FDD Senior Fellow Orde Kittrie Testifies on Divestment from Iran’s Energy Sector

Washington, D.C. (March 12, 2009) – Orde Kittrie, a professor of law at Arizona State University and a senior fellow at the Foundation for Defense of Democracies, testified today before the House Financial Services Committee Subcommittee on International Monetary Policy and Trade on H.R. 1327, the Iran Sanctions Enabling Act of 2009.

The legislation would authorize state and local governments to direct divestiture from, and prevent investment in, companies invested in Iran's energy sector. It would also protect fund managers from shareholder lawsuits if they divest from energy companies that do business with Iran.

In his prepared testimony, Kittrie states:

“The Iran Sanctions Enabling Act of 2009, H.R. 1327, can contribute to increasing leverage over Iran and thus improving the prospects for preventing Iran from acquiring nuclear weapons. Sanctions, including H.R. 1327, are not a substitute for diplomacy. Rather, they are a tool to increase leverage over Iran in a situation where the leverage is currently insufficient to convince Iran to step back from the nuclear brink.”

H.R. 1327 was introduced on March 5, 2009, by Rep. Barney Frank (D-MA), Rep. Howard Berman (D-CA), Rep. Brad Sherman (Rep. D-CA), and Rep. Gregory Meeks (D-NY). It is similar to legislation introduced in 2007 by then-Senator Obama (D-IL) and Rep. Frank and the late Rep. Tom Lantos (D-CA).

Iran's Reliance on Imported Gasoline

In his testimony, Kittrie recommends expanding the legislation to include companies selling refined oil to Iran:

Iran has an economic Achilles heel-its extraordinarily heavy dependence on imported refined petroleum (and especially imported gasoline) – that has yet to be exploited. The amendment I propose could contribute to peacefully creating decisive leverage over the Islamic Republic.

Iranian oil wells produce far more petroleum (crude oil) than Iran needs. Yet, remarkably for a country investing so much in nuclear power, Iran has not developed sufficient capacity to refine that crude oil into gasoline and other refined petroleum products such as diesel fuel. Iran must import some 40% of the gasoline it needs for internal consumption.

In recent months, Iran has, according to the respected trade publication International Oil Daily and other sources, purchased nearly all of this gasoline from just five companies. During the campaign, then-Senator Obama declared his support for peacefully cutting off gasoline sales to Iran until its stops its illicit nuclear activities. For example, during the presidential candidates' debate on Oct. 7, Obama said, “Iran right now imports gasoline … if we can prevent them from importing the gasoline that they need … that starts changing their cost-benefit analysis. That starts putting the squeeze on them.”

How do we stop the gasoline from flowing? The U.S. should put these companies to a choice between doing business with Iran and doing business in the United States. For those companies that supply refined petroleum to Iran and are publicly traded, the divestment from them of state and local pension funds could help convince the companies that continuing to supply gasoline to Iran is simply not worth the opportunity costs.

Together with FDD Executive Director Mark Dubowitz, Kittrie leads the Foundation for Defense of Democracies' research and analysis into Iran's dependence on imported gasoline. On November 13, 2008, Kittrie wrote an op-ed for the Wall Street Journal identifying the five principal energy companies selling gasoline to Iran and policies that could be explored in the United States and Europe to prohibit such sales. Since the publication of Kittrie's op-ed, two major suppliers of gasoline to Iran have come under congressional scrutiny.

In late 2008, bipartisan groups of Senators and Representatives wrote to the Export-Import Bank requesting a review of more than $900 million in loan guarantees made to Reliance Industries Limited of India, one of Iran's leading suppliers of gasoline, including a $500 million loan guarantee provided to help Reliance Industries expand its Jamnagar refinery complex where petroleum was refined for export to Iran. Press reports indicate that Reliance Industries has suspended or scaled back its shipments of gasoline to Iran.

On February 27, 2009, seven Representatives wrote to the U.S. Department of Energy requesting a review of a federal contract awarded to the Swiss/Dutch energy trading firm Vitol to participate in filling the U.S. Strategic Petroleum Reserve. They asked Secretary of Energy Chu to review the contract and the possible debarment of Vitol in light of the company's legal entanglements. In November, 2007, Vitol pleaded guilty to grand larceny in connection with its role in the UN Oil-for-Food scandal. The letter also mentioned Vitol's role as Iran's largest supplier of gasoline, representing up to 60% of Iran's gasoline imports.

The Foundation for Defense of Democracies is preparing a policy monograph on the policy options that are available to U.S. and European lawmakers to use refined petroleum as a source of leverage over the Iranian regime's nuclear weapons program.

Kittrie Biography

Kittrie is a professor of law at Arizona State University and a senior fellow at the Foundation for Defense of Democracies. He currently serves as chair of the Nonproliferation, Arms Control & Disarmament Committee of the American Society of International Law and chair of the Nonproliferation, Arms Control & Disarmament Committee of the American Branch of the International Law Association. He also serves on a National Academies of Science committee created by Congress to issue a report on how to improve current U.S. government programs to prevent the proliferation of nuclear, chemical and biological weapons.

In July 2008, Professor Kittrie testified before the U.S. House Committee on Foreign Affairs, Nonproliferation and Terrorism Subcommittee, at a hearing on “Saving the NPT and the Nonproliferation Regime in an Era of Nuclear Renaissance.” In April 2008, Professor Kittrie testified before a United States Senate Finance Committee hearing on S. 970, the Iran Counterproliferation Act. In March 2008, Professor Kittrie addressed a special conference in Vienna, Austria on potential solutions to the dispute over Iran's nuclear program.

Mr. Kittrie formerly served for 11 years as a senior attorney for the U.S. State Department, where he focused on non-proliferation issues, anti-crime programs, public diplomacy, and economic and business affairs.

His full biography can be found here.

For more information on professor Kittrie's and the Foundation for Defense of Democracies' research and analysis of how Iran's dependence on foreign oil can be used as leverage over its nuclear weapons program, please contact Judy Mayka at (585) 315-6161 or [email protected]

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The Foundation for Defense of Democracies is a non-profit, non-partisan policy institute dedicated exclusively to promoting pluralism, defending democratic values, and fighting the ideologies that drive terrorism. Founded shortly after the attacks of 9/11, FDD combines policy research, democracy and counterterrorism education, strategic communications, and investigative journalism in support of its mission. For more information, please visit defenddemocracy.org.