As prepared for delivery
- Good morning. Chairman Corker, Ranking Member Menendez, and
distinguished members of the committee: Thank you for the invitation to
appear before you to discuss the state of sanctions on Iran, and whether our
efforts to achieve a diplomatic solution to one of the most difficult and
enduring national security problems that we face – Iran’s nuclear program –
would be advanced if Congress were to enact new sanctions legislation at this
I will focus
my testimony today on the robust international sanctions regime that helped
bring Iran to the negotiating table, the intense pressure that sanctions
continue to place on the Iranian economy, and our continued vigorous
enforcement of those sanctions over the course of the Joint Plan of Action
(JPOA). And I will explain why new sanctions legislation now – even if
implementation were delayed – would more likely hinder, rather than advance,
the prospects for a diplomatic solution that verifiably prevents Iran from
obtaining a nuclear weapon.
outset, let me reiterate that no issue is of greater concern or urgency to the
United States, and no issue occupies more of the time and attention of my team
at the Department of the Treasury, than ensuring that Iran does not acquire a
nuclear weapon. Iran in possession of a nuclear weapon would directly
threaten U.S. and international security, increase the risk of nuclear
terrorism, undermine the global nonproliferation regime, and risk setting off
an arms race in the Middle East. From the outset of his administration,
President Obama has made clear that we will do everything in our power to
prevent Iran from obtaining a nuclear weapon.
For us at
Treasury, that has meant working within the Administration, with Congress, and
with partners around the world to impose the most effective set of financial
and economic sanctions in history. The sanctions have impeded Iran’s
ability to acquire material for its nuclear program, isolated it from the international
financial system, drastically slashed its oil exports, deprived it of access to
a sizeable portion of its oil revenues and foreign reserves, and severely
constrained its overall economy.
respects, the global sanctions regime has achieved exactly what it was designed
to do: encourage Iran to come to the negotiating table, not to posture,
pontificate, and procrastinate, but to engage in serious diplomacy over its
nuclear program. Iran is negotiating because it knows that relief
from the sanctions can come only in exchange for taking concrete and verifiable
steps that will guarantee that it cannot produce a nuclear weapon.
committee knows, those negotiations are ongoing. They began when we
negotiated the JPOA, which was reached on November 2013. In November
2014, the P5+1 and Iran decided to extend the talks for another seven
months. We agreed to the extension because our negotiators have made
meaningful progress, and because it takes time to conduct the highly technical
deliberations necessary to get a comprehensive solution that will cut off each
of Iran’s possible pathways to a nuclear weapon.
ultimately reach a comprehensive solution; we may not. The President last
week reiterated that the chances that we get a deal are probably less than 50
percent. But we, like you, are committed to testing fully the diplomatic
That is why
we have continued to maintain throughout the JPOA period the intense financial
and economic pressure that brought Iran to the table in the first place.
And that is also why we must give our negotiators the time and space they need
to pursue the possibility of a comprehensive solution, without undercutting
their efforts, fracturing the coalition, or, with the best of intentions,
sending mixed signals about the interest of the United States in a diplomatic
International Sanctions Regime Remains Robust and Vigorously Enforced
When Iran and
the P5+1 concluded the JPOA in November 2013, Iran committed to halt progress
on its nuclear program, roll it back in important respects, and provide
unprecedented access to and inspections of its enrichment facilities. In
exchange, Iran received limited, targeted, and reversible relief from some
the JPOA left in place the full architecture of our financial, banking, oil,
and trade sanctions; our sanctions focused on Iran’s support for terrorism and
its violation of human rights; and our own domestic embargo.
briefly to review the breadth of that sanctions architecture – painstakingly
designed by the Administration, Congress, and our international partners over
many years – because it provides an important backdrop to any discussion of
imposing additional sanctions.
remains subject to sweeping sanctions by the United States and our allies on
its financial and banking sectors:
continues to be almost completely isolated from the international financial
system, with its most significant private and state-owned banks, including its central
bank, subject to U.S. sanctions and cut off from international payment
bank that transacts with designated Iranian banks – or with most other
designated Iranian individuals or entities – can lose access to the U.S. financial
system. That means losing the ability to facilitate transactions in the
dollar, a death penalty for any international bank.
sanctionable to provide physical U.S. dollar banknotes to the Iranian
sanctions have targeted Iran’s key economic engine, its energy sector:
have drastically driven down Iran’s oil exports. In 2012, Iran was
exporting approximately 2.5 million barrels of oil a day to some 20 countries;
today, it exports only around 1.1 million barrels, and only to six
countries. Under the JPOA, moreover, Iran’s six remaining oil customers
may not exceed their current purchase levels.
payment for oil purchased from Iran by these six countries must be paid into
accounts that can be used only to facilitate humanitarian transactions or
bilateral trade between the importing country and Iran. With the
exception of funds released under the JPOA, this Iranian oil revenue can
neither be brought back to Iran nor transferred to third countries. And
because the accounts into which Iran receives oil revenue already hold more
funds than Iran spends on bilateral or humanitarian trade, the effective value
of those oil sales to Iran is far less than 100 cents on the dollar.
We also have
broad authorities targeting the provision of goods and services to the Iranian
energy sector or investment in that sector. Any entity that is itself
part of Iran’s energy sector is subject to sanctions.
cannot access Western technology and services, and because it has been forced
to sharply cut its oil exports, we have also seen a significant decline in its
production of oil. Independent experts report that Iran produced fewer
than 2.8 million barrels a day in December, down from almost 3.6 million
barrels a day in 2011.
are sanctions on other important sectors of the Iranian economy. We have
broad tools that target Iran’s petrochemical, insurance, ports, shipping, and
shipbuilding sectors, as well as its trade in certain crucial metals and
beyond these sector-focused sanctions, we have a range of other sanctions
authorities that we use to intensify the pressure on the Iranian regime.
sanctionable to act on behalf of the Government of Iran, as well as to provide
the Government of Iran or the Iranian individuals and entities on OFAC’s
sanctions list with financial, material, or technological support.
counter-terrorism, counter-proliferation, human rights, and other Iran-related
authorities, we have imposed sanctions on more than 700 Iran-related
individuals and entities, almost 15 percent of which have been designated since
the signing of the JPOA. And importantly, anyone who conducts business
with these individuals or entities, or any other designated Iranian entity, is
at risk of being targeted for sanctions.
Last but not
least, broad limitations on U.S. trade with Iran remain in place, meaning that
Iran continues to be shut out of the world’s largest and most vibrant economy
and remains unable to access the U.S. financial system.
sanctions are not just words on the books – we vigorously enforce them.
Over the course of the JPOA, we have repeatedly reaffirmed the point, in word
and deed, that Iran is not open for business.
signing of the JPOA, the United States has sanctioned nearly 100 individuals
and entities that were helping Iran evade our sanctions, aiding Iranian nuclear
and missile proliferation, supporting Iranian-sponsored terrorism, or carrying
out Iran-related human rights abuses. Nine of those designations came
less than a month ago, on December 30, including sanctions on six individuals
and one entity that were working with the Iranian government to obtain U.S.
dollars. We have also imposed more than $350 million in penalties on
those who have violated the sanctions. These targeting and enforcement
efforts will continue throughout the course of the JPOA extension.
We have also
engaged extensively with foreign governments and companies to make clear the limited
scope of the JPOA’s sanctions relief and our continued vigilance against any
breaches of our sanctions. These outreach efforts, while quieter than
enforcement actions, are equally critical to our efforts to pressure
And as we sit
here, members of my staff are poring over reams of financial intelligence
searching for signs of sanctions evasion, working with banks and businesses to
help them better comply with sanctions, and engaging directly with foreign
governments, foreign regulators, foreign businesses, and individuals around the
world to make certain that they understand the consequences of violating our
sanctions. And although I will depart the Treasury Department in a few
weeks, everyone should rest assured that vigorous enforcement of our sanctions
will continue unabated.
of these efforts, we make it abundantly clear to Iran that its only hope for
real relief from sanctions is to enter into a comprehensive arrangement that
guarantees that it cannot produce a nuclear weapon.
The State of
the Iranian Economy
In light of
the extensive sanctions that remain firmly in place and are being vigorously
enforced, it should come as no surprise that the Iranian economy remains in a
When I last
appeared before this Committee in July, I suggested three metrics by which to
judge Iran’s economic distress – its oil revenues, the value of its currency,
and its foreign reserves. By all three measures, Iran continues to be
worse off today than it was when it entered into the JPOA.
The overall health of the Iranian economy and the Iranian government’s balance
sheet depend heavily on oil revenues, and our sanctions have cut deeply into
those revenues. As I noted earlier, our sanctions have caused Iran’s oil
exports to drop almost 60 percent, from approximately 2.5 million barrels per
day in 2012 to approximately 1.1 million today. Because of this dramatic
decline in sales, in 2014 alone our oil sanctions deprived Iran of over $40
billion, which is well over twice the total estimated value to Iran of the
limited sanctions relief in the JPOA – and that is money Iran can never
recover, because it represents sales that were not made. Altogether,
since 2012, our oil sanctions have denied Iran access to more than $200 billion
in lost exports and funds it cannot freely use.
for the seven month period of the JPOA extension, from December 2014 to June
2015, we estimate that Iran will be forced to endure another $15 billion in
lost sales. Moreover, of the estimated $12 billion that Iran may continue
to earn in oil revenue during this JPOA extension, our sanctions mean that Iran
will only be able to access a limited amount of this revenue, since much of it
will remain restricted in overseas accounts.
the current sustained decline in oil prices is, in the words of Iranian
officials, imposing an additional set of sanctions on Iran. Over the past
year, the average price of a barrel of oil has dropped by more than 50 percent;
it is trading today at slightly under $50 per barrel. If oil prices
remain at current levels, Iran will lose an additional $11 billion in oil
revenue from what it was expecting to take in during this most recent
seven-month extension of the JPOA.
All of this
is creating havoc with Iran’s budget. For its current fiscal year (March
2014 to March 2015), Iran assumed that oil would sell for $100 per
barrel. It has not, which has cut into its revenues for this year.
And next year will be even bleaker.
President Rouhani proposed a budget for the coming fiscal year that assumed oil
would sell for $72 per barrel and that included proposals to cancel subsidies,
raise taxes, reduce contributions to its sovereign wealth fund, and scrap
projects. But that draft budget already has proved overly optimistic, and
just last week, the Iranian Finance and Economy Minister revealed that Iran is
revising downward its budget because it is now assuming a price of $40 per
barrel. This will likely result in more spending cuts, fewer services,
and higher taxes.
currency, the rial, has depreciated by about 56 percent since January 2012,
including a decline of about 16 percent just since November 2013, when the JPOA
was signed. This makes imported goods more expensive, disrupts plans for
investment in Iran, causes the general inflation rate to rise, and hurts the
Iranian economy by causing significant uncertainty about future prices.
The vast majority of Iran’s approximately $100 billion in foreign currency
reserves remain inaccessible or restricted by sanctions. Iran can use
most of this money only to pay for permissible bilateral trade between the six
remaining oil importing countries and Iran, as well as for humanitarian
purposes. Without hard currency reserves, Iran is limited in its ability
to intervene in its currency market to stabilize the rial, and it also becomes
more difficult to conduct foreign trade.
If you take a
step back and look at Iran’s broader economy, the picture is no less dismal.
Despite some signs of an uptick in Iran’s GDP, Iran’s economy is performing far
below its potential. Iran’s GDP shrank by roughly 9 percent in the two
years ending in March 2014, and its economy today is 15 to 20 percent smaller
than what it would be had it remained on its pre-2012 growth trajectory.
Moreover, at 17 percent, Iran’s inflation rate is one of the highest in the
predictions we heard that the limited sanctions relief in the JPOA would lead
to a collapse of the sanctions regime and reduce pressure on Iran clearly have
not materialized. The sanctions structure has held up just fine. We
estimate that the total value to Iran of the JPOA sanctions relief, which comes
largely from enabling Iran to access some of its own restricted oil revenues
held overseas, will add up to approximately $14 to $15 billion by June
2015. This relief pales in comparison to the significant revenues that
Iran has forgone as a result of sanctions, and it cannot make up for Iran’s
systemic economic weaknesses and imbalances.
Iran’s economy is significantly impaired, and it will remain that way as long
as our sanctions are in place – and Iran’s leaders know this. Thanks to
cooperation on the international stage between the United States and its
allies, and the joint work of Congress and this Administration, Iran is
negotiating with its back against the wall. So long as we continue
to maintain our current pressure on Iran – and we are committed to doing just
that – its leaders have every incentive to come to a comprehensive solution and
resolve this issue peacefully.
Sanctions Legislation Now Is Unnecessary and Potentially Harmful
the scope and intensity of the sanctions Iran currently is subject to, and
because of the economic pressure those sanctions continue to apply, we believe
that new sanctions are not needed at this time. To the contrary, new
sanctions at this time – even with a delayed trigger – are more likely to
undermine, rather than enhance, the chances of achieving a comprehensive
solution, and are more likely to reduce, rather than increase, the chances of
sustaining and increasing pressure on Iran if the negotiations fail.
efforts to prevent Iran from obtaining a nuclear weapon, sanctions were never
an end in themselves. Sanctions alone were never going to stop Iran from
installing centrifuges or enriching uranium. Instead, sanctions always
were intended principally as a means to persuade Iran to negotiate in earnest.
And that has
worked. We now have a situation in which Iran is engaged in a serious
negotiation with the P5+1, while progress on its nuclear program is frozen,
certain aspects of the program have been rolled back, and we have unprecedented
insight into its nuclear activities. And, furthermore, its economy
remains under enormous pressure, in large measure because we have been able to
hold together the international coalition that has joined us in imposing
additional sanctions legislation at this point threatens to unravel this
situation. In our judgment – a judgment that is shared by our
international partners – new sanctions legislation now is substantially more
likely to impede progress at the negotiating table than to induce Iran to offer
Congress enacts new sanctions now and the negotiations ultimately prove
unsuccessful, our international partners may hold us, not Iran, responsible for
the breakdown in the talks. While it is difficult to predict exactly what
would then unfold, it is quite possible that some current members of the
international sanctions coalition – whose companies are eager to resume
business with Iran, but have been held off – would reevaluate their cooperation
with us on pressuring Iran, making it more difficult to maintain existing
pressure. If overall support for the sanctions regime declined, it also
would make it more difficult to intensify sanctions pressure. Finally, if
a breakdown in talks led to the demise of the JPOA, we would lose the
additional insight into Iran’s nuclear program and restrictions on development
that the JPOA has given us.
In our view,
these risks make new sanctions legislation inadvisable at this moment.
But even putting aside the risks, we see no compelling reason to impose new
sanctions now, considering the extent to which Iran already faces substantial
financial and economic pressure.
conclusion is reinforced, moreover, by the fact that this Congress and this
Administration would move quickly to enact new sanctions if Iran were to walk
away from the talks or if we concluded that a comprehensive deal was no longer
within reach. As the President said just last Friday, “if Iran ends up
ultimately not being able to say yes, if they cannot provide us the kind of
assurances that would lead [us] to conclude that they are not obtaining a
nuclear weapon, then we’re going to have to explore other options,” including
new sanctions legislation. As has been the case with prior sanctions
legislation, that legislation could go into effect in a matter of days.
The Iranians know this, just as they know that the President has “consistently
said [that] we leave all options on the table.”
mistake: This administration understands and embraces the power of sanctions.
Sanctions are a key component of many of our most important national security
initiatives, from our efforts to prevent Iran from obtaining a nuclear weapon
to our efforts to degrade and ultimately destroy the Islamic State in Iraq and
Levant. We are not sanctions doubters.
do we believe that layering on additional sanctions is always the right
move. Sanctions are one tool in our toolkit, as is diplomacy, as is
military action, as are the myriad other ways that we project U.S. power to
advance our interests, protect our allies, and defend ourselves. If
diplomacy does not succeed, as the President said, he “will be the first one to
come to Congress and say we need to tighten the screws.” But in our view,
now is the time to give diplomacy every chance to succeed, not to create a new
In closing, I
want to assure this Committee that as we seek a comprehensive solution with
Iran, the Treasury Department, like the rest of this Administration, is fully
committed to maintaining intense financial and economic pressure on Iran.
We have not, and we will not, let up one iota in our sanctions enforcement
efforts, and we will continue to take action against anyone, anywhere, who
violates or attempts to violate our sanctions.