Iran’s Power Projection Capability

Chairman DeSantis, Ranking Member Lynch, members of this subcommittee on national security, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

I will focus my testimony today on Iran’s ability to project power through the financing of its proxies around the Middle East, including terrorist groups, destabilizing insurgencies, and rogue regimes. To be clear, Iran has long maintained these capabilities. Deploying these dangerous forces has been a crucial source of regional power for the Islamic Republic dating back to its founding. More recently, this strategy has figured prominently in Iran’s plans for regional hegemony.

The Joint Comprehensive Plan of Action (JCPOA), signed by Iran and six world powers over the summer, will now provide Iran with deeper pockets to pursue this activity. To make matters worse, the agreement will significantly hobble Washington’s ability to target Iran’s illicit actors with financial sanctions as long as the JCPOA is in place. I will address these issues and conclude with some recommendations.

Iran and the JCPOA

Mr. Chairman, Iran is the number one terrorist-sponsoring country in the world. The U.S. Department of State labeled Iran a State Sponsor of Terrorism in 1984.  Three decades later, the designation is still apt. The regime backs a wide range of terrorist groups, including Hamas, Hezbollah, Palestinian Islamic Jihad, the Houthi rebels in Yemen, Shi’ite militias in Iraq, and militants in Afghanistan. Iran also maintains its own terrorism apparatus: the Islamic Revolutionary Guard Corps (IRGC).

In recent years, Iran’s ability to support the IRGC and these other terror proxies has diminished somewhat, thanks to the sanctions that the United States and its allies imposed on Iran’s illicit financial activities, with a particular focus on Tehran’s attempts to build a nuclear weapon. Most of these were not strictly “nuclear sanctions,” but rather hybrid sanctions linked to Iran’s support for terrorism, proliferation, and human rights violations.

But those sanctions have been eroded in recent years. Even before the JCPOA was inked, pursuant to the interim nuclear agreement known as the Joint Plan of Action, the international community ceded some $12 billion to Iran in cash transfers.  This does not include other forms of sanctions relief and tens of billions of dollars in indirect economic gains.  Some of these funds undoubtedly found their way to terrorist groups.

Now, more cash is on the way. Under the sanctions regime, an estimated $90 to $120 billion in Iranian oil sales was withheld in semi-restricted accounts in China, India, Japan, South Korea, and Turkey. Now, thanks to the nuclear deal signed this summer, those funds could be remitted directly back to Iran over time.  With this huge windfall, the Islamic Republic’s theocratic leaders could have the flexibility to disperse the funds they receive from the nuclear deal as they see fit, and that will almost certainly include funding terrorist groups.

To make matters worse, Iran will soon be able to sell its oil on the open market. Iran is believed to have 30 million barrels of oil in floating storage.  It is likely that Iran, which currently sells one million barrels per day under heavy restrictions, will be able to return to pre-sanctions levels of 2.2 million barrels per day within a year or so. 

The math is simple: An extra one million barrels per day at $50 per barrel is $50 million per day, or $18 billion annually, which could flow to terrorists’ coffers. And that doesn’t include the aforementioned escrowed oil revenues of $120 billion. Add to that the ability for Iran to access banks around the world according to the terms of the JCPOA, and it will be easier for Iran to bankroll its proxies worldwide.