I welcome the opportunity to appear before the Committee to review U.S. agency compliance of the -Iran Libya Sanctions Act.
Senator D'Amato, your legislation represents a balanced, reasonable and appropriately tough defense of U.S. national security interests. It is not a blunt instrument of force -- it offers the President a sensible array of options designed to discourage corporate financial support for Iran's current principle export -- terrorism.
Your bill established a 90 day period to review violations of restrictions on investments in Iran's energy sector. That review was triggered by the stunning announcement that Total, Gazprom and Petronas had joined in a $2 billion deal to develop Iran's South Pars Gas field. This morning, I want to focus my remarks on Gazprom's potential involvement since it is an entity which enjoys substantial support from the Ex-Im Bank, an institution my Subcommittee oversees.
There is no question this deal strikes to the heart of your bill, Senator D'Amato. The proof is the Tehran's Peaction -- according to the Iranian news agency the agreement calls our "bluff' and represents "a moral victory because world public opinion, especially in Europe, has taken a firm line against the U.S., particularly with the extraterritorial business of the act. This is the most valuable aspect of the deal for us."
Mr. Chairman, let me emphasize that last point: $2 billion isn't enough for Iran. It is a victory over U.S.- law -- the direct attack of American interests that Tehran values.
The collective wisdom of Sunday's TV pundits can't change, disregard or shade a simple truth: for Tehran, terrorism is still the tool of choice, the U.S. and Europe are still the targets. Agreements which enrich Tehran, offer down payments to build the next Hezbollah car bomb -- plot and execute another kidnaping.
Thirty percent of the Energy consortium planning to subsidize terrorism and this particular transaction is owned by Gazprom.
In 1994 the Chairman of the U.S. Ex-Im Bank signed a Memorandum of Understanding (M.O.U.) with Gazprom's Chairman to provide up to $750 million in guarantees of commercial loans for the purchase of U.S. equipment and services to improve Russian oil and gas fields. It is my understanding that $152 million has already been approved for compressor station equipment. I had understood $186 million in support for drilling and related equipment was pending. Last night, I learned an additional $426 million deal was pending. I must confess, I was somewhat surprised at this last minute disclosure of information -- I had asked for and been provided with a loan status report a week ago which was apparently incomplete. In addition to these transactions, discussions are underway to use much of the balance for pipeline improvements, essential to the export of Caspian oil. I hope this is a complete picture of Gazprom's current standing.
Now, let me turn to Gazprom's deal in Iran. Critics argue that it is shortsighted to cut off Ex-Im's line of credit. There is no question Gazprom could eventually find alternatives to U.S. suppliers, however, there's also no question they would compromise on American quality, experience and the ready financing available under the 1994 M.O.U. Let's not forget, foreign investment in Russia has been a flat line -- official corruption, crime, and weak legal and banking institutions have been huge deterrents.
Gazprom's 30% share of an estimated $2 billion investment clearly surpasses the threshold established by law. The question for my Subcommittee and your Committee is how to leverage U.S. support to curtail Gazprom's involvement, and more immediately, what Ex-Im should do to comply with U.S. law.
Last week, I sent a letter to Ex-Im's Chairman which I would like to make available for the record. In sum, there are two questions I have put to the Bank:
First, is U.S. support directly benefitting Iran? With more than $700 million in financed equipment in Ex-Im's pipeline, what guarantees do we have that none of that material has been or will be diverted to Iranian fields? To answer this question, we must be confident both through the M.O.U. and individual contracts that Gazprom has agreed not to transship or export U.S. equipment to Iran; in other words, there must be explicit agreements with Gazprom on export controls.
Second, is U.S. support indirectly benefiting Iran? Has American financing put Gazprorn in a stronger, more competitive position facilitating involvement in Iran?
Gazprom must choose: it cannot have the cake offered by Ex-Im and let Iran eat it too.
At your prompting, Mr. Chairman, on Tuesday, I offered report language to the foreign operations bill urging the Bank to suspend all Gazprom transactions for a period of review to assure no U.S. funds are used to directly or indirectly develop Iran's oil and gas fields. I have also written to the bank's President indicating I would take whatever steps necessary to oppose Gazprom's project funding if they move forward with their involvement in Iran.
I must confess I am not optimistic Gazprom will break its Iranian ties. In a related area, I have pressed the Administration for three years to use our aid program and to take decisive action against the growing Russian-Iranian relationship in the area of nuclear and ballistic missile technology. I am deeply disappointed in the Administration's reluctance to I aggressively tackle this issue. However, it's only fair to acknowledge, the problem is in Moscow where there is a clear national security policy to strengthen ties to Tehran.
With little evidence of Russian interest in terminating nuclear cooperation, I have a hard time believing the Kremlin will take any action which could compromise the money making potential of this gas deal.
Russia's irresponsible, if not dangerous, alliance with Iran should not compromise our policy or the principle interests we have at stake. The U.S. Export Import Bank must serve those interests.
Let me be very clear here, the Bank's good standing is at stake. Over the past two years, Ex- Im's working relationship with the Congress suffered at the hands of Mr. Kamarck. Fortunately, Mr. Harmon has set the Bank back on course. This year, in fact, this week, the Foreign Operations conferees reflected renewed confidence in the Bank's management by extending its authorization and exceeding the President's requested subsidy and appropriating $683 million. I encourage you to work with my Subcommittee and the Bank to assure full compliance with the law and prevent any erosion in the fragile foundation of support we are rebuilding.
Senator D'Amato, the message of the day is simple: We know Iran is aggessively pursuing a nuclear weapons program. U.S. agencies and institutions should not underwrite companies willing to generate profits for Tehran to buy or build that bomb.
Thank you, Mr. Chairman. I will be happy to respond to any questions from the Committee.
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