Weighing Benefits and Costs of International

Sanctions on Iran

Thursday, December 6, 2012

Washington, D.C.

Welcome/Moderator:

Bill Luers,

Director,

Iran Project

Moderator:

Thomas R. Pickering

Vice Chairman, Hills & Company

Robert Berls, Jr.

Speakers:

Lieutenant General Gregory S. Newbold (USMC, Ret.)

Bill Reinsch,

President,

National Foreign Trade Council

George Perkovich,

Vice President for Studies,

Carnegie Endowment

Transcript by Federal News Service

Washington, D.C.

[00:00:00] WILLIAM LUERS: Morning, everybody. Thank you for coming this early in the morning.

I’m Bill Luers, I’m director of the Iran Project, and I can’t see a thing because the lights are streaming in my face. (Laughter.) The – I have so many people to thank, and I’ll do it briefly because I want to get to the substance of this morning’s discussion, which is important, I think, to the city and to this country.

First, let me thank the Carnegie Endowment for International Peace for hosting it. The

team here has been exceptionally cooperative and creative about what we’re doing, and I think George Perkovich, Karim Sadjadpour and Jessica Tuchman Mathews have been in-and-out partners of ours for the last 10 to 12 years, and it’s always good to work with them again. By the way, Karim and George’s report that came out just yesterday on diplomatic initiatives with Iran are – is as good a thing as I’ve seen in a long time, and I commend to you; it’s terrific.

I want to thank our Rockefeller Brothers Fund, and Stephen Heintz, who is my partner in

sort of organizing the Iran Project, and they’ve been supporters of ours since the beginning. Ploughshares’ Joe Cirincione’s here, and Joel Rubin has disappeared somewhere, but Joel has been running the –

MR. : Here he is. LUERS: – the incredible Iran Strategy Group, many of whom, I think, are represented –

many of the pieces of that are represented here this morning. They have been a remarkable coalition of NGOs and media people who have pulled together consistently and intelligently a way to think about telling the real story about what needs to be considered in developing policies and legislations toward Iran.

[00:01:57] The – let me talk a bit about the public strategy. The Iran Project began when I was in UNA

USA as a – as a, sort of, background effort to promote relations between Iran and the United States, and it was not seen as any – and we were rarely – very rarely were public in our approach. Over the last year, we have decided that it’s important to put out, at least, our thinking about the relationship and what has to be considered in examining in depth what we can and what we cannot do in our relations with Iran. Tom and I and Jim Walsh have written a great deal over the last year on this – and then in the – in the spring, we decided that maybe we would take a slightly different approach and do a series of studies on some of the key issues that are facing the United States in relation to Iran, and we did the paper, which I think some of you are familiar with – copies of which are outside – on the benefits and costs of relations – of military action against Iran.

And, I think, thanks to many of you, it received quite positive reaction. This paper is – deals

with this other problematic aspect in which we’re locked into with sanctions on Iran. I won’t get into the substance of it, but the process has been interesting, because typically, Tom and I discuss the paper, then I write a first draft, and then, look out; everybody has a thought about it. And it’s not that they’re undermining it or conflicting it or making it a committee work; it’s, they’re enriching it, making it more balanced, and the beauty of taking the nonadvocacy approach we’ve taken is that

we can get a large coalition of people who will keep it neutral, keep it flat, keep it balanced, keep it fact-based and eliminate, as much as possible, speculation.

And that’s been the process that we’ve gone through over the last three months – and four

months with this. And let me say that, in the process, Iris Bieri, who is my partner in this whole venture, and Priscilla Lewis, who has been our editor who now, increasingly a drafter – the three of us have worked hard to try to integrate the thinking of so many people, and I’d say half of the people who signed this paper had very substantive comments on how to improve it or how to make it more balanced.

[00:04:52] Let me mention Ken Katzman, who’s here, who is authentically the most authoritative

person in this city on sanctions against Iran, and I’ve called him many times. Joel introduced me to him, and he’s been a tremendous source of – making sure we get it accurate, and that’s what we want to do. So if there’s any problem, don’t blame him, but blame me for not hearing him correctly, I think is probably – that’s, I guess, all I want to say about our group today.

Tom has been, as you all know, a very key player in these issues over decades, and he’s

assembled a group, which he’ll introduce to you. One editorial comment: as many of you know, every time I get involved with writing something, I like to quote American presidents. And I found a particularly appropriate quote, which leads the book itself, which is, Teddy Roosevelt, who said, “nine-tenths of wisdom is being wise in time.” And that’s, sort of, the theme of this whole exercise. Thank you very much.

Tom? THOMAS PICKERING: Bill, thank you very much, and again, let me reiterate your warm

welcome. Bill said I should do all the things in my opening remarks which Bill has just done – (laughter) – which makes my job very, very easy. I would just make a few quick reflections. One is that these papers represent a somewhat unique approach in Washington, that we tried as much as we could to avoid recommendations, particularly on the first paper, which was, essentially, controversial in its own right. But sanctions are a very important part of not just what is to come, but what’s in being, and that difference, I think, makes this a somewhat different paper. As you read it, I think you will see a section in there that talks about how and in what way we believe, after our study of sanctions, the U.S. government could either watch out or take advantage, and I think that that is important.

[00:07:07] In a minute or two, I’ll go over, briefly, the paper itself. I’m not going to spend a lot of time

introducing, because you have succinct biographies here, except to say maybe a sentence or two about each of the individuals who are on the platform who I had the pleasure of knowing and working with in various guises. George Perkovich, on your left and on my right, is obviously a pillar of the Carnegie Endowment, a Mr. Nuclear and a Mr. Iran here in town in every sense of the word, and George will talk about that.

Greg Newbold, to my right as you face me, is a Marine – you never say an ex-Marine –

(laughter) – maybe you can say a former Marine, but for Greg, I don’t. I had the great pleasure of working with Greg in the Situation Room for three and a half years, but Greg distinguished himself as perhaps few military have when, in a sense, he ended his career because of his deep feelings over mistakes made in the U.S. government, and to me, that’s a medal of honor, Greg, in many sense of the word.

Bill Reinsch is also, I think, a key expert on sanctions and trade, and Bill was undersecretary

of commerce when I was in State, and I can remember Bill as a formidable negotiator. (Laughter.) And Bill, in many ways, kept me from making serious and stupid mistakes, for which I am very grateful, and occasionally I even moved him a millimeter or two in my direction. (Laughter.) In any event, they bring an expertise that’s unparalleled.

[00:08:48] I will only say that the second thing is, reach under your seat, if you haven’t, and follow

along, as they say in the airplanes – the stewardess – with the explanations that are coming forward. I would only just do one more thing and point out that the layout of this report is there before you. My feeling is that others will mention the various costs and benefits; it’s important, when you read the full report – and I hope you do – because it is much richer, and I think, much more informative that you look at a number of sections of the report, which I think otherwise are not advertised in the title. The one is essentially thoughts and ideas to U.S. government decision-making people on sanctions.

Secondly, a premier thought in the report is that the sanctions regime – now 30 years old – is

so complex and so multidirected that anybody who believes that it will be simple, in effect, to use sanctions as negotiating leverage by offering to take them off in connection with “quid pro quos” in a negotiating process has really got to carefully read the primer, which is at the back of the book that you have – the longer book – if you don’t, it’s outside – as well as a very helpful chart, which, in a sense, gives you a snapshot of all the sanctions, what their requirements are and what the requirements and process is for lifting the sanctions. Those are significant, and I think, important elements.

Finally, a final word about the primer. The primer is designed to take you through, in some

detail, the sanctions question. We found – both with respect to the galloping military debate at the beginning of the year that it was more informed by ignorance and by analysis based on gut feel than facts – that we felt our first contribution ought to be a factually-based presentation. The second question is, maybe there isn’t yet enough debate on sanctions, and how and in what way they play a role, both positive and negative.

[00:11:15] So this report is different in the sense it takes an ongoing regime in place and seeks to find a

way to inform those who have ideas about it but are not expert and give them a deep sense of both the complexities of the advantages and the disadvantages, and the report seeks to eschew advocating and even making recommendations in any specific sense, because we have found that this new style report in Washington, with the addition of distinguished signers, is a much more seriously looked-at affair than many of the advocacy pieces that, in a sense, clutter the scene.

So let me end with those few remarks and now turn to George to talk to us, essentially, about the critical background of the major but not exclusive issue in U.S.-Iran relations, which in many, many ways, has helped to push forward the sanctions regime and those who have been engaged in it.

George. [00:12:24] GEORGE PERKOVICH: Thanks, Ambassador Pickering, and congratulations to you –

especially Bill Luers and the whole team. I think this really is an outstanding piece of work. Let me just, very briefly, try to frame some ways of thinking about the nuclear issue and then close by tying it back to the report and the relation of the sanctions dynamic to the nuclear issue.

And I think one place to start is to try to go back and look at President Obama’s press

conference – what – November 14th, because I think, in response to a question on Iran, he actually set out there more succinctly and clearly the framework for approaching the Iranian nuclear deal, and I won’t be able to say it as well as he did, but its essence was that the aim of the negotiations on the nuclear deal, which – you know, everybody rightly acknowledges is kind of at the center of the – of the crisis with Iran – the aim there is to enable Iran to go forward with a purely peaceful nuclear program while building international confidence that that program won’t result in nuclear weapons in Iran. And I think – it’s been said before; I don’t think it’d had been said as clearly and forcefully as the president said it then, but it has to be repeated over and over. Now, within that framework, the focus for the last 10 years has been on the question of enrichment primarily. A little bit on plutonium, and that may pick up, but primarily on Iran’s potential – or its acquisition of materials that are central to producing, potentially, nuclear weapons.

And the focus has been trying to get Iran to suspend that activity, to suspend enrichment.

There’s a debate – some in the Hill say they should have zero capability at the – at the end of the process as well as suspending now. I think it’s well-understood that, in fact, if there is going to be a negotiated outcome, that outcome will include ongoing enrichment in Iran. One of the issues that is, I think, less well-understood and more debated is whether that point should be conceded up front and articulated up front, and there, I think – you know, my own view, and it seems to be what the administration’s doing is that you wouldn’t concede that up front, but that you want to, in conversation with the Iranian counterparts, acknowledge that you understand, if there is a solution, that has to be part of it.

But if you conceded it up front, the rest of the world would then take that as a precedent,

and you may not get an agreement with Iran. So you’ve basically caused harm without contributing to a solution – whereas if it comes out of a process where there’s a final agreement, then whatever precedent you might have set would be worth it because you’ve ended the Iranian crisis. So enrichment will have to be part of the solution, but there’s a tactical question about how you say that.

[00:15:36] But I think the point that has been less focused on – and it’s the other half of the president’s

equation – is how do you define the parameters of Iran’s nuclear activities such that they don’t

proceed towards nuclear weapons and the world has some confidence that that’s the case – because the Non-Proliferation Treaty actually doesn’t define a nuclear weapon, and nowhere is nuclear weaponization defined.

So Iran has been doing things that lots of people, including the IAEA, say, well, that sounds

like a duck, it flaps its wings like a duck, but we can’t quite say it’s a duck. And the Iranians say, well, whatever it is, it’s not illegal. And so this is a problem. So I think the diplomacy will have to reach some very specific definitions of activities that Iran will not undertake because its program is purely peaceful and it doesn’t have a military dimension.

[00:16:33] So all of that’s part of an overall framework. But let me – let me close, then, on the

sanctions relevance to it. And I think here I really would commend the whole – the whole paper to people. And the part – I’m going to actually do something I never do: I’m going to read some passages. You know – or I shouldn’t say I don’t go to church in this town – but I mean – but I don’t – (laughter) – I don’t read scripture, but I – but this is actually, I think, very good. And it – and it’s on page 29. But I – just two passages.

The authors say, “We estimate that the imposition of escalating sanctions has a greater

chance of contributing to progress toward limited but important objectives, such as motivating Iran to agree to work toward a comprehensive resolution of the nuclear issue, than it does to contributing to the achievement of sweeping objectives like Iran’s capitulation to the broader set of U.S. demands of regime change in the Islamic Republic of Iran.” And so I think that’s a very important concept, number one.

Second point they make, which – I think it’s operationally vital – is that “while the pain of

recent sanctions may well help Iran to the negotiating table, it is not clear that these sanctions alone will result in agreements or changes in Iranian policies, much less in changes in Iran’s leadership. If Iran were to signal a willingness to modify its nuclear program and to cooperate in verifying those modifications, for example, Iranian negotiators would expect the U.S. and its allies in turn to offer a plan for easing some of the sanctions. Absent a calibrated, positive response from the West, Iran’s leaders would have little incentive to move forward with negotiations. Inflexibly imposed escalating sanctions begin to lose their value as leverage to elicit changes in Iranian policies, including on nuclear issues.” And I think this is a strategic challenge with sanctions, much like it is with deterrence and other forms of power, is at what point do you modulate it and turn it off? And so I commend the paper to you because it really deftly explores those issues.

[00:18:47] PICKERING: Thanks, George, particularly for two things: first, giving us biblical cachet –

(laughter) – and secondly, for advertising our next paper, which is designed to try to address the conundrum that you so brilliantly and helpfully quoted. So thank you very much. Our next paper will attempt to look at negotiations and how they fit.

Greg.

LIEUTENANT GENERAL GREGORY NEWBOLD (RET.): Thanks, Tom. Thanks to the team that put together this effort and this report.

[00:19:17] It may seem odd to have a military representative on a panel on sanctions, whose most

obvious effects are economic – and economic designed to avoid military action. But I think there are a couple of points worth making that may lead to questions later. The first one is that a principal effort of the sanctions is to retard the military capability of the Iranians. And while it may be debatable whether or not the general sanctions have achieved their objectives, I don’t think it is similarly debatable that they have had an effect on the Iranian military by limiting the modernization of that force.

The Iranians have both conventional and asymmetric capabilities, and their asymmetric

capabilities are daunting and have to be considered very soberly and seriously. But on the conventional side of the equation, the Iranians have lost decades in modernization through restrictions on the equipment, on the parts and other things that may give them military capability. They have developed an organic capability to produce ballistic missiles, with some outside help, with cruise missiles. And they certainly have an ability to interdict safe traffic through the Persian Gulf on the sea.

But it has been decades that they have been limited on the – in their ground forces, on their

tactical aircraft and also on their air defense. And in the last recourse of our strategy, if military action is necessary, then I think the sanctions have had a telling effect. They’ve also limited the conventional Iranian ability to threaten others in their region.

The second point is this: that no effort to change Iranian behavior – no element of our

strategy can stand alone. It’s only by a synchronized and sophisticated integration of the economic, political, informational, diplomatic and military that you’ll achieve the greatest effect. And the military component has to be considered and weighed as each element of those – of that strategy is developed.

[00:22:15] In that vein, my next point is that retired senior military officers have contributed to this

effort and the Iran project for some time. They take this very seriously. And you can see some of the signatories of both papers. But my personal is – experience is that a much broader array of military officers – senior retired military officers have great concern about this issue and are supporting the effort very strongly – because as one astute observer said, there’s a military, and there are militarists, and the two are seldom the same. Those with the most exposure to direct combat are those most troubled by it. It is certainly the duty of the armed forces to prepare and ensure an overwhelming success if military force is used, but it ought to be done very soberly. And my experience is that military representatives on this project feel very strongly about this point.

So with those remarks, Tom, I’d like to save the rest for – [00:23:37]

PICKERING: Great. Thank you, Greg, very much. Bill? WILLIAM A. REINSCH: Thank you very much. And thank you to Ambassador Luers for

allowing me participate. It’s a real honor for us trade types to be pulled into a – (laughter) – discussion that is generally a larger foreign policy one, although in this case, since the economics of sanctions are very much a piece of it, I’m happy to be involved and to commend the paper to you. I think it’s an extraordinary piece of work in terms of not only the breadth of the survey of the topic that they’ve done but also the depth and the extent to which the authors have really looked into the sanctions, the way they work and what the impact is. And so I hope all of you will get beyond the summary and take a look at the rest of it.

[00:24:22] I’m going to say a few words about the economics of it. And I’ve sort of been asked to say,

are they having an impact? And I guess the answer to that depends a little bit on what you mean by impact or effective. If the question is are they having an impact, I think the answer is yes. And I think Greg just made a – had an excellent description of the impact on the military side. If the question is are they effective in achieving their policy objectives, I would probably say not yet, although that depends a little bit on what you define as their policy objectives.

And I think one of the areas where the paper is particularly good is talking about the

multiplicity of those objectives and the political reality in this country that a lot of – particularly in Congress – that a lot of the forces that converged to support the various sanctions elements did so with different policy objectives in mind, ranging from, you know, retarding their development of nuclear capability to bringing them to the negotiating table to regime change, in the minds of some. Those are widely disparate goals, and it’s – depending on which one you pick, you can draw some conclusions about whether the sanctions have been effective or not. I would say, for most of them, the answer is that they are not yet – they have not yet achieved those objectives.

At the same time, I would say – as someone who runs an organization called USA Engage,

which is the organization that was founded 15 years ago to oppose unilateral sanctions – and we always oppose these things on the grounds that they don’t work – in this particular – and I can get into that later if you want – but in this particular case, they’ve worked, if you will, better most. But the reason is because I think this administration has done an exceptionally good job of multilateralizing them.

Sanctions are at their worst when they’re unilateral. And in a global supply-chain world,

where in essence everything is made everywhere, to have one country say, we’re going to deny the adversary X or Y or Z, has virtually no impact. Now, if you’ve got 40 countries or 50 countries or if you got a U.N. resolution saying, this is what everybody is supposed to do – I mean, there are always outliers, and there are always smugglers and people who cheat. But to the extent you can multilateralize, then you have increased dramatically the chances of having an impact.

[00:26:47]

And in this particular case, I think this – the Obama administration has done a very good job of bringing in not only the usual suspects, our NATO allies and other Europeans, but also – with a great deal of difficulty and with, sometimes, kicking and screaming – the Chinese and the Russians, which is really what makes the difference. To the extent that they can continue to do that, I think the likelihood of these things having an impact is increased.

Now, what have the effects been? You can divide that, for me, into two parts: effects on

the Iranians, effects on the Americans. On the Iranians, I think there’s no question that this has produced significant economic damage in Iran, although it’s hard to quantify that because it really is impossible to disaggregate the effect of sanctions from the effect of bad economic policy and bad management – economic management in Iran, as well as exogenous factors like the world price of oil, which moves according to a whole bunch of variables, only one of which is what’s going on in Iran, and that’s by far not the most important. To the extent that price is, you know, lower than it has been in the past, that creates budget issues for a lot of countries in the region but particularly for Iran.

[00:28:08] That said, I think the sanctions have clearly made it more difficult for the Iranian economy

to function. They have contributed to inflation. They’ve contributed to, you know, shortages. And to the extent that they have had, you know, more specific damage – they have probably, as the paper comments, facilitated the aggregation of power in the Revolutionary Guard in particular, because they’ve been able to engage in – be able to expand their control of elements in the economy – and particularly smuggling of material into the country, which has increased their own wealth and power at the expense of other parties.

And they’ve also created – the sanctions, that is – a bit of a humanitarian crisis in Iran. I

think you’ve probably seen recent articles about, you know, medicine that can’t get there and other things of which there’s shortages, which there probably shouldn’t be because of humanitarian exception – humanitarian exceptions in the sanctions. I’ll explain about that in a minute. But they – there clearly have been problems there.

There have also been – there’s also been this odd problem of Congress sending, I think,

conflicting signals on social media technology and ICT technology where it has simultaneously told the purveyors of this technology, you cannot sell this stuff to the government because they’ll use it to control the population and censor the Internet and use it to track people down. But you – we want you to sell it to the dissidents so they can communicate more effectively amongst themselves – missing the point that it’s the same technology and that it’s very difficult to – (laughter) – you know, make the distinction that Congress wants them to make. The State – the State Department hasn’t helped by saying that you can get around the sanctions if you give it to them for free – (laughter) – which is a noble gesture – (laughter) – but not an economic one from the standpoint of companies that, after all, are in business.

[00:30:03] On the American side, I would just say that if you examine the sanctions in their totality over

the last 30 years, clearly, there’s a significant lost opportunity cost in the abstract. It’s a big market; you know, it’s up there with Egypt as one of the two biggest markets in the region. To forego that

market is a significant lost opportunity cost. That, however, was lost a long time ago. And in reality, you know, American companies have not doing – not been doing – except on the Mediterranean side – much business with Iran for the last 15 years anyway. So the incremental factor of the new sanctions over the last five years for American companies has not been that significant.

To the extent it has been significant, it’s been to push them in the direction that they were

moving in anyway, which was to detach – get their subsidiary – their foreign subsidiaries, or their foreign affiliates, out of the same business. That takes time, and – because there are contracts and things like that. And also, it has – it creates the extraterritorial problem of country – of subsidiaries that are following the law in the country in which they’re incorporated, but perhaps not U.S. law. And it puts the parent in the impossible position, ultimately, of – no matter what it does, it’s violating somebody’s law. The companies by and large, I think, have been fairly deft in extracting themselves from those situations. It’s just taking them longer, I think, certainly than Congress would like.

[00:31:31] Where there has been an impact, as I said, that’s been clearly complicated for American

companies has been on the humanitarian side. All the sanctions that have passed Congress have what’s called – what we refer to as the ag/med exception, that it’s all right to sell agricultural items or humanitarian items. And there are these sort of peripheral arguments about, for example, is tobacco an agricultural item and things like that, but that’s not central.

PERKOVICH: But it is humanitarian. (Laughter.) PICKERMAN: It may also be medical. (Laughter.) REINSCH: What has happened, I think, illustrates the downside of the evolution toward

what the government has called smart sanctions. This is something that we welcomed when the Bush administration turned to it, turning to financial sanctions and sanctions that were targeted at the individuals that were deemed to be the troublemakers, if you will.

And our view initially was, that’s good, because that zeros in on the guilty rather than taking

some blanket action that will have – that will harm the larger Iranian population and actually undercut some of your larger political objectives, as the paper explains.

Over time, our thinking – our thinking has evolved, because we’ve seen that what has

happened has been that the focus of individual sanctions on finance and financing has created essentially a “give with one hand and take it away with the other hand” problem on the humanitarian side. It is not that hard to get a license to sell agricultural goods or medical equipment to Iran. It is now virtually impossible to consummate those transactions from a financial point of view. You cannot find a bank that will extend credit. You cannot find a bank that will finance it. You cannot find a bank that will – that will – that will have anything to do with any of these transactions, notwithstanding the fact that you have a license.

[00:33:29]

The government’s view over two administrations has to essentially been give lip service to the humanitarian problem, grant the licenses, but then send the Treasury Department all over the world to talk to banks and tell them to not get into this business. And then when it points out when – it’s pointed out to them that there’s a contradiction here, their response is, well, that’s collateral damage. Well, it is collateral damage. It – and the collateral damage is visited on the Iranian people who can’t get the drugs and medical equipment that they want. That is probably, I think, the most significant current effect and the conundrum that the administration has. I think the recent series of stories about the effects of this in Iran is prompting them to take a second look at perhaps a better way to put some meaning behind the idea of an ag/med exception.

Finally, I would just echo the point that I think Tom made earlier, that one of the other

things that the report does very usefully is talk about the utility – kind of – of being able to calibrate sanctions. If you’re going to impose these things, and if the purpose of imposing them is to persuade the adversary government to change its behavior, you do have to, at some point, deal with the question of what do we do if they do change their behavior? Or what do we do if they begin to change their behavior? Are we able to fall back or to ease or to revise some of the sanctions in ways that will encourage, you know, further better behavior on their part? Or are we locked into a – you know, a pattern of behavior that says, no matter what the Iranians do, we’re not going to change our policy?

[00:35: 15] In that respect, I think one of the sad things that has happened over – particularly over the

last 10 years – has been the tendency of Congress to move its way into these things and in effect to codify – as most of the recent – the several recent bills have done – to codify the actions that the president has taken by executive order in the past. What that has done is add the element of concrete, if you will, to the sanctions.

Now, I’m always reminded, in that, of one of my favorite examples from a very long time

ago, the Uganda example: When Idi Amin was raiding Uganda, Congress in its wisdom decided to embargo Ugandan coffee, which was a widely supported action at the time as a sanction on this evil dictator.

[00:36:00] Well, Amin was – Amin was deposed, a different government came in, and it still took

Congress two years after that to repeal the embargo on Ugandan coffee. So at the very moment when we could have been helping the Ugandan government and helping them restore some economic growth, we still had statutory sanctions in place because Congress could not get itself organized to repeal them.

One of the things that worries me most about the current situation in Iran is if there is

diplomatic progress, if there is some kind of breakthrough, the president is not really going to be in a position, except through some waivers that are increasingly limited, to respond in any positive way to the Iranians. He’s going to have to go back to Congress, and there again he’s going to have to deal with the multiplicity of members of Congress, many of whom have very different objectives over the purpose of the sanctions. And he may find it much more difficult either to modify or to repeal than he might think. With that I’ll turn it over to Tom.

[00:36:59] PICKERING: (Inaudible) – thanks. Thank you and Greg and George for excellent

coverage. We’re about halfway through our time, and I think it’s very important for us to split our

time. You have to listen to use for half an hour; we’re delighted to listen to you and focus on your questions for the next half an hour. So I’m going to open the floor right away to those who would like to ask questions, and I’ll try to recognize you as you go along.

Why don’t I go ahead right here, sir. Would you please identify yourself, and make your

questions as concise as possible. Thank you. Q: Good morning. Thank you for your presentations. My name is Warad Iqbal (ph),

previously at the University of Baltimore Center for International Comparative Law, now with – (inaudible) – Technologies, LLC.

The question I have is against the backdrop of recent public reports coming out of both

Russia, Germany, England and the United States that will render the United States, by the year 2017, as a major gas producer, natural gas producer, and by 2020 as the world’s largest oil producer, oil being as important revenue as it is for Iran. Why could the present developments with regard to nuclear development not be understood in the context of a diversification of the economic model, rather than just military facility or capabilities? And in that regard, if these forecasts are correct, why would that not render economic sanctions against Iraq – against Iran, rather – not very effective? It’s like going with a 55 millimeter howitzer after a sparrow.

[00:38:42] PICKERING: Well, it’s an interesting set of questions. Let me just try to address what I

see as two pieces of that. One of those pieces is, is U.S. self-sufficiency in effect going to relieve the burden of imports, maybe marginalize or successively influence the importance of Middle East oil, and therefore, why worry? Things will take care of themselves in terms of the pressure.

I think there are two pieces: One is, we’re in a global economy, and all the world is not

going to be self-sufficient. Middle East oil will still make a major contribution, but diversification to Africa and to many other areas of the world, I think, is helping.

I think secondly, the influence on price is to be – devoutly to be hoped for. And I think it

would be very useful. That, in the long run, is going to have its own effect on places like Russia and Iran that I think are not negligible. The third point is that if all of this really had to do only with hydrocarbons, we’d be home free. We’d have no issue of significance other than cleaning up all the messes of the past with Iran, of which there are many, but they’re not as salient in the minds of people in this country or in Europe or elsewhere, even in Russia and China, as the potential for an Iranian nuclear weapon, which is what we’re worried about.

And so if, in effect, we were to relax and enjoy hydrocarbon prosperity, we would still have the nuclear problem. If your final point is maybe we should make energy out of nuclear, I have no objections as long as we can find ways to do safely.

[00:40:17] George, I thought, raised an interesting point in his discussion of why it was significant to

bound or understand the Iranian program for the future. And one of the points that I think is important here – if we can reach a deal with Iran that in fact bounds enrichment for the future, we will have begun to plug a loophole in the Non-Proliferation Treaty which permits countries to engage in sensitive activities, reprocessing of plutonium from spent fuel and the production of uranium without limitation as to the level of enrichment but conceivably because it has a relationship to civil programs.

A new Iranian deal might create a cap. Even more importantly, in my view, would be to

think about for the long-term future – and this is a little bit of an excursion from your program – why not internationalize enrichment generally? Why not make that the global gold standard? Why not in fact begin with the P-5, who, after all, should have no reason in selling off at least pieces of their enrichment program through sales and equity and other kind of arrangements toward internationalization, with the transparency that that would produce for the boards of directors? And then why not use that as one of the ways in which to bound the Iranian model? So if you want to go ahead in the future, the only way you can go ahead is a more transparent, more limited, more internationalized method of enriching, and compete on the world market that way.

Those are all my comments and I’m sorry to be so long and boring. (Laughter.) [00:42:13] MR. : Thank you – (inaudible.) PICKERING: Barbara. Q: Thank you. Barbara Slavin from the Atlantic Council and Al-Monitor.com. Thank you for this report, which I look forward to reading. Perhaps for Bill Reinsch – can

you say what, if anything, the Obama administration could do if there is a sign of progress with Iran if talks resume? What is on the table, or is the United States going to be put in the embarrassing situation of having to ask the Europeans to put all the goodies up front, if Iran actually does begin to negotiate seriously?

REINSCH: That’s a very good question. And probably the first thing they would do is

exactly what you said, which is ask the Europeans. (Laughter.) And there’s a lot of – there would be a lot of logic in doing that, even aside from any constraints that the administration is operating under.

[00:43:03]

The way the sanctions work, I think, these days – to the extent the president has flexibility, it’s in – it’s in the – in the waiver process, or it – I shouldn’t say necessarily in the explicit waiver process. It’s a – most of these sanctions follow a general formula in which the exact – the order of the statute says, here’s a set of bad things, of bad behavior; and the first thing the president has to do is determine whether somebody has engaged in that bad behavior, however that bad behavior is defined. And a lot of the debate in Congress has been over expanding the range of what that bad behavior is, you know, from, you know, directly supplying them with things we don’t want them to have to, you know, helping their oil industry and then getting into shipping insurance. It gets – you know, larger and larger like this.

But in the initial circumstance, the president at the end of the day still has to determine – or

I mean, not the – you know, somebody in the administration has to determine that somebody, somewhere has done a bad thing. If that judgment is made, then a bunch of wheels start turning and that lead either to sanctions or to a waiver. One of the things that President Clinton realized after he did this once and then waived – in the Petronas and several other ENI, I guess it was, case – was that, you know, if he never concluded that anybody had done anything bad, he never had to address the problem that –

[00:44:33] PICKERING: Waiver. (Laughs.) REINSCH: – that you’re raising. That then produced – and I used to get this question

periodically even when I was in the government – said – people would come in and say, well, there’s all these bad things happening, and why aren’t you doing anything about them? And the answer that came from Tom’s former agency was, well, we’re investigating. (Scattered laughter.)

Well, Clinton managed to run out his term and over, you know, five years of investigations

never found anybody guilty. And Bush spent eight more years investigating and never found anybody guilty either. That prompted Congress to take some further actions to try to hem that in. But it isn’t entirely hemmed in. The president can simply stop making, you know, findings at a certain level, or he can provide waivers. That really isn’t all that helpful, because I think what the Iranians would look for in the scenario that you described is some public backing-off, you know, some visible statement or some visible action by the United States that they could interpret as reciprocating something that they have done. And under the sanctions, that would be very difficult because what I’m talking about is sort of things that you don’t do and things that you don’t talk about. And that’s not going to meet, I think, the Iranians’ criteria for something that is an adequate response. So we’re back to Europe.

[00:45:47] MR. : Why don’t you follow up? (Laughter.) MR : (Inaudible) – authority – MR. : Yeah, by all means. MR. : (Off mic.)

MR. : Sure. MR. : You don’t want to comment? Q: Well, I mean, I completely agree. It’s – I completely agree, it’s the designation authority.

But under a lot of the executive orders, the president can at some point determine that an entity he’s designated as a violator under the executive order, he can then determine they’re no longer violating. So there is that authority. But in general, I agree with that answer.

PICKERING: Yeah, I – and I think that, just to add, the report raises the potential that if

the Congress dislikes what the president is doing in sufficient strength, and that’s a pretty tough margin at the present time, they could seek to bound him through further – through further legislation, if it’s – if it’s veto-proof, but that’s a pretty high bar. On the other hand, there’s a great deal of rampant unpopularity in Iran on the Hill that may be exploitable.

[00:46:51] Another question? I’m going to take the lady way in the back there – or far enough in the

back to be way in the back. Q: OK. Thanks. PICKERING: (Laughs.) (Thank you. ?) Q: Hi. I’m Sophie Brill, with the Truman National Security Project. I guess the question is

– that I have is one of the most striking things about these laws is that they’re not – for the most part, at least in recent history – they’re not sanctions on people in the U.S. who do business with Iran; they’re people – third parties who do business with Iran. And I think that maybe something most people don’t realize, you know, is the fact that it’s absolutely illegal – or I think almost a hundred percent – to do business with Iran from inside the U.S. And so when you talk about these sanctions, they’re really on other people doing business with Iran.

And I guess what I’m wondering is, do you think that most people who are talking about

this in Congress know that, and how important do you think it is that they do know that? [00:47:45] PICKERING: Bill, I’m going to turn to you, as our expert on the Congress. REINSCH: Well, I confess I – well, I’m – I got tired of going up there – (laughter) – saying

– you know, this is about extraterritorial law, that – you know, I got tired of going up there and saying, if you do this, it’s going to be just like the Soviet natural gas pipeline crisis we had in 1982. And they all – all the staff looks at me and, you know, we realize they weren’t born in 1982 – (laughter) – or if they were born in 1982, they were in kindergarten. (Laughter.) And they have no idea what I’m talking about.

And I think at the staff level, the answer to your question is very likely no, they haven’t really thought about – they certainly haven’t thought about the implications of extraterritoriality and the real conundrums that that – that that cause. If you parse it through that with them, it’s clear that they’ve thought about it because – and if you talked to some of the congressmen and senators that are the authors of these things – you know, Senator Menendez for example, and – or Senator Kirk on the Senate side – I think they have a very good understanding of it, that – and they are going – they have – they continue to draft these things precisely to plug the loopholes that they’ve identified and to go after, you know, the people that they think are getting away with it, which increasingly are exactly what you said – you said foreigners.

[00:49:09] I mean, there is – one of the ironies – and every year some reporter, probably somebody in

this room, does a story on the several hundred millions dollars of trade that actually we have with Iran from year to year. And I don’t know what happened last year, but lately it’s been – did it go down last year, Barbara? It used to go up. And it’s all – it’s all – (inaudible) – you know? And it’s all right. That’s going to continue to go down, for the reasons I explained. But, you know, it is out there, so it’s not – you know, it’s not zero. But you’re right: The main victims now are residents of other countries. And it’s gone beyond even the old-style extraterritoriality of, you know, U.S. subs in Europe, which is what the pipeline crisis was about. It’s really now about the Chinese and the Russians and the Japanese more than anybody else.

MR. : Tell them your Boeing story. REINSCH: Oh. (Laughs.) One of the things that we’ve done – and this is an example of, I

think, staff ignorance and poor drafting – is we do end up spending a lot of time talking about collateral damage in these areas and then how they’ve had some success over the years in trying to eliminate it. And my favorite story, and this is not the only one, is when the House passed its version of CISADA – not – which then did not become the final version. We had the pleasure of going up to the Hill and saying, do you realize that what you’ve done would prevent Boeing from selling airplanes to Japan and would also force American oil companies to drop out of oil exploration consortia in the Caribbean and offshore Brazil, among other places? And they said, well, that’s not what we meant. (Laughter.) And I said, OK, I take that – but that’s what you’ve done, you know? Fix it.

[00:51:03] And typically, I’m – I confess, I spent 20 years up there; 17 of them in the Senate – in the

Senate. Typically, the House’s response to that is, well, we’ll let the Senate fix it. (Laughter.) The Senate – the Senate was not amused.

There is a lot of – people don’t think these things through. And I can tell you invariably –

and I learned this when I was in the government, and I learned this in the private sector, now representing the companies that get caught by this – six months after one of these things passes, somebody always calls me up and says, do you realize what a disaster this is for my business? And the answer is: No, you know, we don’t. Where were you six months ago, you know, when you might have been able to have an impact? Companies read these things slowly. They don’t figure them out until very late in the game. But invariably, every time one of these passes, they end up

wiping out some unintended company that nobody intended to wipe out. And, you know, let’s do this again in, you know, March, and I will be able to give you some new examples, I have no doubt.

PICKERING: Let me just make a point. When – Bill, I’m delighted you do this – I used to

and continue to work for Boeing; it has nothing to do with this. But Boeing was not asleep at the switch.

[00:52:20] But the second point is – I think it’s more important – REISCH: No – (inaudible). PICKERING: – that unintended consequences are often, in terms of the way the Congress

looks at this, part of disagreed objectives. And the report makes very clear there are multiple objectives, and they complicate lifting sanctions. But one of the multiple objectives is certainly the latent and then sometimes a direct interest in regime change. And therefore, almost any unintended consequence that affects negatively Iran is acceptable.

It is also, as has been pointed out here, an effort to continue to fence the president with

respect to flexibility of application. But it has a subsequent problem that is very serious, the – fencing the president on the possibility of unapplication or disapplication. And I think those points are made clear in the report, but I just wanted to bring them home to you.

REISCH: Well, I agree completely. That’s well said. PICKERING: Question. Yes, please? Down here. Q: I’m Guita Mirsaeedi, with the Voice of America. I have a question, (I believe ?), for the

lieutenant-general. You spoke about the military and how they feel; you said they feel very strongly about this. Do you mean the – that Iran should not produce nuclear – you know, have the nuclear capability or that, if it comes to it, that they should take military action? And is there a plan already under way? Is something like this being considered – (laughter) – right now?

PICKERING: I’m glad you haven’t forgotten Greg. (Laughter.) MR. : He might not want that question, though. (Laughter.) [00:53:59] GEN. NEWBOLD: Well, there is a plan, and let me explain it in detail. (Laughter.) I’ll

address that as best I can. But let me explain the general view of the senior members of the military. Number one. Clearly, along with virtually everybody else, they are concerned about what

may happen with a nuclear-armed Iran. But they defer those issues to the policymakers; they believe that is the realm of the elected officials. But long experience leads the senior military officers to view with concern people who rely too quickly on a military option without a full appreciation for consequences. And frankly, there is a great deal of concern on this individual matter that has

become an emotional, almost personal issue with the members of the political class and, that without an informed understanding of consequences of military action, they may pay a price that is disproportionate to what we were trying to achieve.

[00:55:37] Frankly, the – in my own experience, in Iraq there was an underappreciation of

consequences there. The people I deal with – and believe me, I deal with a lot of both active and retired senior military officers – would like to ensure that if called upon, the U.S. military would act very efficiently and effectively. But they want that to be the last resort and they want policymakers, decision makers to understand that it may have consequences beyond the intended.

Is there a plan? It sounds a little bit casual, but frankly there’s a plan for virtually everything.

So I don’t want to say that there’s a plan and give an exaggerated opinion of how hard people are working on that. There’s a plan for virtually every contingency, and this is no exception.

PICKERING: I’ll take two more. And one of those is Treeta (sp) and then I have a

gentleman in the back who’s been raising his hand in the last row. Make sure you’re recognized after Treeta (sp) and after we answer his question.

Q: Thank you. Thank you so much. I think this is a tremendously helpful and valuable

conversation. I think – I want to put a finger on something very important. In the last two rounds, we’ve seen that the administration has not been particularly successful in dealing with Congress when it comes to sanctions – a hundred to zero vote in December of last year, 94 to zero vote just last week.

REINSCH: It’s getting better, Treeta (sp), only – (inaudible). Q: It’s getting better, exactly, exactly. (Laughter.) And I think one thing to keep in mind

when it comes to the signaling – the psychological signaling for negotiations, is to signal the ability to actually move when movement is necessary. If it was a situation in which the administration didn’t want to lift sanctions, then one could say that perhaps this doesn’t matter, it’s actually a signal of strength. But it’s a situation in which it wants to but cannot. And that’s a signal of weakness.

[00:57:51] Now Barbara (sp) pointed out that perhaps it’s better to go with the European sanctions

first. The question I have is, even if the Europeans were to lift oil sanctions, can there still be any transactions made, mindful of the fact that the American financial sanctions is what, at the end of the day, is preventing sales from happening.

PICKERING: Bill? REINSCH: Well, I think the answer to that would be, yes, eventually, but it would take

some significant effort by the United States government to unravel or unwind what they have done. What – to me the largely, not entirely but largely, unpublicized story of sanctions over the last – oh, since 2005, roughly, has been the very successful effort of the Treasury Department, in the last

administration and in this one, to travel around and basically twist bankers’ arms to get them out of the financing business.

[00:58:53] And they’ve done that through a variety of means, but it’s been very, very effective and it’s

been very, very personal. I mean, it’s been the undersecretary going around and meeting with individuals, talking about why this is important and making a persuasive case and backed up, as necessary, by other part of the U.S. government. That is, as I said, very much a matter of persuasion. The banks don’t have to do that. And clearly, on – in some respects, the humanitarian side for example, there is contrary legislation that says that they shouldn’t do that.

Yet, they do it anyway. And the Treasury Department has done a very, very good job of

basically intimidating them and making them nervous that if I engage in this transaction, even though on paper it’s OK, you know, the next thing that’s going to happen is going to be something unpleasant. You can unwind that if you want to send the Treasury back out to send a different set of signals. And I guess that’s maybe a more intelligent answer to Barbara’s (sp) earlier question.

But, yes, the president could do that if he wanted to because so much of this has been the

product of a series of one-on-one encounters in which the banks have been persuaded to do this, not simply by force of U.S. law but by persuasion. And if you want to un-persuade, we’ve suggested this, actually, to Treasury on – (chuckles) – more occasions than I can count, and to State, that on the humanitarian side in particular, why don’t they go out and tell banks more specifically, you can do this. Here – you have 12 things you can do. Here are some other things we don’t want you to do.

They’ve been reluctant to do even that. They could change that. I think that would take

time, you know. First of all, it would take time simply to have as many conversations – and, you know, it’s taken them, what, seven years to get where they are. It would take a long time to unwind. But certainly that’s possible.

[01:00:48] PICKERING: Bill, I totally agree with you. And I think the humanitarian piece is totally

contrary to American principles, many of which I voted for and supported when I was at the U.N. And my sense is that we argue a principled position on this, but we act in ways that make it impossible to carry out. I don’t know Bill would comment on this, but I’ve often thought that we ought to be able, in effect, not only to license transactions but perhaps several banks in competition. But where we have a good record of behavior and non-diversion for carrying out those transactions with Iran or with anybody else that are in the food and medicine category.

In any event, it’s another idea. But I think it would also begin to set a predicate for the issue

that the report worries and that Barbara (sp) pointed in so clearly, that we have to develop a process that in the end may make it possible for us to use sanctions not just as a punitive tool, but to get a resolution. And the Iranians are certainly going to expect this part of the quid pro quo for getting out of the hole rather than digging the hole deeper.

[01:01:58]

I had a question back here and then in deference to all of you and your time, we’ll just very

briefly close. But please, your question. Q: Good morning. Fred (sp) – (inaudible) – MS. : Mic. MR. : Mic. PICKERING: Fred (sp), don’t worry about technology, just speak loud. Q: OK. Fred – (inaudible). At first they were – (inaudible) – assume military conflict –

(inaudible). And I see in the this paper – (inaudible) – decrease in military – (inaudible). As a former – (inaudible) – I know that – I know there’s ever present potential – (inaudible). I was wondering if you guys might be able to discuss, or if it’s – (inaudible) – and how – (inaudible).

[01:03:02] PICKERING: The paper specifically avoids the question of what to do about it, since both

the use of force paper and the sanctions paper were designed to inform – and helpfully inform debate. But we hope to produce a paper that is more integrated look at the negotiating option and how to move ahead.

In the past, a number of us – certainly led by Bill Luers – have written op-eds and written to

our senators, congressmen and others about the need to improve the capacity, to deconflict the potential for military confrontation in the Gulf. And we have been pleased, at least, to have been informed that between the U.S. Navy and the Iranian navy, there are communications; there are a pattern of communications and reasonably successful efforts at deconfliction.

[01:03:58] The problem remains the Revolutionary Guard navy forces, who appear to be less

amenable, if I could put I that way, to communications and therefore more prone to confrontation. My own personal view – I know others would join me in this – is there needs to be a focused effort in preventing that kind of conflict by lassitude, desuetude and unimagination. And we need in some ways to see if we could strengthen it.

Some of us recall with the Soviet Union when things got messy, we had an Incidents at Sea

Agreement, which helped find a way to make sure our forces on both sides operated with the separateness that was necessary to prevent accidental collisions and worse. And I think this is all important to go ahead. It is, in my view, an important confidence building measure. Maybe it could be a start – part of a starter kit for improving U.S.-Iranian relations where badly we need to build confidence that each side is prepared to do what it commits to do and that trust can be regained.

[01:05:10]

So thank you for your question. Now, I want to just do two things as moderator. I want to thank you all for being here. The turnout, in my view, this morning was exemplary. You all arrived on time. (Laughter.) You listened with care. You saluted. You get at least an A-minus if not better. And certainly the questions were excellent and we’re grateful.

Secondly, I believe the report has brought home to you and others a number of critical

points, but I would urge you to take it and read it and look at it. If anybody wants to find the report and can’t pick it up here, www.theiranproject.org, we’ll get it for you and the previous reports.

And now, I just want to do two things. I want to thank Carnegie. I want to thank –

(inaudible). I want to thank the Rockefeller Brothers Fund and all who have been behind this and supportive in this. I want to thank everybody who worked on the report.

[01:06:10] But most importantly, I want to thank Bill Luers. Bill has been a sparkplug and a driver on

this particular issue for a dozen years. We don’t celebrate anniversaries anymore – Bill and I, for all the obvious reasons – (laughter) – but it is important to know and remember that without somebody who’s prepared to lead – and this requires a great deal of time and effort and really intelligent, conceptual thinking.

We thank Bill, you, very much for having put it together, for cracking the whip from time to

time to make sure we all line up and behave. But most importantly, that we have the opportunity with all of your leadership to produce what I think are excellent projects. And so thank you, Bill. (Applause.)

(END)