriguers. Until now,the U.S. has preferred dealing arms for hostages or pipelines for influence,instead of using the only currency the we should recognize: free-tradeamong partners in democracy who play by the same rules.
The U.S. should increase Farsi-language broadcasting into Iran, insteadof cutting it back, as the CIA has done. Senator D'Amato has proposed establishinga "Radio Free Iran," modeled on Radio Free Europe, which at verylow cost could have a tremendous impact on domestic politics inside Iran.The U.S. could also explore funding a variety of new technologies for reachingaudiences inside Iran, including satellite television broadcasts and theInternet.
Congress need not foot the bill for all of the measures I believe weshould adopt. U.S. diplomats should hold consultations with U.S. friendsand allies in the region who share our concerns about the Iranian regime.If encouraged by a more active U.S. approach toward the Tehran regime,it is reasonable to expect countries in the Gulf to contribute financiallyto these efforts of public diplomacy. Certainly a less hostile and ideologicalregime in Tehran would be in their interests.
While any democratic alternative to the current regime will obviouslyhave to originate inside Iran, work should also be done on the outside.
You heard yesterday from Dr. Manoucher Gandji, a very able and courageousIranian intellectual who has sacrificed the past ten years of his life,at very great personal risk, to the cause of freedom in Iran. Dr. Gandjiand others have been working to forge a consensus among Iranian exile groupsdedicated to democratic ideals and human rights. This is a vein that shouldbe worked much more actively by the U.S. government and by private individuals.I believe an alternative to the current regime is not far to be found.But it must be actively and responsibly encouraged.
In conclusion, let me reiterate my belief that the current clericalregime, which has murdered its political opponents overseas and slaughteredover 10,000 opponents at home, is not eternal. The longevity of the mullahswho took U.S. diplomats hostage in Tehran in 1979 is largely up to you.President Rafsanjani's record in office since 1989 has shown that eventhe most "moderate" of Iran's clerics is incapable of sheddingthe revolution's radical messianic mission, and could, in the long run,threaten the access of free peoples to Middle Eastern oil. In fact, sucha plan is already under study, if we believe recent public statements byIran's Supreme Leader and government ministers .
If we in the West choose, through legal and open means, to work on behalfof the Iranian people, I believe the results will be repaid one thousandfold. A democratic Iran, respectful of human rights, will be a worthy partnerfor the United States and for the world community, by contributing to regionalstability, economic development, and understanding among this region'sancient and warring tribes.
1. Iran made a last minute, $600 million debt repayment in the lastdays of their fiscal year that ended March 20, 1996 - thanks to risingoil prices - that otherwise would have plunged them into arrears. 2. "Currencyrules cut Iran's exports, official says," Reuters, Nov. 30, 1995 3.See the current issue of The Iran Brief, dated May 6, 1996. 4. Testimonybefore the Senate Banking Committee, March 16, 1995. 5. A step it appearsthe administration took early this year. 6. Comment attributed to Ali MovahhediSavoji, a member of the majority Combatant Clergy Association, by the Tehrandaily Akhbar, April 24, 1996. 7. "Iran Prepares Plans for Oil ExportEmbargo," The Iran Brief, May 6, 1996, quoting Resalat, 3/25/96.