SEN. RICHARD G. LUGAR (R-IN): This hearing of the Senate Foreign Relations Committee is called to order.

The committee meets today to continue our examination of United States policy toward Iran.

This is the second hearing of a two-part series. Yesterday we focused our attention on the status of Iran's nuclear program and on analysis of Iran's motivations and strategies.

Today, we'll evaluate the options available to deal with these challenges.

The Bush administration has been attempting to build a cohesive international coalition capable of applying economic and diplomatic pressure on Iran, that would have the potential to dissuade it from continuing its drive toward a nuclear weapons program.

Through efforts to attain a Security Council consensus on a firm response to Iran's action -- these have not been successful, primarily because of resistance from Russia and China. Diplomacy, backed by multilateral sanctions, remains the focus of United States policy.

Our witnesses yesterday judge that Iranian acquisition of nuclear weapons is not inevitable, though they underscored that a nuclear weapons capability is an extremely important Iranian goal that would be given up only grudgingly. They noted that the Iranian leadership is pursuing nuclear weapons for a number of reasons, including self- defense, Iranian national pride and regional influence.

But as several of our witnesses asserted, the Iranian leadership is faced with economic problems that could be exacerbated by multilateral sanctions and international isolation. In contrast, a verifiable resolution of the nuclear problem could result in long-term economic benefits flowing to Iran, including much needed Western investment in the energy sector.

Our witnesses also emphasized that Iran's government is far from monolithic. Factions and personalities in Tehran have varying priorities that could lead to diplomatic opportunities.

The witnesses generally shared the view that no diplomatic options -- including direct talks -- should be taken off the table. Direct talks may in some circumstances be useful in demonstrating to our allies our commitment to diplomacy, dispelling anti-American rumors among the Iranian people, preventing Iranian misinterpretation of our goals, or reducing the risk of accidental escalation.

Our policies and our communications must be clear, precise and confident, without becoming inflexible.

I noted a comment by Dr. Henry Kissinger in an op-ed on Iran that appeared in Tuesday's Washington Post.

Dr. Kissinger wrote, and I quote, "The diplomacy appropriate to denuclearization is comparable to the containment policy that helped win the Cold War: i.e., no preemptive challenge to the external security of the adversary, but firm resistance to attempts to project its power abroad, and reliance on domestic forces to bring about internal change. It was precisely such a nuanced policy that caused President Ronald Reagan to invite Soviet leader Leonid Brezhnev to a dialogue within weeks of labeling the Soviet Union 'the evil empire,'" end of quote from Dr. Kissinger.

Now, Dr. Kissinger's analogy, as well as the testimony we heard yesterday, reinforce the point that Iran poses a sophisticated policy challenge that will require the nuanced use of a range of diplomatic and economic tools.

To discuss how such tools might be applied, we are joined today by four distinguished experts.

We welcome Mr. Frank Wisner, the former ambassador to India, currently vice chairman for external affairs at the American International Group, and a frequent witness throughout the years. We are especially pleased to have him again today.

Dr. Vali Nasr, a professor national security affairs at the U.S. Naval Postgraduate School in Monterey, California; Ms. Julia Nanay, a senior director at PFC Energy in Washington; and Mr. James Phillips, a research fellow in Middle Eastern affairs at the Heritage Foundation.

We thank our witnesses for joining us today. We look forward to their insights on the policy options to the United States.

Before calling upon our witnesses, I would like to call upon our distinguished ranking member, Senator Biden, for his opening statement.

 

OPENING STATEMENT OF

JOE BIDEN
A Senator from Delaware, and
Ranking Member, Senate Foreign Relations Committee

 

SEN. JOSEPH R. BIDEN JR. (D-DE): Mr. Chairman, in the interest of saving time and not being redundant -- because much of my statement reflects what you have already said -- I ask unanimous consent that my statement be placed in the record in full.

SEN. LUGAR: It will be placed in the record in full.

SEN. BIDEN: I'll just make one brief addendum, one comment.

The headline in the New York Times today, the David Sanger piece about a new approach -- I think it's three years too late -- but new approach of this administration on North Korea is one that I hope permeates through the tundra or the frost down there, and makes it clear that what Dr. Kissinger referenced, the article you referenced, to what experience has demonstrated, and the abject failure of the policy thus far of once identifying the axis of evil, judged by their own measure, we are worse off in every circumstance of every nation that we identified as part of that axis.

I hope this causes a stirring of at least some intellectual debate by (ph) the administration about how to proceed. I hope they conclude that it is equally as reasonable to follow some version of the recommendations of you, of Dr. Kissinger, me and others, all slight variations.

And I'm anxious to hear from the witnesses. Yesterday we heard about the nature of the threat, the immanency of the threat, and about motivation on the part of the Iranians.

Today I hope our very distinguished panel speaks to options available that they would discuss forthrightly, whether or not what you have suggested, or I have suggested, or as recently as just yesterday -- or whatever day it was -- Dr. Kissinger's op-ed piece, I'd be very interested to know what their views on that specific proposal are, or that course recommendation is.

And so, I thank you, Mr. Chairman. I look forward to hearing the testimony of our witnesses.

SEN. LUGAR: Thank you, Senator Biden.

Senator Coleman, do you have any opening comment?

SEN. COLEMAN: Very briefly, Mr. Chairman. First, thank you for this hearing, for this focus (ph), because I think it's critically important.

Just three observations. One, it is clear that Iran cannot be allowed to develop nuclear weapons. That's the bottom line. How to ensure that is the great challenge. This is perplexing.

Two, regime change is in the best interests of this country. This is a regime in which you've got a president openly talking about the destruction of Israel. Hitler in "Mein Kampf" told us what he was going to do, and we didn't listen. Ahmadinejad says what he's going to do.

And three, I would just urge -- and I've read Dr. Kissinger's piece, and I think we would have to look at it carefully. He is talking about new diplomatic initiatives. He's not talking about engagement. He's not talking about fully working with this regime.

And lines of communication, if they can be done in a way that doesn't provide support for this regime, I think would make sense.

And the last comment is just, you know, today's Washington Post and quoting Ahmadinejad, they say -- they're talking about the Europeans, trying to work something out with them. And his response is, they say want to offer us incentives. Ahmadinejad says, well, we'll tell them, keep the incentives as a gift for yourself. We have no hope of anything good from you.

This is a perplexing issue, and I think this forum is very, very helpful. So, thank you.

SEN. LUGAR: Thank you, Senator Coleman.

Let me indicate to the witnesses that your full statements will be made a part of the record, and we will ask you to either recite from those or to summarize.

So that it will not be disconcerting to you or to those who are following the hearing, we anticipate a roll call vote at or about 10 o'clock. And so, we will have an interruption, a recess of the committee so the senators can vote, and then return so that none of us miss anything.

But we always regret that there will be a break in the action, but that is the nature of our debate on the floor today, and we may have one or more votes during the morning.

I want to call upon you now in the order that I introduced you in my opening statement. And that'll be, first of all, Dr. Wisner, if you would proceed.

 

STATEMENT OF

FRANK WISNER
Vice Chairman for External Affairs,
American International Group, Incorporated

 

DR. WISNER: Senator Lugar, Senator Coleman, it's a privilege to be able to return to the committee and to discuss a topic of such moment: Iran and the nuclear enrichment crisis that we face.

I have submitted as you suggested, by written testimony for the record and, therefore, I won't read it.

I come today before you with some modest background in the subject we're discussing. I've been part of a track two dialogue with Iran since 2002, with thoughtful Iranians meeting under the auspices of the United Nations Association of the United States of America, generally in Sweden, occasionally in Austria.

I represented the United States in 1997 in discussions in Moscow over the illegal transfer of nuclear -- of missile technology from Russia to Iran.

But I guess, principally, I come today reflecting on 37 years of experience in this nation's diplomatic service.

For openers, let me make four points. These points reflect substantially the starting point that Senator Lugar mentioned in his opening remarks.

My first point is to me that it is not clear that Iran has decided to develop a nuclear weapon. I believe its house is divided, and its program is not at a stage where the choice between a nuclear weapon and another option needs to be made.

I recognize, saying that, that the enrichment program, which leaves Iran capable of developing a nuclear weapon, is extraordinarily dangerous for the United States. But I rest my argument on the fact that there is ambiguity in Iranian intentions and, therefore, space for the United States to work.

My second contention is that we have time -- time to think through our choices. There are a variety of estimates of when an enrichment program will reach term, and those estimates vary sharply. We are not in an immediate decision.

Third, I would argue that when speaking about Iran, it is wrong to conclude that there is a united Iranian point of view. There isn't on most national decisions. There are even sharp disagreements with the way that Mahmoud Ahmadinejad has conducted himself as president.

That said, he is a key figure, and we're going to have to take him into account. And his skill in manipulating Iranian politics has not yet run course.

My fourth contention is that the United States does not stand alone. Our European allies are dead opposed to Iranian nuclear enrichment. Russia and China are on record, as well, not only on the nuclear issue, but on other issues related to Iran; the history of the use of terror, issues related to Israel and Palestine, provide common ground.

At heart, however, our allies want us to engage with the Iranians politically to explore with Iran leadership a basis of restraint.

So then, Senator Lugar, as you, Senator Biden, suggested, what are the choices before the United States?

Many have talked about military action. I find it one without particular promise. I believe military action would tip Iran over the edge and we would have a nuclear weapon in Iran's arsenal.

I also believe there would be direct retaliation against American interests, including our exposed position in Iraq. There would be a violent eruption in the Muslim world. There would be a most severe impact on oil markets. And most of all, I can't believe that military action, as I've heard it described, is decisive, that it would deliver a knock-out blow.

Similarly, sanctions don't offer a decisive outcome. They can be costly. They can be disruptive. They will produce a political reaction from Iran. That's to be anticipated.

But the most effective sanctions -- and we've used many of them up in deploying our policies towards Iran -- are those that are short- lived, are multilateral and targeted.

Now, I therefore argue that both military options and sanctions are arrows in our quiver. They are the backdrop to effective diplomacy. But our real leverage over Iran is Iran's isolation.

For now decades, the country has stood on the margins of international life, its people and its policies without allies, a young population demanding economic progress that cannot be achieved until Iran is accepted into the mainstream of the global economy and has access to capital and technology.

That leverage is our greatest point of salience in dealing with Iran.

I conclude, Senator Lugar, Senator Biden, Senator Coleman, that the time is right to engage Iran, not just on the nuclear issue, but much more broadly -- on the issues of terror, Iraq, Afghanistan, the Palestine-Israel equation, on Iran's security and fundamentally on her place in the international community.

But I argue most carefully, that trying only to engage Iran on one issue is bound to fail. There is a record of American diplomacy with Iran where we have directed ourselves at one question, only to find that, unlinked to other questions and complicated by the political dynamics in our respective societies, those initiatives have achieved a short-term benefit in some cases, but have always ended in not producing a spreading agreement to others.

I argue furthermore that Iran may be ready to talk. There is a new circumstance in Iran; the clerics are more closely behind Ahmadinejad than was the case with his predecessor Khatami. They also see Iran on a more equal footing with the United States.

The letter that Ahmadinejad sent to the president was bizarre in its formulations, but a sense of Iranian confidence that they can engage the United States -- and in that, there is moment to pause and consider.

The United States doesn't have to apologize for a political dialogue, diplomacy or engagement. We have used those devices in the past. We engaged the Soviet Union over many, many years, as Senator Lugar, in referring to Secretary Kissinger's statement, pointed out.

We did with China in the context of the Shanghai Declaration. Both examples of engagement where we have profound differences of ideology, of national interest and of principle.

But I would argue, engagement has to begin at the top. It must begin, if it is to work, right at the top on this side with the president. It cannot begin with a lower level administration initiative. Unless it's identified on both sides with the most senior figures in the regimes, it won't work.

I also believe it's important to think of an engagement setting aside the rhetoric of axis of evil, and even of legislative considerations aimed at funding regime change in Iran.

Senator Coleman, if you will forgive me if I disagree with you. I believe the essential national interest of the United States is to contain Iran's national security threats and the external threat the country poses.

Iran's domestic order is a matter that, while important to us as a matter of principle, is not a threat to the United States. And therefore, as Iran has proved countless times over its history, it changes regimes.

And I'd like even to argue that we've seen other cases in the past where less pressure on an international crisis produces space within which politics take root and changes -- political changes -- within a society occur even more rapidly.

Now, therefore, what do I recommend? I don't say that I have, Senator Lugar, a neat formula to resolve the nuclear crisis. I doubt Iran will renounce enrichment.

But will it enter into cooperative international-based arrangements for the production and supervised production of enriched fuel? Is it possible to find common ground?

Is it possible to find common ground with Iran over Iraq and Afghanistan, where I know Iranian interests have been served by the elimination of Saddam Hussein and the Taliban?

I believe so, especially if we make it clear that the United States does not intend to be a permanent fixture in Iraq and Afghanistan, and we will not use our position in either country to threaten Iran.

Can the concerns of our friends in the Sunni Arab world be addressed? I contend there is room for a regional conference to elaborate security guarantees.

Can Iran address the dangers posed by Hezbollah and Hamas? And can Iran be brought to be a more responsible player in the Israeli- Palestinian equation? Perhaps, but it'll be difficult.

But it is reasonable to conclude that Iran sees in Hamas' victory in the Palestinian elections its own vindication. And because Hamas is now in power, a two state solution may be pursued.

Are there any guarantees? No. But, then, diplomacy is not only the art of the possible; diplomacy is about exploring what might be possible.

To repeat, therefore, I argue for the option of engagement, not taking any of our other options off the table -- engagement, starting at the top, for anything less, I believe, that fails to be broad will end in failure and dangerous frustration for the United States.

SEN. LUGAR: Well, thank you very, very much, Ambassador Wisner, for that comprehensive statement.

We appreciate having you, Dr. Nasr, with us today, and ask that you proceed.

 

STATEMENT OF

DR. VALI NASR
Professor of National Security Affairs,
Naval Postgraduate School

 

DR. NASR: Good morning Senator Lugar, Senator Biden, Senator Coleman.

It's a privilege being here and contributing to these proceedings. I would leave my comments to discussing the role that democracy promotion as a policy fits into the context of dealing with Iran's nuclear threat.

It is safe to say that between 2001 and 2005, the United States has looked to regime change and democratization as a way of solving the outstanding issues between the United States and Iran, in particular, the nuclear issue at some point.

It was hoped that the example of Iraq would undermine the theocratic regime in Iran, and some expected that the presidential elections that happened in June 2005 would exacerbate tensions within Iran and would provide for a "Ukrainian moment."

However, the elections defied expectations, and the United States now faces a much more aggressive and overconfident regime in Iran.

Despite significant change in the direction of Iranian politics, U.S. policy still continues to look to democracy and regime change as a solution to the immediate problems that Iran poses.

There are a number of inherent problems in this approach. One is that the scope of intensification of Iran's nuclear program over the past year, and the escalation of the rhetoric around it, requires a much more direct and focused policy to address the specific threats and areas of concern that the United States has.

Democratization does not amount to such a policy. It's a blunt instrument. It is also increasingly doubtful -- at least to me, who have observed the scene for awhile -- that there is actually a credible democracy movement in Iran right now. It is unlikely to have an impact on the regime behavior or its decision-making in the small window of opportunity that exists to correct Iran's path on the nuclear issue.

It is also likely that the policy of conflating democracy promotion with the nuclear issue is not likely to be compatible together, and is likely to interfere with one another. First of all, it confuses the U.S. message as it debases democracy as a means to deal with the nuclear issue. And this has impact not only on Iran, but actually on the broader region and its perception of the meaning of the U.S. promotion of democracy.

And it also makes it less likely that Iran would abandon its nuclear program if it believes that it's a cover for regime change, as actually, as a number of Iranian senior leaders have expressed that this is a veiled effort to change the regime; and therefore, why compromise?

There is no doubt that Iran has many of the ingredients of democracy. It has a young population, a vibrant civil society. We all have seen the positive statistics. But these social factors have not produced democracy in Iran.

The Iranian society to many of us may look like Eastern Europe in the 1980s, but the Iranian government does not look like the Eastern European governments of the 1980s. The conservative leadership in Iran today, unlike Eastern European governments of the 1980s, is confident, it's in control and is not completely alienated from its society. It is confident in the fact that it won the 2005 elections, at least in its own estimation, relatively comfortably.

The rise in the price of oil has allowed it to combine nationalism with radicalism, with anti-Americanism and with populism, in a manner that's also evident in Hugo Chavez' Venezuela, or even Morales' Bolivia.

Since 2005 elections, the pro-democracy voices in Iran have been demoralized and marginalized. They have lost their access to power by losing the presidency in Iran. They don't have political parties, they saddled with infighting and they don't have a program. There is no wedge issue around which they can galvanize, and there are no election dates on the horizon in the next five years that they can rally around.

An escalation of tensions between Iran and the United States, and especially the prospect for sanctions and military action against Iran, has created a rally to the flag phenomenon in Iran. War and nationalist fervor does not favor democracy.

A strong demand for democracy in Iran should not be confused with a strong democratic movement in Iran. It is fair to conclude, in fact, that democracy in the short run is not a solution to the pressing problems in U.S.-Iran relations. There is no credible democratic partner to work with. There is no clear opening. There is no clear elections to rally around.

At the same time, it is possible that contending with the pressing issues facing U.S.-Iran relations, as Ambassador Wisner mentioned, may require engaging Iran directly. And that engagement inevitably will lead to the Iranian government demanding security guarantees, which involve that regime change should be off the table.

U.S. policymakers must realize that democratization is a long-run process in Iran. It is not a solution to short-run problems. At a time of escalating tensions between U.S. and Iran, overt support for democracy in Iran will be counterproductive. It will cast democracy advocates as unpatriotic and is likely to be futile, as at a time of war and nationalism, democracy will surely lose to nationalism.

The imperative of solving the short-run crises in Iran-U.S. relations requires that democracy be specifically decoupled from the long -- I'm sorry -- that the short-run policies and requirements of dealing with the nuclear issue be specifically decoupled from the long-run goal of democracy promotion.

Democracy promotion should remain a U.S. objective, and the U.S. should use to continue to lend its moral authority to advocate in this cause. However, it should not be a substitute for, or interfere with, directly dealing with the problems at hand, including the question of engaging Iran.

And in the case of the Soviet Union, we ought to remember that the overt policy of pushing for democracy followed the diplomatic engagements and did not substitute it.

Thank you very much.

SEN. LUGAR: Thank you very much, Dr. Nasr.

Let me suggest at this point -- the vote has just commenced that we take a recess before beginning with our next testimony, so we can have it in full, without apprehension.

And so, I apologize...

SEN. BIDEN: Mr. Chairman, may I? This is highly unusual. I'm going to have to, from 10:15 to about 20 minutes of, not be present.

Would it be appropriate if you allowed me to, the first half of this, to ask just two questions to the two witnesses who have already spoken, because I may not be able to get back. I'm anxious to hear the other testimony, as well. But I could just -- there are two thoughts I have, and I just want to ask the two witnesses now. Would that be a problem?

SEN. LUGAR: No, that would be fine. Let me just...

SEN. BIDEN: And I promise it won't take more than seven minutes, and I will recess until you come back. And then I'll try to come back by a quarter of.

SEN. LUGAR: Very good. I will vote while you're raising your questions.

SEN. BIDEN: I appreciate it very much.

SEN. LUGAR: And I'll come back.

SEN. BIDEN: Thank you very much.

And again, I apologize to the other two witnesses. I hope I get back in time to be able to follow up with questions to you, as well.

Dr. Nasr, I'm very, very impressed with your testimony, as would not surprise you, since it coincides with my thinking, but you say it -- you've expressed it in a way that is more, I think, concise and coherent than anyone I've heard do it.

I would also point out that, I've been listening to you a long time. A year ago, you predicted that the Sunni-Shia problem in Iran would be the problem -- in Iraq -- would be the issue that we would be having to confront. I think you were prescient there, unfortunately.

And so, I want to ask you about the democracy movement. And then, Mr. Ambassador, if you would chime in, I'd appreciate it, as well, because your testimonies don't seem to be at odds. They seem to be convergent here.

You are one of the few witnesses that pointed out that -- when I try to figure out what's going on, and what the thinking of the administration is, as it deals with a whole range of foreign policy problems, I try, because we only have one president at a time. We have one foreign policy at a time, and the success of that foreign policy is critical to the interests of all Americans.

So, I try very hard to understand the underpinning of this approach that the administration is taking with regard to both North Korea and Iran, and they're different.

But here's where I -- you mentioned something that no witness, that I can recall thus far. And that is that, the underlying thesis here was that, in the -- and I mean this in a positive way and it's not a criticism -- the neoconservative intellectuals argued that by the demonstrable show of force, the awesome, the shock and awe of going into Iraq, and doing it almost in the face of the moral disapprobation of the world, doing it -- most of the world, anyway -- would have a salutary impact upon rogue regimes, which we consider -- and I would argue is not incorrect -- North Korea and Iran.

And prior to us going into Iraq, there was a vibrant -- not pro- Western, but vibrant -- democratic movement, that it seemed as though the clerics were fearful of crushing in the clear view of the whole world, for the previous six or so years.

And then along came our effort in Iraq. And my view is -- and I'd like you both to comment on this -- my view was, it had the exact opposite impact.

Once it was clear that we were pretty well bogged down -- wrong phrase -- we were occupied in Iraq, and would be for some time, in the clear light of day for all the world to see, it was almost a challenge that you had the clerics in Tehran saying, watch us crush this movement -- everybody looking -- take a good look at what we're about to do.

And they purged the lists of those who could run. They purged the (inaudible) of anyone who appeared to have any genuine, small "d" democratic instincts. Again, I'm not confusing democrat with pro- Western.

And now, this policy of democratization, to use your phrase, being used as a blunt instrument -- we don't have a whole lot to work with. And it seems as though it's ready specifically as a means by which you change regimes.

My observation of having gotten deeply involved in trying to become educated on Persia, on the Persian culture, on Iran, in particular over the last 30 years -- I was a product of Dr. Fatemi (ph) and others -- I've observed that there is a pretty wide consensus in Iran that they live in a dangerous neighborhood. And even those democrats with a small "d" think having nuclear weapons is not a bad idea.

And the only thing I've ever observed that unites the Iranians is a direct assault on, or a perceived threat to their national unity, their national -- their nationalism.

And so, having said all that, why is it different? Why can the administration make -- if it's true -- the shift in a policy on North Korea -- if this New York Times article by Sanger is correct -- including beginning negotiations on a peace treaty -- a peace treaty. That's what it says.

How can they argue that any direct discussions -- not even negotiations -- with Tehran is antithetical to U.S. interests, when a nation that has 400 percent more fissile material than they had just several years ago, a nation that has a nuclear capacity, a nation that has engaged in proliferation, a nation that has, in fact, been at war with us -- how can you square that circle?

I mean, talk to me about this sort of -- am I missing something here in terms of the rationale, the foreign policy imperatives of this administration?

Or do we have two different administrations? Do we have one group focusing on Korea, and another group focusing on Iran?

I realize that's a very broad statement as well as a question, but talk to me a little bit about what are these guys thinking?

DR. NASR: Thank you, Senator Biden.

I mean, since I haven't been part of the decision-making, I cannot speak for what leads to the current position.

But what I can say is that the confusion that is core of having to achieve what we want with the nuclear issue and promotion of democracy is actually hampering.

But I think the points, if I may push further, you mentioned regarding where the people of Iran will stand in terms of a response to a U.S. position, I think the critical issue is that we have to realize that the people of Iran are a strategic asset in that region for the United States, because they are -- it's the only population in the region that does not carry or harbor deep-seated, ideological anti-Americanism. And potentially...

SEN. BIDEN: And that's the amazing thing.

DR. NASR: And that's the amazing thing. Absolutely.

And we should think that our policy should not be focused only on what the regime does, but whether or not we will keep or lose that population.

Secondly, I think, whether or not the people of Iran will rally to the flag, support their government or not, depends on whether they think the policies of the international community are reasonable, just and legitimate.

And therefore, even if it were to come to military action, if they were to assume that the United States did not exhaust every possible option, it did pursue a course that in their mind was reasonable, then they will support that government.

And I think, to support Ambassador Wisner...

SEN. BIDEN: That's an interesting nuanced difference.

DR. NASR: I do believe, to support Ambassador Wisner's position, one of the wisdoms of at least engaging in Iran is that it makes our case with the people of Iran much stronger.

SEN. BIDEN: Mr. Ambassador, do you have any comment? And by the way, I'd invite from any -- I know you haven't testified yet, but if you want to -- and I really apologize for going out of order like this, but this is such an important hearing, I'm being selfish here and trying to get information.

DR. WISNER: Senator, thanks.

I think I find myself as constrained as Dr. Vali Nasr in trying to interpret a policy that at heart I don't agree with.

But I start from the premise that Dr. Vali Nasr laid out. And that is, that there really isn't a democratic opposition to be worked with, even if you are an advocate of regime change. It's divided and dispirited. And the assault on the nuclear issue is assault on national honor that has the habit of unifying Iranians.

But when I look at the administration's response, I detect two quite different courses of thinking.

The first is a matter of principle, and a reading -- or misreading, I would assert -- of our own history in the Cold War. And that is, if one states American principles, a deep belief in democracy, over time, that by standing firm the walls will crumble and the regimes hidden behind them will fail.

And that is one reading of what happened at the end of the Cold War. I don't happen to share that view.

But it is deeply viewed as an outgrowth of American principle; if you stand firm on eternal truths like democracy, eventually those standing behind the walls will take heart, and we will have kept the faith with young Iranians for the future.

The second view that I sense inside the administration is much more tactical. What is the right way to engage Iran today? Is it by being extremely firm, of showing very little light until Iran makes categorical statements about its enrichment program? To stand firm in order to put backbone in the allied position and to bring Russia and China on board by a strong view of American intention?

It's a tactical view, not an ideological view, in the expectation that seeing strength, Iran will then move towards that strength and try to accommodate it.

Again, I remain to be persuaded this is the effective way...

SEN. BIDEN: Well, I thank you very much. The chairman's back, and I only have a few minutes to vote.

Ms. Nanay and Mr. Phillips, I read your testimony. I'm anxious to get back and engage you. And I know the views are not uniform here, and I'm very -- I have an open mind about it. I'm just perplexed as to what's -- anyway.

I thank you. Thank you very much.

SEN. LUGAR: We will now proceed to Ms. Nanay?

 

STATEMENT OF

JULIA NANAY
Senior Director,
PFC Energy

 

MS. NANAY: Good morning. Again, thank you for letting me testify before this committee.

PFC Energy, the firm that I work for, is a strategic advisory firm. We advise the petroleum industry on the oil markets and various aspects of investment risks related to the global petroleum environment.

Let me say that I'm coming before the panel as a petroleum expert, and I know the committee has other issues that override this sector, but I'm not here to address those.

Let me start with the fact -- and this is very important -- that Iran is an important oil producer and supplier of oil to world markets. At a time when oil supplies are tight and prices are high, Iran is a significant source of oil for world markets.

The timing of today's hearings is important, because the industry is troubled by difficulties in many parts of the world in oil, including the nationalization trends which we're watching in Latin America, lower oil production and exports being forecasted for Venezuela, production disruptions in Nigeria and slowing production in Russia, and so on.

This is an extremely volatile period for oil markets and for oil prices. Uncertainty over the ability of the markets to supply the world's oil requirements, if Iran's oil supplies were disrupted, has kept the oil markets on edge. If you see the day-to-day volatility, which is what we watch closely, it's driven by news about Iran.

The more that Iran is in the news and the more that the U.S. presses for sanctions and holds out the threat of military action, the higher that oil prices stay.

Any news about the easing of tension leads to a price drop. Any news that military action takes place would drive oil prices up over $90 or $100 a barrel. In fact, estimates of the Iran premium in today's oil price run as high as $15 a barrel, and oil prices have been hovering around $70 a barrel.

Another point is that sanctions work if everyone participates, but it's difficult to impose sanctions on crude oil or petroleum products, like gasoline imports to Iran, because there can be leakages, and not all countries or companies observe sanctions.

Short of disrupting Iran's oil trade with sanctions on oil exports, which would drive up oil prices and certainly negatively impact the U.S. economy, there's really limited impact to be gained for the world community from any other additional sanctions on Iran's oil and gas industry.

In a market where companies and countries seek to secure their economic lifelines through access to oil and gas, the idea that you can create a foolproof sanction system targeted any oil and gas producer today is just a nonstarter. There will always be those who violate the sanctions.

If we talk about cutting gasoline imports to Iran, we have to remember that Iran has demonstrated extraordinary resiliency over the last 25 years when it comes to outside pressure and sanctions. It would find a way around the gasoline sanctions.

At the very least, the gasoline which is currently smuggled to neighboring countries, because Iran's domestic gasoline prices are heavily subsidized and very low, these smuggled amounts would be eliminated, and they are very substantial.

Energy subsidies in Iran amount to as much as $11 billion a year. The government, of course, would be forced to address this already controversial subsidy program, which imposes high costs on the country's economy. So, in fact, if we try to attach sanctions to gasoline imports, you could have side effects which probably could be useful for Iran.

Unless there are major disruptions caused by some sort of military intervention or sanctions on Iran's exports, I don't see Iran itself as stopping or cutting back the flow of oil to its customers. Iran would be reluctant to jeopardize contractual relationships, nor would they want to lose the revenues.

Iran's oil exports of 2.4 million barrels per day fetch over $50 a barrel for the government, and this results in huge revenues for the budget. Iran will earn over $50 billion on oil exports this year alone.

The U.S. buys no oil from Iran. Japan may be Iran's largest customer, followed closely by China. In fact, Japan and China take about a third of Iran's oil exports. Any disruption in oil supplies from Iran would probably hit Japan the hardest.

In conclusion, the U.S. has to weigh carefully what it wants to gain from additional sanctions. The cutoff of gasoline imports could be just another item on a long list of sanctions already imposed on Iran.

This certainly creates problems for the government. But then, as we've seen, the government adjusts and its power isn't seriously undermined, its behavior isn't changed, and certainly, it doesn't do what the U.S. wants it to do because of sanctions. In fact, it may not even affect the government's position on nuclear enrichment.

Therefore, when I look at the oil sector, I see that the U.S. has very few options -- or none -- that it can pursue. Thank you.

SEN. LUGAR: Thank you very much for your testimony.

Mr. Phillips?

 

STATEMENT OF

JAMES PHILLIPS
Research Fellow for Middle Eastern Affairs,
Douglas and Sarah Allison Center for Foreign Policy Studies,
The Heritage Foundation

 

MR. PHILLIPS: Thank you, Mr. Chairman, for this opportunity to testify today.

I think the efforts of the United States and its allies to dissuade Iran from pursuing its long-sought goal of attaining nuclear weapons have so far failed to yield satisfactory results.

Iran made temporary tactical concessions in October 2003, under strong international pressure to temporarily freeze its uranium enrichment operations and enter into diplomatic negotiations led by the EU-3 to temporarily diffuse the crisis.

But Tehran later dropped the charade of negotiations after it apparently concluded that the international situation has shifted in its favor for reasons that those who testified before me have mentioned -- rising oil prices, the U.S. commitment in Iraq and Afghanistan, and, I think, the incoming Ahmadinejad government, which bitterly criticized previous Iranian governments for those negotiations.

Thus far, Iran has escaped paying any significant price for its apparent violation of its commitments under the Nuclear Non- proliferation Treaty, and failure to fully cooperate with the IAEA. And I would contend that it won't negotiate seriously on the fate of its programs until it started to pay a price.

Therefore, the U.S. should mobilize an international coalition to raise the diplomatic, economic and domestic political, as well as potential military costs to Tehran of continuing to flout its obligations under its nuclear safeguard agreements.

This coalition of the willing should seek to isolate the Ahmadinejad regime, weaken it through targeted economic and other sanctions, and explain to the Iranian people why their government's nuclear policies will impose economic costs and possible military risks on them.

Yes, we should contain Iran's military power, but I don't think we should abandon the possibility of democratic change. If Tehran persists in its strive for nuclear weapons despite these escalating pressures, I think then the United States should consider military options to set back the Iranian nuclear weapons program.

I think the U.S. must continue to push in the strongest possible sanctions at the U.N. Security Council. But experience has demonstrated that Washington cannot rely on the U.N. to halt the nuclear program. Russia and China, who have extensive economic, military and energy ties to Iran may veto, delay or dilute any effective resolution.

The U.S. therefore should make fallback contingency plans to work with the EU-3, the broader E.U. community in Japan and other interested countries to work on sanctions outside the U.N. framework, if necessary.

An international ban on the import of Iranian oil is a nonstarter, for reasons Ms. Nanay has mentioned. It's unrealistic to expect oil importers to stop importing Iranian oil in a tight, high- priced oil market.

I think, instead, the focus should be on denying Iran loans, foreign investment and favorable trade deals. Washington should cooperate with other countries to deny Iran loans from international financial institutions, such as the World Bank, and try to block proposed pipelines out of Iran, such as the one considered for India and Pakistan.

In addition to economic sanctions, the U.S. should press its allies and other countries to ban nuclear assistance, arms sales and the export of dual use technology to Iran.

Symbolic sanctions such as a travel ban on Iranian officials or a ban on Iranian participation in international sports events would be important to drive home to the Iranian people that the international opposition to Iran's nuclear program is widespread, and not just an artificial issue created by the United States, as their government claims.

The U.S. should also support Iran's democratic opposition. Iran has a well educated group of young reformers who seek to replace the current mullahcracy with a genuine democracy that is accountable to the Iranian people. Yes, they are weak and divided, but they constitute, I think, Iran's best, long-term hope, and the U.S. should not turn its back on them.

The United States should not try to play favorites among the various Iranian opposition groups, but should encourage them to cooperate under the umbrella of the broadest possible coalition. And I think we have to be really humble about our ability to spark democratic change, but in the long run, I think it's something that cannot be ruled out.

The U.S. government should also launch a public diplomacy campaign to explain to the Iranian people how the regime's nuclear weapons program and hard line policies hurt their economic and national interests. Iran's regime has tightened its grip on the media in recent years, shutting down more than 100 independent newspapers, jailing journalists, closing down Web sites and arresting bloggers.

The U.S. and its allies should work to defeat the regime's suppression of the independent media by increasing Farsi broadcasts by government-sponsored media such as the Voice of America and Radio Farda, and other information sources.

The free flow of information is an important prerequisite for the free flow of political ideas. And the Iranian people need access to information about the activities of the democratic opposition groups, both within and outside Iran, and the plight of dissidents.

Finally, I think the United States must be prepared for the use of military force as a last resort. There's no guaranteed policy that can halt the Iranian nuclear program, short of war, and even a military campaign may only delay Iran's acquisition of nuclear weapons.

But U.S. policymaking regarding the Iranian nuclear issue inevitably boils down to a search for the least bad option. And as potentially costly and risky as a preventive war against Iran would be, allowing Iran to acquire nuclear weapons would result in far heavier potential costs and risks.

Thank you, Mr. Chairman.

SEN. LUGAR: Well, thank you very much, Mr. Phillips.

We'll now have a round of questions, and we'll have a 10 minute round at this point.

Let me commence by asking a general question, which several of you have made comments, but I want to explore this further.

We've been, in the Senate -- and I gather, there's (ph) similar legislation in the House -- have been discussing what kind of support the United States ought to give the so-called pro-democracy forces in Iran.

In fact, $75 million has been appropriated for activities of this variety. But it's not at all clear exactly with whom we should be interacting, how these people are selected.

We had some testimony yesterday, that if, in fact, we were bold enough to identify persons in Iran, they themselves might be targets of the Iranian government and persecuted for their interests and cooperating with us.

So, there are a diaspora of Iranians in the United States. Sometimes suggestions are made we ought to be working with them and helping their efforts that they might have some contact.

Likewise -- and let me just couple these two areas -- we've talked about our public diplomacy effort, and mention has been made of the BBC and likewise of our own radio and television broadcasts. There are clearly conflicting views as to the effectiveness of our public diplomacy. Suggestions have been made, I suppose, likewise, about the nature of who listens to BBC in Iran, and what effect this may have.

I raise these issues to begin with, because there are clearly many Americans who believe that we ought to be proactive, that we ought not to leave those in Iran who are interested in democracy simply to their own activities without the ability of our communication or even our money or our organizational ability.

Mr. Nasr, you addressed this a good bit in your testimony, so let me start with you and ask you again, because you've touched upon this.

What advice do you give to Americans who want to work in a pro- democracy way with Iranians, or more distantly through public diplomacy?

DR. NASR: Senator Lugar, I think it's an important issue. I think we have to separate clarifying and broadcasting our message to the Iranian people from trying to become a part of the domestic political engagement in Iran.

First of all, I don't think access to information is a problem in Iran. Over a third of the Iranian population already listens and gets its news from BBC. I've been on "McNeil-Jim Lehrer NewsHour," and I've had comments from Iran where people have seen it on satellite television.

This is a -- Iran is very different from Eastern Europe. The issue is not to get information to it; it is to get the correct information to it. And that is partly my argument that this requires a clarity of purpose and message here.

I do agree that identifying partners in Iran will put them in harm's way. A prominent intellectual was arrested earlier in April, and he is being charged with being involved in dissemination of that $85 million in Iran, because at one point he was a fellow of the National Endowment for Democracy in Washington, D.C.

I also think that, as we move into the area of sanctions and possibly military action, credible pro-democracy forces in Iran will shy away from overtly cooperating with the United States, because like all politicians, they will not want to be associated at a time of war with what would be seen in Iran as the adversary.

And I think, therefore, we should support democracy in multiple ways, but we should be much more precise in terms of how we go about it. And I think the first step is actually to work on the kind of message we want to convey to the Iranians.

SEN. LUGAR: Ambassador Wisner, you've dealt with several governments in your career on pro-democracy efforts, so I'm deeply interested in your views on this.

DR. WISNER: Senator, I have very little to add to Vali Nasr's point, save a core contention, and that is, it depends where you start.

If the starting point is that the United States seeks, over time and in a reciprocal manner, to normalize its relations with Iran and live in peace with Iran, and develop the normal connections between nations, then engagement with Iranian forces, academics, intellectuals has a context. It can work.

If, on the other hand, your declared political purpose is to see an end to the regime, if you make it a key, cardinal point that you want to blunt its national security, then you don't have a basis, you don't have a political basis on which you can engage civil society or any other number of institutions. And you will be looked upon as intrusive and hostile.

So, I believe that engagement with Iran in a manner that would promote democracy over the long run, is a direct result of the political posture we take. And we'll have a lot better luck if we're seen to be approaching normalization.

Now, that isn't going to happen tomorrow morning. So, what else can we do?

I have the greatest reservations about trying to find groups and put money into them, for the reasons, senator, you cited.

I do believe that sensible news programs that have good debating content about different aspects that are listened to by Iranians, using the Voice of America, other intermediaries, makes perfectly good sense.

I also believe that it makes a lot of sense for Iranians who want to study in this country -- and there are a number -- to find opportunities to do so.

Right now we have an absolutely bewildering array of visa restrictions that deny the access to this country of Iranians whether they're businessmen or individuals or family trying to come for family reunification purposes and visits, or students. I'd like to see a relaxation of travel to give Iranians a chance to meet, think with us and dialogue, and even scholarship assistance (ph).

My last thought is that, over many years of the estrangement that's existed between the United States and Iran, a once modest force in this country -- Iranian studies in our universities and think tanks -- has lapsed and shriveled around issues like just the nuclear question at the cost of serious analysis of Iranian society, the political dynamics.

So, if there is money to be spent, I think some could be spent at home on revitalizing and strengthening Iranian studies and analysis in American institutions.

SEN. LUGAR: Mr. Phillips, let me ask your take on this same issue.

MR. PHILLIPS: Well, I think the primary responsibility -- the absolute responsibility to build democracy in Iran is up to the Iranian people, and we shouldn't think that we're going to be able to build it from the top down from outside. It's not something that can be militarily imposed. It must grow organically from the ground up.

But I think there are substantial consensus in Iran that they want change. And they want to see their regime evolve into a more accountable form that represents their interests.

And so, I think it's important that, although Iranians are getting information from the BBC, that they also get information from the U.S., that we're aware of their struggle and that we support it, you know, the peaceful, democratic change there.

And also to make it clear that their government, which claims that this nuclear issue is a dispute over peaceful, nuclear power, that it's much more than that, that it's, you know -- let them know that their government has been dealing A.Q. Khan, who is not someone who sells nuclear reactors; he's someone that sells nuclear weapons.

Let them know that their government is harboring Al Qaida terrorists. And do they really think that that's a responsible position for a group that is very anti-Shiite, that has killed Shiites in Afghanistan, in Iraq, and including many Iranians? Do they really want to bear the risks of what would happen if an operation against the U.S. came out of Al Qaida in Iraq, as apparently happened to Saudi Arabia in 2003?

And I think those are the kind of wedge issues that public diplomacy would be important in setting the stage for.

SEN. LUGAR: Thank you.

Senator Coleman?

SEN. COLEMAN: Thank you, Mr. Chairman.

I'm going to probe a little deeper, Mr. Chairman, into the question you raise, because I really think that's the core issue, one of the core issues here. I have great concern about folks in Washington, bureaucrats saying we've got $75 million, whatever the figure is, and here's how we're going to spend it, and here's the impact.

And so, I want to probe a little deeper.

Before I do, I have just a couple of questions.

Ambassador Wisner, you started off by saying -- not clear there, kind of the underpinnings of your approach. And one of them was, it's not clear that Iran has decided to develop a nuclear weapon -- ambiguity.

If it were clear, if there wasn't ambiguity, would you still advocate the same course of action, if, in fact, it was clear that Iran wants to develop a -- use nuclear power for a nuclear weapon -- would you have the same course of action you're advocating today?

DR. WISNER: I shorthanded my testimony. If you have chance to look at it, it goes into it in a bit more detail.

The point I wanted to make is whether Iran has, at the end of the day, the intention to produce a weapon or to enrich to a degree that would make civil nuclear power the outcome. Both absent any confidence in what Iran is doing and how it intends to use (ph), are unacceptable outcomes for the United States and must be opposed.

We are correct in trying to oppose an enrichment program.

Now, the question is, how do you oppose it? And my answer, if, in the hypothetical circumstance that Iran took a decision that I don't think she will take, because the program of enrichment hasn't evolved to that state, and there is a disagreement in Iranian society, political society, over the wisdom of a nuclear weapon.

But if Iran -- if you want to put the hypothetical question on the table, I would still argue that our options, military and sanction options, are not likely to be decisive, and that however we come at it, we've got to try to find a political way to engage and think through what causes Iran to produce, to develop a policy of confrontation.

How else can you address that? How do you create a basis of a broader coalition internationally? We don't have that coalition today; therefore, a political approach would still suggest itself to me, if the hypothetical were to exist. And I argue, we're not at that stage yet.

SEN. COLEMAN: One thing, I tried to stay through Senator Biden's question. I didn't get through the whole thing. We had a vote, and it was a long question.

But I do want to at least make one point for the record. The sense I got from the question was, somehow, that their engagement in Iraq was going to be some kind of cause, as an impact on Iran's openness to work with democratic forces.

And I would note, Mr. Chairman, that in 1999 there was -- before Iraq -- there was a student uprising. And it was crushed. It was crushed.

I think this regime's intentions have been very clear. I do kind of have some linkage between what we did in Iraq, that somehow that's empowered a movement against democracies -- at least history doesn't reflect that.

Dr. Nasr, I very much agree with your vision. And it's clear that democracy is not a short-term effort. And I don't believe that those in certainly this body -- or, I can't speak for my colleagues -- but I don't think there is a sense that the movement for democracy is a short-term effort; it is a long term.

I want to probe a little deeper to the chairman's questions. You said that, while we should support democracy in multiple ways. Can you outline a little more specifically, what are some of the multiple ways that we can support democracy, understanding that this is a long- term objective?

DR. NASR: The first way in which we should support democracy is by clearly asserting and pursuing the moral imperative and using the United States moral authority to do so. And I think that is best done by decoupling it from any other objective we might have.

In other words, I do agree with the other comments, that it is in the interests, it's in the interests of the United States, and the people of Iran deserve democracy. And that should be the political objective. But it should also be clear that this is not part and parcel of any other policy objective.

There are -- I do believe that the United States should put its views on multiple issues on the table and communicating these to the people of Iran are important. I don't think they by themselves will make any difference, because, as I said, information is not the problem in Iran.

And I want to add also, much of our efforts always are directed -- including engaging expatriate Iranians -- are on the more affluent, middle class Iranians, which already agree with everything we're saying.

The problem is reaching the supporters of Ahmadinejad, among the poorer, much more religious, much more, if you would, provincial population in Iran, which are the ones who support him and are the ones who voted for him.

And that, actually, requires thinking much more imaginatively about how do you communicate with that population? It is a problem that's not only unique to Iran. We have the same problem, also, say, with Venezuela, or in terms of how do you go past the population that you already know agrees with you to the one that doesn't?

SEN. COLEMAN: And I'm going to ask Dr. Phillips to respond again, a little more specificity.

Are there diaspora groups out there that have that connection? I mean, who should we be listening to? Who should we be talking to who has a good sense of what's going on in Iran today and has the capacity to reach out beyond the middle class, but (ph) those who are most susceptible to Ahmadinejad's message?

DR. NASR: Well, the diaspora group in the United States is very diverse.

SEN. COLEMAN: I'd say international. Not even in the U.S. If we were reaching out. There's a group in France, in Germany, in Britain.

Just, who's out there that we should be talking to, listening to?

DR. NASR: There are multiple groups. They range from monarchists to Marxists to Islamic dissident groups. And they're also -- a factor that we've often overlooked is the academic group. I think no population in the United States is more in touch with what happens in Iran than actually Iranian and American academics who spend time in that country.

For instance, during the Iranian elections, other than American journalists, academics from the American universities were the larger population on the ground who was observing things that were happening. And it's important, if we are aggregating information, that those views be channeled into the way in which we think about policy.

SEN. COLEMAN: Dr. Phillips, again, a little more specificity, and also, the second question. Who should we (inaudible) than the MEK, where I think you -- within the Mujahideen-e-Khalq -- who else should we be engaging? And then, a little more specificity in responding to the chairman's questions about, you know, what it is that we can do to promote democracy?

DR. PHILLIPS: I think we should be speaking to all the Iranian groups, with the exception of the MEK, as you mentioned. In my longer testimony, I think they're a terrorist group. And they're identified with the Iraqi regime by many Iranians.

But I think we should be not trying to pick favorites. We're really bad at that. So, we should be helping or talking to all of them.

Also, I would add, perhaps, clerics in Qum, who are increasingly exasperated with the regime, some of whom never bought into Ayatollah Khomeini's radical vision of the supreme guide or supreme leader. There may be back channels there.

Women's groups, labor unions -- I think that could loom large in the future of Ahmadinejad's support, because he came to power promising an anti-corruption drive, which he hasn't delivered on. And there's increasing labor unrest inside Iran because of that.

I think we should be publicizing, wherever possible, the corruption of the regime, the wealth of the families around leading clerics. I think the Iranian people recognize this, according to a recent visitor there that I talked to.

He said before, taxis wouldn't pick up mullahs in clerical garb, but now it's come to the point where buses won't even stop at the bus stop if they see a mullah there. And I think that's an important sign that there is increasing disenchantment with this regime.

But I would be very humble about the U.S. ability to spark or provoke an immediate democratic regime change. I think this is definitely a long-term process, and it probably won't come about until after Iran has a nuclear capability, but it's something that we should seek to encourage in the long run.

SEN. COLEMAN: And Ms. Nanay, I apologize. I missed your testimony. I know you were talking about the energy side. My time is just about up, but if I could just ask very quickly.

I understand Iran's infrastructure has not had a lot of investment. I presume they have great needs.

Is that a -- how strong a bargaining chip is that in any discussions with the Iranians, the need for that investment?

MS. NANAY: I think it's clear that, for Iran, the future will be gas. They have the second largest gas deposits in the world after Russia. That gas is not being developed efficiently today, and it's certainly not being developed for exports.

But that being said, I think where I agree with some of the other testimony is that, while Iran would like those investments, I think the real question here is, is U.S. policy regime change or not?

And if it is regime change, I think they're willing to sit back and live with what they have today with high oil prices, and go along with the investments that they can make as it is. Their production is at about 3.9 million barrels a day. Some say it's a little less, some say it's a little more. But that's substantial.

And as I said, they are getting substantial revenues from exports. So, that's on the oil side. Now, the gas side, as I said, is being developed inefficiently, and maybe they'll just wait.

The U.S. has very few options, I think, in terms of convincing Iran that they need investments in the energy sector right now. So, just let us change your regime, and then those investments will come

I think, you know, if we take a policy of negotiations and then accept that the regime stays and we negotiate with this regime, then potentially, yes, you can use that as a bargaining chip.

SEN. COLEMAN: Thank you, Mr. Chairman.

SEN. LUGAR: Thank you very much, Senator Coleman.

Senator Nelson?

SEN. NELSON: Mr. Chairman, thank you.

I would like you all to tell me to what extent that you think that the relationship between Iran and Hezbollah will continue. And to what degree is there the chance that, as we confront Iran on all these other issues, that we could get Iran to start backing off its support of Hezbollah, particularly in such a large presence in Lebanon?

DR. NASR: The relationship, senator, is likely to continue, but it has been changing, partly because Hezbollah has its own interests now that it's following within Lebanon itself. Its relations with Iran and Syria have been viewed now as a handicap in terms of its popularity in Lebanon.

But it also relies significantly on financial assistance from Iran, if not other assistance in terms of managing its social services and political operations.

Iranians view Hezbollah as a strategic asset. It is the only large political movement in the Arab world that is specifically pro- Iranian, and is a channel for Iranian influence in Lebanon.

Whether or not Hezbollah will be willing to fight Iran's fight -- if it comes to that, if there is, say, a military confrontation -- is open to question. Without a doubt, segments within Hezbollah, particularly paramilitary segments, are likely to be mobilized in terrorist operations.

But whether the broader Hezbollah is willing to jeopardize its current position in the Lebanese parliament and in the Lebanese government, is open to question.

MR. PHILLIPS: Yes, I would agree. And I think it's generally underestimated the ideological component of the support for Hezbollah, especially President Ahmadinejad, who came out of the Revolutionary Guards, which was the link with foreign revolutionary and terrorist groups.

I think it's going to be very difficult to separate his regime from Hezbollah. And I don't see economic incentives coming into that, because I think a lot of the decisions made by Tehran are not for economic reasons, and that it does see Hezbollah as not only a useful club against Israel and other Middle Eastern states, but a potential weapon against the U.S.

SEN. NELSON: How does the Lebanese government perceive the Iranian influence of Hezbollah?

DR. NASR: I think it's -- sadly (ph), at least part of it is tied to the larger issue in the region, which has to do with the Sunni governments in the region now viewing developments in Iraq as a threat to their internal stability, because it is encouraging Shias to demand more rights and privileges.

The Lebanese government has repeatedly announced the view that the Shiites are connected to Iran within Lebanon, whether they are Hezbollah or not, and that Iranian involvement in Lebanon has become part of the domestic fight, if you would, within Lebanon.

It is very similar to the comments that were made by President Mubarak of Egypt, warning of the Shiites being loyal to Iran.

So, I think the Lebanese government is looking to limit Hezbollah's political power in Lebanon, and it views Iran as providing financial and political and foreign policy support to Hezbollah, and it would like to limit those power as its way of managing the Shia vote in Lebanon.

SEN. NELSON: Is there -- yes, please.

DR. WISNER: Would you permit me, Senator Nelson...

SEN. NELSON: Certainly.

DR. WISNER: ... to just add a thought?

My experience with the Lebanese government over the years is, it's an extraordinarily weak institution, and it is based fundamentally on sectarian balances. No Lebanese government in my lifetime has been willing to take on any sectarian, any ethnic or religious component of Lebanese society, because it is so closely balanced.

Therefore, the Lebanese government is not going to pick a fight with Hezbollah, or with Hezbollah's Iranian connections.

But I think the opposite is also true, that Hezbollah is part of Lebanon's corpus. And the country has a way of assimilating politically over time its political elements, and that includes Hezbollah.

I think Vali Nasr made a very important point. Hezbollah is changing. It is no longer the militant, only the militant group that faced Israel. It's also competing for seats in the Lebanese parliament and for influence in the hitherto for downtrodden population.

So, an attack on its connections with Iran from the outside will neither galvanize other Lebanese communities or the Lebanese government, or is likely to have a decisive sway inside of Shia politics domestically.

But working to strengthen the Lebanese polity, get Lebanese to agree on common purposes, that's the way over time I think you'll see Hezbollah begin to mitigate the role that -- continue to mitigate the role -- it's played in the past.

SEN. NELSON: And so, the U.S. should approach this conundrum how, in your opinion?

DR. WISNER: Cautiously, quietly and without laying demands on our relationship to a Lebanese state that can't bear those demands, that it take actions that are violent or disobliging or disciplinary versus Hezbollah in the south.

We can make our choices about how much money we want to give. But to publicly condition it is something that will produce an impossible political circumstance for the Lebanese government and, indeed, other Lebanese political forces.

SEN. NELSON: Is there any daylight between the Lebanese Shias and Hezbollah that we can lessen the influence of Hezbollah?

DR. WISNER: I would be honest with you, Senator Nelson. I don't know why we have to pick enemies.

There is, of course, a contending force. There is Amal.

But I would not argue that you have to pick friends either. The United States can stand above the interplay, the fray of Lebanese politics, and encourage directions, as opposed to try to pick one side over another. They're all filled with defects.

SEN. NELSON: You all are familiar with the Hezbollah-sponsored television station, Al-Manar, which spews out a good bit of hate.

Just recently, the administration declared this television station as a -- I don't know the technical term, but anyway, it was sponsoring hate and violence and terrorism.

And as a consequence -- one consequence that I know that happened was that the sister radio station, which was up on a Spanish satellite system -- the Spanish knocked them off the satellite for broadcast.

Now, this is a television station and a radio station that's really doing some pretty bad things. I mean, they're out there broadcasting how to do a self-destructive vest and all of that.

I'd like your comments on this. Both of you.

DR. NASR: Well, that is true. Al-Manar has been broadcasting not only contentious programs like the one you mentioned, but also has been having an impact on public opinion on a host of issues. And it's actually a very popular television site. It's the second most popular after Al-Jazeera in the region.

And dealing with it is a public diplomacy -- it's a media challenge, and not only just for the United States. It's actually a challenge for some of the other media outlets in the region, as well.

There has to be a sort of a -- the U.S. should follow a policy of both demanding that its content be curtailed, but it would be difficult to completely shut it off, mainly because it's very well tied to all the political and social operation of Hezbollah. And it has a wide viewership, not in Lebanon itself alone, but in the Palestinian territories, in Iraq and all the way into the Persian Gulf, as well.

SEN. NELSON: Are the changes in Hezbollah ultimately going to change the message of hate that is being broadcast over Al-Manar, in your opinion?

DR. NASR: Ultimately, it will. This process may be slow.

Over the period of elections that occurred in Lebanon in the past year, Hezbollah had to build a coalition with more moderate Shia forces, particularly with Amal. The two of them ran under one umbrella and won about 80 percent of the Shia vote in Lebanon, which is probably 40 percent of the vote in the country as a whole. And it had to make certain compromises, at least in its message within the community.

Part of the reason Hezbollah is reluctant to do that, because Hezbollah's popularity among the Palestinians is very closely attached with its very strongly anti-American and anti-Israeli position. And when Iraq occurred, Hezbollah came under attack from other Arabs in Lebanon and the region for being complicit in Shia empowerment in Iraq, in a veiled way being responsible for the loss of power by the Sunni population.

And in some ways, Hezbollah is trying to compensate for that loss of face by shoring up its credentials, by toughening its stance on U.S. and Israel and trying to divert attention from the fact that its sympathies in Iraq lies not with the insurgents, but with the Shias.

SEN. NELSON: Thank you, Mr. Chairman.

SEN. LUGAR: Thank you very much, Senator Nelson.

Senator Obama?

SEN. OBAMA: Thank you, Mr. Chairman, and thanks to the panel. I apologize for having missed your initial presentations, but I have read them and appreciate you being here.

A lot of the questions that I would have asked have been asked. But I want to maybe just touch on a couple of things to amplify them, if I could.

Maybe the first question I'll direct to Dr. Nasr.

I continue to be interested in our approach to democratization. And it strikes me that in an environment like Iran, it is possible that our funding of reformists make them a target, or actually distance themselves from the general population that ultimately they would need support from to initiate changes.

I know that some of these questions were touched on, and so, I don't want you to repeat yourself at length. But I'm just wondering if you could comment on the general assessment.

And if that's the case, can you tell us what would be an appropriate way in which we are encouraging human rights, intellectual freedoms, and so forth, without being heavy-handed and actually debilitating the groups that are already there?

DR. NASR: Thank you, senator.

Part of the problem rests in the fact that we've approached this issue the way, based on the experience we had in Eastern Europe where, I believe that fundamentally, there were -- the context was different.

There were much more clear-cut political forces on the ground to partner with and channel the money to. The governments were more alienated and isolated. But also, we had embassies and operations on the ground that could actually manage the money and know that it is going to the appropriate sources.

We do not have a presence in Iran. It is not clear how we would establish a channel with the right people to send them money.

Secondly, unlike in Eastern Europe, or other cases like Asia and Latin America, the major push for democratization, at least through this appropriation, is coming right at the time of heightening of tensions between the United States and Iran, with threat of sanctions and possibly military action on the table.

That makes it very difficult for democrats to be able to cooperate with the U.S. overtly.

I remember one reformist told me that we want support, but we don't want it put on a bumper sticker, because it stigmatizes them. And they do not want to be put in a position politically to have to choose between nationalism and democracy.

And that's exactly the way in which the Iranian government is posing the issue, that democracy is now supported by the country that could potentially be the adversary of Iran or be dropping bombs on Iran.

The regime has begun to legitimate its crackdown on intellectuals and human rights voices in Iran, by no longer saying that we are putting them in prison because they are criticizing us, but by saying that they are distributing this money. And therefore, they are "foreign agents."

And in that sense, it could be counterproductive. It could actually squash that movement rather than help it.

SEN. OBAMA: So, is there anything that we could do that would be useful? Or should we just keep a hands-off policy until some of the larger deal politics have been resolved?

DR. NASR: Well, I think, senator, now that the appropriation has been declared, in other words, money has been put on the table, it is very important to have very clear transparency and accounting of what the money is being spent on, because the very ambiguity of where the money is going, or who might get it, allows the Iranian regime to argue that the money is being spent on subversive activities or is being channeled to particular groups that it wants to stigmatize.

So, if the money is being spent on broadcasting, it should be clarified. If it's being spent on academic material, as Ambassador Wisner suggested, then that should be clarified as well.

SEN. OBAMA: Good.

Ambassador, I think it was in your testimony -- and correct me if I'm wrong here and I get them mixed up -- that you were suggesting that engagement would be a wise course of action.

I've had conversations with folks in the State Department, and previously, at least, their feeling was, ironically, that politics inside Iran oftentimes prevented engagement. It wasn't just an unwillingness on the part of the United States, but, in fact, there was some resistance from the Iranians, because it caused them problems if they were perceived to be too friendly to the United States.

You seem to indicate in your testimony that you think that may have shifted, because you actually think that there's greater confidence politically. I'm wondering if you can expand on that, and if there are particular openings.

Are you suggesting here that now is the time for us to, for example, in response to the letter from the Iranian president, to write back, see if we can get some sort of direct talks? Do you think the model that we're using with North Korea in terms of six party talks is a way to help the thaw?

And again, I'm sure that some of these questions were asked before, so I apologize. But if there's anything you want to either reiterate or expand upon.

DR. WISNER: Senator, there is a long history of American attempts to engage Iran, and a respectable history of Iranian attempts to engage the United States.

It's my conclusion that these attempts have failed in the past, obviously, over sharp differences of points of view, but principally because they were not linked coherently within a political objective. They were individual initiatives, that once...

SEN. OBAMA: Can you explain what you mean by that?

DR. WISNER: An individual initiative, for example, we and the Iranians talked about American hostages in Lebanon. We found a basis to solve that particular problem, but it had no spillover effect on the range of disagreements. And as soon as it clashed with our electoral cycles -- we were going into an election -- the initiative dried up.

We opened a multilateral channel of dialogue with the Iranians inside -- over the Iran issue. And the Iranians took a number of steps that were frankly helpful to the United States over Afghanistan. That didn't lead anywhere, because it was in isolation.

I would argue that solely a discussion of Iraq in Baghdad with our ambassador in Baghdad may reveal some interesting outcomes, but ultimately it's not going to affect the totality of the relationship unless there's a political decision at the top on both sides to aim for a different construct, to aim for normalization between the two sides.

And then, as we did with China, once we link at the top between our president, the Iranian leadership, a desire or a determination to live in peace with one another, then you can address the subordinate portions of the puzzle -- Iraq, Afghanistan, Palestine, Israel.

But if you try to go at the bottom-up, you will fail. You will be frustrated. That was the core of my contention.

Now, do I believe that the letter should be answered? No and yes.

The letter is very complicated for an American mind to get around. A strange formulation is about the nicest thing you can say.

But I believe, it offers the United States an opportunity to state our case, to put on the table what we want to talk about and what we believe is important.

So, I would hope that a way can be found to signal back that we are open for dialogue, but here are the issues that have got to be talked about, not try to answer line by line the contentions that all of us would disagree (ph) are ill-founded.

SEN. OBAMA: Is it fair to say that such engagement, though, would necessarily be premised on the idea that we are not pursuing regime change in Iran? And that as long as that is at least on the table here in Washington, then presumably we couldn't -- it would be contradictory.

When we engaged China, the presumption was that, for all their flaws, we did not have it within our power to change regimes. And as a consequence, we approached it somewhat differently. It seems to me that, at least up until now, the administration's posture has been that we might just replace the folks.

DR. WISNER: Senator, you have certainly stated my view, that a policy of regime change runs countercurrent to an ability to engage on the issues of vital importance to the United States, which are issues of national security importance to us.

I argued that the domestic dispensation in Iran, while important as a level of principle, is not a national security threat to the United States. Therefore, we can find a way to live in peace, though not in disagreement -- not in agreement -- on principle with the Iranian regime.

And until you make the point that you're prepared to seek peace, then engagement on issues of enormous importance -- nuclear or any of the others -- won't be possible.

SEN. LUGAR: Thank you very much, Senator Obama.

Let me commence the second round of questioning. And somebody note that we come together in large part today, because we believe that there is potential for development of nuclear weapons in Iran, a threat of this sort.

Now, you have testified -- at least some of you -- that we ought to decouple the democracy objective from any other objective. In other words, if our situation is one in which the threat of the nuclear development is the major thing we're looking at, we sort of look at that.

And the suggestion is that, in fact, there probably -- a degree of normalization between our country and Iran, or other countries in the world and Iran, is going to be a requirement before a vigorous dialogue on democracy is likely to be productive.

And furthermore, you've testified, Ms. Nanay, that probably is going to be the case before the natural gas industry in Iran is more fully developed, or energy resources are available to the world.

So, if you're following the energy pattern, probably more gas, more oil. The democracy pattern, more dialogue on democracy is productive, if you have a degree of normalization.

And the issue, obviously, is, as you've all discussed, is that it's not easily come by, this engagement that brings a sense of normalization. On the other hand, clearly, normalization is a different thing than a call for regime change.

So, an argument can go on on that one, but you, at least some of you, come down on the side that probably -- you talk about normalization as productive on the democracy scene, the energy scene and maybe even with discussion of the nuclear business.

Now, we had some testimony yesterday that, in order for serious thoughts about normalization to occur, there has to at least be some degree of economic sanctioning. And not simply the threat of it, but the actuality. There is at least that threat, and the possibility of it enters into it.

Now, it was suggested by some witnesses yesterday, this can be more subtle than overt, specifically bank accounts changes, in which all sorts of things get blocked in the background. Likewise withdrawal of foreign investment or failure of projects to proceed.

I think there has been some testimony today that, on those grounds alone, Iran is unlikely to change its mind. On the other hand, they offer some credibility that the world is not helpless in this respect, and that we can take steps that do not overtly harm ordinary Iranian people in the process of coming to make our point.

I go through all of this, because I'm seeking -- and I'd ask you first of all, Mr. Wisner, from your experience, if there is any sort of parallel with our experience with Libya.

The Libyans, I can recall from an early term in the Senate, being summoned by President Reagan to the White House. Senator Byrd and Senator Dole were there visibly, and I have a picture of us. That's why I remember who all was sitting around the table.

And President Reagan comes in and informs us that we're going to have consultation about military action, that while we were sitting there, there were American planes flying toward Libya. And then they're going to be over Libya in three hours, so our conversation will have to be less than three hours, because, in fact, something's going to happen then.

The implication is, although not a promise, that if we come to a conclusion that that is not a good idea, then the planes might be called back. They've already gone around France, because they had difficulty getting across there, and all these other machinations of the time.

So, we discussed this for about 2.5 hours. It was not a laid- down down, because it was an act of war. The reason we were doing this is because an American soldier -- or maybe more -- had been killed in Germany. We attributed that to Libyans. And we felt that was a sufficiently hostile act to, in fact, bomb what could have been Moammar Gadhafi and his family, in addition to various other targets that were there.

So, that's pretty serious stuff. And as people are talking about overt military action, I can recall this.

Now, in any event, we did attack, and the bombs were dropped and there was damage. Moammar Gahdafi's family suffered some casualties, as a matter of fact. He himself lived.

Now, I thought of that when I was asked by the State Department and NSC to visit with Libya in August. And I was invited by Moammar Gahdafi to come into the middle of the desert. And given an air force plane and the proper escorts, we got there.

And we had an hour-and-a-quarter conversation about life and the times. It was a productive conversation. It might not have been. No reason for him to invite me. No reason for the State Department to ask me, go to Libya and see what you can do.

But I mention this, because this is the same man that we were talking about in the White House about 10, 15, 20 years ago. I can't remember the date.

And so, times change. Now, Libya had changed. And we can't go through all the negotiations that led to their renouncing of their nuclear program or chemical program. There's still cleanup to be done, although most of it's been carted out to Oakridge, Tennessee.

And just this week we have set up an embassy there. We're removing Libya from the terrorist list. This is now without dispute, I might add.

On the other hand, it was certainly my recommendation, given American interests in Libya presently, that I saw, given Chinese and Indian persons occupying the Corinthia Hotel and going after every last acre of the country. And likewise, a change in attitude toward the Bulgarian medics, toward the Saudi government -- toward a whole list of things -- that have (ph) been very legitimate foreign policy issues.

Now, this leads me to a question. There also has to be credibility, and I would not suggest an attack upon Iran as one way of establishing that, and the way in which, perhaps, we did so in other times.

But I'm sort of asking, after we sort of settled the fact that we're credible, we -- and I say "we," the Europeans, the Russians, the Chinese were busy negotiating with them to get into a common posture.

At the end of the day, what is your judgment as to whether the Iranians might take the Libyan path? In other words, decide that they want to be a part of the world, that they want to develop resources that could, in fact, enable a great deal of wealth to come to all of their citizens.

Or, in fact, is this such an obsession to have nuclear weapons, come hell or high water, that there is really nothing on earth that can change their views?

I'd ask you, Ambassador Wisner, to have a try at that.

DR. WISNER: Senator, it's fascinating. And I listened with rapt attention to your memories of the past...

SEN. LUGAR: Well, you were on duty during that period.

DR. WISNER: I was, and I remember the circumstances. But also, your more recent engagement with the Libyan leader.

I would be the first to argue that drawing parallels at one level between Iran and Libya would be a dangerous exercise. They're such very different societies.

Libya -- Moammar Gahdafi is the government. Iran's political realities are infinitely more complicated. The nuclear programs are different. There's so much that you could draw as differences.

But what I think is encouraging -- and I believe you put your finger on it perfectly, with great accuracy -- is that we have indicated there is a way forward with the United States. It's not just a regime of perpetual confrontation.

And the same, if I followed Senator Biden earlier in his reference to the front page of the New York Times, and hints, intriguing hints about where we might be able to go with North Korea, that we are a nation that engages diplomatically. We look for outcomes and solutions.

Now, I believe the ability of the United States to conceive of and use military force is without question. And I really warn any country that assumes we're bogged down in Iraq and can't use military force, we can. It's a reality and it's on the table, if we are defied or threatened, or most particularly, if action is taken against the United States.

Second, sanctions. We have a long list, elaborated painfully, of sanctions over some 20 years with Iran. ILSA, to my memory, contains many of those features. Our ability to deal in sanctions is not open to question.

And if in the time ahead you've got to find a new sanction, I think there are a couple, multilaterally -- for example, the use of official credits -- that offer some merit, if you're looking for and need fresh sanctions.

But I believe my colleague on the stand today put her finger on the key. It's not what further punishments you can deliver, but how you can help Iran escape a quarter of a century of isolation, a quarter of a century of denial in which she's not been able to deliver for her people the promises of what Iranians said was their own revolution.

And that engagement with the United States is -- in the minds of Iranians we play such an important role in their calculations and thinking at a popular level and at a government level. Engagement with the United States is a real inducement. Not what punishments we can do, but what can come out in a positive way. And that, I feel, at the moment we are understating.

My formula that I argued with you today, senator, is not normalization as the starting point, but a determination that we're prepared to live in peace, and to pursue a course that could end in a normalization of diplomatic relations in which we address systematically those points of difference in the region -- what Iran needs economically -- and at the end of the day arrive at a point where diplomatic relations are normalized.

But the starting point is one of respect, of not challenging the other's legitimacy to hold office, but rather to sit down and work through, towards the objective of a comprehensive solution.

SEN. LUGAR: I thank you.

Senator Coleman?

MR. PHILLIPS: If I could just add something on that point.

SEN. LUGAR: Go ahead.

MR. PHILLIPS: I think the Libyan model demonstrates that the use of force and strong diplomacy are not mutually exclusive. In fact, when dealing with rogue regimes, the credible threat of force greatly bolsters diplomacy.

And I think one of the reasons that Colonel Gahdafi made this decision to give up WMD and disavow terrorism was his experience with the Reagan administration way back when, and also with the conclusions he drew from the Bush administration's intervention in Iraq.

And Colonel Gahdafi told Prime Minister Berlusconi of Italy, that the reason he gave up his WMD was the example of Saddam Hussein.

And so, I think that disincentives are extremely important when dealing with these kind of regimes. Not that they're necessarily similar, because Iran's much more complex, much more difficult to ascertain which multiple power center to deal with.

But I'd be willing to accept the Libya model in Iran, if the Iranians would follow through the way Gahdafi did, and that was to surrender two of his intelligence agents for trial. One of them is in jail. If Iran is willing to surrender Mr. Ahmad Sharifi, who was involved in the bombing of the 1996 Khobar Towers, then I'd be willing to talk to Iran further on that also.

But I think it's important that we not just talk about incentives, because, as President Ahmadinejad said just yesterday and was quoted in today's Washington Post, do you think you are dealing with a 4-year-old child to whom you can give some walnuts and chocolate, and get gold in return?

I think, you know, he sees that nuclear program as gold. And I think until he's convinced it's going to cost Iran a lot of gold, he's not going to give that up. And so, I think we need to talk about disincentives, and not just incentives.

SEN. LUGAR: Thank you.

(UNKNOWN): Has the middle class (inaudible)...

SEN. LUGAR: Please, please.

(UNKNOWN): Sit down.

(UNKNOWN): ... (inaudible). Please, no more bombs. No more...

LUGAR: Let me just issue a warning, once again. I'm sorry. We had this problem yesterday, and we'll have it again today, apparently. But we cannot have these interruptions. It's not fair to the witnesses, nor to the dialogue of the senators.

So, please, if you will, be quiet.

(UNKNOWN): Why don't you give a chance (inaudible)? (inaudible)...

SEN. LUGAR: Then, please, will the police remove the persons, so we can continue with our hearing.

(UNKNOWN): ... not the (inaudible). People still have a voice.

(UNKNOWN): (inaudible)

SEN. LUGAR: All right. The hearing will continue.

Senator Coleman?

SEN. COLEMAN: Thank you, Mr. Chairman.

I see regime change and promoting democracy as, to me, the same concept. And how do you get there, as Dr. Nasr says, it's a long term process. But I think it's certainly in our best interests, the interests of the Iranian people.

Dr. Nasr, though, you've -- your point -- and a couple of times you indicated that, in doing that, in promoting democracy, what it does is, that it kind of fuels the flames of nationalism in Iran.

So my question is, is U.S. sense that we should not be promoting democracy? That if we want to deal with the issues of Iranian nuclear capacity, if they want to deal with a range of other things that Ambassador Wisner talked about, that we step back from promoting democracy?

DR. NASR: We should continue to support democracy, and we should human rights for Iranians, freedom of conscious for intellectuals. We should demand that the political process in Iran move in that direction.

But looking at democracy -- or parceling democracy into our current efforts to change regime behavior, specifically regarding the nuclear issue, it just confuses, essentially, the purpose of democratization.

I think, as relations are becoming increasingly tense, with sanctions and a military threat on the table, and you can look at political debate in Iran, that within the regime and society people are taking these extremely seriously. And that's partly why, probably, there is the letter writing that has begun on that side. The population is reacting, obviously, by a rally to the flag phenomenon.

Now, if democracy is combined into the policy that they are reacting to, into (ph) a policy of confrontation with the outside forces, it would merely complicate and hurt the democracy future in Iran.

I think it is very likely that most of the pro-democracy forces would shy away from being put in that kind of a bind.

SEN. COLEMAN: Mr. Phillips, I presume you had a chance to read Dr. Kissinger's article. Do you have any reaction to his sense that it might be possible to devise multilateral venue talks with Iran on the nuclear issue, and that we should participate?

MR. PHILLIPS: I think we should definitely leave open the possibility of talking directly to Tehran. But I would be hesitant to involve the U.S. in U.N.-centered public talks.

I would prefer Kissinger's own model of secret diplomacy, because that would limit the ability of the Ahmadinejad regime, or whatever interlocutors we have in Iran, to posture and try to drive a wedge between the U.S. and its allies.

So, I think direct talks, secret talks, could reduce the possibilities of Iran just using it as a public relations purposes, and kind of talking down the clock, and involved in endless negotiations and kind of whipsawing the U.S. between its allies, who believe more in the carrots than talking about sticks, which I think Iran pays more attention to.

But I would leave open the possibility of talking to Iran. But I would draw the line at actually engaging in the sense of economic engagement, because I think the problem there is that it's a state- dominated economy. It strengthens the clique in power, and also the semi -- the quasi-state bonyads or foundations are the ones that profit from any opening to the West, not the Iranian people, and that engagement, economic engagement like that, would strengthen the regime and not weaken it in the long run.

SEN. COLEMAN: And isn't that the -- what (ph) we have, that we have a regime which is an oppressive regime, which does sponsor terrorism around the world. It kills Americans. It kills people.

And so, the challenge we face is, if we engage and normalize, we strengthen a regime that's probably the largest state-sponsored supporters of terrorism in the world today. And yet, we don't always want to be in this position. We want to -- can we move it forward? Can we move it forward?

And, you know, the challenge is, how do you that? Can we (inaudible) externally, and even internally, not us directing, but making resources available to those who are seeking democracy, pushing democracy. And the challenge is, how do you get there.

Ambassador Wisner, is -- as I listen, and then I've kind of read your material and this kind of push ultimately to normalization. At a certain point there's got to be something from Iran. There's got to be something from the regime.

If the regime -- and I get back to my hypothetical, which again -- and I agree with you, it's not absolutely clear, the intention. But there are those who would say that the discussion now is simply an opportunity to buy time, to allow Iran to develop a nuclear weapon. And Iran now has a nuclear weapon, and their actions of supporting terrorism are such that that would be dangerous to stability in the region.

And then you have Ahmadinejad and, you know, his comments. And I take it he's not a sole actor out there, he's not a -- he's not going solo -- that his comments reflect the thinking of the mullahs or others in Iran, though it may not be uniform thinking.

So, the question is, what do we have to seek from -- what would you think that we should seek from Iran to give some indication of an approach other than what Ahmadinejad is quoted as saying in the paper yesterday?

DR. WISNER: Senator, first of all, I listened very carefully to what you had to say about principal state-sponsor of terrorism around the world.

I respect you have access to much more information than I do. But my assessment of the Iranian terrorism connection is that this connection has changed, metamorphosed, and over time in some interesting ways that are material to us.

That the threats that the United States is most directly faced -- time of 9/11, Al Qaida, and even threats our military forces with some significance where Shiite sectarian groups with Iranian connections have been involved -- that the great majority are not connected to the Iranian government.

Just exactly where we and Iran stand in our views on terror, and the connections and the groups that are involved, would, to my judgment, be a legitimate subject for a political dialogue with Iran.

Let me return to the core of your contention.

I've argued that, to find out where we are with Iran, to create a political framework within which you can address issues of terror or nuclear regional differences, Iraq, Afghanistan, you have to have a political vision. You have to be able to go to the Iranians and say, what's the starting point? What are we trying to accomplish?

And I've argued, we're trying to live in peace, one with the other. And if that's the case, then how do we demonstrate it?

Now, we have issues that need to be addressed by the Iranians. There are the several we've talked about. And before we end up at the end state of normalization and the resumption of a normal relationship, and investment and a relaxation of sanctions, we have to get through this list of disagreements, and the Iranians will have to match us step for step.

But we can't start until we lay down the core premise, see if there's an Iranian acceptance of it, agree on the agenda and then outline what our desiderata are, and what the Iranian reciprocal gesture we're looking for, and let them put their views on the table.

And in my remarks this morning to you, saying diplomacy -- the diplomacy of engagement is also about the exploration of what might be possible. And that's where I would like to see our policy headed now.

SEN. COLEMAN: And is your, the approach that you're advocating, advocating because of Iran and the history and the people? Or is it kind of a -- in other words, would you take the same approach as Kim Jong Il?

DR. WISNER: I -- let me start back. I think there is a respectable history of American engagement. I cited the two principal examples.

We had the gravest differences with the erstwhile Soviet Union. And yet, through detente, we engaged and figured out the areas that divided us and reduced tension on those, and found common positions.

With regard to China, senator, when President Nixon sat down, he didn't try to resolve the Taiwan Straits issue as the first question. He created a political view; we and China would live side by side with each other, with respect. And then from there, we addressed the issues that divided us.

I'm suggesting the same approach is necessary with Iran.

I would argue that, if we're going to find our way through -- it's my own view; I don't follow it as closely, its' my own view -- that if we're going to find our way through the nuclear thicket with North Korea, the starting point is a willingness to live in peace, number one, to not to have on our list of pretensions regime change in North Korea. That will come when it comes. But our problem is an external military threat posed to our troops, to our allies, and that you have to turn this around.

Therefore, the story, or the front page piece Senator Biden referred to this morning, to me is a good starting point, that we're prepared after 50 years to begin to talk about negotiating peace with North Korea, as a handmaiden of engaging on the nuclear issue that divides us.

SEN. COLEMAN: Thank you.

Thank you, Mr. Chairman.

SEN. LUGAR: Thank you very much, Senator Coleman.

We thank the witnesses for your excellent testimony, for the statements you have made that are part of our permanent record, and for your forthcoming responses to our questions.

We will continue to pursue this area at additional hearings, and we look forward to continued dialogue with each of you.

The hearing is adjourned.