Hearing Before the U.S.-China Economic and Security Review Commission: China's Proliferation to North Korea and Iran, and its Role in Addressing the Nuclear and Missile Situation in Both Countries (Panel II)

September 14, 2006

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MR. : Okay, we need to get started here because one of our witnesses has to leave a little bit early.

I'd like to welcome all our panelists to the second panel which introduces China's relationship with Iran and China's role in addressing the nuclear weapons and missile program, its broader relationship and then just how it sees its interests with Iran.

We're going to start with Dr. Calabrese. (Aside.) Yeah. Right.

We're going to start today with Dr. Calabrese, who has to leave a little bit early, and we're going to do things in a little bit of a different order, in the sense that we're going to have you speak and then answer questions and then turn to the other speakers.

So today we're very pleased to have Dr. Calabrese from the Middle East Institute. He came to speak to us before about China's diplomatic relationship with the Middle East, and he just published, "China and Iran: Mismatched partners," a Jamestown Foundation publication.

We also have Dr. Ehsan Ahrari -- I'm sorry if I'm not saying your name with delicacy -- who's the CEO of Strategic Paradigms. He specializes in U.S. strategic issues affecting the Middle East and parts of Asia, including China. He previously served as a professor of national security strategy at the National Defense University's Joint Forces College.

And our third speaker will be Mr. Ilan Berman, who is the vice president for policy at the American Foreign Council, a regional security expert on the Middle East, Central Asia and Russian Federation who has consulted for the CIA and DOD.

So thank you again very much. And we'll turn to Dr. Calabrese first.



Scholar-in-Residence, Middle East Institute


MR. CALABRESE: Thank you, Mr. Chairman, commissioners.

I hope that on this particular occasion I'm able to redeem myself from that pathetically incoherent performance last month. I will, unlike the last time, speak specifically to the questions that you gave me and attempt to do so in the order in which they were presented to me over e-mail. In the interest of not being incoherent, I'll try to read from my notes a little bit, and then we can cover the rest in the Q&A period.

As the first question suggests correctly, in my opinion, Sino- Iranian relations transcend cooperation in the energy sector. They comprise a multitude of activities that are rooted in what I believe are broadly shared perspectives on recent developments and on their recent -- sorry, on their respective roles in regional and international affairs and, consequently, in national interests or interests that overlap.

In a general sense, Sino-Iranian relations today bear many of the hallmarks of a much larger phenomenon. And that phenomenon, in my opinion, is the progressive development of commercial and other linkages binding East, South and West Asian countries together. These cross-regional linkages, in my view, are not intrinsically detrimental to U.S. interests or, for that matter, detrimental to regional peace and stability, whether the region we're talking about is the Middle East or East Asia.

Indeed, not all aspects of Sino-Iranian relations are problematic for the United States or pose a threat -- a threat to the United States, a threat to regional stability. But the past record, including very recent cases of Chinese proliferation activities -- specifically with respect to Iran -- does require, in my view, constant vigilance and continual reassessment not only of China's commitments and performance with respect to nonproliferation, but I think it also requires of us a deeper understanding of the context in which this relationship is taking place -- the nature of the Sino- Iranian relationship in all of its aspects.

I think we need to periodically reassess our expectations with respect to Chinese-Iranian proliferation activities, how we define them. And I think that we need to periodically reassess -- as we are now at this hearing -- the countermeasures that are in place to deal with these activities.

The fact that China's most frequent and egregious, in my opinion, proliferation activities in the Middle East have occurred with respect to Iran, I think calls upon us to examine a little bit what are the distinctive sort of perspectives that China has vis-a-vis Iran, and Iran has vis-a-vis China, that they don't have with respect to other countries in their respective regions.

For China, Iran really is distinctive -- at least insofar as I can tell. It possesses from the Chinese vantage point -- Iran, that is -- unique geopolitical and geoeconomic characteristics. From the Chinese perspective, Iran already is -- perhaps even was before the Iraq war -- the dominant regional power. With coastlines on the Caspian and the Persian Gulf, Iran sits astride or connects two major energy hubs. No other country in the Middle East, no other country in the world, sort of has that distinctive role. And given China's economic needs and the energy imperative within that, Iran really does occupy a very sort of peculiar place in terms of sort of priority relations.

Iran is the largest Muslim country in West Asia, and the most populous one. And that has, at least indirectly, some interesting domestic -- political and domestic sort of social implications for whether or not China continues to develop a cooperative relationship with the regime in Iran, given that regime's characteristics as a Muslim theocracy.

There's also the long-term business opportunities that are very attractive to China and that may not appear to sort of have materialized -- maybe even to the degree and the full scope that the Chinese themselves had wished. These are wide ranging. They encompass not only the energy sector but other sectors. And we've discussed this in previous -- in my previous testimony, but I'm willing to sort of spell that out more specifically in Q&A.

But there is, in my view, also -- excuse me -- a very interesting subtext. And that is the subtext as it relates to the United States' primacy in world affairs. And that primacy in world affairs is something that Iran and China both in very different ways, I think, and with greater sense of urgency and using different tools in their tool kit, contest -- are uneasy with.

For Iran, China is distinctive as well, but in different ways. I would say that if economics is the primary driver of China's relations with Iran, it is the immediate geopolitical circumstances that Iran finds itself in -- particularly at this momentous point where the nuclear issue is at center stage -- that is the driving force of Iranian's dealings -- of Iran's dealings with China.

Some other observations I could make about what China means to Iran later on, but I see that my time, as usual, is running out -- even though I've only just begun. I'm going to jump to the policy prescriptions, because Dr. Wortzel had asked me at the end of my testimony last time if I had any bright ideas, or not so bright ideas, to share those. So let me share those first, and then we can come back in Q&A to some of the other questions. Believe it or not, I actually have some answers to those.

Number one, if Sino-Iranian proliferation/interaction really means something to the United States, then I would urge the United States to raise this with the Chinese at the highest level. If there is a need for a strategic dialogue, then at the center of that strategic dialogue does need to be what China has or has not done in terms of tightening its commitments and closing the gap between its commitments and performance.

At every summit, the United -- and at every sort of ministerial or second-level meeting, this must be, in my view, a sort of a key priority. That's if, indeed, it means something to us. I think what we haven't done is something that, actually, circumstances seem propitious for us to do, which is to encourage our European partners -- and also to encourage our friends and allies in the Arab Gulf and elsewhere in the Middle East -- to put pressure on China. I mean, after all, China looks to develop and to sustain its relations with all of the countries of the Gulf -- with the entire MENA region.

And it's clear to me, certainly as the sectarian differences and the regional dynamics of the Middle East have sort of created more turbulence in the region and everybody's looking at Iran, that everybody in the neighborhood has an interest in making sure that Iran does not develop the kinds of capabilities that we're talking about in this hearing.

I believe that we can assist -- so I don't think that, you know, a sanctions-based-exclusively approach to this problem is necessarily the right approach. And in that respect, I think that we can assist China in making faster progress and further progress in areas where it has taken steps since the early and mid-1990s to assume responsibility to promulgate laws that deal with proliferation, to create institutional architecture to govern licensing end use -- all of these things.

I know, for example, that the Department of Commerce and that Ministry of Commerce of China have had some seminars and interactions whereby they've exchanged information. I think that those need to be continued and that those need to be expanded. There needs to be a commitment on the part of the United States, for example, to help China enhance the institutional capacity to do the job that it professes it wants to do. Another thing I think that the -- did you guys give me more time?

MR. : Time is up.

MR. CALABRESE: Oh, okay. Sorry.

MR. : Yeah, that's okay.

Thank you very much. And obviously, we wouldn't have invited you back if we thought your testimony was that incoherent. (Laughter.)

The question I have for you is one that I posed to Secretary Rodman and DeSutter beforehand. And that is, have we -- as the economic and energy relationship has grown over the past few years, have we seen a qualitative change in the character of the strategic relations?

In other words, this is something that Commissioner Bartholomew asked before in terms of China defining its interests differently. We constantly say that China has an interest in doing this and an interest in doing that, but they might well define their interests differently in the sense that, you know, Iran as a sort of proxy or however you want to call it -- a sort of card to play -- is something they're interested in.

I wonder if you can trace -- especially as it gets more invested in Iran -- I wonder if you can trace the change in the character of the relationship to some sort of -- I won't call it quid pro quo, but something like a quid pro quo in terms of what China then gives to Iran both militarily, also in terms of the Shanghai Cooperation Organization -- (word inaudible) -- and so forth.

MR. CALABRESE: I think as the economic and the energy linkages in particular have grown, and as China's acute sense of vulnerability vis-a-vis its energy requirements have grown, I think that that's created a kind of -- I wouldn't say an incentive, but a kind of a pressure to respond, or to be responsive, to Iranian entreaties.

Now, whether that extends to the military sphere and whether that makes individual Chinese companies -- to the extent that we know that those companies are actually directly controlled by say the Chinese State Council -- you know, I'm not sure. But I would add to that that the U.S.-Chinese relationship has become increasingly important. And the totality of that relationship, it seems to me, is widely recognized in Beijing as trumping the Sino-Iranian relationship, even though the Chinese, in my view, are very uneasy about not just sort of the United States' unipolar moment but the exercise of United States power in the Gulf and elsewhere.

MR. : Does anyone else have questions for Dr. Calabrese before we --

CAROLYN BARTHOLOMEW (Commission vice chairman): Recognizing that you have to leave early, which is why we've broken our usual pattern of hearing from all panelists -- no, no, it's not blaming him; we're just explaining --

MR. CALABRESE: You thank the rest of the panel --


MR. CALABRESE: -- for their patience.

MS. BARTHOLOMEW: (Laughs.) For their forbearance on this.

Yeah, Dr. Calabrese, it's interesting that you were just talking about the sort of the primacy of the U.S.-China relationship. But honestly, I don't know that we have yet to see in this dynamic or in any of the other litany of issues that we have -- ongoing issues that we have with the Chinese government -- that the Chinese government believes that they need to do anything in order to protect that relationship or grow the relationship. I think that they have, for the most part, counted on the economics driving it. And as long as things are okay with business deals that are taking place, then they can get away with a whole lot. So I would -- I'm saying that more as a comment than a question.

But I want to get to the question of the geopolitics, because you mentioned both geopolitics and geoeconomics and separating them out. And pull out a little bit more of your thinking about the nature of -- I mean, the Chinese government is not going to make the same kinds of demands for governmental change, transparency, accountability, freedoms. And there are benefits to the Chinese government aligning itself with other countries that are not particularly interested in reforming. And how much of that do you think is part of this Iranian- Chinese relationship?

MR. CALABRESE: I don't know how to quantify it, but I agree with you wholeheartedly that that particular dimension is sort of a building block of recent, current and probably prospective Chinese- Iranian relations from the Chinese point of view, from the Iranian point of view. They share a number of these concerns.

One of them is the issue of sovereignty, which they define in a way that I suppose overlaps, but only to some degree, with the United States. Coercive instruments -- both the Iranians and the Chinese, particularly when those coercive instruments may be applied either to one of their other friends or to each other, for whatever reason, are things that they steadfastly oppose, and they oppose together.

So you can see this, actually, in the Chinese behavior at the Security Council and behind the scenes in the Security Council with respect to how to deal with the Iranian nuclear issue. If there is a red line or if there is sort of a steadfast obstructionism on the part of the Chinese that, I think, parallels sort of the Iranian view, is this should be resolved through negotiation rather than through the application of military force, on the one hand, or sanctions, another coercive tool, on the other.

And I think -- so I think you're right. In general I agree with you that China probably hasn't proactively done anything to support the United States on any of the specific issues, red-button issues, that the United States has with respect to Iran, though I would say, to be fair to China, and also to credit the administration, that our diplomacy has succeeded in at least sort of gradually bending them in a direction that may be the best we can get at the moment with respect to Iran, which is to say, they seem to be in an abstentionist mood on the U.N. Security Council. And that's better than nothing, but certainly not what we want.

MS. BARTHOLOMEW: As we are trying to grapple, we can see it today a lot with this issue of interests and how we define our interests and how the Chinese government defines its interests and that they might not be the same, I'm struck when you say that they think that this should be resolved diplomatically.

And I guess one of my questions is, if we and the Europeans were not expressing concern, raising concern about Iranian nuclearization, do you think that the Chinese government would even think that there's a "this" that would need to be resolved?

MR. CALABRESE: Is that a rhetorical question?

MS. BARTHOLOMEW: I'd like your thought on it.

MR. CALABRESE: I'm not -- you know, I can't say definitively, but if I had to put a lot of money on it, I would say the answer was no, definitively not. I think that it's the United States that has to, and the United States in concert with other like-minded states. And, you know, there's a spectrum of like-minded states. I don't think China at this point in its evolution and in the world's view and in the relationships that it's cultivated is sort of on the side of the spectrum that links us to, say, our West European allies.


MR. : Any other questions for Dr. Calabrese? Okay, you are dismissed.

MS. BARTHOLOMEW: Five minutes early. (Laughs.)

MR. : You're dismissed --

MR. CALABRESE: I will write something and submit it in gratitude.

MR. : Five minutes early. Thank you very much.

MS. BARTHOLOMEW: Particularly, Dr. Calabrese, on the policy comments that you were going to have; if we can have those written, that would be terrific.

MR. CALABRESE: Okay. Thanks a lot.

MS. BARTHOLOMEW: Thank you very much.

MR. CALABRESE: I'm sorry. I apologize again.

MR. : Dr. Ahrari.



CEO, Strategic Paradigms


MR. AHRARI: Thank you very much. Mr. Chairman and commissioners, I have given you -- I have followed your questions -- (off mike) -- very, very brief. Hopefully I will finish this statement within seven minutes or so.

Mr. Chairman, commissioners, thank you for inviting me to share with you my views on China-Iran relations. What disturbs China and Iran most, and thus remains the formidable reason underlying their multifaceted cooperation, is the prevalence of the uniform global power structure, where the United States is the dominant power.

In the absence of a countervailing power to obstruct, if not prevent, America's unilateral actions on issues of global or regional significance, both China and Iran feel frustrated and nervous about pursuing their vital interests without potentially triggering America's retaliatory response.

For China, that vital interest revolves around resolving the Taiwan conflict by reuniting it with the motherland. For Iran, it is all about regime survival and sustenance of its regional hegemonic ambitions, which America endorsed during the regime of Mohammed Reza Palavi but currently views as a threat to its strategic dominance in the Persian Gulf region.

Thus China's global strategy is to pursue a competitive relationship whose purpose is to frustrate the United States while avoiding a military confrontation, which China is bound to lose.

For instance, the PRC is convinced that the United States steadily pursues a policy of encircling China by developing a strategic partnership and by signing a nuclear deal with India. China is also of the view that the chief purpose of America's presence in Central Asia is to undermine the chances of China's strategic dominance of that area within its immediate sphere of influence.

So China's countermeasure is to negotiate its own nuclear deal with Pakistan to build six nuclear power plants and to use the Shanghai Cooperation Organization to bring about America's ouster from Uzbekistan. China and Russia are still working on this issue with Kyrgyzstan and Tajikistan.

China countered the U.S. presence in Afghanistan and West Asia by assuring its own long-term presence in the Gwadar deep-sea port in Pakistan, which is approximate to the opening of the Gulf of Oman. Out of a total estimated cost of $1.6 billion to develop this port, China has bankrolled $198 million for the first phase. It has also spent another $200 million in building a highway connecting Gwadar port to Karachi, which is also a port on the Arabian Sea. Being in an area that is so important to all the major world powers from the perspective of energy supplies gives China unprecedented high visibility.

Similarly, Iran wishes to ensure the ouster of U.S. forces from Iraq through a combination of providing military and economic assistance to the Shi'a militia, most visibly to the -- (inaudible) -- Mahdi Army, who are heavily involved in their own sectarian war with the Sunnis. Let us not forget the strategic importance of Iran's support for Hezbollah in its war with Israel last July and August.

As a rising power, the PRC is not interested in alienating or antagonizing the United States, and this is an important point. As a rising power, the PRC is not interested in alienating or antagonizing the United States. So the trick is to cooperate sufficiently on issues of utmost concern to Washington, but never to allow its own leverage to be jeopardized in the process.

The purpose underlying this strategy is not necessarily to genuinely cooperate with the United States, but only to create a semblance of cooperation. Thus China is cooperating with us in the U.S.-North Korea nuclear conflict. However, it is not likely to put sufficient pressure on Pyongyang to resolve the conflict. Keeping the U.S. engaged in the Korean peninsula serves China's interest, especially slowing down the pace of Japan's militarization, but not necessarily the resolution of that conflict in the near future.

Iran knows that its best course is not to provide military assistance to its allies in Iraq in the realm of -- Iran knows that its best course is to provide military assistance to its allies in Iraq in the realm of asymmetric warfare in order to "tie down Gulliver," unquote, through low-intensity conflict.

Iran's strategy is the classic strategy of the weak. As a weak power, it behooves Iran to avoid direct military confrontation with the U.S. at all costs. In the meantime, it has found an ideal place, Iraq, to intensify asymmetric warfare, which is intermingled with a palpable touch of China's own concept of unrestricted war.

Thus, for Iran, the battlefield where it could confront the United States includes Iraq, Lebanon and Afghanistan. Of these three places, Iran has the least advantage in Afghanistan, because a small portion of the population of that country is Shi'a. However, the age- old Iranian pragmatism is likely to eventually find an alliance with al Qaeda in order to prolong the entanglement of the United States in Afghanistan. Remember, al Qaeda has been resurging in Afghanistan in the past few months.

Let me just make one more observation about China on strategic cooperation. In the complex, multifaceted ties between China and Iran, the latter has an exaggerated view of the capabilities of the former about confronting the Bush administration or about China's willingness to support Iran, especially in its ongoing nuclear conflict with the U.S.

It is possible for the Bush administration to find avenues to entice China to lower its support for Iran. However, what is not certain is whether the Bush administration would go to any extent to entice China away from Iran.

Despite taking a confrontational attitude toward the United States for the past several decades, Iran is trying to engage the lone superpower for the purpose of reaching what Henry Kissinger has recently advocated, a grand bargain.

Thank you.

MR. : Thank you, Mr. Ahrari.

Mr. Berman?



Vice President for Policy, American Foreign Policy Council


MR. BERMAN: Well, thank you very much. And I appreciate the opportunity to be here and to talk about the Sino-Iranian strategic relationship, because this is really, I think, a cardinal issue that's facing us today, particularly as we have -- the August 30th deadline of the United Nations has come and gone, and we are now in the midst of a very serious discussion about next steps with regard to Iran.

You have in front of you my prepared remarks. With your indulgence, I'll just walk through some of the main points and try to bring in some others.

First of all, it's clear that China -- a good baseline assumption to start from is that China has not been helpful in resolving the Iranian nuclear crisis. And I know, in his testimony in the previous panel, Secretary Rodman said that China is less important than the Europeans. But I hold a somewhat different view, and I'll explain why.

So what exactly drives Chinese obstructionism? And my argument here is that, to simplify very much on what Dr. Calabrese wrote in his policy brief, it's essentially two issues, a primary and a secondary.

The primary is energy. And it's very often, because energy is far less attractive to talk about than geopolitics and geostrategy, that energy is sort of left by the wayside. But I think if you look at the numbers, the case is very compelling for why this relationship is so strong.

For the last three years, since 2003, the PRC has become the world's second-largest consumer of oil and petroleum products. And that consumption is widening. And the fact that consumption is accelerating is widening the gap between what the People's Republic needs to consume and what it can produce internally.

So what you have is you have a ballooning reliance on foreign sources of oil and petroleum products to satisfy China's economic growth. By 2020, according to some estimates, China's energy deficit, oil deficit, could top 8 million barrels a day, which is a substantial amount. And Iran has positioned itself to play a very deciding role here.

Iran is now, as a result of the deals that it's signed over the last couple of years, China's top supplier of oil. It supplies about 15 percent or more of Chinese import totals annually. And that dependence is going to increase over the next several years.

The Chinese and the Iranians have hammered out a series of very lucrative deals over the last two years that put their relationship, as other witnesses have said at other hearings, at a price tag of $120 billion or more over the next 25 years. And that means that as these investments that the Chinese are making in Iranian energy come online, the relationship is going to deepen; it's not going to lessen.

The second point is something that the previous witnesses alluded to, which is anti-unipolarity, essentially. China is pursuing a very subtle nuanced diplomatic strategy to engage and leverage bilateral relationships through robust diplomacy, through economic trade, in a way that disadvantages the United States. It's doing so both for internal economic reasons, but also doing so for geopolitical reasons.

And it's found a willing partner in Iran, because the Iranians are feeling -- the Iranians remember very well the lessons of the 1990s, 1980s, where they were essentially internationally isolated. The Iranians now have a trump card. They are a bona fide energy superpower, and they are leveraging this to engage a number of countries. And China's emergence is a very big one in their economic calculus and their political calculus.

These trends have found their expression in a very robust, and increasingly so, proliferation partnership and in an increasingly robust security cooperation (condominium ?) that they're establishing.

On the proliferation front, you can sort of run the gamut. In my testimony I talk about the different areas of proliferation. But there's a couple of key points to highlight. The Iranians, since the Iran-Iraq war, have been engaged in a multispectrum military modernization, certainly more modest than what China has been doing, but fairly substantial nonetheless.

Iran is not a threat in conventional military terms to the United States, but Iran is still head and shoulders above its peer competitors in the region in terms of the capabilities that they bring to bear. The central element of Iran's military rearmament has been its naval modernization, and China has been instrumental in doing so.

And as a direct result of what China has provided to Iran, the intelligence estimates from the United States now say that Iran has the ability to project power southward into the Strait of Hormuz in such a way that it can shut off the flow of oil from the Persian Gulf for brief periods of time, even with a U.S. presence in the region, which is significant for those of us that parse those intelligence statements, because a few years ago it was "may have the ability." Now it's "can have the ability." So there's obviously an aggregate increase in Iran's ability to project power.

The other thing that I would point out -- I notice I'm running out of time -- but the other thing I would point out is on issues like ballistic missile transfers, transfers of technology, transfers of know-how, the Chinese are transferring technology that is then transferred onward.

In the recent July-August 33-day war between Israel and Hezbollah in Lebanon, in the middle of July there was an Israeli warship called Ahi-Hanit which was hit and disabled by an Iranian variant of a C-802 cruise missile. And this was a missile, obviously of Chinese origin -- at least the design was Chinese origin; it was an Iranian- manufactured missile.

But it was also something that, very significantly, Israeli officials, Israeli intelligence officials, did not know that Hezbollah possessed, which means that there's technology transfer that's going on very robustly that's increasing the capabilities of Iran's proxy groups.

And here it's important to remember that Iran is the world's leading state sponsor of terrorism. So the fact that the conduits are in place and that there's technology flowing in on one end might mean, as we're seeing, that it might be flowing out the other end.

The other issue is the Shanghai Cooperation Organization. And Dr. Ahrari talked a bit about that. For the sake of brevity, I'll simply mention the fact that this partnership -- and there's obviously institutional impediments, and this is why the Chinese have not actually verbalized, in a very official sense, that they want Iran to expand its membership from simply observer status to full membership -- but if that relationship becomes a reality, if that bloc becomes a reality in the way that the Iranians are envisioning it -- and the Iranians have a very big vested interest in actually becoming a full member, because, after all, they're the ones in the hot seat over their nuclear program. They know the lessons of NATO very well. The idea that SCO might be expanded to also include collective security guarantees certainly has not escaped officials in Tehran.

If that's the case, what you're looking at is a situation where, if it becomes a reality, you have an energy-rich bloc that has nuclear weapons that stretches from the Strait of Taiwan to the Strait of Hormuz. And this is, I think, while certainly far off, if not an immediate thing, it's certainly something that we should be working to prevent. This would be very much a detriment to U.S. policy.

Let me finish with a minute on the nuclear issue, because I think this is very important. China and Russia hold the decisive -- because of their membership in the Security Council, hold the decisive role in resolving this issue, if it is to be resolved diplomatically. Right now there's a discussion about what our next steps could be, and there's very much hope that it can be resolved through negotiations or potentially through sanctions, essentially short of military force.

The Chinese have worked fairly consistently to stymie the application of sanctions. And this is, in my estimation, a very dangerous game of brinksmanship, because I don't think there's very good understanding of what our next steps are. We have very few arrows in our quiver to deal with Iran.

And the process of escalation to me seems very clear. It's going to be sanctions. If those are applied properly, perhaps there's a resolution. If not, then there's obviously an escalation to other measures. And China's role in resolving this peacefully is pivotal. But so far Chinese policymakers have been obstructionist, and they've been obstructionist for a very clear reason.

By way of comparison, the robustness of the Chinese-Iranian energy relationship is such that it's equivalent, roughly, to our relationship with Saudi Arabia. And it obviously wouldn't pass the laugh test if someone came to us and said, "Next week you will cease receiving oil supplies from Saudi Arabia." Particularly it wouldn't pass the laugh test if there was nothing offered in return. And this is something that I think we need to consider.

The reason the Chinese policymakers are studiously avoiding making a choice is logical. The reason we have a lack of coherence in our policy is not. Secretary Rodman talked about the fact that -- I think the word he used was "China is tempted to seek partnerships with rogue nations."

When it comes to Iran, "tempted" is not a very good word. I think "compelled" is a very good word. And the reason that relationship is so strong right now, in my estimation, is that China has not been forced to make a choice. We've sent very mixed signals. We obviously have not decided what policy we want to pursue. Do we want to engage? Do we want to negotiate? Do we want to sanction?

This has been quite clear in the last couple of weeks, essentially. And what we've also done is we've muddled Chinese intelligence estimates by having these conflicting time lines that we've put out, whereas the DNI talked about Iran being a decade away from a nuclear weapon and the Pentagon talking about Iran being five years away from a nuclear weapon. You have these conflicting time lines that have caused a lot of confusion among PRC policymakers.

This is, in my estimation, very much our shortcoming, because China's central role in the peaceful resolution of this conflict means that our policy should be aimed at providing the Chinese government with the proper information about the scope and maturity of the Iranian threat, and also essentially providing them with incentives to make the correct choice.

Thank you.

MR. : Thank you. Thank you both.

My question for both of you is something that was triggered by Mr. Berman's testimony, and that is, it seems like we're moving down the road of trying to get some sort of sanctions on Iran.

And is it possible to have, which I asked Secretary Rodman and Secretary DeSutter beforehand, is it possible to have any type of meaningful sanctions on Iran to meet our objectives of ceasing this enrichment program if China continues -- first of all, doesn't sign up to the sanctions; I mean, sanctions out of the U.N. Security Council, sort of a coalition of the willing type of sanctions.

If China not only doesn't cease its activities in support of Iran and sort of helping it ends its isolation, but, in fact, continues with its energy investments, continues with its fairly robust, as you lay out, program of military assistance, I mean, is there any successful policy that we have here if China is not on board?

MR. BERMAN: Let me tackle that and I'll pass the baton. This is actually something that I've studied for a while, because it's been quite clear to me for some time that we're heading into sanctions season.

What you're looking at essentially is three vulnerabilities in the Iranian economy. There's foreign direct investment that will require about a billion dollars in FDI to continue producing oil at the current rate and about a billion-five to increase production.

You have a very pyramid-like hierarchy with regard to Chinese -- excuse me, with regard to Iranian economic power. You have about roughly 40, 50, 60 people that control the bulk of the Iranian economy. So obviously there are measures that you can implement here that would cease allowing them to do business as usual -- seizing assets, freezing their ability to travel, things like that.

And the third thing, which is the big one, is Iran's reliance on imports of refined petroleum products from abroad, somebody like India, Turkey and the Gulf states. And that accounts for about 40 percent of their annual consumption, total gasoline consumption.

And so the short answer is yes, it's possible, because the U.N. sanctions essentially are targeting only the first two. U.N. sanctions are intended to chill investor confidence in Iran, and obviously China is a huge investor in Iran. And also, in some measure, if they're effective, we're going to be looking at smart sanctions -- travel bans, asset freezes, things like that.

You can do this without Chinese support if China abstains. China, though, I suspect, is not going to be very helpful on at least the FDI portion because of the scope of their investment in Iran. However, if you go outside of the Security Council and talk about an economic coalition of the willing, things like gasoline provision to Iran is something that China does not excel in.

This is something that can be done without China's support. China could obviously be obstructionist with the country that we need to pressure, but this is something in which China does not play an intrinsic role, which is, by the way, why I'm an advocate of doing sanctions outside of the Security Council, because you have both the ability to choose your coalition and the ability to apply sanctions timed such to really affect the Iranian economy as much as possible.

MR. : Mr. Ahrari?

MR. AHRARI: A coalition of the willing -- I think it's falling apart. I mean, the transatlantic rift on Iran is developing. I mean, as I see it, if we were not to give Iran more time and keep on engaging Iran, my sense is that countries like Italy and Spain and even France probably are not going to cooperate with us.

MR. : I'm sorry, you said if we do not give them more time?

MR. AHRARI: If we do not -- if we were not to engage Iran and give Iran more time and insist on sanctions in the short run, I don't think it behooves us -- I don't think it's going to benefit us.

Now, sanctions are hurting Iran. I mean, on the selective sanctions, most recently, you saw there was a civilian plane accident and the Iranian government was very bitter about how much it's hurting, because of U.S. sanctions, how much it's hurting their civil air industry, you know, under international sanctions.

The Europeans have been quite cooperative. But my sense is that between now and the next six months to nine months or a year, if we were to insist on short-term sanctions, it's going to hurt us.

MR. : Okay, thank you.

Commissioner Donnelly and then Commissioner Bartholomew.

THOMAS DONNELLY (commission member): Listening to this testimony, and also the previous testimony, if anything, I would say the situation is worse than we contemplate; that the real and sort of profoundly dangerous development is not simply Iran's drive to acquire nuclear weapons or its support for terrorism, but its broader drive for hegemony in the region. And if that came to pass, that would contravene American strategy going back to the Carter doctrine and then elaborated and supported by every administration since then.

It would seem to me it would also pull the cornerstone out of not only the regional security order but the international security order. It would, you know, cause economic repercussions and geopolitical repercussions. And so China's enabling -- we were talking to Secretary Rodman particularly about what makes or what's the test of China's role as a stakeholder in the international system, and he agreed that it was not simply a passive support for the international order but required China to do things actively and take some risks and to spend some political capital in order to maintain that order.

But it seems to me there would be nothing so corrosive to the international order -- again, not simply the regional order, but certainly the regional order in the Persian Gulf and in the Islamic world -- than to see Iran emerge as a de facto or declared great power or regional hegemon.

And I'm not sure -- I guess my question is whether the Chinese genuinely contemplate this, really understand how crucially strategically important this is; and second, if they do grasp that, whether that isn't about the most hostile acts that one could imagine. You know, if they perceive the stakes at risk, do they not also understand the body blow that that would give to the broader international order?

MR. AHRARI: I don't see --

MR. DONNELLY: To both of you.

MR. AHRARI: Pardon me. I don't see China looking at Iran as a threat. I don't think China is bothered by Iran's --

MR. DONNELLY: So China is willing to live with Iranian hegemony in the Persian Gulf?

MR. AHRARI: Well, as long as it's not going to affect energy supplies. But, you see, China's --

MR. DONNELLY: So for cheap oil they'll tolerate Iranian hegemony.

MR. AHRARI: China is playing a very sophisticated role in the Middle East. I mean, it's dealing with Saudi Arabia and it's trying to assuage the fears of Saudi Arabia from Iraq. And then you have Saudi-Iranian strategic cooperation that has developed from 2001 and on. So we're getting that.

Saudi Arabia and Iran don't have very many major issues, especially in the post-9/11 era. And, you know, if Iran were to become a nuclear power, yes, that's a different story. But Saudis are going along with Iranian assurances that Iran has no intention of becoming a nuclear power. If that were to happen, that's a different story.

MR. DONNELLY: I think the Saudi attitude towards whether it's motivated by Persian nationalism or Shi'a revolutionary fervor -- I can't imagine the Saudis being real comfortable with Iranian hegemony in the region. But setting that aside, what I'm interested in is China's attitude toward the prospects of Iran and dominance in the region. And, you know, again, if they grasp -- if they don't grasp that, why not? And if they do grasp that, what do they think they're doing?

MR. BERMAN: Well, let me try to answer in 10 seconds on the Saudis before we get off that subject, because I think it's very interesting.

One of the collateral effects that is widely recognized of Iranian nuclearization, or of Iran getting closer to the nuclear threshold, is going to be a new arms race, likely nuclear, in the Middle East. The Saudis are already making moves to modernize their strategic arsenal, and the strategic arsenal comes from China. So I think what you're seeing here is a situation where you could have a very unhealthy dynamic sort of develop where the new arms race will be fed by arms from Russia and from China, but in a way that benefits these countries and makes them less than constructive actors in slowing down the pace of the Iranian nuclear development.

On the issue of China sanctioning essentially a nuclear Iran and Iraninian hegemony, I think Dr. Ahrari's exactly right. I think the Chinese do not see a direct threat from Iran, even, I would say, from an Iran armed with nuclear weapons. What it does, though, from the Iranian perspective -

MR. DONNELLY: A threat to China or to the region?

MR. BERMAN: To China.

MR. DONNELLY: Okay, so -

MR. BERMAN: To China.

MR. DONNELLY: -- that's not a question. Well, so -- what is China's attitude towards Iran's ambitions in the region?

MR. BERMAN: I think it depends which region you're talking about. I mean, this is actually a very important distinction because Iran has essentially for the last decade and a half had a laissez- faire attitude toward Central Asia as a result of this (condominium ?) approach that they hammered out with the Russians. And therefore, Chinese and Iranian interests in that region haven't really conflicted up until now. Now Iran is sort of increasing its activism there, and you might have some friction.

With regard to the Middle East, I think the Chinese -- the predominant attitude of the Chinese -- and again, I'm an Iran specialist; I'm not a China specialist -- but the predominant attitude of China is that as long as the supplies of energy are stable and secure, we won't have such a problem.

And therefore, what you're seeing is, from the Iranian perspective -- the Iranians know very well that they could essentially could run out the clock on this nuclear program, provided they don't make any missteps. So when the Iranians bluster about that fact that they're going to shut off the flow from the Strait -- you know, through the Strait of Hormuz, they're going to basically shut off world oil supplies, this is bluster. This is exactly what it is. Because I would say that there's nothing, no single action they can do that would make more countries that are their client states proponents of regime change than that particular fact. So there are constraining factors on what Iranians can do. But provided they are on good behavior in a way the Chinese understand, I think the Chinese are willing to allow this process to go on.

MR. : Thank you.

Commissioner Bartholomew, and Mulloy, and D'Amato.

MS. BARTHOLOMEW: Thank you very much. I have three questions, the first of which ties into this bigger question we've been talking about and thinking about -- how we define our interests, how the Chinese government defines its interests, whether they are defined in the same way, and what we do when they aren't.

I was going to ask a variation on Commissioner Donnelly, which is, sort of, is there any reason to believe that the Chinese government would care whether Iran has nuclear weapons outside of the fact that we have made it an issue and say that we care about it, and we believe that it's a dangerous trend? But given what you said, Mr. Berman, about the -- about -- I mean, essentially what you've said, if I understand it correctly, is that the Chinese are materially benefiting from what is becoming or very well could become an arms race -- a nuclear arms race and an arms race in the Middle East. So it's not just whether they even care whether it takes place but that they actually have reason to fuel it? Did I understand that correctly?

MR. BERMAN: I think in a modest way, at least for the time being, I think that's correct. What they see is -- I mean, quite clearly, the money -- if Saudi Arabia does decide to modernize its strategic arsenal, and there's a lot of signs that is, it will now be looking towards a new series of missiles. They will be looking towards the CSS-class missiles that they've obtained from China. And therefore, the modernization of all of these states that are in some ways clients obviously has to factor into their geoeconomic policymaking -- decision making. And that's, I think, a significant factor. We really haven't begin to talk about that very much, but there's a very good case to be made that China is -- will benefit as we go forward materially from instability resulting from the Iranian nuclear program.

MS. BARTHOLOMEW: Doctor Ahrari, any comment on that?

MR. AHRARI: Ma'am, China lives in a neighborhood where -- (word inaudible) -- competition has been -- (inaudible) -- for the past 10, 15 years. So why should China be afraid of a nuclear Iran when China is not afraid of a nuclear India, and when China has played such a crucial role in the evolution of a (nuclear party start ?). This is where we have clash of interests. See, I respectfully, wholeheartedly disagree with Mr. Rodman's suggestion about stakeholder. What stakeholder? China, as I said at the outset, China is not interested in having a unified global order. China and Russia have been arguing against it. They have been successfully talking to as number of actors, including India, by the way, about the evolution of a multipolar global order.

So China's stakes are different. China's number one stake is energy. That's what China wants from -- Darfur. I mean, this is a classic example of why China does not seem to realize it's a shameful act. But that's how China sees it. That's -- you know, it's getting $7 billion worth of energy contracts signed with the government of Sudan. And of course, you know in China trade is developing, you know, $7 billion right now. It's expected to project somewhere between 15 (billion dollars) to 20 billion (dollars) in the next few years, and nuclear energy's playing a very important role. Of course, you know in a lot of open sources that you see, China is playing a very crucial role in the transfer of nuclear technology to Iran, and that's also a source of cash for China.

One more point about FDI, and Mr. Berman talked about FDI -- one of the reasons China is not -- Iran is not getting FDI has nothing to do with sanctions and all that stuff. Iran's economy is in a state of shambles. The bonyads, you know, those foundations, are totally corrupt, and Iran's economy is the saddest economy. So Iran has to take a number of measures. In fact, I would say that in the past three or four years, Iran has been studying the Chinese model of economic progress to attract a lot of international capital, and that's where China -- it behooves Iran that there ought to emerge some sort of transnational (rift ?) so that in can invite European capital and European -- (word inaudible) -- because it badly needs that -- (word inaudible) -- in terms of developing its civilian infrastructure as well as other projects.

MR. BERMAN: Let me just insert one thing, because I think Dr. Ahrari picked up on something that's very important -- this idea of a China model. There is a China model economically that the Iranians have talked about. But there's also a China model politically that the Iranians have very much seized upon. This is essentially the example of Tiananmen Square. The Iranians have staked a claim towards nuclear possession as a way of regime stability, and this is not just external, not to just avoid invasion and regime change by the United States or somebody else. It's also to shift the balance of power with the domestic population. The example for the Iranians of Tiananmen Square was that if you are a nuclear power, you can essentially oppress your domestic population without any sort of consequences. You may be sanctioned diplomatically, you may be sanctioned economically even. Nobody's going to talk about regime change. And the closer Iran comes to a nuclear -- I mean, you're beginning to see this already, what the regime is doing in implementing internally. The closer they get to the nuclear threshold, the more free they are with relation to the liberties they take against their domestic population. I think that's something that needs to be kept in account.

MS. BARTHOLOMEW: I'll have a second round of questions.

MR. : Thank you. Okay. I think we all will, if I can get out of my depression. (Laughter.)

Commissioner Mulloy.

PATRICK A. MULLOY (commission member): Thank you, Mr. Chairman.

This is really interesting, and we had some testimony from Mr. Rodman and the State Department about the Security Council and the fact that August 30th has passed, and now we're kind of stymied because of Russia and China in the Security Council. We can't move further.

Mr. Ahrari, you have very interesting testimony on pages seven and eight of your prepared testimony where you say -- and I just want to try this out on Mr. Berman and then Mr. Ahrari -- he says, "Iran has frequently expressed the strong desire to engage in a comprehensive dialogue with the United States that would include ironclad security guarantees, cessation of all activities and nullification of legislation aimed at bringing about regime change in Iran, and access to cutting-edge civil and military technology." And then he says, "In return" -- now I don't know whether you're advocating this, but that's what you're saying -- "In return, Iran would abandon its Iranian enrichment program and make its nuclear activities fully transparent and available for inspection by the IAEA." From what I can see that you're saying there's a bilateral route rather than a multilateral route to resolve this problem.

What do you think of that, Mr. Berman?

And is that what you're really advocating, Mr. Ahrari?

MR. AHRARI: Yes, I am.

MR. BERMAN: I'm about halfway there, to be candid. I think they absolutely want a comprehensive dialogue. They want a grand bargain. By way of illustration, I was in the Gulf a couple months ago, and I had the opportunity to talk with Iranian officials. And essentially what they told me was something you don't hear in town very often, which is: "We don't think the United States has a leg to stand on, legitimately, about our nuclear program. We don't think that's the issue. We think the issue is regime change. We think this is a prop for the U.S. to change our regime. Therefore, what's our incentive to do a deal? Because you're just going to find another issue."

And this, I think, informs exactly strategy that they've been pursuing. They're trying to run out the clock as much as possible. They -- what they want is to be around in 10 years, or in 20 years, and therefore if a grand bargain that includes security guarantees and the cessation of legislation like the Iran Freedom Support Act is what gets them there, then fantastic. That's what gets them there. However, what's useful to remember -- and I differ with Dr. Ahrari on the nuclear issue because it's useful to remember that the nuclear issue is immensely popular among all segments of the Iranian population. This is something the regime has hit upon that's actually a very good, popular issue with a population that doesn't really like them very much. So you have not only an Islamist approach to the bomb, which the regime is pursuing, you also have a nationalist approach to the bomb, which is bubbling underneath. It's not at all assured that if the regime gives up the nuclear drive, there's not going to be serious repercussions from the Iranian street. This is something that they have to balance themselves, but I don't think it's assured that if we do a deal with the Iranians that we won't have to worry about an Iranian bomb.

MR. AHRARI: Well, see, a very important point -- Iran has never talked about the Islamist perspective on the bomb, unlike Pakistan. Pakistan talked about Islamic bomb. Iran never did, to the best of my knowledge. Iran has always talked about nationalistic perspectives on that.

But in light of what I said there, sir, I have been watching North Korea and Iran study each other's nuclear behavior -- nuclear performance. In my estimation, Iran is convinced that the only reason the United States is so eager to talk to North Korea, and the only reason the Bush administration kept on saying "We are not interested in regime change vis-a-vis North Korea and not vis-a-vis Iran" is because we have a suspicion that North Korea has already developed nuclear weapons. So in my humble opinion, Iran -- if you were -- if I were a betting man, I would say Iran would probably develop nuclear weapon in 10 to 15 years unless there is some sort of a major rapprochement toward the United States between the two countries whereby Iran has to have regime survival guarantees. Because in my estimation, as much as -- as long as I have been studying Iran and I've been talking and I am all -- (inaudible) -- in that part of the world, Iran right now is convinced that this notion of regime change is not just related to the current administration. The United States is -- has never forgiven Iran for the hostage crisis, and there has been a lot of bad blood between the United States and Iran. So unless that happens, in my estimation, Iran is committed to developing nuclear weapons, and it is an issue of nationalism and not an issue of Islam.

MR. MULLOY: It was very interesting. Mr. Berman, you did suggest in that -- this idea of bilateral negotiations between Iran and the United States to resolve outstanding issues, including, as Mr. Ahrari says, negotiated -- helping with the negotiated solution to the PLO-Israeli conflict and stopping military support for Hezbollah. You don't think that's a terribly --

MR. BERMAN: I don't. I mean, I think it goes to the character of the regime in Tehran, essentially. The U.S., even before the GWOT, the global war on terror, has had three "no's", essentially, towards Iran. No, what we want is no proliferation -- no development of WMD proliferation -- no support for terrorist elements, and no obstructionism in the Israeli-Palestinian conflict. I am somewhat baffled by the idea that, you know, this is a continuum here. I mean, the regime has been -- this regime has been unwilling to do even one of those three things --


MR. BERMAN: -- for a very long period of time over the last quarter century. It seems to me that, you know, we've tried to engage them again and again, and you have to come to the assumption that this is sort of a facet of their character. I mean, you're not going to be able to get legitimate, long-term security guarantees that you can take to the bank on any of these three issues. If we can come some of the way -- you know, if they stop support for terrorism, if they stop obstructing Palestinian-Israeli peace -- I think, you know, you get a very large chunk of what you want. But so far, they haven't even shown their willingness to do that, and in fact, they're becoming -- because with the removal of Saddam Hussein's regime, they are the regional hegemon, essentially. I would argue that they already think that they are. They have less incentive than they did a couple of years ago to be constructive on this.

What baffles me the most is when people say, "We have to talk to the Iranians because we're having all sorts of problems in the region." It presupposes that if we get to the negotiating table, they'll already be there. Why would they be there?

MR. MULLOY: Thank you very much. Very helpful.

MR. : Commissioner D'Amato, and then Commissioner Thompson.

RICHARD D'AMATO (commission member): Thank you, Mr. Chairman, and thank you both for your interesting testimony.

I just want to get on the record as precise an assessment as we can about the nature of the Chinese support for the Iranian nuclear development. To what extent is Chinese support central, as opposed to the contribution of other states such as the European states or the Russians? To what extent is that support increasing or decreasing in the last couple of years?

Mr. Ahrari, you said that the Chinese role is crucial here -- just as specific as you can each get about the importance of that contribution, and whether you see it increasing or decreasing. In other words, is our leverage going to increase or decrease over time here?

MR. BERMAN: Well, let me try my hand at this. I think what's useful is a further distinction even of what you said, which is there's such a thing as linear assistance and linear nuclear development and nonlinear nuclear development. China -- we talk about China as assisting the Iranian nuclear program in a linear sense, meaning they provide technology, the Iranians move forward on their indigenous program. There's a whole nonlinear track that we really don't talk about, which is, for example, their contacts with the nuclear cartel of Pakistani scientist A.Q. Khan and how that creates asymmetric leaps in their nuclear program, things like that.

China has, because of increasingly robust legislation, increasingly robust sanctions measures against Chinese entities, has actually drawn down its -- the Chinese entities, at least to the best of my understanding, the Chinese entities are engaged in providing technology, providing nuclear know-how to the Iranians over the last couple of years. But what's increased as that has gone down has been Chinese obstructionism and Chinese moral support for the Iranian nuclear program writ large, which creates this sort of international deadlock that you see now and allows the Iranians to forge ahead on the nonlinear acquisition side.

MR. D'AMATO: Mr. Ahrari, do you --

MR. AHRARI: Well, I want to stay away from linear and nonlinear and -- it's too complicated. (Laughter.)

I would say that -- that China is playing a very crucial role in training Iran's nuclear physicists, which is a very important role, because it's creating a generation of nuclear scientists. China has played a very crucial role in the uranium enrichment, their transfer of uranium enrichment program. And there are a lot of ways -- it befuddles me, you know, the way our government works; we cannot develop a very comprehensive understanding.

But you know, the way I look at -- somebody asked a question here -- I think one of you asked the question to Mr. Rodman about how much of -- Iranian missiles are from China and from Korea. See, those kinds of distinctions are important because, I think, in my estimation -- and I don't have -- I didn't bring all the data to prove it -- my sense is that North Korea and China, as well as Russia, are playing a very crucial role in the transfer of technology -- nuclear technology, missile technology, cruise missile technology, ballistic missile technology, and, of course, development of nuclear physicists.

Now, if you were to ask me to establish a hierarchy, I would say China and Russia -- I would put them in the same category. And of course, in the second category, I would put North Korea and Pakistan. Of course, Pakistan has not played that much of a role, you know, since the rogue scientist got caught, but there is a lot of communication, there's a lot of formal and informal exchanges between North Korea and Iran. Because I have been watching, I've been looking at a variety of sources, as a result of which -- like I say, if I were a betting man, I would say Iran is going to be the next nuclear power in the next five or 10 years, depending upon how the international involvement is, what the international involvement is going to look like, and depending upon what kind of ties Iran is going to develop vis-a-vis the United States. Because nobody else cares whether Iran becomes a nuclear power or not. I think the Europeans would go along, and China, as I said earlier, doesn't care, but it is playing a very crucial role.

MR. D'AMATO: Thank you.

Mr. Berman, did you want to --

MR. BERMAN: No, no. I'm good, I think.

MR. : Commissioner Thompson.

FRED D. THOMPSON (commission member): Yes, thank you, gentlemen. And I apologize for coming in late, and if I attribute something to you that's not correct you straighten me out. I just picked up on the tail end. But I'm interested in the notion of Iranian concern about our efforts with regard to Iranian regime change.

You know, it's been much to the consternation of many people here in the country that the perception is we've done little or nothing to try to foster regime change. And it'll come as a surprise to many of the Iranian critics here that they are concerned and willing to perhaps even put their nuclear activities on the table in discussing an ironclad commitment, as you put it, for regime change. Is there any -- what do you think the Iranians perceive that we have done or are capable of doing, really, to -- we've appropriated a little money in Congress, as I recall, back a couple of years ago. But all the criticism here has been that we've done absolutely nothing here, and a lot of people see it as our only option for doing anything, since the military option seems to be off the table with regard to most people.

And so what do you think about that, Mr. Berman, first?

MR. BERMAN: Well, I think that's generally correct. I would say that we've done a little. We've done a little and it's made both the regime and the people dissatisfied, so we've really satisfied nobody. What we've done, essentially -- and it's useful to look at sort of what the demographic breakout is of Iran. Iran's a country of 70 million people, but it has a demographic bulge. Two-thirds of the Iranian people are 35 or under, so 55 million people, essentially. This is the group that's going to inherit Iran, irrespective of what happens with the nuclear program, this is the group that's going to inherit Iran in a decade, a decade and a half.

What we've done essentially over the last month has been to roll back what has been a long-standing policy and to inject a lot of confusion into the Iranian opposition. We still have -- as far as I know, he's still in the country -- the former Iranian president, Mohammed Khatami, who's visiting, and he was feted at the National Cathedral, he just spoke at Harvard. And by inviting him, by approving his visa -- and by the way, the visa was approved by Secretary of State Rice and the president himself. We've essentially sent two messages to the Iranians, both Iranians -- the Iranian regime and the Iranian people.

To the Iranian regime we've said you guys are doing a lot of bad things. You're interfering in Iraq, you're building a nuclear weapon, you're doing et cetera, et cetera, et cetera. We are so concerned about one aspect of your rogue behavior that we're willing to forgive, essentially, all the others. That's not a moderating statement; that's actually an emboldening statement for them to continue their rogue behavior. At the same time, the message that we sent by entertaining the notion of direct negotiations for the first time in 27 years, the message we sent to the Iranian opposition, the people who are going to inherit Iran, is we support your urge for freedom in principle, but we're so concerned about this one issue that we're willing, essentially, to lay it on the table and to give it away to the regime. And that's a very easy way to lose a constituency of 55 million people in the battle for hearts and minds.

MR. THOMPSON: Let me --

MR. AHRARI: May I (answer the ?) question?

MR. THOMPSON: Yes, sir.

MR. AHRARI: You asked what have we done, and I have a one-word answer for you: Saddam. They have watched -- Iran has watched what has happened to Saddam's regime. The Iranians have studied our QDR; the Iranians have studied our national security strategy. Iran has been studying President Bush's West Point speech, his most quoted statement in the Iranian press -- most quoted statement. And every Iranian politician you talk to, he will say how dedicated the -- how serious, I would say, not dedicated -- serious the United States is about the potential regime change, or how committed the United States is --

MR. THOMPSON: Well, I assume that those same people, though, look at American polls, know something about American politics, and they're behaving otherwise, like Iraq is giving them new life, if nothing else. Look at what's happening in Lebanon and the rest of the Middle East. They're now looked upon as a hegemonic power in that area. I would think that -- I'm not necessarily saying I agree with it, but most people seem to think that the lesson of Iraq for Iran is that they're much less likely.

So I think -- I would guess from this far distance that what they're saying and doing is for -- is for consituent consumption. (Audio break.)

MR. BERMAN: (In progress following audio break) -- need to be slowed down because all of the sudden we're talking nice to them. And this is, I think, an interesting point because in the Middle East, specifically, perceptions tend to account for a lot, and the perception that we're bogged down in Iraq, the perception that if they can complicate Iraq further for us, U.S.-assisted regime change will not migrate across the border because Iran is next door.

That is an aggregate benefit for the Iranian regime. They -- as much as they say so publicly, privately they're very invested in maintaining this source of instability because they know that the focus will not shift to them as long as we're paying attention next door. And all of the things that they're pursuing -- and the nuclear issues, by the way, in this context, the nuclear issues is much more of a timing issue than anything else. The nuclear threat is a big one, but everything in the region gets worse the closer the Iranians get to a nuclear bomb -- this arms race, stability in Iraq, et cetera. That's why, one of the reasons why the nuclear issue is so important, because unless it's dealt with, there's going to be all sorts of adverse collateral effects.

But the -- I mean, the Bush administration has, I would say, made enough of a reversal of course to confuse the Iranian opposition wholeheartedly with regard to whether or not it actually supports regime change. It's done nothing to dampen the antagonism of the Iranian regime, though, which I think tells you something about their long-term objectives.

MR. : Well, I think history would suggest that the simple fact that the State Department has said something doesn't necessarily convince everyone that the United States government's policy has changed. It's not exactly a new development.

MR. BERMAN: It depends whose State Department, I would think.

MR. : Well, let me -- I'm running low on time here. Let me ask a slightly different question, if I may. And Dr. Ahrari, we'll save your reaction for another moment.

Mr. Berman, you referred much earlier to Chinese investment in the energy sector in Iran. Why haven't we imposed sanctions against the Chinese under the Iran-Libya Sanctions Act?

MR. BERMAN: That's a very good question. I would say this and knowing that there are members of the commission who have been involved in the Iran-Libya Sanctions Act. I would say the Iran-Libya Sanctions Act on paper is a superb piece of legislation. What's missing from its application is political will. There is simply not been political will from this administration or the previous one to apply sanctions in a way that would be robust, because the understanding is that there will be all sorts of collateral, economic crises with China or with Germany or with France or what have you.

It also is a vehicle, but it requires activation in order to work. And the same argument can go in spades for the Iran Freedom Support Act, which is now being considered by Congress. There are even more serious sanctions measures that are encapsulated in IFSA, but they still require political will on the part of the executive to execute them. And so far, unfortunately, you know, we've talked a lot about our support for freedom in Iran and our support for -- that's not me -- (laughs) -- but our support for helping the Iranian people change their regime. But in practical measures, doing things like de- funding this regime, we haven't done.

MR. : Well, I certainly agree that on the political will question. I don't agree that it's a good piece of legislation. It's extraterritorial. It's a terrible piece of legislation, and the Iran Freedom Support Act is even worse. However, I take the point about why we haven't imposed them. It seems to me it reflects the fundamental dilemma of statutes like that that put the administration in an awkward position. If they do demonstrate the political will you suggest, then they're going to have all the ancillary problems with the Europeans, the Japanese. And why don't we have one more question?

How do you think the Chinese would react if we did impose sanctions under ILSA?

MR. BERMAN: Oh, poorly. And -- but the point is here, and I think this is something that needs to be telegraphed. And I get this a lot. I tend to travel a fair amount and I get this everywhere I go -- in the Gulf, in Europe, everywhere. There is an understanding on the part of foreign officials that this is a problem and there's also an idea that well, we can do whatever we want to do because at the end of the day, the U.S. will fix it.

MR. : What is the "this" that's a problem --

MR. BERMAN: Well, the Iranian nuclear issue, the sort of Iranian nuclearization, the crisis. And this is, I think, problematic because there's no corresponding intuition on the part of these officials that says, okay, if the natural progression is sanctions, increasing in robust sanctions perhaps outside of the U.N., and then the possibility the application of military force, there should be an understanding that it's in their aggregate benefit that sanctions obviously are less invasive, less destructive than military action.

There is no, unfortunately, as sort of as I see it -- on the part of these officials, there is this understanding that military action is bad and therefore nobody will do it, end period, end of story. And I think that doesn't really encapsulate the totality of the issues.

MR. : Well, we could go on, but my time is up, and so is the panel's, I think.

MR. : Thank you. Thank you very much for very helpful testimony and Q&A. And we are now dismissed for lunch.