SEN. RICHARD G. LUGAR (R-IN): This hearing is a Senate Foreign Relations Committee is called to order. Today, the Committee meets to consider the nomination of John Rood to be Assistant Secretary of State for International Security and Non-proliferation.

. . .

MR. JOHN C. ROOD: . . . In Iran, we have presented the regime with two fundamentally different paths. The negative choice is for the regime to maintain its current course, pursuing nuclear weapons in defiance of the international community and its international obligations. If the regime does so, it will face further international isolation and progressively stronger political and economic sanctions.

The positive and constructive choice for the regime in Iran is to alter its present course. We have supported the recent offer made by the EU-3 to Iran and Secretary Rice has said that as soon as Iran fully and verifiably suspends its enrichment and reprocessing activities, the United States will come to the table with our EU colleagues and meet with Iran's representatives.

Unfortunately, the Iranian regime has not accepted this offer which is why we have worked successfully with our European partners on a U.N. Security Council resolution mandating Iran suspend its enrichment and reprocessing activities and urging its return to negotiations or face further action by the Security Council, including sanctions.

. . .

SEN. LUGAR: I appreciate your mention of National Security Adviser, Steve Hadley's letter. He has written to support S.2489 asking for expeditious action to enable us to do this. Amplify further, just for the record, why Senate approval of the IAEA additional protocol and implementing legislation is important. In other words, what impact would U.S. ratification have on diplomatic efforts related to Iran or any of the other cases that you have mentioned?

MR. ROOD: . . . There is some impact, we think, that can be had on other countries, perhaps even including those like Iran. As you know, Iran has baulked or not, in recent time not implemented the additional protocol and they've not ratified it. For the United States to ratify the additional protocol and be fully bound to it, we think that sends a positive message about the importance of the agreement and can help us in places like Iran.

. . .

SEN. LUGAR: . . . Now, the United Nations Security Council took an important step on Monday, citing chapter 7 and the need for Iranian suspension of enrichment activities. What in your judgment is the next step and what should be the goal of United States policy as we near the August 31 deadline?

MR. ROOD: Mr. Chairman, the Security Council sent a clear signal to the Iranian regime about the need to suspend its nuclear enrichment and reprocessing activities. The clear next step is for Iran to comply with the U.N. Security Council resolution and to in fact suspend those activities.

The resolution also called on Iran to return to negotiations, and as I mentioned earlier, Secretary Rice has indicated that if Iran should verifiably suspend its enrichment reprocessing activities we in the United States would join our EU-3 colleagues at the table and meet with Iran's representatives.

So I think that's the clear path forward. Now, if Iran does not suspend its activities another path will be taken, and that is that the Security Council expressly noted in its resolution that under article 41, chapter 7, we will consider additional measures after August 31st, including sanctions.

SEN. LUGAR: Well, let me ask another question because we will not be in session as a committee throughout the month of August. August 31 will come and go before we all arrive back and try to gain a quorum, and so therefore these issues are important to discuss presently.

Given Iran's continuing intransigence with regard to uranium enrichment do you believe that additional incentives such as the provision of a light water reactor or withholding sanctions on Iran can still provide the right incentives to get Iran to act responsibly? At what point do you see multilateral sanctions as preferable to incentives? And when are multilateral sanctions at the United Nations likely to be a real option? That is, is it your judgment that the other major parties who are involved with us in the negotiation are prepared to take that type of action, that's economic sanctions if that is to be the choice, would imply?

MR. ROOD: In late May Secretary Rice laid out this choice that I described earlier for the Iranian regime of two paths, and really I think we're still at that fundamental crossroads with the Iranians. We've put in place a foundation with this recent Security Council resolution that was adopted yesterday, and in the process have gained the agreement of a number of key states to accomplish that.

And as you described in your statement, that's going to be necessary if we wish to pursue things like economic sanctions to have their support, and this is a gradual process. But I would say I think this combination of incentives as well as indicating whether there will be disincentives for behavior that the international community has clearly said now in a binding Security Council resolution that there's a mandatory requirement for Iran to suspend its activities, that we have again put in place a foundation upon which if the Iranian's unfortunately do not suspend their activities that we can pursue other measures like sanctions to impose costs on the regime.

SEN. LUGAR: Let me carry this further, and this is not specifically a non-proliferation issue but it does come to the heart of the debate that is occurring in the United Nations and potential activities with regard to Iran. Some who have come before the committee offering information have indicated that over a fairly short period of time the population of Iran has grown to 70 million people, depending upon where the benchmark was people often say from 40 million to 70 million, 30 million to 70 million, in a period of, say, a quarter century or so, and that has imposed upon whatever government there may be great problems in terms of poverty.

That is, the actual per capita income of millions of people in Iran is very small. And even if there is substantial new wealth given the price of oil in the world and Iranian exports, and that is a major source of the income for the government of the country, if not for its overall GNP, it's divided at least hypothetically over more and more persons or a part of that population.

And the same contention has been made with regard to Saudi Arabia, for example, as that population has grown very, very substantially, and therefore the resources supporting the social system, which was always much more generous in the Saudi kingdom than the case of Iran to begin with.

Now, I raise this question because at least as a strategic problem if the world is discussing at the U.N. level economic sanctions on Iran, depending upon how they are imposed and on whom they are imposed, or if one can find exactly how that's going to be manifested and how it will work out. The harm obviously to a great many poor people could be very severe.

This is always the dilemma with regard to a regime that has a lot of people and a lot of them very poor in the process.

So I'm -- without asking you to project ahead precisely what kind of economic sanctions are being proposed, is this something that has come into your purview at all? Are you in the process along with Secretary Joseph of trying to think through in recommendations to Secretary Rice or to those who are negotiating at the U.N.? What do we propose, or even begin to concern our negotiating partners with if we are to be effective, and at the same time, humane? That is, try to respect the fact that diplomatically the need to enlist the support of the Iranian people for world policies, not just ours, but world views with regard to the building of nuclear weapons and so forth, that we might gain some traction if we were thoughtful about this.

MR. ROOD: Yes, that is a concern that we have in our deliberations on what sort of sanctions we might pursue that we've considered inside the administration. You're correct in pointing out the need we think over the long run to try to have the people in Iran understand that pursuit of nuclear weapons is not going to make them more secure and is not going to improve their livelihood.

Today the nuclear program without differentiation, whether that's civilian nuclear reactors or weapons, is all amalgamated by the regime into one thought, and there is popular support for that. I think the question that where we would like to focus that debate is we've clearly indicated in the EU-3 proposal that the United States has backed to the Iranian regime that Iran can pursue civilian nuclear power production, it can't pursue nuclear weapons though, and let's see how the population responds to that dilemma.

And as you mentioned, there is a large population and demographically these are younger people, and there is a desire for a better livelihood, and they are impatient for that. If the country experiences greater economic hardships as a result of this pursuit of nuclear weapons, not nuclear energy but nuclear weapons, we would like to split the regime from the people in that way.

The measures that we have looked at for economic sanctions are -- we've tried to target on the regime and those making decisions about the nuclear program. That's where we will start. So we're mindful of the problem that you mentioned, but this is of course a tricky issue to work through.

SEN. LUGAR: Well, it is, but it's an important one in terms of the future relationships of our country with Iran, as well as the world community, that is now deliberating and it's now set a deadline of August 31st. And likewise in a very sophisticated way this idea I know Secretary Joseph has been entertaining of how do we provide somewhere in the world some nuclear supplies for peaceful regimes that are not building weapons?

That is, what kind of international organization or protocol makes possible the type of activity you have suggested, a peaceful development, as opposed to a country having to attempt to by hook or crook gain centrifuge technology, to begin working through all the manifestations of that in some covert way, which obviously is going to undermine confidence in whatever area any such regime might occur because the Iranian example might not be the last one.

And so the need for some international possibilities for people because we made decide as a point of our own national energy policy to encourage once again nuclear reactors in the United States. And I don't want to burrow that issue into your hearing today and to make life more difficult for you as you seek this position, but currently this is an active debate going on in our country as to whether we can make it without having some modern nuclear facilities quite apart from the Chinese that we're encouraging, or even India in the agreement that we are looking at with them.

So to the extent that other countries were able to in fact obtain sources of power that are not as harmful to the environment as others are, maybe this is a desire that we want to manifest, and maybe it can be an outcome of what have been very difficult negotiations with Iran to date.

. . .