MR. MCCORMACK: Good afternoon, everybody. I don't have any statements to start off with, so we can get right to your questions. Who would like to jump in?

Sue.

QUESTION: The European Union and the U.S. have (inaudible) stated today jointly that if Iran doesn't, you know, play ball, and agree to your conditions or won't take on these incentives, then you're going to - you're ready to take extra measures outside of the Security Council. But together, you're ready to impose additional sanctions. Do you have anything on that?

MR. MCCORMACK: Well, from our point of view that is a statement of fact and perfectly consistent with what we have said over time; that we're working on a variety of different tracks here. We're working the Security Council track, which is obviously multilateral-based sanctions that individual states would implement, unilateral sanctions that states would themselves decide to take, and then also working with the private sector to inform them and educate them about the Iranian Government's activities. Secretary Rice also - always cites Secretary Paulson's remark about Iran: "If you're doing business with Iran, you're really not sure with whom you are doing business in the Iranian Government or Iranian society."

So that's absolutely consistent with our - certainly, with our point of view. And I'll leave it to the EU to describe their previous policy positions.

QUESTION: But is there anything special in the works? Secretary Rice said on the trip to Palo - to Palo Alto --

MR. MCCORMACK: Palo Alto, yes. Out West.

QUESTION: Out West.

QUESTION: But we never actually got to Palo Alto.

QUESTION: No. (Laughter.) Anyway, she said that the United States would aggressively impose sanctions against Iran. And obviously, we --

MR. MCCORMACK: And we -

QUESTION: Are we still on track for that?

MR. MCCORMACK: Absolutely, absolutely. We're always looking at what further might be done based on the facts. Of course, all of these things have to be based on Iranian actions. If the Iranians are engaged in illicit activities or using the international financial system for - in improper ways, then of course, we are going to: (a) speak out about it and (b) take action. And we've demonstrated that we're prepared to do that, as have other states. And in the recent speech the Secretary gave to AIPAC, she also talked about this as well, encouraging others to have strict enforcement not only of UN sanctions, which have the force of international law, but also to look at what they might do bilaterally.

Yeah, Kirit.

QUESTION: So what type of measures are you looking at -- are you considering imposing if they do continue to ignore --

MR. MCCORMACK: Well, I'm not going to talk about what various options are out there in terms of actions we might take. These are traditionally things that are not made public before there is an actual formal announcement for a variety of different reasons.

QUESTION: Is that going to be a part of the presentation that's made to the Iranians so that they know what the cost might be?

MR. MCCORMACK: No. This is - what they are going to receive is a briefing on the refreshed incentives package that has been agreed to by the P-5+1. I would expect that probably mid-June they will - Mr. Solana and his delegation will meet with the Iranians so he can convey that. He can convey the fact - the idea to the Iranians that they have an opportunity here. They have a choice. And the refreshed incentive package is meant to reinforce for them that there is a different pathway from the one that they have chosen up until now.

Yes.

QUESTION: Iran and Iraq today are agreeing to boost its --

MR. MCCORMACK: Charlie, you have something?

QUESTION: Just a follow-up on the same thing.

MR. MCCORMACK: We'll get to that.

QUESTION: Is it safe to say that the Bush Administration still does not favor any sanctions on Iran that would affect import their oil - imports of refined oil products?

MR. MCCORMACK: Well, Charlie, again, we always take a look at what options are out there. I'm not going to - you know, go beyond where the President and Secretary Rice have in terms of talking about various sanctions. Again, we are going to look at those actions and those things that are going to be effective in changing Iran's behavior.

QUESTION: But why do you think that more sanctions are really going to have an impact? I mean, they haven't had a big impact so far. So unless you - you know, hit the oil industry, what else is going to work?

MR. MCCORMACK: Well, they have had - they have had some effect. And the effect of the sanctions is really to use the Iranian Government's own mismanagement of its economy against them. The sanctions that they have in place - that we have in place now and others have in place, increase the cost to the Iranian Government to doing business in the international system. Now, the lesson to them is that if they are going to persist in using the international financial system, the international systems set up for Congress - Commerce for illicit purposes, then the cost for trying to engage in those activities, as well as any other activities that they are going to engage in, are going to rise. And it makes it much more difficult for them to get loan guarantees, to get letters of credit, and to use the international financial system for any purpose that they want.

So while it has not up until this point changed their behavior - you are correct - we are mindful of the idea that we are going to consistently increase the pressure on the Iranian Government in an effort to get them to change their behavior if they - and that each point along the way, we will assess whether or not they have - there's any indication that they're willing to change their behavior or if, in fact, they have changed their behavior. If they have chosen not to change their behavior, then there are going to be greater and greater costs to them for their continued defiance of the international system.

QUESTION: Sean --

MR. MCCORMACK: Yes. Hold on. I said I'd go to Sue.

QUESTION: Thanks. On Iran -- Iran and Iraq today are saying they're going to increase their defense cooperation and their energy cooperation. Are you worried that the Maliki government seems to be, you know, warming up to this government in Iran that you accuse of backing attacks on U.S. troops in Iraq?

MR. MCCORMACK: Well, look, they're neighbors. They're going to
have - they're going to have a relationship. We would encourage them to have a good, open, transparent, neighborly relationship. The fact of the matter is that their - that border isn't going to change. It's going to be there. And so the Iranian Government and the Iraqi Government are going to need to find a way to work together in an open way.

We're confident that this Iraqi Government is going to act in the best interest of the Iraqi people. And certainly that does not mean that they're going to be taking their - taking their policy decisions based on what they hear in Iran. They are going to take their decisions based on what is in the best interests of the future of Iraq and the Iraqi people. That's what the Iraqi people have - expect.

QUESTION: But they expect U.S. forces to stay there and then, you know, warm up to this government that - that you say is backing attacks on U.S. forces?

MR. MCCORMACK: Well, there are a lot of governments around the world that have diplomatic relations and commercial relations and other kinds of relations with Iran and we have perfectly good relationships with those nations. It's the same - the same goes for Iraq.
We are negotiating with the Iraqi government, a SOFA agreement, (inaudible), a strategic framework agreement that will be in the best interests of both of these countries. It's going to be transparent and one that is not meant in opposition to anything - any other country or neighbor of Iraq but is intended to be a statement of the good and close ties and cooperation between the United States and Iraq, and one that very clearly demonstrates that in - that Iraq is a sovereign country and - that is going to take its decisions in the best interest of its sovereignty and its security.

QUESTION: Perhaps another way to read their actions is that they would like for U.S. troops to go home?

MR. MCCORMACK: Who?

QUESTION: The Iraqis.

MR. MCCORMACK: The Iraqis? I haven't seen any indication of that. There's a lot of politics, obviously, in Iraq. But this government quite clearly is working closely with our military and our troops. Our troops are there currently under UN Security Council mandate, and we are working, as we've just discussed, a - various set of arrangements and documents that would replace those understandings. But, no, this new government has given no indication that it wants anything other than a good, working relationship with the United States military and with the United States.

That said, of course they want to take greater and greater responsibility for their own security in Iraq. That's been something we've seen demonstrated more and more each day with the progress made in Anbar, with the progress made in Basra by Iraqi forces, with the progress made in Sadr City by Iraqi forces. And while a lot of these gains are still fragile, they are real. And they demonstrate, as you've heard from our military officials, an increasing level of competence on the part of Iraqi forces. That said, there's still a need for that partnership in fighting determined enemies of Iraqi democracy.

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