GORDON: OK. I think we’re ready to start here. Is this thing on? OK, I’m going to call you guys to order. Time to stop chattering, because we are one or two minutes late and we have to kind of get on with our meeting. My name is Michael Gordon. I’m a correspondent with the Wall Street Journal. And my role today is to introduce really the key player in the U.S. policy on Iran and in the maximum pressure campaign toward Tehran, who was recently involved in a rather dramatic episode in which the Princeton graduate student Xiyue Wang was brought home in exchange for an Iranian detainee in the United States. But really what Mr. Hook is here to talk about today is a maximum pressure campaign and what he sees as its successes and its implications. He’s going to speak for about fifteen minutes or so and lay out his exposition on this, then I’m going to engage in some questions with him for a period of time, and then open it up to this group here. So now we’ll hear from Brian Hook.
HOOK: Good morning. I want to thank Richard Haass. He did an event up at CFR a week or two ago, I think it was last week in New York. And I thought this would be a good setting. I also want to recognize Ray Takeyh, who’s the resident Iran expert here at CFR.
This is a speech that has been some time coming. And I want to discuss the economic impacts of our maximum pressure campaign by examining Iran’s economy, the regime’s government budget, its access to foreign exchange reserves, and the role that corruption plays in Iran’s economy. More than one year after the re-imposition of American sanctions, the United States is depriving this regime of historic levels of revenue. Because of our pressure, Iran’s leaders are facing a decision they have not confronted seriously since the 1980s: Either negotiate and compromise or manage economic collapse.
The Islamic Republic’s economy shares many of the same features as a corruption racket. The revenue schemes and shadow financial networks that the supreme leader oversees enrich the regime’s ruling class while undermining opportunity for everyone else. These networks divert resources away from the people and fund a range of illicit and destabilizing activities from terrorist groups in Lebanon, to proxy wars in Yemen, to threatening ballistic missile and nuclear programs.
Unprecedented American sanctions are exposing this regime’s corruption and exploiting structural deficiencies in its financial networks. Our sanctions are meaningfully targeting the revenue streams the clerics rely on to foment sectarian violence, suffering in Iran, suffering in the region, and, because Iran has conducted terrorist operations across five continents, around the world. Iran’s leaders bear responsibility for how they choose to spend the Iranian people’s money, and for the state of their nation’s economy, and the stagnation of the Iranian people’s livelihoods that result
Iran’s clerics have had four decades to build an economy based on transparency. Yet, they have deliberately chosen to take a different path. They instead use the nation’s economy as a bank to finance their revolution and expansionist foreign policy, thereby exposing it to our financial pressure. Iran’s economy is opaque by design. There is a reason reformers in Iran too often find themselves cast out or incarcerated. The clerical establishment prefers the current system to meaningful changes that would benefit its own people.
Recently the clerics derailed efforts to adopt international anti-money laundering and counterterrorism financing standards that would bring transparency to Iran’s banking sector. To almost every country in the world these standards are normal and commonsense. But Iran’s leaders view them as unnecessary and imposing. They continue to resist transparency because they know it will expose the regime to real scrutiny, which would conform—which would confirm what we already know, that the regime uses the Iranian economy to finance and spread its violent revolution and to make the regime elite wealthier.
This is partly why President Trump re-imposed sanctions on Iran, to deprive the clerical rulers of revenue and to disrupt their financial networks. When he did, many experts said that by acting alone the United States could not and would not bring sufficient pressure to bear on this regime’s economic interests. They also said our sanctions would cause protests against the United States as the Iranian people rallied around the flag and the regime. These experts were wrong. The sanctions we have imposed on the regime are the toughest ever and they are making an enormous difference. Sanctions on Iran’s oil sector are at the core of our economic pressure. And for as long as we were in the Iran nuclear deal we were unable to impose oil sanctions.
This regime has relied on oil more than any other export to support its destabilizing activities. Our sanctions on Iran’s oil sector, which were only fully imposed in May, have driven Iran’s oil exports to levels not seen since the onset of the Iran-Iraq War in 1980. Iran’s oil exports have decreased by more than two million barrels per day, driving down Iran’s oil—revenue from oil by more than 80 percent. This amounts to a loss of more than $30 billion per year, with a total loss likely exceeding $50 billion since May of 2018.
Since Iran can no longer find legitimate buyers for its crude oil, it is turning increasingly to evasive practices such as falsifying documents and turning off maritime AIS transponders for its tankers. This strategy will fail to make up for its declining exports. The United States is working closely with nations and industry to educate the maritime and energy sectors about Iran’s evasive practices and potential exposure to U.S. sanctions, if they fail to do their diligence. We are raising awareness of best practices and encouraging entities to adopt appropriate controls to avoid sanctions risks. As we have said, if we see any sanctionable activity, we will take action.
Iran is also running out of options to store the oil it is unable to export. This has forced the regime to shut in its production and increase the amount of crude oil and condensate it sends to refineries and to petrochemical facilities. The regime is hoping to compensate for the fall in crude exports by increasing its output of refined products. But here too our enforcement is adapting, and we are confident that Iran’s refined product and petrochemical sectors—customers will continue to stay away once they are made aware of the risks.
Even as Iran tries to increase its exports of refined products, the regime is facing significant logistical constraints. Iranian tankers are increasingly being used as floating storage, making them unavailable to transport refined products to begin with. Our sanctions are also restricting Iran’s investment in its oil and gas sector, which will have a lasting impact beyond the immediate loss of revenue from the reduction in imports. Both upstream and downstream investments in Iran’s oil and gas sector have stopped. Foreign investments have almost entirely pulled out of Iran due to the risks. Billions of investment has been lost.
While domestic Iranian companies are taking over some of the projects left behind, they are not able to replicate the role of more experienced international oil companies and investors. As time goes on, the impact of our sanctions on Iran’s energy sector will continue to increase. Iran will not be able to make the investments it needs to maintain long-term energy production. The longer the regime chooses to reject diplomacy, the greater the impact will be on its future oil and gas production and revenues.
The decline in energy exports is an important place to start this discussion because it is having a profound impact on the regime’s ability to continue business as usual. The effects have been most pronounced in three key areas: Iran’s economic growth, the regime’s annual budget, and its access to foreign currency. So I’ll first talk about the economy. Last year in 2018 Iran’s economy contracted by about 5 percent. This year Iran’s economy will likely shrink by at least 9.5 percent, according to the IMF. This would be the steepest single year decline in more than thirty years. Some analysts have projected an even steeper contraction, possibly as high as 12-14 percent.
This would put the Iranian economy on the verge of a depression. The IMF and World Bank’s projections place Iran’s economy as the third worst in the world, behind Libya and Venezuela. However, the assumptions underlining even these dismal projections may be optimistic. The IMF has assumed that Iran will average oil exports of six hundred thousand barrels a day. This vastly exceeds Iran’s oil exports since May and is beyond what Iran will export under our sanctions. The IMF and others have repeatedly revised down their growth projections for Iran over the course of the last year. This will almost certainly happen again.
Inflation has also increased and is currently running at 40 percent overall. This is affecting the price of essential household goods significantly. To make matters worse, while Iran manages an official exchange rate the parallel open market exchange rate shows over 50 percent depreciation since May of 2018. The large gap between official and open market exchanges creates corrupt arbitrage opportunities that well-connected importers exploit for private gain. Yet, when ordinary Iranians seek to purchase foreign goods with their weakened currency they are now paying a steep premium.
Iran’s declining growth is having ripple effects throughout the country. Pension funds are coming under increasing strain. Of the eighteen existing retirement funds in Iran, seventeen are in the red. As Iran’s elderly population continues to grow and employment stagnates, these funds will come under greater pressure. Many analysts have compared the current economic decline under this regime’s watch to prior round—to the prior round of sanctions imposed before the nuclear deal was finalized in 2015. However, Iran’s recession today is far worse than it was in 2012. That is when its economy contracted by 6 percent. The more appropriate comparison, as the data suggests, is the opening phase of the Iran-Iraq War in 1980 to 1981, which severely disrupted Iran’s oil production and exports.
Second thing I’d like to discuss is the low—how the low exports are putting unprecedented pressure on the regime’s government budget. Due to the staggering loss of oil revenue, it is nearly impossible for the regime to put forward a credible budget. Oil export revenues typically comprise at least 30 percent of Iran’s revenues. Our sanctions are bringing this figure closer to zero percent. After initially assuming oil exports would average 1.5 million barrels of oil a day in fiscal year 2019, the regime later revised this figure down to only three hundred thousand. It is surprising then that the draft budget released just this month for Iran’s next fiscal year assumes oil exports will average around 1 million barrels per day. This is fantasy. It is an unrealistic forecast. Iran’s budget proposal is so off base that it spooked the Iranian market. The rial hit a six-month low against the dollar shortly after Iran released its government budget.
Iran has attempted over the past year to respond to budget shortfalls by cutting spending and resorting to stopgap measures to raise additional revenue, which it very much needs. These include raiding its sovereign wealth fund, issuing even more domestic debt, attempting to privatize additional state assets, and slashing subsidies. Recently Iran’s financial desperation forced the government to raise gasoline prices in an effort to save money and to increase exports. As the protests last month demonstrated, it will be difficult for the regime to implement further subsidy cuts without sparking even greater frustration among Iranians.
So where will the regime find the money? It would make more sense for the regime to close the revenue gap by plugging holes to tax collection from Iran’s wealthy elite, or by expanding the tax base to include religious and IRGC-linked holding companies that dominate Iran’s economy, and yet pay no taxes. The regime is choosing instead to shift the burden onto the middle class. The regime must also grapple with how to keep its subsidized industries afloat. Iran is one of the most heavily subsidized nations in the world. More than 70 percent of Iran’s budget expenditures are allocated to underperforming state-owned enterprises which make up the bulk of Iran’s economy. And audit by the Supreme Audit Court for 2016 to 2017 that—showed that 162 of 377 state-owned enterprises were, quote, “economically unviable.” The real number is likely much higher.
This suggests that as Iran’s oil sector shrinks the Iranian regime will be unable to continue subsidizing its vast sector of underperforming non-oil industries, just as it is struggling to subsidize gas prices. The government is running out of emergency measures to take or off-budget funds to raid. Moving forward the regime will be less and less able to respond to continued pressure. No creative number-crunching can change the fact that this regime’s coffers are running dry. Short-term fixes will only exacerbate inflation and do nothing to address the structural deficiencies in Iran’s economy. If the regime insists on continuing to divert resources to fund terrorist activity or ballistic missile development ultimately it will be forced to choose between printing money or delaying spending on development, salaries, and benefits.
The Iranian people have been demanding for a long time that the regime stop investing in wars and terrorism abroad and start spending more money at home. Now is an opportunity for the regime to do that, or the regime will face greater pressure from its own people. The recent protests were costly for Iran’s economy. The regime’s unprecedented decision to shut down the internet for a week also created losses for the economy as high as $700 million in e-commerce sales and missed business opportunities.
Last thing I’d like to put—take a look at is the access to foreign exchange reserves. As exports decline the third major impact on the regime has been reduced access to foreign currency. The regime is already struggling to acquire the foreign currency it needs to procure imports such as machinery, industrial imports, and consumer goods—industrial inputs. Prior to the re-imposition of sanctions Iran relied on oil exports for around 50 percent of its foreign currency earnings. Much of the remainder came from petrochemicals, metals, and refined petroleum products. All of these exports are now subject to sanctions.
According to U.S. government analysis, Iran currently has around $100 billion in foreign exchange reserves. Of that, only 10 percent is immediately accessible to Iranian authorities. That is $10 billion. Many exports—many experts have failed to appreciate the difference between reserves and access to reserves. That difference is $90 billion. Given the current sanctions on all of Iran’s top revenue-generating exports, this is simply not sustainable for the regime.
The fact that Iran’s access to foreign currency is declining is all the more dire given last year’s collapse in the rial’s value. The rial has fallen over 50 percent at the market exchange rate since May of 2018. Iranian authorities may be compelled to spend reserves to prevent further depreciation as pressures mount on the rial, even as the regime is increasingly seeking to protect its dwindling accessible foreign currency reserves. By the end of October, Iran’s commerce ministry had banned the import of over 1,500 goods, ostensibly to reduce pressures to spend foreign currency.
Today the Iranian economy has devolved into a kleptocracy which protects the privilege of regime elites while leaving the vast majority of Iranians behind. Although Iran’s clerics promised economic prosperity and social equality after the revolution in 1979, the Iranian people know all too well that neither have been delivered. Massive clerical hedge funds—there aren’t many religious leaders who have a hedge fund—massive clerical hedge funds or so-called charitable foundations worth tens of billions of dollars are just one aspect of Iran’s dark economy. Iran’s Islamic Revolutionary Guard Corps has its tentacles in nearly every sector of Iran’s economy.
This is despite a strong declaration from the regime’s first supreme leader, who cautioned that the IRGC should stay out of politics and the economy. Quite the opposite has happened. After forty years, the autocratic rule of the ayatollahs is proving to be an economic catastrophe for the Iranian people. It has robbed Iranians of what should have been decades of progress and prosperity. To summarize, exports are down, the economy is in deep contraction, the budget is facing unprecedented pressures it cannot fix, and access to foreign reserves is minimal.
Most importantly, however, the Iranian people have had enough. Hundreds of thousands of them took recently to the streets in one of the largest protest movements in the Islamic Republic’s history. This followed an unexpected hike in gasoline prices. In cities around the country Iranians joined to demand accountability, reform, and transparency. Many were killed. Many were injured. And many were jailed. The supreme leader dismissed the protesters as “thugs,” which tells you something about how the regime elite think of their own people. But the real thugs are the security officials who fired on unarmed protesters and committed massacres.
The Iranian people understand better than most that their government’s policies are the root cause of Iran’s economic stagnation. When the Iranian people peacefully demand a better life and a more representative government, they are mowed down and brutally silenced. The Iranian people view their government with skepticism and deep frustration. The regime has simply lost all credibility. Again, it has only itself to blame. The Islamic Republic rewards corrupt officials more often than it punishes them.
Our sanctions are exploiting these structural deficiencies to deprive the—to deprive the regime of revenue. We are exposing this regime’s corruption, revealing its gross mismanagement, and we are holding accountable those privileged insiders who have, for decades, profited off the backs of the proud Iranian people. We very much hope that at the end of this economic sanctions—this economic pressure campaign and diplomatic isolation that the regime will start making better choices.
When the president let the Iran deal, Secretary Pompeo gave a speech announcing our new policy. And he made very clear that Iran faces a choice. And this is a year—this is in May of 2018. The regime can either come to the table and negotiate or it can watch its economy collapse. And the supreme leader has chosen collapse. And we very much hope that we can get to the negotiating table with the regime. We have made clear that if we can conclude an agreement that addresses all of Iran’s threats to peace and security, that we will submit it as a treaty to the Senate. We will end all of our sanctions. We will restore diplomatic ties with Iran and exchange ambassadors and welcome them into the international community.
But the agreement has to come first. And in the meantime, we know that this regime is weaker, and its proxies are weaker, today than when this administration came into office three years ago. We recognize that diplomatic isolation and economic pressure is very much—it’s a—it is a necessary response to this regime. We tried sanctions relief and the regime exploited that and, during the period of the Iran nuclear deal, was able to run an expansionist foreign policy with impunity. So we are very pleased with the progress that we are making. We very much hope that we can get to an agreement, and end the sanctions, and welcome Iran into the international community. Thank you.
GORDON: I guess this is where I sit, huh? I have to cover this also. Well, thank you, Brian, for, I think, a very comprehensive presentation of your perspective on the effects of the maximum pressure campaign—really, its effects on the Iranian economy and its budget. I’d like to ask you sort of three sets of questions before turning it over to the members here. And I’d like to remind everybody first that, obviously, this is all on the record. And you know, unlike some of the Council sessions here.
First off, in terms of your economic assessment, you made a pretty interesting point that while Iran has some foreign currency reserves you asserted they can access only 10 percent of those, right, because the IMF has put out some statistics about what these reserves are. But you’re saying that actually is a little bit misleading. They can only access 10 percent of that. How do you come by that analysis? What’s the basis for that? What’s the information? What’s the logic? What’s the analysis that shows that?
HOOK: Well, I’ve seen this a number of times where people have said, oh, well, Iran’s in good shape in spite of this pressure because they’ve got all this access to foreign exchange reserves. And I said, people have not been able to make the distinction between reserves and access to reserves. So we have over the course of the last year and a half with our oil sanctions—we have—there was a period when we were permitting some exports of Iranian crude oil because we had a very tight and fragile oil market. And we granted a handful of waivers. But you have—because of the sanctions that Iran is under, the currency is locked up, much of it, in escrow accounts. And this happened—it was a similar phenomenon prior to the Iran nuclear deal, where you had a lot of the foreign currency was locked up. So we have, again, put that into place. And so Iran, by our estimates, has access to about $10 billion.
And when you look at the kind of—as I said, 30 percent of the budget comes from oil revenue. This is somewhere between 30 (billion dollars) and $40 billion a year. That’s annual revenue on oil. When we got out of the Iran nuclear deal, Iran was exporting two-point-five million barrels of oil a day. Thirteen months later, they were north of somewhere above 100,000 barrels of oil a day. And so this has had—the sanctions we put in place across various sectors has denied Iran the ability to access these rainy-day funds. And so I’m trying to highlight this important distinction that I’ve seen some experts make in the press. And it is a very misleading statistic.
GORDON: OK. Let me ask you about two ways in which Iran seems to have responded to the maximum pressure campaign in terms of its behavior in the region and in the nuclear file. In terms of actions the Iranians have taken, there’s been a recent spate of missile attacks and rocket attacks, really, against bases in Iraq that are—where U.S. and coalition forces are present. It occurred some days ago at Al Asad. Recently there was an episode near Baghdad. Some of these strikes are being attributed to Kata’ib Hezbollah and Iranian-backed militia. Is Iran behind this activity?
HOOK: Well, Iran has been exporting ballistic missiles and rockets around the regime for many, many years. You look at the—Hezbollah has an arsenal of rockets and missiles that exceed one hundred thousand. And we have seen press coverage—I think there was a Reuters story back in August. There was a recent New York Times story talking about the Iranian proliferation of missiles, which are obviously not doing much to stabilize the Middle East.
GORDON: I believe Secretary Pompeo tweeted about this maybe a year ago.
HOOK: This is what—when we talk about—I mean, you hear this. It’s become a cliché, Iran’s destabilizing activities. To understand what that means, when Iran is able to move short-range ballistic missiles at will around the Middle East to the Houthis in Yemen, to Hezbollah, to Hamas, to their Shia proxies in Iraq and Syria, they then obviously use that lethal force to devasting consequence around the Middle East. And so I think under the Iran nuclear deal—before the deal, Iran was under a U.N. Security Council prohibition under Chapter 7 against ballistic missile testing. As part of the deal, they ended it, which I just cannot understand for the world’s leading sponsor of terrorism why it’s a good idea to end a U.N. Security Council ballistic—a prohibition on ballistic missile testing.
It also, in ten months, the U.N. arms embargo on Iran will expire. The travel ban on Qasem Soleimani, who heads the Quds Force, and twenty-two other Iranian terrorists will expire in the same day. This is all under the Iran nuclear deal. So what—we know that that has to be renewed. But this was a central part of the deal that the Iranians requested and received. So what we have seen is you have modest and temporary nonproliferation gains under the Iran nuclear deal that have come at the expense of ballistic missile testing and missile proliferation. And it is going to get worse, not better, if we don’t renew the U.N. arms embargo. And China and Russia are getting ready to sell Iran these very dangerous and very lethal conventional weapons. So we need to renew the arms embargo, and the travel ban, and the asset freeze. And we also need to restore deterrence against Iran’s missile proliferation.
GORDON: Well, let me take you up on that point, make one more try at this. I mean, the Pentagon has long been concerned that the maximum pressure campaign, or a more assertive U.S. posture toward Iran, could provoke an Iranian response, and especially against American forces, of which there are some five thousand in Iraq, in close proximity to Iranian proxies. Now we have this spate of rocket attacks at these bases. It looks a little bit like a signal from Iran that it might be able to do, through its proxies against American forces, what it’s already done against Saudi Aramco. What’s going on here? How do you interpret this action by these Iranian proxies in Iraq? Is it something Iran is directing?
HOOK: Well, President Trump, I want to say it was in August of last year, said that we will not make a distinction between the regime and its proxies in places like Iraq, and Syria, and elsewhere. And if there is an attack on American forces through one of its proxies, we will not allow Iran the fiction of a deniable attack. And we will hold Iran accountable. And so I think the president has said it would be a very big mistake for the regime to make a miscalculation about our resolve. The president has shown a great deal of restraint. And after the drone was shot down, which was in international airspace, the president, I think—I think to some extent Iran is trying to bait the United States into a military conflict. We are very pleased with the success that our economic pressure has had.
When Iran then attacks Saudi Arabia, we view this as Iran in a state of panicked aggression because in my remarks today I was trying to—and this is the first time we’ve done this—was present a detailed picture of Iran’s—its economy, its budget, its foreign exchange reserves, and its corruption to demonstrate just how bad—it’s a perilous situation that the regime faces. And it’s causing them to do things like attack Saudi Arabia and order the most violent crackdown in the history of the—of this Islamic Republic. So we’ve made clear that if we are attacked, we will respond with military force. I can assure you, the last thing the United States is looking for is conflict in the Middle East. We have had more than enough of it.
But we have enhanced our force posture by fourteen thousand troops since May. We have enhanced our intelligence, surveillance, and reconnaissance activities. We know that we have disrupted and deterred a number of attacks that Iran was contemplating since May. That does not mean that we’ve eliminated the asymmetric advantage that modern sort of terrorist regimes enjoy so that they can bomb Abqaiq, and the Saudi East-West pipeline, and set oil tankers on fire. But we have disrupted and deterred a number of attacks.
GORDON: Let me ask about the nuclear file. When the JCPOA was put into force, the breakout time that was described to Iran was about a year. The amount of time it would take Iran to produce enough nuclear material for a single nuclear weapon, assuming it was capable of weaponizing it and all that. Since your maximum pressure campaign has gone into effect, Iran’s opened up the Fordow underground facility, they’ve increased enrichment to a certain extent. They’ve expanded nuclear research. They’ve exceeded the JCPOA constraints on the stockpile of uranium. They’ve done a number of things that are concerning to show their unhappiness with the sanctions. Where does that breakout time stand today? It was a year before. What is it now?
HOOK: Yeah. It was a year before. And so we don’t have any announcement to make on that. The Iran nuclear deal put in place a one-year breakout standard. We think the mistake of that is we shouldn’t even be having discussions about Iran’s breakout standard. Prior to the U.N. nuclear—prior to the Iran nuclear deal, the U.N. Security Council had prohibited Iran from enrichment. That is the policy that we have to restore. When you look at Secretary Pompeo’s list of twelve demands, at the top of the list is no enrichment. Given the volatility of the region and the status of the Iranian regime as the world’s leading sponsor of terrorism, the last thing that this regime needs to be doing is enriching nuclear material.
If Iran wants peaceful nuclear power, we have no problem with that. Over half of the world’s countries who have peaceful nuclear programs do not enrich. The Russians have offered to enrich the nuclear material that Iran needs for a peaceful nuclear program. And so we want to change the conversation away from are they this close or that close to no enrichment. It says a lot about the Iran nuclear deal that they’re able to restart their program in the way that you just described at Fordow.
GORDON: Well, what do you think the administration’s response might be if Iran moves to 20 percent enrichment, which it’s hinted it might do, let’s say, in January even.
HOOK: That becomes a problem both for the United States and for the E3, and the Chinese and the Russians who are still in the deal. Iran has violated the Iran nuclear deal four times. They are likely to violate it a fifth time in early January. The E3 have now publicly for the first time talked about the dispute resolution mechanism. That’s the formal device that essentially allows any participant to the Iran nuclear deal to challenge Iran, to return to compliance. And if they do not return to compliance, it then allows any of the member states to go to the U.N. Security Council and force snapback, to re-impose the entire sanctions architecture that is suspended under the deal. And so we’ll see. We have seen.
But the fact the that the E3 were willing to say in public dispute resolution mechanism was a significant moment. The leaders of France, Germany, and the U.K. have all condemned Iran for its attack on Saudi Arabia publicly. And they also demanded that Iran return to the negotiating table because they recognized that the missile problem has gotten worse not better under the Iran nuclear deal. We have got to restore deterrence.
GORDON: I have a couple last questions, and then I’m going to open it up to the members. I guess the underlying point I’m trying to ask you about is—and when Secretary Pompeo announced the maximum pressure campaign, the new strategy, his twelve demands, the goal was to roll back essentially Iran’s malign activities in the Middle East. And it was to shrink its nuclear efforts, in fact end enrichment altogether. Since you’ve embarked on this policy, Iran, by your own account, has become more aggressive, more assertive, their missiles are being fired at U.S.—bases where U.S. and coalition forces are present. They’re Iraqi bases. They’ve fired cruise missiles and drones strikes at Saudi Aramco. The Navy—the U.S. Navy just intercepted a shipment of missile parts headed for Yemen, which in fact led to some sanctions on—designations on your part. Far from retrenching, Iran seems to be become more assertive in the—in this malign activity area. And in the nuclear file, Iran has expanded enrichment and decreased, to some extent, breakout time.
So it would seem that at this stage of the game your policy has had a completely counterproductive effect in terms of Iran’s behavior. So my two questions before opening up is how do you—how would you respond to the criticism that so far this policy appears to have backfired? And also, presumably the sanctions are not an end in themselves. They’re a means to an end. The goal is not to punish the economy and make life miserable there, but to achieve some sort of agreement. If that’s the case, you know, why don’t you present a realistic agreement to the Iranians? Say, if you do X, Y, and Z we are willing to provide some degree of sanctions relief and reap the benefits of maximum pressure?
HOOK: It’s a great question. Your question, I think, might lead people to believe that prior to Iran joining the Iran nuclear deal that Iran was behaving like Belgium or any number of normal countries around the world. Iran has been engaging in a steady state of sectarian violence and revolutionary expansion for its forty-year history. Prior to al-Qaida, Hezbollah—which Iran provides 70 percent of its budget to—was the nonstate actor responsible for the deaths of more Americans than any organization in the world. Iran, the—I had announced this number probably a year ago. In the Iraq War, Iran is directly responsible for the deaths of 603 American soldiers. And then if you take that number and multiply it by the usual factor that DOD uses, that means thousands and thousands of soldiers who are maimed.
So this idea—and I’ve heard this question before—but this idea that—it sort of suggests that, well, if we can just get them back into the deal and restore the status quo ante, won’t everything be great? And during—I did—I submitted this to the Senate when I testified before the SF—the Senate Foreign Relations Committee recently. Submitted for the record all of the terrorism and assassination attempts and terrorist activities that Iran engaged in during the negotiation and implementation of the Iran nuclear deal. And it was a page, I think, that ran about seventy-five items long.
So restoring the status quo ante is not going to make the Middle East more peaceful or stable. That’s the first point. Second point, I have had our experts and analysts take a look at the forty-year history of this regime’s behavior. The regime only changes its behavior comes to the negotiating table if you have one or more of the following three realities: economic pressure, diplomatic isolation, or the threat of military force. There is no other way to accomplish and to affect a change in the regime’s behavior. This is a very ideological regime, but it is also very pragmatic when it feel that its survival is threatened. If we are going to get the kind of deal that is required for a more peaceful and stable Middle East, and one that addresses America’s national security objectives, it is going to require a lot of leverage. And that is what we have been doing over the last three years—amassing the kind of leverage that will be required to get a comprehensive deal.
And the friends of mine from the prior administration who had—who I’ve spoken to, who worked on the deal, all said—this goes beyond American diplomats, but also French and British diplomats—it wasn’t supposed to end with the Iran nuclear deal. It was supposed to start there, because that was the most imminent concern. But it was going to then have deals around the missile program, around the regional aggression, and the hostage taking. And so that need still exists. But we’re not going to get Iran there by talking nicely. They just don’t respond to it. The only language they understand is the language of isolation and economic pressure. That’s going to be required. And if we can get there, we will be able to imagine a much more peaceful Iran and a much more peaceful Middle East.
GORDON: OK, so let’s—we got twelve-thirteen minutes. So let’s open it up to members. There—right there.
Q: Grace Schou (ph), Jasina (ph) Capital.
Brian, thank you for the very interesting analysis. My question is, based on your intelligence what is your sense of the public opinion in Iran now that they are under a lot of economic pressure from the maximum pressure campaign? Are they more upset about the regime’s mishandling of affairs, or are they more upset about the American attitude towards them? Thank you.
HOOK: It’s the latter. So we had protests in over a hundred cities. And there was not a single protest that we have seen against the United States, against the president, or against American sanctions. And this is very significant. And people cannot overlook this because, as I said earlier, there were all sorts of pundits that were predicting that when we put our sanctions into place that everybody would rally around the flag. It is the exact opposite that has happened. There was one video I saw of an Iranian woman climbing a pole that had a “death to America” banner on it, and she pulled it down. Instead of seeing images of the American president burned, you saw videos of the supreme leader’s images being burned. These were peaceful protests that were uncoordinated and countrywide.
Iran is facing its deadliest political unrest in its forty-year history. And the regime is running out of options. I even—I saw Shirin Ebadi, who win the Nobel Peace Prize in 2003, and Iranian, who said that: I feel that the fall of the regime is inevitable. And this is a Nobel Peace Prize winner who is—
GORDON: Is that your goal?
HOOK: No, it’s not our goal. Our goal—that’s going to be decided by the Iranian people. That is not going to be decided by the United States government. But it is important for people to understand that the Iranians, who are experts at this—and somebody like Shirin has a great deal of credibility as a human rights activist and as a lawyer, who is saying these things about just how fragile and vulnerable the regime is. But the bill has come due for forty years of this. And President Rouhani in 2013 ran on a platform of economic reform. He has failed to deliver those reforms.
So when you look at where people are venting their—and I’d encourage you to read Shirin’s—Ebadi’s interview. She says they’re upset with the lack of transparency. They’re upset with the corruption, with—I think it’s something like 40 percent of Iranian schools need fixing. The roads are in bad shape. The schools. It’s all the basics of government that this regime, because they prioritize ideology over the welfare of their own people, we’re seeing this—as I said, the bill has come due.
GORDON: OK. I forgot to say do what the last questioner did. When you get the microphone identify yourself and by name and affiliation and make your question short. Yes, right over there.
Q: Hi. Thank you for the overview, Brian. It’s Will Davis with the OECD.
You mentioned the regime is increasingly relying upon kleptocratic practices to sustain themselves. What’s the administration’s calculation that they would be any less immune to the suffering of their people than a North Korea or a Venezuela?
HOOK: Well, I mean, in terms of why would the regime elite be immune from the suffering? Why would they not experience the suffering? Just not sure what you mean—what Will meant by that.
Q: Why they would be more responsive to the wishes of their people than a—
HOOK: Well, what we would—what we would like to see is, yes, the Iranian people deserve a more representative government . And this regime represents its own people very badly, just directly and also indirectly to the world. And I think Foreign Minister Zarif presents a beguiling front to the rest of the world, but it is completely at odds with what the Iranians know the reality to be. And so what we hope will happen, and we’ve said this now for a year and a half, there is a very basic choice to make. And we have put the regime on the horns of a dilemma. They can either come to the negotiating table or they can continue to see more of this. And it will get worse because the regime doesn’t structurally have the ability to sustain it.
And that’s why I wanted to walk through this in a very detailed way. And my remarks, just because I didn’t want to—I wanted to leave time for questions. And I’ll submit this to CFR so that the full remarks, you can all see it, we also document the deep corruption. And we name people, individuals, so that this is the kind of thing that the Iranian people are fed up with. So I’m hopeful that that will be avoided what you described, a sort of Venezuela scenario. Even though their economy now is lagging behind Venezuela. The regime—we have offered so many diplomatic offramps to this regime. And so have the French, and the Japanese, and the Omanis, and the Pakistanis. They keep rejecting diplomacy. I can’t make that choice for them, but they keep—the supreme leader keeps making bad choices.
I was in Switzerland over the weekend, as Michael mentioned, for the prisoner exchange. And Baravand (ph), who is an official in the ministry, there was no—there was no conversation. There were no—it wasn’t—it was a missed opportunity because we have said repeatedly that we are ready to sit down and to talk about what a comprehensive agreement would look like. But I saw that Baravand (ph) a couple of days ago in the press had said that, yes, he was in the room with me, and that I did want to talk to me, but he does not have the mandate to talk. And this is a mandate we have to presume is from the supreme leader. And my hunch is that the Iranian people would like to see a dialogue. And I think many people in the Iranian government would like to see a dialogue. But the supreme leader seems to be pretty dug in and continues to choose managing economic collapse over dialogue.
GORDON: How about right there?
Q: Very, very impressive description of what is going on. Patrick Theros. I’m a retired foreign service officer.
I have a question. You mentioned that we need to renew the arms embargo on Iran in ten months’ time. This is a Security Council resolution that has to do it. Russia and China have to agree. And in the different silo—the U.S. government has a terrible habit of putting all its policies in different silos—we seem hellbent on making sure that the Russians and the Chinese will not cooperate with us on a wide variety of subjects. So how—you seemed optimistic that we might be able to pull that off.
HOOK: Patrick, I am optimistic. I’m an optimist by nature. So I’m hopeful. But Michael mentioned that Iran resumed enrichment at Fordow. And that was a secret facility, that was—that was later discovered, doing clandestine enrichment. And so Iran announced they were resuming enrichment. And that’s in violation of its nuclear obligations. So we ended our waiver on Fordow. And the Russians, which operate it, announced that they will discontinue their work at Fordow. When I was in the U.N. Security Council for two years negotiating these sanctions resolutions on Iran I spent a couple years with the Chinese and the Russians on this. The Chinese and the Russians voted unanimously for all of these sanctions that have been lifted. That includes no enrichment, no ballistic missile testing, a full arms embargo, the travel bans, you can go through all of these resolutions.
I know that China and Russia do not want to see Iran acquire a nuclear weapon. And so, I think, share a very similar threat assessment, and we also share the same end state. We have a tactical disagreement over how to achieve that. We know that we have more leverage outside of the deal than inside of it to affect the same—a common end state. What we have done—the Iran nuclear deal, as I mentioned earlier, is going to—is going to start expiring in ten months, and it’s going to continue expiring in out years until it no longer exists. I have yet for anybody who negotiated the deal to tell me what is the plan after that. And at the end of it Iran will be stronger economically, and its proxies will be stronger economically, is missile program will be stronger. Iran has the largest missile inventory of any country in the Middle East.
We have pulled forward—Secretary Pompeo pulled forward the expiration date of the Iran nuclear deal so that we can deal with an Iran that is a much more manageable threat than to wait for years from now when Iran is stronger, and its proxies are stronger, and we’re in a much more tenuous position to affect the end states that I think all these countries agree on. They don’t want to see Iran proliferating missiles, and acquiring a nuclear weapon, and giving $700 million a year to Hezbollah, and $100 million a year. Look, since ’16—since 2013 Iran—the regime has spent $16 billion in Syria, Iraq, and Yemen alone. And these money flows destabilize the Middle East, plain and simple.
GORDON: Brian, I want to react to one thing you said and then take a question. But maybe before responding to my question you can just—you know, you can tack it into your response to the member’s question.
You said that you had done a—your team had looked—done a study and said that Iran reacts to the combination of economic pressure, diplomatic isolation, and the threat of military action. But I think the Trump administration, and President Trump himself, has made it pretty clear he is not eager or particularly interested in threatening military action against Iran. We didn’t respond to the attack on Saudi Aramco. Didn’t respond to the shootdown of a U.S. drone. I’m not saying we should have responded, but I’m saying there was no military response. The president’s talked about withdrawing troops from the Middle East. And right now the Pentagon has been in a bit of a tizzy because General McKenzie is seeking more forces than the really modest complement that’s been sent there to bulk up deterrence. So this is not an administration that has a credible threat of military action against Iran. Looks like you’re missing one key element of your triad there.
But let’s take a question, right there.
Q: John Bellinger, adjunct senior fellow here at the Council on Foreign Relations. Hi, Brian.
First, I can’t help but thank you for really the—your extraordinary efforts in bringing back Wang Xiyue, the Princeton graduate student. That was really a terrific piece of diplomacy. So thank you for your role in doing that. It’s a long time in coming.
Speaking of diplomacy, one of the actions that the administration took earlier this year was to impose sanctions on Iran’s foreign minister, Javad Zarif. And you’ve said that you want to talk to the Iranians. Zarif is Iran’s foreign minister and their chosen top diplomat. John Bolton at the time said he was a conman and a grifter, so I get it that you don’t like him. But he is Iran’s top foreign minister. We wouldn’t like it very much if another country called our secretary of state a conman and a grifter. He is our chosen secretary of state and he seems to have been remarkably successful in his diplomatic efforts. So if we’re not going to deal with him, who are we saying we should deal with diplomatically?
HOOK: First thing I’ll say on that, and I think the first and second part of what you discussed are related. We have demonstrated with this prisoner exchange that we do know how to work together and to reach a deal. And I think that is useful and important. And I think it would have been nice to have had a discussion in Zurich, but I don’t think the regime has the mandate for that. Foreign Minister Zarif was at the airport, but he was not there for the prisoner exchange itself. So they had one diplomat there, but he doesn’t have a mandate to speak.
I do hope that—(coughs)—pardon me—that this exchange—I hope it’s a—I hope it’s a first step. We certainly would like it to be. I am committed to getting the rest of the Americans who are—who have been wrongly detained out of prison. And so I’m going to continue—I am continuing to work on it and we’ll see where we get. But this is trust building. It’s confidence building. So it’s a very good first step.
On Foreign Minister Zarif, if you look at the regime’s history and prior negotiations they’ve done on various subjects, they typically have not used the foreign ministry. They have typically used people from the Supreme National Security Council. And so we should not sort of imagine that Iran only has one emissary they can send to work on a matter to resolve diplomatic differences. There are many people who are very capable and who have the backing of the supreme leader, and I think enjoy much closer proximity to the supreme leader.
The Iranian Foreign Ministry is comparatively a powerless institution because all authority is invested—is vested in one person, the supreme leader. And it’s the clerical and revolutionary oversight of the—of the government which is where all of the power is. And so as a negotiator, I always look for people who are very close and who are within that clerical sort of category. And I think that that helps to expedite negotiations, because you’re dealing with somebody who’s very close to the supreme leader and you don’t lose time in talks.
GORDON: On the military—
HOOK: Well, on the military piece you don’t need—I didn’t say you need all three. I said it’s one or more.
GORDON: Two out of three is good enough?
HOOK: But we also have—we have also, I think, made clear that we will—we will respond militarily if we are attacked. But we have kept our diplomacy between sort of the left-right limits of economic pressure and diplomatic isolation. We believe that these two are the right focus. I think the president is right that there is an enormous amount of fatigue in the United States with endless wars in the Middle East. As I said earlier, I think Iran would like to—they only have a few dials they can use. It’s nuclear extortion with the Europeans and it’s the threat of kinetic force on sea—on the sea, in the air, on land. Those are its two dials. And those are—that’s not a great option set. And so in the meantime, as I demonstrated in our speech, our economic pressure has put the regime in a place where you have people who are wondering whether the regime is going to be able to survive it. And so they need to start making better choices. And I think that we can do that in a diplomatic context. We are ready to resolve our diplomatic differences bilaterally without any resort to kinetic force.
GORDON: Well, unfortunately we’ve run out of time and the Council has a long tradition of ending on time. So I’d like to thank Special Representative Hook for, I think, an extremely articulate presentation of the administration’s strategy on an issue that I think is certainly to be a top priority issue and will probably only increase in terms of interest in the weeks and months ahead. So thank you for that.
HOOK: Thank you, Michael. Thanks for having me. Thank you. (Applause.)