"Conoco deal would fund nuclear weapons

and terrorism"

Testimony on S.277 before Senator Alfonse D'Amato

Chairman

Senate Banking Committee

March 16, 1995

by

Kenneth R. Timmerman,

publisher of The Iran Brief

The Iran Brief is an independent monthly newsletter devoted to strategy and trade, established in December 1994 as a tool for policy-makers and business leaders in their dealings with Iran. Prior to launching The Iran Brief, Kenneth Timmerman served on the professional staff of the House Foreign Affairs Committee, and was the editor of Middle East Defense News (Mednews) in Paris from 1987-1993.

I want to applaud you, Chairman D'Amato, for introducing S.277 to the Senate. This legislation will close the gap between U.S. policy statements about Iran and U.S. actions. It will send a clear message to Tehran of U.S. intentions. And it will show our allies that we mean business when we ask them to refrain from aiding and abetting a regime which has one of the worst human rights records on earth, which continues to support international terrorism and subvert neighboring regimes, and which continues to demonstrate its unremitting hostility to U.S. interests in the Middle East.

Before getting into what specific effects I believe S.277 will have, allow me recall that this is not the first instance of Chairman D'Amato's foresight when it comes to foreign dictators. On July 27, 1990 , you put forward legislation that would cut off U.S. credits to Saddam's regime and put a halt to the damaging trade in dual-use technology with Iraq. And you did this, Mr. Chairman, despite the opposition of many colleagues from both parties. You said then: "it is about time that we stood tall." Your foresight was confirmed just five days when the dictator Saddam Hussein invaded Kuwait. That time to stand up and be counted has come again. And once again, Mr. Chairman, you are showing the foresight and leadership that has already prompted the White House to act in prohibiting the Conoco deal. I am sure you will also succeed in getting your colleagues on board to pass this vital bill.

The regime in Tehran is in turmoil.

Iran's clerical government is facing a crisis of dramatic proportions. In the 16 years since the revolution against the Shah and the coup d'état by followers of Ayatollah Ruhollah Khomeini, never before have Tehran's rulers had to confront such massive social, political, and economic difficulties occurring all at once.

Over the past three years, riots have erupted in virtually every major Iranian city. To quell public protest, the regime took the dramatic step last November of issuing "shoot-to-kill" orders to its basidj political militia. According to Tehran Radio's announcement of the orders, "Officers will be allowed to open fire on vehicles they suspect of carrying stolen goods, narcotics, contraband, or fugitives." Furthermore, "the law exempts officers who kill or wound anyone from civil or criminal charges," the radio stated . The basidji now have a license to kill.

Even Iran's clergy, once the very backbone of the regime, has turned against it in recent years, creating a crisis of legitimacy for a government which calls itself "Islamic." Of the remaining Grand Ayatollahs still living in Iran - Ali Hussein Montazeri, Hassan Tabatabai-Qomi, Mohammad Rouhani, and Sadeq Rouhani - all oppose the regime and have called for the abolition of its most basic institution, the velayet faghih. All are also under house arrest. According to opposition leader Manoucher Gandji, there are currently between 2000 and 3000 clerics in Iranian jails. Most have been convicted of political offenses in a Special Court for the Clergy that was established shortly before the death of Ayatollah Khomeini.

Only last month, Grand Ayatollah Sadeq Rouhani wrote an open letter highly critical of the regime which is being circulated at the religious seminary in Qom and among Iranians abroad. Rouhani has been under house arrest in Qom since 1985, and is now seeking to leave the country, because he is unwilling to "remain a spectator while Islam is violated daily and while true religious leaders are forced to remain silent in a country claiming to be an Islamic republic." Indeed, is there anything "Islamic" about hanging dissidents by the necks from building cranes, or in executing women accused of adultery by throwing them from the roofs of 10-story buildings, tied up inside of postal sacks? And yet, such are common practices in today's Iran .

According to Amnesty International, which has tracked publicly-announced executions in Iran, more than 10,000 people have been killed by the regime since 1979, most of them without trial. Iranian exiles say the true figure is many times higher. In 1989, for instance, the Iranian press carried notices of 2,500 executions - many of whom Iran claimed were common criminals or drug traffickers - although not all were included in Amnesty's total. Since 1989, Iran's human rights record has been consistently denounced by the United Nations, which has sent special envoy Reynaldo Galindo Pohl to Tehran to investigate abuses. Last year, the regime stopped publishing accounts of executions to forestall foreign criticism.

For years, the clique of minor mullahs currently ruling Iran have been lining their pockets with fat commissions tacked onto Iran's oil purchase agreements with foreign companies. Through the massive Bonyads, the para-statal trading and industrial corporations that currently control entire sectors of Iran's economy, they became direct owners of bottling plants, textile factories, machine-shops, and trading houses . Now it is emerging that the head of the Bonyads, former Revolutionary Guards Minister Mohsen Rafiqdoust, and his family have embezzled upwards of $700 million from the Bonyads and transferred it abroad. When the scandal was hinted at by Members of Parliament, Iran's leader Ayatollah Ali Khamene'i reappointed Rafiqdoust to a second two year term as head of the Bonyads in December.

So fearful has the regime become that the Iranian people will hear the truth about how they are governed from the airwaves, that they constantly jam opposition radio broadcasts into the country. And just recently, they banned satellite dishes to prevent ordinary Iranians from watching foreign television.

These are clear signs, Senator, that all is not well in Tehran. This is a time for the United States to be sending a clear message to the Iranian people in support of their aspirations toward freedom, democracy, and the respect of human rights. And I believe that is what the administration would like to do. But as the recent deal signed by CONOCO with the National Iranian Oil Company has shown, it is difficult to get that message across under current law. I believe S.277 will help correct this disparity.

The CONOCO deal would have been particularly damaging to U.S. policy. For this was not just an oil purchase agreement, but an agreement to expand Iran's oil production - and therefore, its export earnings - without Tehran having to spend a dime. By terms of the agreement as they were disclosed by the company, CONOCO would have provided all investment capital necessary for expanding the Sirri fields, clearly a windfall to the regime at a time when most analysts estimate that Iran's oil revenues will remain at their current level of around $12-$13 billion for several years to come. So I and I applaud the White House decision announced on Tuesday to ban U.S. companies from participating in such deals, and Senator D'Amato's very effective role in convincing the White House to act. I also commend Edgar Bronfman and his family, who together own 25% of Conoco's parent company, Dupont, and who have discouraged them from participating in this disastrous deal.

Freeing up money for terror and nukes

CONOCO's investment would have made it easier for Iran to make good on its standing pledge to provide $100 million per year to international terrorist groups such as Hezbollah in Lebanon, and Hamas and Islamic Jihad in Gaza. This is an official allocation in the state budget that has been voted by the Iranian Parliament several years in a row. These organizations have full-time offices in Tehran, provided by the Iranian government, and regularly meet with Iranian leaders and coordinate their terrorist crimes with Iranian intelligence officials.

The Iranian government regularly honors such criminals such as Imad Mugniyeh, who is personally responsible for kidnapping more than half a dozen Americans in Beirut and for the hijacking of a TWA airliner in 1985, by inviting him to Tehran as recently as October 1994. According to reports in the Arab press, which were qualified as "credible" by U.S. government counter-terrorism experts, Mugniyeh came to Tehran to organize a series of bombings inside the United States, in retaliation for the prosecution of Sheikh Omar Abdul Rahman for his connection to the World Trade Center bombing. Tehran extends similar honors to Fathi Shikaki, the head of Palestinian Islamic Jihad, which claimed responsibility for the suicide bombings at a bus stop near Netanya, Israel on Jan. 22 that killed twenty Israeli soldiers.

Cash proceeds from the Conoco deal would also have helped free up as much as $1 billion in funds which Iran now needs to pay for its nuclear deals with Russia, the first tranche of which will cost $800 million.

The real concern expressed by our intelligence community on this score is not so much the completion of a civilian nuclear power station at Busheir - although with its fabulous petroleum riches, Iran is about the last country that needs nuclear power. Rather it is Russia's help in developing a nuclear weapons infrastructure in Iran under the guise of a civilian program.

As part of the Busheir nuclear power plant deal, the Russia's Ministry of Atomic Energy (Minatom) will train several hundred Iranian nuclear technicians, both in Russia and in Iran. Minatom will also help Iran to expand its nuclear infrastructure. In a statement from Moscow, Minatom minister Viktor Mikhailov said Russia was already negotiating to build two additional reactors at Busheir, a research reactor, and other, unspecified nuclear facilities in Iran And this is precisely what has got the intelligence community worried. As one senior intelligence analyst explained in an interview, "The broader Iran's nuclear technology base, the better chance the Iranians have of growing that key individual to a successful nuclear program: the weapons designer." Iran is currently believed to have a trained cadre of some 2,000 nuclear experts, of whom only 220 are trained scientists.

The total trade embargo as envisioned in S.277, combined with existing provisions contained in the Iran-Iraq Nonproliferation Act of 1992, will in my view give the State Department additional leverage with Russia in its efforts to curtail a potentially dangerous nuclear deal.

No one seriously doubts that Iran's true intention is to acquire a nuclear weapons capability. Over the past five years, Iran's intelligence ministry has been sending procurement teams throughout the former Soviet republics in Central Asia, and our Department of Energy is convinced that Iran has succeeded in acquiring significant quantities of weapons-grade material. Indeed, this was the real reason why the Clinton administration acted with such determination last December in Operation Sapphire, which succeeded in localizing a cache of some 600 kilograms of weapons-grade material. It is instructive to note that the nuclear plant where the material was located was previously believed to have no relationship whatsoever to the Soviet nuclear weapons establishment. If weapons fuel could be found there, and in such great quantities, it could be found anywhere - especially by those who have been on the ground looking for it for so many years.

Mixed Signals on Dual Containment

The administration's policy of dual containment was a much-needed improvement over our previous approach, which sought to achieve a balance of power in the Gulf region by playing Iran and Iraq off of each other. While balance of power politics may have been necessary in the 1980s, the situation is dramatically different today. The Gulf war against Iraq has opened a window of opportunity for removing both of these repugnant and extremely dangerous regimes. Such a policy goal was announced by Secretary of State Christopher recently when he told a Washington Times interviewer: "We must isolate Iraq and Iran until there is a change in their governments."

But containment and isolation will not work if the U.S. embarks on such a policy half-heartedly. We need to be sending a clear message to Tehran, as well as to Moscow, Paris, Beijing, Bonn, and Tokyo. Unfortunately, the signals from Washington have been confused.

The confusion is nowhere more evident than in the discord in public rhetoric between Secretary Christopher and career diplomats such as Robert Pelletreau, or Undersecretary of State Peter Tarnoff, who told a Middle Eastern audience during a direct satellite interview from Washington on Dec. 21 that "the United States has not refused all contact with Iran" and was "not seeking to overthrow the government of Iran." While the nuances of public diplomacy can be useful in many circumstances, clearly this is not one of them. Such statements are interpreted in Tehran as signs of vacillation, irresolve, and tacit support for the Islamic regime.

Tehran's embattled leaders also took heart when the USIA scaled back Farsi-language broadcasts into Iran by the Voice of America on Dec. 4. These highly popular broadcasts establish a U.S. presence in Iran that allows ordinary Iranians to judge for themselves the truth of the anti-American propaganda of the regime.

Even more dramatic, seen from Tehran at least, has been an unusual move by the CIA to cut off funding, effective Jan. 1, for an opposition radio station based in Cairo that has been beaming news and instructions to anti-government activists inside Iran since 1986. The radio station, operated by former Education Minister Manoucher Gandji, has been a voice of hope for thousands of Iranians. The regime considers the radio so dangerous that it constantly attempts to jam the broadcasts and has issued a fatwa - a religious order - calling for the assassination of Dr. Gandji .

Dr. Gandji's radio costs a mere $180,000 per year to operate. A more powerful medium-wave transmitter would cost less than $1 million. Rather than cutting back such broadcasts, Senator, we ought to expand them. Given the unremitting hostility of the Iranian regime to the U.S., this would be a wise investment in a more stable Middle East, and indeed, in U.S. security.

Similarly, VOA's Farsi language programs should be expanded. For the past two years, VOA has hosted an extremely popular call-in show during the Iranian New Year on March 20-21, in cooperation with Radio Voice of Iran, an independent Farsi-language talk radio in Los Angeles. Hundreds of Iranians picked up their phones during the show and dialed the studio in Los Angeles to complain of economic conditions and social oppression inside Iran. It would be truly be penny-wise and pound foolish if such broadcasting efforts were sacrificed to random budget cuts.

With your permission, Senator, I would request that you enter into the hearing record a copy of the article I wrote on this subject recently in the Wall Street Journal.

U.S. Trade with Iran undercuts policy

The other confused signal in our policy concerns trade.

President Bush opened Iran for trade soon after assuming office, as a gesture of American goodwill intended to secure Iranian cooperation in freeing American hostages held by pro-Iranian groups in Lebanon. The result was a dramatic increase in U.S. sales to Iran, which peaked in 1992 at $747.5 million. This placed the U.S. sixth among Iran's direct suppliers.

On Oct. 23, 1992, President Bush signed into law the National Defense Authorization Act (NDAA), which included a provision authored by Senators McCain and Lieberman known as the Iran-Iraq Nonproliferation Act of 1992 (PL 102-484). This put a stop to the sale of all goods to Iran that normally required an export license. During 1992, fully 60% of all sales to Iran were subject to Commerce Department licensing requirements ($446.1 million out of total sales of $747.5 million). One would have thought that the McCain-Lieberman restrictions would have led to a dramatic drop in U.S. sales to Iran, but this was not the case. The slump in sales last year was almost entirely due to Iran's financial difficulties. This is clearly evidenced by the CONOCO deal.

U.S. exports to Iran 1989-1994

(Millions of USD)

1989 1990 1991 1992 1993 1994

60.0 166.5 527.1 747.5 616.2 328.8

Source: Department of Commerce/Middle East Data Project, Inc.

According to U.S. export statistics compiled by the Bureau of the Census, the following items were shipped to Iran by U.S. companies in 1993. All were shipped under G-DEST authority (without an individually validated export license) and could be shipped again today unless S.277 becomes law:

- Toxins, Cultures of Micro-organisms

- Turbojet Turbines, excluding aircraft, thrust exceeding 25 kilo-Newton's

- Air or Vacuum pumps

- Machinery for Liquefying Air or other gases

- Centrifuges

- Parts of Centrifuges

- Machine-tool holders and self-opening dieheads

- Gas Separation equipment

- Hydraulic presses, metal forming

- Electric generating sets

- Spectrophotometers

- Electric Spectrometers and Spectrographs :

- Gamma camera system for detecting Ionizing radiations

- Laboratory furnaces

- Gas turbine engines, power exceeding 5,000 kW

- Machines as special attachments for machine tools

- Parts of Metalworking machine-tools for cutting gears

- Cathode-Ray Oscilloscope

[Source: U.S. Bureau of Census/Middle East Data Project, Inc.]

While the Commerce Department insists that none of these items was licensable, clearly many of them have direct military applications including in some cases in the production of nuclear weapons, ballistic missiles, and chemical or biological warfare agents. The many export licensing scandals over the years both in this country and abroad should have taught us that rogue regimes and their corporate partners will always succeed at circumventing the most stringent export controls. This is not a reason to abandon controls, but rather to tighten them. And yet, here the administration has been gutting our controls on virtually a daily basis. We currently have no available tool that can ensure that American companies do not provide dangerous dual-use technologies to Iran. The total export ban provided for by S.277 will remedy this gap.

U.S. oil companies are feeding the regime

Over the past two years, U.S. oil companies have become the largest single buyers of Iranian crude, accounting for some 25% of all Iranian crude oil sales worldwide.

This trade is currently allowed under U.S. law and, according to initial White House statements, has not been effected by the forthcoming Executive Order. U.S. oil purchases generated revenues for Iran of approximately $3.5 billion in 1993 and $4.2 billion last year; combined with U.S. sales of technology and spare parts to Iran, this made the United States Iran's number one trading partner for both years, severely undercutting U.S. attempts to limit sales to Iran by our allies. Furthermore, these massive oil purchases are seen by Iran's leaders as a show of support. For the Iranians, whose love of conspiracy theories is well-known, the huge trading volume is the real message behind the Clinton administration's dual containment policy. For as long as it continues, Tehran will believe that Washington does not mean business. If the administration truly intends to get as tough on Iran as its public statements appear, then clearly something must be done to get that message across to Tehran in a language they understand. The Executive Order on oil development projects is a good first step. But I believe that your bill, Senator, is a very necessary addition. It will send a clear message to Tehran's rulers that Washington means business when it comes to Iran's support for international terrorism, and its relentless pursuit of a nuclear weapons option; it will send a clear message to the Iranian people that the United States of America stands today as always on the side of freedom, democracy, and human rights. And it will help to restore our credibility with our allies, who simply shrug when we call on them to curtail their trade with Iran.

When they know the facts, I believe that companies such as CONOCO will conclude that it is unwise to be investing in Iran at a time of great political, economic, and social instability. The government in Tehran may not be around long enough for CONOCO to ever see the first dollar of return on its investment - surely something of concern to stockholders. I would also suspect that any successor regime would remember those companies and countries that helped the mullahs in their time of need, and ban them from business in tomorrow's free Iran.

S.277 will also send a clear message to those of our allies who continue to sell dual-use technology to Tehran and who are building large industrial facilities that could be used to manufacture chemical and biological weapons agents, ballistic missiles, and nuclear weapons. Of particular concern are large steel factories being built by Kobe, Kawasaki, and Mitsubishi of Japan, and Danieli of Italy; a $400 million ammonia and urea complex being built by MW Kellogg, a U.S. corporation that played a major role in the Manhattan project and which has used its subsidiary in the UK to handle this deal; a pesticides complex in Qazvin that was built under a 1987 contract by Bayer and Lurgi of Germany. In 1992, the German government intervened to halt further deliveries to Qazvin, because of suspicions this plant was being used to manufacture nerve gas (Deliveries of precursor chemicals have continued to reach Iran from other suppliers in India). And many of Germany's largest manufacturer's of machine-tools, including Fritz Werner GmbH, Georg Fischer, and Deckel, continue to sell sophisticated computer-driven machine-tools to Iran. Many of these same machines are currently being used in Iranian weapons plants to make large-caliber munitions and ballistic missiles.

Recommendations

I believe S.277 could be even more effective if you would consider two additional provisions:

- a private right of action to U.S. companies who see foreign selling the same type of equipment to Iran that this and other U.S. legislation prohibits them from selling, and;

- a limit on imports into the United States of products and services from foreign companies and countries which have benefited or taken commercial advantage from the prohibitions contained in S.277.

These measures would add significant clout to our principled policy, and go a long way to ensuring that these controls quickly become multilateral. Let me give you just one example to show how.

As you know, the administration decided in 1993 against allowing Boeing to sell commercial airliners to Iran. This was a painful decision, because of the purely civilian nature of Boeing 737s or 767s. Nevertheless, the administration concluded that such a sale would send the wrong signal to Tehran and the wrong signal to our allies. The European consortium Airbus leapt into the breach and consumed a deal worth well over $1 billion.

If you adopted an import ban, and a private right of action, Boeing would then have the right to petition the U.S. government to trigger a ban on Airbus sales in the United States for a two year period, or until they had abandoned the sale to Iran. Believe me, such measures would quickly get the attention of our European and Japanese friends.

In conclusion, let me just repeat that this is the moment the advocates of democracy and human rights in Iran have been waiting for all these years. A window of opportunity is opening in Iran, where the clerical regime is more fragile as ever before; with a little push, it could collapse of its own. I believe, Senator, that your bill will help provide that push.