Skip to main content

tv   Hearing on Oil Markets and Terrorism  CSPAN  December 11, 2015 3:12am-5:18am EST

3:12 am
, and the connect there. it happens he is in town today. we did not do the hearing because of him, but the timing worked out. it is nice to have him before the committee. more than half of global oil production occurs in regions of the world in the middle east, africa, venezuela, they are subject to instability of various kinds including civil war and terrorism. while production in certain countries such as iraq, syria, libya, yemen, and sudan has been knocked off-line due to terrorism and violence. the indisputable fact we are dealing with is that north american barrels have largely displaced or largely replaced and disrupted production so far. in tandem with imaginations that opec, the global oil supply is saturated, and may be for some time. we also know that iran, one of the original and most deadly state sponsors of terrorism will soon be rejoining the global oil market.
3:13 am
if president obama gets his way, even as he continues to fight efforts by many of us to repeal outdated oil expert ban that would allow us here in this country to send oil to our allies. i think it does beg the question, and part of the discussion hopefully this newing will be with that source of revenue, that iran is anticipating to receive, what do we do with it? what will the intentions of these be? libby did do good and build hospitals? libby to direct yet additional sources of revenue to the terrorist organizations. in recent months we have seen a great deal of discussion about isis oil production and distribution, and coalition efforts to disrupt this source of revenue. . bottom line is that the islamic state -- this oil is helping to finance terrorism.
3:14 am
significantly. i have long argued that energy security is central to national security. last year we released a series of reports. one was entitled oil production outages and strategic warnings. another was iraq, through the lens of energy. also, a report entitled, a dark pool in the mideast, the problem with isis oil tells. today i am releasing them for public education and review. i think it is a historical walk through understanding some of the ties that we have. it is not just funding of terrorism by isis that we will explore this morning. i am concerned about continued violence in libya, a significant source of light crude for our allies in europe. if we are smart enough to lift the ban on oil exports, our nation could sell it to europe. terrorists are also active in west africa. nigeria is a major oil producer
3:15 am
and could potentially threaten vital chokepoint such as the suez canal or elsewhere. that is why in part i have been so determined, and i think my colleague, senator cantwell to make sure that we don't make reckless mistakes and it comes to -- when it comes to sales of oil from our strategic petroleum reserve. it is there for a reason. is there anytegic very significant place -- in a very significant place. the proposal by some to permanently ban production in a small sliver of the non-wilderness portion of an wire, which could be the west coast strategic reserve. in my mind that is wrong. and --orist threat threaten oil supplies in the plans tost, and iran make billions of dollars from selling to allies.
3:16 am
that could potentially hurt american energy production. this hearing is about education. and senatethe house and administration must understand the economic and geopolitical context of a national interest that we are considering. this committee has a unique perspective, given that over 90% of iraqi government revenues are due to oil exports. given that nearly 90% of syria's oil production is off-line. and given that oil accounts for over 40% of isis's monthly revenue according to ihs. you can inspect me as chairman to continue this conversation enter next year as we conduct oversight on to the federal government's energy-related activities in the counterterrorism fight. i will turn it over to senator cap well -- senator cantwell. senator cantwell: i was to welcome the former chair,
3:17 am
senator frank michalski, welcome him back to the hearing room. also welcome our witnesses and thank them for being here today. -- and anaring is in important opportunity to hear about the energy world, and the relationship between terrorism and the global oil network, and foremost, energy security. i look forward to hearing from witnesses. i look forward to having the administration be a witness as well. perhaps we can do that in the future or have a hearing in a secure room to get into more detail on this issue. it is something we need to hear from them on. at the outset of the hearing i want to make sure i am making my views known about how important global oil markets are in fighting terrorism, and particularly the role of this committee to consider the impacts of these activities on infrastructure, the risk on u.s. and global energy security and supply and understanding the global picture.
3:18 am
iran and iraq have some of the largest oil reserves in the world. by some estimates, the fourth and fifth largest in the world. the control of this oil has major impacts over prices. the movement of oil to the middle east to world markets is key to the stability of global supplies. global energy security depends on diversity of supplies in different countries. what happens to that oil from the largest reserve still matters, in addition to the u.s. , growing company's like china have an enormous energy need. they will continue to look for resources for those energy needs to be met. where there iset robust supply, it would take a significant reduction -- disruption, maybe around 5% or 10% to really disrupt the market. today's global production is approximately 94 million barrels per day. the isis oil production is about 35,000. 110 -- somewhere between less than 1/10 of 1%.
3:19 am
it is clear though that this is a constantly shifting dynamic. in a tight market, a very, very small amount of disruption can have a very, very significant impact. i think today's discussion on where and when we might anticipate disruptions, and what to do about them. as i predict, we will probably talk a lot about actually following the money of where the oil revenue is going as a way to fight isis. and yesterday's armed services committee hearing, asked carter laid out the administration oiltegy integrating isis's structure he said quote because it improved isis operations, we have intensified the air campaign against their oil enterprise. a critical killer of isis's financial infrastructure. in addition we have destroyed nearly 400 of isil's oil
3:20 am
tankers, reduced the source of revenues, and more to come." we will certainly look forward to hearing more about what is to come. i will be the first to say, we do need to be more. -- do more. according to secretary carter, what made the new strategy possible was new intelligence. he said it allowed us to identify those parts of the oil infrastructure that are being used actually fund isil. i was recently briefed by a state department envoy for energy, i was pleased to hear we have eliminated almost all of isis refining capacity. hear that thed to produced intelligence about following the money and more effective targeting of that. previously isis could repair the damage within -- from airstrikes
3:21 am
within days. the current targeting flicks damage that could take months, even a year to repair. another piece of news is that isis no longer controls any of the fields in iraq. while progress has been made, it is in poor understand how adaptable isis is. -- to understand how adaptable isis is. it is a clear fact that they adapt strategies. and they continue to look at this as a resource. we need to act quickly as well. one of the most troubling realities of the situation is that the isis oil is being purchased by their enemy, the assad machine -- regime, either paying cash or other means. a u.s. treasurer sanctioned a u.s. individual for helping. instead of focusing on alleged
3:22 am
oil smuggling in turkey, russia needs to use their influence to stop the assad regime from buying oil and gas from isis. i know that secretary kerry is traveling there today. maybe that is the conversation he can have. back to the larger area -- issue , for years, terrorist organizations have been funded through oil sales. the chairwoman mentioned a few of those incidents. in nigeria, the oil has fueled conflict since 2005. , the kidnapped 270 schoolgirls and killed over 10,000 people is likely funded through crude oil theft and sales. nearly 50% of u.s. oil demand is met by oil. 93% of transportation is field by oil. -- fueled by oil. i also think is important given these facts that these -- weists organizations
3:23 am
need to diversify our economy in the interest of national security. and he passed only 6% of our gdp went to purchasing petroleum. 40 years ago we created the petroleum reserve to prevent crude oil disruption. the chairwoman and i remain committed to making sure the strategic oil reserve is a strong asset for the nation. we recently worked to make sure identification and infrastructure investment needed for the strategic petroleum reserve, given the shifts change we have seen in the u.s. over resources and where they are that those investments into the made -- need to be made. authorized in the sprawl. it needs to be protected from further shredding. it is important we have this as a resource for us to protect against instability in oil markets. while i am sure really here --
3:24 am
we will hear discussion from panelist about the national security and dependence on oil, we need to to continue to make sure we are doing every thing here at home to make sure we are secure, and isolated to the greatest degree possible from these impacts. i look over to hearing the witnesses. -- forward to bring the witnesses. : welcome to each of the panelist joining us today. we appreciate you giving us this time and the attention on the subject of the day -- terrorism and global oil markets. the panel will be let off by dr. keep caring -- dr. keep crane. he will be followed by mr. peter harrell. welcome. is the nonresident
3:25 am
senior fellow for the atlantic council. we will wrap up the panel with mr. janie webster, the senior director for ihs. we appreciate you being here this morning. , --lly your contrition contribution, but ihs has been a great source. that you can sign remarks about five minutes. your full statement will be recorded. once you have included your testimony you will have an opportunity to ask questions from the numbers. -- members. you for thehank opportunity to testify today. ilam going to talk about iso the insurgency. we know it has been used for branding. terrorist operations tend to
3:26 am
cost very little. i will focus on the big money, the insurgency. we will talk about what it costs operations, how does it cover those costs? what can we do to reduce those revenues? how effective those measures are likely to be. 's major costs? especially for fighters, and police and intelligence operatives. roughly there could be 80,000 of those individuals. u.s. intelligence agencies think there are about 30,000 fighters. month,assume $400 a we're looking at $400 million there. personnel costs are only a fraction of what they spend. there are other costs for
3:27 am
hospitals and schools, and ammunition, and other supplies. total cost are substantially higher. cover the cost? are the most important source, running about $500 million a year. in the past, syria used to produce about a third of what north dakota produces today, maybe 400,000 barrels a day. that has collapsed over the course of the civil war. anywherew looking from from 35,000-50,000 barrels which isil controls. most of those sales actually go to small entrepreneurs who run with a called teapot refineries in isil controlled territories. there are a ton of these. they refined products.
3:28 am
they go into iraq, syria, they are sold to the enemies. they go into turkey. in addition to that, as the chairman mentioned, a substantial number of barrels of the syrian government. the most important sources revenue. -- source of revenue. has beenon, isil selling equities. the largest source of revenue is actually the other category which consists of extortion, theft of cars, kidnapping, and taxes and tolls. what can we do to reduce those revenues? we have been targeting oilfield facilities like loading depots and tanker trucks. we can put financial sanctions on local businesses in the region that are dealing with
3:29 am
isil. we can focus more on dealers and individuals purchasing antiquities. we can also use the oil trading network to try and locate and neutralize isil. how effective are these measures likely to be? it appears that our strategy of hitting oil separation in loading facilities and empty tanker trucks have put a dent in terms of revenues from oil. in addition, a financial sanction -- there are larger companies in syria, and the kurdish regions and elsewhere which have been dealing with isil that we could push back on. we could put under sanction or threaten. there are in limited number of dealers who deal with antiquities -- people have the money to purchase these artifacts, that is another area where i think we could clamp down on.
3:30 am
i think that our intelligence agencies, the military can continue to focus on these networks. that said, these measures will not lead to the financial demise of isil. there are other ways they can do work arounds. reducelude measures to importantr isil is an part of the strategy to degrade the organization. sales of oil refined products are the most important single source of revenues and the tactics of focusing on that and -- are an excellent way for the country to go ahead. that said, we are not going to halt all sources of revenue that the organization obtains. thank you. crane.hank you, dr.
3:31 am
go.here we thank you. of thele members committee, thank you for inviting me here today to testify. it is a privilege to share my perspectives with you on a subject of today's hearing, terrorism and the global oil markets. i intend to focus my comments on the islamic state oil trade. dr. crane said is a principal source of revenue for the organization, and one that must shut down -- be shut down. i have submitted a longer statement for the record. in my view, oil is actually probably the second-largest source of revenue for the islamic state. when you add up all of the things that dr. crane said as other, i think those probably about to slightly more than the oil revenue. to give one example of the scale of what is in the other category of isil revenue, daniel glaser estimated earlier this year that
3:32 am
based on intelligence, the u.s. government had received -- isil has managed to elude $1 million in cash out of bank vaults from the territory. when you add that, the taxes, the extortion, all told, a significant source of revenue. clearly the oil revenues are critically important. like dr. crane, i estimate the islamic state earns about $500 million per year from the oil trade. mostly through the case -- sale of crude oil in syria. most, if not all islamic state oil production occurs at small wells in syria. the vast majority occurs there. isil fors sold by perhaps between $15 and $40 a
3:33 am
barrel. it is sold to independent distributors who then sell it to the small refiners that dr. dr. craneked about -- talked about or move on elsewhere in the territory. according to estimates, they are earning between $1 million and $1.5 million per day in oil revenue. aboutestimates are up to three or four weeks ago when the u.s. military began their escalated campaign against oil targets. until about three or four weeks ago those estimates had been stable for about a year. if you look to a year ago, the estimates were about a million or more per day. if you look three or four weeks ago, broadly stable oil revenues in the territory. as dr. crane said, this is not high-tech business. these are very rudimentary techniques isis is using to extract oil. the refiners and distribute as are using the same to refine and distribute.
3:34 am
assess that most of the oil produced in isis territory is consumed in isis territory. star more than 5 million people living in that territory. there is certainly ample local demand to consume virtually all of that production. that said, there is clearly some smuggling. -- theo the assad regime sales to the assad regime are actually more natural gas and crude oil. there is also ample evidence of smuggling into the kurdish autonomous regions of iraq, and potentially jordan as well. i assess most of that oil smuggled out is consumed locally and is not entering in a meaningful way, global oil market. what can the u.s. and our partners due to further attack this revenue? i think the most important step the u.s. government can take is to continue to escalate military targeting of isil oil installations in the
3:35 am
distributional network. the fact is the oil is being sold in isis territory. it is being sold for cash. there is not a lot of leverage international sanctions can have on those operations within their own territory. taking out the infrastructure is probably the most important step we can take. that said, there is, as i mentioned, some smuggling that is occurring in two adjacent countries. -- into adjacent countries. i think those countries need to step up efforts to crack down on oil. currently they are turning back trucks were they in those countries it should increase their efforts by moving towards the pastor of seizing and destroying. -- towards the practice of seizing and destroying. third, i think we need to
3:36 am
escalate our efforts to target to import oil export equipment. it will look to procure replacement parts. the region is awash in replacement parts. sanctions efforts that the u.s. government and our allies can take to prevent those replacement parts from flowing into isis territory. in closing, i would note that while i have focused my remarks today on isis and the oil trade, there is clearly as the chairwoman and the ranking member mentioned, other linkages between terrorism and global oil market that need to be considered as we look at the global oil security posture. thank you very much for inviting me here to speak. sen. murkowski: thank you. thank yououri:
3:37 am
senator murkowski. i would like to thank you for the opportunity to be here. tom looking forward discussing these issues. i will focus my remarks today on iran's oil policy. and the oil market. i also should mention that these remarks are my own views. and not the islamic councils. reached a final argument. under different economic and energy sanctions, it is getting ready to reintegrate into the energy market. a ban on theeu put import of iranian crude oil. -- these sanctions were
3:38 am
coupled with u.s. sanctions on iran's oil revenue and export and all of these caused iran's oil export to be cut in half. in 2011, it was about 2.5 million per barrel and it dropped to 1.5 million barrels per day in 2012. their production was also cut by 17%. the overall sanctions, nuclear related sanctions imposed on despite all012 -- of these sanctions, iran has successfully increased its natural gas production. time, the balance of its natural gas trade was positive. nuclear deal, iran is going to come back to the market with a different approach. come it despite its resources from has experienced ups and downs in relation to
3:39 am
international oil countries. in response to the challenges it has faced, it came out with a more resilient policy. this will be the case this time also. leader, in 2014 and announced an economy of resistance. it was in response to the 2012 sanctions that reduced iran's well at its and revenue. aim of the economy of resistance was to create more value added domestically by referencing crude oil and natural gas domestically and export the product instead of raw materials. we are not going to see a huge amount of exports from iran coming to the market after the nuclear deal in the next decade. iran's focus will be on refinery capacity, downstream and petrochemical sites.
3:40 am
these are the important measures iran will take in order to reduce its dependency on crude oil revenue. state of iran's fields is iran is producing 2.9 billion barrels of crude oil today. it's natural gas production is about 692-700,000 barrels per day. the plan after the deal -- it's production will gradually rebound. , iran's crude oil production is expected to reach 400-500 more than today and they will have additional 200,000 barrels of crude oil. minister is expected to announce that iran will increases at -- is exports about 5000 barrels per day, a day
3:41 am
after sanctions are removed. mentioned, in the long-term, iran is going to increase its natural gas because it is going to produce more. it -- andg to use converted into electricity for domestic use and export. thatwould be important is if iran comes out of isolation, it is not going to be dependent on its oil export revenue as much as it was before. saysy information forecast that prior to 2000 11, the net revenue from its oil export was about $92 million -- $92 billion per year. to $65mber dropped billion after that. also, one thing that is
3:42 am
important is the low cost of and the form iran of its upstream investment regulation creates incentives and upper -- opportunities for investors to invest in iran. iran has accessed by land to neighboring countries and could potentially be a transit point for the energy action -- production and the oil and gas production for countries like azerbaijan. my other fellow panelists mentioned in detail the middle east oil being transferred by isis and terrorist groups. iran could potentially be a transit point and this could make iran a significant point for import and export of crude oil to these countries. the other issue that would be important is that iran is going its electricity export
3:43 am
to these countries -- neighboring countries like iraq, afghanistan, or pakistan. even turkey. electricity instead of export of natural gas or crude oil would be significant. once again, i would like to thank you for having me here today. mr. webster,i: thank you. welcome. webster: thank you. i appreciate the opportunity to testify before you today on global oil market and the ofential and actual impacts terrorism on oil prices and energy security both globally and here in the united states. today, i appear before you in my capacity as senior director for ihs. ihs is a research consultancy that specializes in energy, capital intensive industry data and analysis with a worldwide
3:44 am
presence. the current era of oil abundance and low oil prices does not eliminate the issues with geopolitical and terror risks --ugh they may have seen seemed to fade. with the rise of isis the a the gaining of significant syrian and iraqi territory in 2000 18 and an increase in terrorism globally, this interest will be growing over the next few years. and the risk premium or fear premium in oil prices is likely to return. this temporary measure where we do not have that is as a result of lower oil prices due to the united states bringing on increased production as well as opec's deciding not to change its policy both at the thanksgiving meeting last year and the most recent meeting last
3:45 am
friday when they decided not to have any sort of reduction level at all. instead, they have increased their production by 1.5 million barrels per day. with significant increases from saudi arabia and iraq. this has pushed prices down lower. it is coming at a cost. that is lower opec shared capacity or the amount of additional production that a country could bring on should it choose to do so. this last summer, the increased production out of opec caused their capacity to reach levels as low as 2.6%. the rule of thumb for their spare capacity for stable prices is generally 4%. the reason it has been able to go so low without price spikes is because we are in a very oversupplied market and this is partly due to the united states. shiftalculus however may as soon as the middle of next year.
3:46 am
when the daily oversupplied, that is that amount of barrels that we are putting into global stocks around the world stops building and we actually start potentially drawing. at the same time that opec's spare capacity effectively banishes and moose backed down on a seasonal basis. this spare capacity level means that at a time of heightened supply risks, it will be incumbent upon available stockpiles both strategic and commercial as well as the ability to bring on incremental supply most likely from the united states to assuage any real or perceived shortfall. this shift from opec spare capacity to a new form of supply security that is provided in capacity.s. productive will take time for the market to calibrate and clear signals in terms of policy standpoint would be greatly appreciated why the
3:47 am
market at this particular time. the flexibility of u.s. production growth comes with a timing issue on both the up and down side. they can increase production quite quickly because the amount of time needed to bring production on is only four must versus conventional production where it can take several years to bring that production on. this needs a can have a much greater effect in terms of bringing production back online. that production outages have plagued the oil market for the last several years are likely to increase in the future. 2012, we havece had an increase in terrorist about in ihs which is 25%. that over the next couple of years, geopolitical risk will come back into the
3:48 am
market. in order to address these or now that the shift from the opec to the united states comes with a huge opportunity for the united states to shore up national energy security but global energy security. is way it is most helpful one, by allowing u.s. crude oil exports and allowing u.s. crude -- crude oil exports gives exporters an opportunity to allow them to increase their own production and be able to get more oil out to the global market. the other aspect is one of having a very clear stockpile policy on the commercial side and on a strategic site. by having significant stocks within the united states that are in areas that we know are safe, we can actually increase overall energy security. with that, i appreciate chairman murkowski, your leadership and ranking member senator cantwell
3:49 am
we appreciate you as well. thank you mr.: webster. a lot of issues raised here this morning. it seems to me that we could two separate hearings. the points that you have hit upon in your testimony mr. webster talking about energy security implications of all that is happening within these oil markets. that is one aspect. but then, following off of senator cantwell's words of following the money in terms of what is funding terrorist activities is certainly something that again we could spend all day trying to understand how and where we can make a difference. i went to begin with you because you have helped break it down in terms of how we .ee the financing oil is a significantly's as we
3:50 am
have mentioned. 40%. this other category is also quite substantial. you have suggested that one of the better ways to choke off the supply of funding is to as the late military targets but you also indicated that international sanctions may not be that helpful. you did indicate though that sanctions on import of oil production equipment is one area where we can specifically target it. we try to figure out here what sanctions may or may not be effective. can you go a little bit more into detail about other areas where you think sanctions are are not helping giving -- given the situation on the ground. mucharrell: thank you very
3:51 am
senator murkowski for that question, giving me be a chance to elaborate. to imply that sanctions are not useful. i think sanctions are absolutely useful in this context. i think that given the majority of the revenue that isis generates from its oil sales is generated internally, sanctions are going to have to play a supporting role. with the military effort being the most important way of targeting the income. a couple of areas where i think sanctions can and should be deployed, and i should begin by noting that i think that my former colleagues at the treasury department are working very actively on this set of issues. first, as i discussed, there is some oil seeping out from ice is controlled territory into adjacent countries. clearly, both the u.s. government and our partners
3:52 am
should be taking every step we can to seal the borders and to destroy the oil coming out and should also be working to impose financial sanctions on the buyer all that oil whether it is in the kurdish economist part of iraq, turkey, jordan, or elsewhere. another area that i think sanctions could be quite useful is to go after isis's procurement networks, especially for spare parts related to oil infrastructure. tos is going to be seeking increase its procurement of replacement parts. as i discussed and as dr. crane discussed, a lot of this is fairly low-tech equipment that they need. the middle east, syria, iraq, and turkey are awash in equipment. this will not be easy. what sanctions should be imposed on anyone looking at telling oil related parts into ice is controlled territory to keep
3:53 am
those out of isis. final area that i think sanctions could be useful is in ensuring that crisis continues to be cut off from the international financial system. most of their revenue is cash. up increasingg quantities of cash in their own territory. it is a cash-based economy. they probably want to eat most of their -- keep most of their revenue in cash. to support affiliates and allies, they will be looking for ways to move that money, some portion of it out of their territory into the international financial system. sen. murkowski: i want to ask a question about libya. we talk a lot about what is ,oing on in syria, iraq, iran and libya, as we all remember, was a very difficult place and is still a very difficult place
3:54 am
with violence and civil unrest. what, how libya represents a potential source of revenue for isis, how does that factor in to the discussion today? webster: thank you for your question. it is quite important. libyan production before the civil war was 1.6 million theels per day which dwarfs other quote. right now, because of a variety of issues within the country come it is about 300,000 barrels a day. there is still an immense an immense amount of upside in terms of production out of libya. is light,duction sweet oil. a shortage of that was a driver for driving up prices in 2008. my understanding is that isis got a foothold and is seeking to
3:55 am
control some of those terminals and those other access ways for oil. it is a big concern in terms of the amount of oil and what isis could potentially do with that. particularly as that could then be pushed into allowing them to create additional energy attacks in algeria, egypt, and other places from within libya. sen. murkowski: senator cantwell. guess, inell: i continuing about vulnerabilities. transportation infrastructure. are other things to worry about like the straight of her mous -- vermuz. that would represent an opportunity for someone. how important is it when you look at the transportation infrastructure, overall
3:56 am
vulnerabilities and targets we need to harden. that we keep the strategic petroleum reserve modernized. mentioning that the refining capacity and the isis region has refining is a but hardest to rebuild. actual oilwell production, you can bomb them, but it is not easy -- it is not difficult to continue to get the oil. following the money and its impact to get the assad regime off of the oil from an economic perspective. the importance of transport and the importance of being able to get oil and refined products to people is very critical. that is particularly critical for the strategic petroleum reserve. we have just under 700 million
3:57 am
barrels residing there currently. that rightuld appear now there is no use for it at all in that we have plenty of -- plenty of supply here in the united states, it is important to be able to hang on to that and access it. because of the ride he of changes in terms of logistics in the region, as well as the changing in terms of the types of crude we are importing and the types of crude we are making , and being able to tap into that in terms of volume and timing is incredibly important. ok. cantwell: but in general, making sure that we are protecting -- if you were looking at terrorism overall, protecting these transportation sectors of the major supply is something we should be concerned about. carell: -- harrell: if you
3:58 am
look at the external buyers of isis oil, assad regime. it is front and center. as you said senator in your remarks, it would be incredibly useful for russia which has played a destructive role in syria to date, to use its leverage over the assad regime to try to get them to cut outline buying oil and gas from their own enemy, isis. that is the largest external purchased or of isis produced hydrocarbons. sen. cantwell: and then, about the wells of bombing themselves. how is it for them to recover? what are we doing here and why is this important to them to focus on the money aspect? year, whenoted last the military began bombing these modular refineries in a syria,
3:59 am
isis adapted. to what dr. crane described as teakettle refineries where the oil is boiled in open pots and refined in a crude way. from a military perspective, those aren't easy to repair as well as the wellheads. military perspective, keeping up the pressure on those targets. they note if it will take a week or two q to repair it, it will be hit again right away. keeping up the tempo, the operational tempo of the military targets is important as the steps the military has begun to take on the distribution methods. happens to thet money after isis burns it from the oil revenue. from the military front, there are things that can be done in terms of targeting cash houses and raise -- raids.
4:00 am
isis finance the manager was an important step earlier in the year. moneyg up the pressure on exchange houses and informal places that might help isis move its cash out of its territory into the rest of the world. sen. cantwell: you are think we need to be an adaptive and move as they come up with new techniques. senator crane. >> thank you. national security, protecting our families, it is on the minds of people in montana every day. it is telling to us today how important energy, american energy and dependence is to our safety, prosperity, as well as
4:01 am
the entire worlds. -- world's. count me in as one that believes we should remove the ban on u.s. ex is and move or word in the american leadership in oil production. the irony to think that the president just moved forward with removing the ban on iranian oil asked her and we are the only nation in the world that still had a ban on our exports cannot be overstated. i hope we will soon remove that band. it is good for the american people, and our economy. as we look at what is going on right now with isis and the testimony we heard today that one of their leading sources of revenue is from oil reduction, it seems like it is pretty clear that there are two parts of our strategy. one would be to increase american oil production. hopefully we can address that by removing the band. the second is destroying isis
4:02 am
oil production and revenues. last couple of months, we have seen the second largest terror attack in u.s. -- in europe since 9/11. the largest, most lethal attack on our soil since 9/11. of attacks on isis oil has increased. when of the most effective ways of fighting isis is to launch attacks on its oil infrastructure. said that oneorel of the reasons the u.s. was not doing this was because of environmental concerns coming from the administration. do you think that made sense? harrell: the administration has had a number of concerns over the last years as it
4:03 am
thought about the operational tempo of the attack including the need to gather intelligence about whatge collateral costs might be. whether to civilians or to future civilian -- syrian production. in my view right now comic even the threat we are facing from while it is important to consider collateral costs, the near-term benefit of taking out revenue needs to weigh heavily on that scale. i do think it is important that a robust and maintain operational tempo and focus on taking out the oil infrastructure. while minimizing to the extent possible those collateral costs. used by the administration is to contain isis. sayingur testimony,
4:04 am
their leading source of revenue is from oil. if we cut off their revenue, that would be an important part of destroying their capabilities. arrell: it is clear that isis is not a threat we should contain but should destroy. >> thank you. comments thatese the limited attacks in iraq and syria have been environmental concerns. then we have paris and san bernardino, the strategies change. >> it is outside of my expertise. i am a global market sky. i would agree with peter that it would seem when you are looking at this, that the cost in terms of collateral damage against what isis springs, particularly as i am looking around the world at increased risks to the global
4:05 am
supply system over the next several years, anything we can do to roll that back would be a positive thing. >> this gets back to not wanting politicians running the war. we want to destroy isis. question is how would removing the ban on exports help? allows the u.s. producers to ensure that they do not get such a big discount compared to global crisis . removes atially policy discount. because of high refining runs in the united states, and because of the low price and because we have lower production, you would not see a lot of barrels leave the country. however, it it is important
4:06 am
still to change the policy because it would support u.s. production growth in the future. rather than doing it when it becomes an emergency. for usn important policy because it allows us to increase u.s. production. by increasing u.s. production, it is a much safer place for production to come from rather than other countries. that increases overall energy security, not just in the united date but on a global basis. we must remember that oil market is a global market. sen. murkowski: thank you. senator heinrich. i want toinrich: thank dr. crane. rather encourage him to than listening to the former director of the cia on charlie rose, to talk to our current director of the cia and also the
4:07 am
folks at dod who have been doing this targeting. the intel has changed. our efforts have been made much more successful. one of the things in talking to dod that is important is how you make this targeting more successful while also mitigating and minimizing the fodder for isis to run a highly effective inspirational social media campaign which has been an enormous problem for us. what happened in california was not directed. it was inspired. we need to keep that in mind. , you have said in the past that the targeting has had limited impact in combating the ability of isis to generate funds. has the recent shift in terms of
4:08 am
the oil tanker trucks come has that moved the needle substantially in your opinion? and to what proportion in terms of their overall revenues? harrell: i should begin by ground,hat facts on the in a short turnaround time are hard together. it does appear with that copy a that the military -- with that the is the latest military campaign is having an impact. as a deterrent to people who previously thought they could make some quick ox loading and selling oil. think they need a of work. it is clear that the impact on the trucks and the larger scale strikes on the oil and gas
4:09 am
that ison plants -- definitely having an impact. what we are seeing is a useful and welcome operational tempo that i hope is maintained going forward. senator: do you have opinions on whether it makes sense in addition to targeting those large industrial scale infrastructure like the separation plants, does it make sense to try and target the very small teapot refineries? harrell: that is a question. i would note some cautions. by all assessments, they are not directly run by isis.
4:10 am
these are run by entrepreneurs who have the unfortunate reality of living under isis control. i don't want to defend what they are doing but they are not basis employees. employees.so -- isis they are also easily repaired. if there was a way of doing it while minimizing civilian casualties at a temporal where you could -- at a tempo where you could take them out of commission. senator heinrich: that is the challenge that our targeting folks at dod are wrestling with. dr. crane, i want to ask you something that is related to this although it does not the oil touch on financing piece. i want to understand how substantial is the economic impact of the iraqi government
4:11 am
continuing to pay the salaries of iraqi employees who live in ice is controlled territory? --howg of problem is that big of a problem is that? much of that money is propping up the economy in that contested area. dr. crane: question. the iraqi government has stopped paying mosul. some of the other communities continue to be paid. i could not think of a better policy decision. i think the first decision on stopping payment in july in mosu l was probably the single biggest impact on isil i'm dancing that has taken place -- on isil financing that has taken place so far. heinrich: there should
4:12 am
be a complete cessation of financing. crane: hopefully, falluja will soon no longer be under isis control. sen. murkowski: senator cassidy. senator cassidy: very stimulating. first, madam chair i would like to submit for the record, and nexusial that regards the between exporting u.s. oil and equivalentobal co2 in missions and reducing funding -- emissions and reducing funding for terrorism. the article points out that the iranian oilfields emit about three times co2 equivalent as u.s. gulf of mexico. brings up their daily
4:13 am
output right to million barrels per day, they will emit 100,000 more metric tons of co2 equivalents per day. 36.5 million in metric tons of co2 you -- co two equivalents per year. lowers global co2 emission by exporting u.s. oil. i would like to credit my colleagues in the back, mr. gorman and mr. jack for helping me research this editorial. , in your testimony you said that one thing we could do to shut down is that although cash, they doin do business with large enterprises and they may attempt to move that cash into banks. they said treasury -- you said
4:14 am
treasury could go up. why have we not already? we should have done that a year ago. have we attempted and been unsuccessful? dr. crane: my understanding is that they do not use banks much. the question is that there are a , some of heavy trucks them are operated by fleet operators. when i think would be useful is to make sure that we have intelligence about which companies, some of them located in surrounding countries or syria, are operating those vehicles. you can then go after them. senator cassidy: you mentioned large companies that they must deal with. know some of those large companies. have we gone after those? dr. crane: there are some in the
4:15 am
controlled region that has been accused of doing that. i do not know if we have actual intelligence. webster,assidy: mr. you emphasized that u.s. shale production has contributed not only to u.s. but global national security and we could do more so if we allowed oil exports. thatstruck that we assume the fracking industry can rise and fall ever live the -- effortlessly. now, the production capacity has not only been idled but the workers have dispersed. we cannot ramp up in one week. it would have to be reassembled over at period of time. the longer we go, the longer it would take to revamp. mr. wester: yes, the longer it
4:16 am
will take to reassemble them in terms of the kit and the personnel. while you can bring production backup when there are market signals, the longer that they are not at the high level of investment, the longer it takes. senator cassidy: the more we dillydally, the longer it will take to reassemble. the carnegie institution for peace says the iranian oil production emits three times the co2 equivalent as the u.s. shown theranians refinery business any concern for co2 emission? compareshouri: i cannot the efficiency and emissions and the facilities in iran and the
4:17 am
united states. yes, they are going to be producing more emissions that the united states. i would like to mention something about iran's crude oil and that is the different kind of crude oil. senator cassidy: i am out of time. can i ask you to hold that an submit that answer. i apologize. ms. vakhshouri: one more point. the additional refinery capacity would not be as emitted -- emitive. heardr cassidy: we have that a decrease in u.s. oil production is a drag on the economy in we asked the aspen institute if we allowed the export of oil we would create new jobs and increase gdp by
4:18 am
$141 billion. we hear from mr. wester that by exporting oil we would increase national and global security. if we do not tend to it, we will lose that opportunity. both on an economic and national security and environmental basis, there is such a strong base for allowing the u.s. export of oil, i cannot imagine why the administration does not allow it. cowan -- senator: i was curious -- we understand that isil derives its revenue from taxation. thatrane, you mentioned iraq has stopped its payments to persons who live in isil controlled territory and that it was a good thing. what happens to those people> what economic --what income do they rely upon?
4:19 am
concern that payment, what will happen to these people and where they may turn? crane: a good question. that is why the iraqi government has been so reluctant to turn off those payments. what we are seeing though is people leaving mass -- people leaving isil control the territory. iraqi christians and iraqi sunnis have all been persecuted and attacked by isil. isil is trying to keep people there. people are leaving once -- if you are an iraqi teacher, dr., or civil servant. l and then go mosu to baghdad. it is not clear how much of their salary they got to keep.
4:20 am
isil is not a charitable institution. senator: it leads to further instability in syria and other areas. harrell, the position of the undersecretary is vacant. you talked about targeting cash houses and exchange houses and going after financial institutions that support isil. this position is vacant. this is a person that leads the effort of our country to counter terrorist financing. how important is it to fill this position? harrell: i worked closely with the administration's nominee for the position. he is certainly an incredibly
4:21 am
effective individual at combating the financing of terrorism. i think it would be very valuable for the treasury department to have him conference. he is working diligently every day. as you know, there is a difference between working in an acting capacity over there and actually being confirmed and in full authority. when you look at what treasury can do to combat the financing of isil, having their entire team in place including the undersecretary would be valuable. does anyone on the panel disagreed that we should go ahead with this confirmation? nobody disagrees. thank you. , you noted inon your testimony that there is a flow of oil related equipment that supports isil's revenue stream from oil and we should
4:22 am
target this flow of oil related equipment. do you have any thoughts on how the u.s. could best do that? mr. -- we know who is supplying all of this oil related equipment? and how we can stop them? harrell: the answer to the second question, if the information is imperfect. gathering additional information so the treasury department can sanction the supply networks is valuable. i also think that short of sanctions, there are a couple of steps that can be taken. for example, reaching out to businesses, both the government and the region and to traders to make them aware of this problem and of the potential sanction consequences if they do sell equipment to isil.
4:23 am
the region is awash in it. some people will be selling deliberately and others will be selling to any buyer that comes across their door. this,sinessman selling can be made aware. it would also be valuable instead of having the sanctions focused on sales to isis, which can be hard to show. you have to really document this. sales across the borders into isis controlled territories and a territoryit at level would be helpful. senator: what countries are the most like -- most likely suppliers? harrell: iraq and turkey. they are both awash in equipment. gardner.owski: senator
4:24 am
senator gardner: welcome to the committee. .hank you chairman murkowski to the witnesses, thank you. the first question i would address to mr. webster. earlier this week, we heard testimony from the nominee to .he department of state talking about the impact of the sanctions we had in place against iran. and how this sanctions had cost the iranian regime hundred and $50 billion. -- $150 will it take billion. mr. wester: i look at volume and not dollars. -- ably
4:25 am
the volume of: their exports has dropped severely. at this moment, they do not have access to their funds outside of iran. on the numbers, i cannot give a statement. on their portions, their exports and revenue dropped significantly. even in their budget. before 2011, iran -- iran's export was 80% of its revenue. even the share of the budget dropped from 70% to 33%. recouped bye additional sales. correct? ms. vakhshouri: they make money, of course. expert in terrorism. i look into the industry.
4:26 am
after 2012 sanctions, the that the of the groups u.s. considered as supporters of terrorism, they had better access to the network. sales to iranian oil. let go to state-sponsored terrorism? -- will it go to state-sponsored terrorism? harrell: some will go to the syrian regime -- dr. crane: some will go to the syrian regime. >> some of it will go to state-sponsored terrorism? harrell: low oil prices
4:27 am
have been hard for some of the oil-producing parts of the country. it has been good though for security. >> for the u.s. to change its export policy come it would improve u.s. national security? harrell: i would have to defer to some of the other experts -- experts on the panel. clearly, low oil prices help our national security. there are strong national security arguments for allowing u.s. exports as part of a balanced package and it addresses a variety of environmental issues. i am not an expert on the domestic issues. senator: does it improve our national security?
4:28 am
>> absolutely. i wanted to talk about some of the visits we have had from leaders of and and korea are they are all talking about u.s. exports. they have also said that teams that have been traveling from japan for example to iraq -- iran to talk about additional energy opportunities there. do you anticipate our allies entering into export agreements? >> thank you. i right now is trying to get its terms together so they can entice some of these companies to come back. i think it may take some time to do that. does represent a lot of opportunities for these companies and countries outside of the night -- outside of the united states. senator: i want to ask one final question. several of us have requested that the president increased the
4:29 am
deployment and embedding of the attackers to help find and identify targets on the .round with every useful in targeting oil production, oil development, oil transportation in syria by ice -- by isis? i would love to hear anyone's response. this is personal. i was in iraq for three months in 2003, 5 people i knew were killed. every time, my daughter works with the navy seals. every time we deploy u.s. troops, i recognize the cost with that as well. it would probably improve targeting. harrell: these are complex decisions but gathering intelligence improves targeting.
4:30 am
sen. murkowski: thank you. senator barrasso. barrasso: the testimony you state, we have to acknowledge that u.s. and coalition efforts to date have at most limited success in reducing isis oil revenues. you went on to explain that the current estimates of $1 million 1.5 million dollars a day are largely unchanged from the million a day that the treasury estimated about a year ago. finally, you say that one of the lessons of the last year is that limited strikes on isis oil infrastructure are not strategically effective. you served in the obama administration between 2009-2014. you worked on president obama's campaign.
4:31 am
insight intous any why the president has decided not to change his strategy against isis in light of these failures? >> thank you senator for the question. the significantly increased operational tempo and range of targets we have seen at weeks isthe last 3-4 an important step. it appears to be having impact although the results are early. is an important step. i hope these continued escalations of these targets will continue. you commended the recent airstrikes on the oil tanker trucks. you commended the military's recent decision to strike at
4:32 am
larger pieces of isis oil infrastructure that are more difficult to repair or replace. you state more needs to be done. strikes on oil infrastructure need to be comprehensive and not limited. you say the u.s. military should infrastructure to the maximum extent possible. there should be no part where people feel safe to work. as a former official in the obama administration, do you believe the administration today is prepared to take those additional steps that you have outlined? harrell: what we have seen is a welcome increase in operational tempo. it takes time to develop targeting packages. oilraid on the isis minister in may provided a
4:33 am
variety of important information that has been used all for targeting. to translate that information and use it. where we are today is a welcome tempo. ask you, along those lines, you mentioned that government officials have concerns about avoiding permanent damage to syrian oil infrastructure in that it will be a key piece in rebuilding a post-conflict syria. officialstent are continuing to have these concerns. >> i cannot speak to the current thinking of the obama administration. i do think that wall there are legitimate concerns, you always want to weigh collateral costs. where we are today, the threat we are facing is such that the weight of destroying the infrastructure needs to weigh
4:34 am
heavily on the scales. >> you would agree that it is more important to defeat isis and then worry about the details of rebuilding syria. harrell: isis is the most serious threat we face today. >> you also talk about, beyond oil, the natural gas business in syria. year, isisst captured important syria and gas fields. isis cells natural gas to the assad regime, hardly to fuel electricity production. you also said that you have heard from u.s. government sources that the natural gas trade between isis and the assad significantly larger than the oil trade between them. do you know how much isis earns from producing and selling its natural gas? harrell: i do not have a
4:35 am
good estimate or breakdown for that specific number. that we haveon gotten on that front has been anecdotal. i don't know if dr. crane would like to comment. dr. crane: it is a complicated question because what has happened is that they ship the natural gas to a generator and then isil is paid in the form of electricity. a dollar amount is not useful. it doesn't help isil to have access, electric powered. senator: my final question. in terms of natural gas versus oil. do you have any thoughts? obviously, the revenue is different, but there is a price being paid. >> natural gas would be the
4:36 am
generating plant that it goes to. it would be difficult to target a pipeline percent. mr. crane: on the oil side, it will decrease revenue, but it will not go away. it is helpful, but it does not make it disappear. >> thank you. >> senator? >> thank you, mr. chairman. this is a very interesting discussion. i want to give it a little bit to saudi arabia. saudi arabia has continue to ramp up production even as the price of oil has gone down. i think they are experiencing a fiscal crisis over their lack of revenue. i have a report.
4:37 am
says in from the imf order for saudi arabia to ,alance their budget in 2015 the price of oil would have to be $106. i am are reserves, and sure they are drawing on them as we speak. , and i supportt ,il exports from this country do you anticipate this will bring about, in a country such as saudi arabia, and instability that could make the country more vulnerable to isis or a terrorist group to be able to come in and -- i do not want to say take over -- but become a part of that. do you have an opinion on the? saudi arabia has
4:38 am
substantial reserves and can run a deficit for long periods of time. when i have worked in iraq and qatar, there is a waste in government expenditures in terms of free electricity, low prices for gas. when the iraqis finally did raise gasoline prices from a nickel a gallon to something sensible, there was not a peep from the population. regimeshave seen in that are autocratic like saudi arabia, when governments make cuts in wasteful subsidies and there is a lot of wasteful investment in saudi arabia, they have been able to weather the storm. >> and should be able to for some time. about wholked a lot
4:39 am
is using the revenue, how the revenues are used. thise boil it down to say percent of the oil that is captured by isis is used internally? is it 50%, 70%? what percent is sold externally? mr. webster: thank you for your question. i am not sure i will be able to answer. our assessment is about 45% of their revenue comes from oil in terms of distribution. if it is within isis territory or exported elsewhere, i am afraid i do not have the -- >> does anybody have an approximation? is we'm trying to get at have talked about how to stem the side -- tide. they do not go through banks. they are not using a formalized financial system.
4:40 am
but if they are selling this to countries, there is some way to follow the money. it is a movie line, i guess, follow the money. that is the question i am trying to get to. where can we find a formalized financial system we can impose as a global community? unfortunately, what we have had is the single largest set of buyers for the oil has been refineries. gasoline and diesel goes everywhere. mr. crane: the largest single sales have been to the syrian government. odd barrels a day. we do not have a lot of influence with the government. i think, however, targeting vehicles, heavy trucks are
4:41 am
expensive. , those target those people will think three or four times before engaging in hauling stuff around. >> thank you. thank you. i would like to thank you and the ranking member for holding this hearing. i believe in lifting the oil export ban. important for our country and help with national security through energy security by our gasto grow industry, energy industry in this country. we create a stronger economy, more jobs. we also produce more energy at home and are able to supply our allies with oil and gas as well. you, do you each of agree with that generally, and if not, why not? i start with dr. crane. economist,as an
4:42 am
putting strictures on market is a heavy efficiency cost. from a national security perspective, there a strong argument for allowing u.s. oil exports. i cannot speak to the domestic side of that equation. >> it is important for global energy security in considering the investment in non-opec oil is reducing and the share of exports is going to increase from 50% today to 75% in the next decade. it is important to have. especially with all these terrorist attacks. it is important to have alternative resources. >> mr. webster? mr. webster: thank you for your question, senator. i just put out a couple of studies on the crude export issue. our finding is that this is a clear win for the u.s. economy
4:43 am
and energy security. it is difficult to find a case where this is not a positive. >> thank you. doctor, when the united states put restrictions in place, sanctions in place, at that time , i believe iran was exporting 2.5 million barrels a day. after those sanctions had gone i believe exports declined into just barely over one million barrels a day. plan to lift's sanctions -- can you tell us what you anticipate in terms of exports, volume of exports from iran? kind of a timeline as you see them grow? >> thank you for your question.
4:44 am
on the immediate rebound of iran and crude oil, depending on the ,000back, iran can add 500 barrels a day by next year. iran's midterm plans for increasing crude oil is to ramp to 4ude oil capacity million barrels a day or 5.7 million barrels a day. out of this 5.7 million, one million would be compensated. the crude oil production by 2020 would be 47 million barrels a day. they will be able to reach this production capacity by 2020. 700,000 barrels a day would be new oil from new fields.
4:45 am
the rest would be old fields. >> you are saying they already have the capital to make investments to achieve that growth and five 2020, they would export 4 million barrels? how much of that with a export? is vakhshouri: the main plan a pre-sanctions level of 2.5 million. that would be the main priority. out of the 5.7 million, one million would be condensate. the refinery capacity will increase by 2020. the total overall export will not increase more than 500 if everything goes well. on the investment side, it is expected that the upstream and downstream is $250 billion of investment. its medium-term
4:46 am
crude oil and natural gas , they onlyby 2020 need $50 billion. >> do you anticipate them going back to 2.5 million barrels a day of export by the 2020 timeline? ms. vakhshouri: the oil minister's anticipation is sometime by 2016. our anticipation is that it takes some time. maximum production increase from iran would be about 500,000 ensate. and 200,000 cond fields.e to shut down it is going to take some time. >> why do you think saudi arabia is pushing volumes so aggressively in terms of oil
4:47 am
production and export? why is saudi arabia doing that? ms. vakhshouri: for different reasons. first and foremost is that by reducing prices, the demand would hopefully rise. united states demand, the gasoline market would be the same. , how thee saudis transportation system would move from fossil fuels to renewable energy. also, the expansion of non-opec production. on the other side, they do not see any reason to give that market access to iran. are already substituting iranian oil production since 2012 sanctions. i do not see any reason for saudis politically or market wise to lose market access.
4:48 am
something that is important is how opec is functional in the next year, next decade. next few years. iraq is signing contracts. investments new oil , would allow companies to increase production. the prices are so low they have to increase production to make their money back. so it is going to be very tough to keep the balance between the opec members. >> i have one more question. would you like me to wait? i will defer. all right. very good, thank you. >> thanks to all of you for being here. i would like to start with you, mr. harrell. you point out u.s. and coalition inies had limited success reducing oil revenues isis has been able to get, which remain at about $1 million per day as i
4:49 am
understand it. why is it that current policies have failed to affect what we regard as isis's second-largest source of revenue? mr. harrell: thank you, senator, for the question. i should begin by saying i do think that the recently of militarympo strikes over the last month is having an impact and is an important move in the strategic direction of how to attack this. i think the fundamental challenge the u.s. faces is largelythis oil is produced in small wells and distributed widely and largely consumed in isis territory or regime, it issad really a military decision. an important be
4:50 am
supporting set of tools, but it is a military set of tools that needs to be front and center here. probably took the administration some time to decipher the intelligence and you're out where the assets to strike our -- are. what assets were available to strike the targets, to get to where we are today, where there is increased military temp. will behe tempo contained going forward. so increased military involvement certainly would help in going after isis targets. what about policing against isis's lack market activities conducted by neighboring arab states? is that likely to help with regards to our efforts to hinder isis oil production? >> mr. harrell: i think that is also a useful step. most of the oil is consumed in
4:51 am
isis territory, but that does not mean all of it. there is some smugly have -- smuggling happening. to get adjacent states to seize , actuallyy vehicles taking this equipment out of commission, would be an important step. intelligence gets are definitely real. theng sanctions against guys buying it in turkey and krg, is also a useful step today. >> which of the air of states in states in the region are best positioned to help us and contribute to increased military action against isis? oilharrell: in terms of the
4:52 am
smuggling out of isis territory, shutting that down, it is clear that most of it is between the assad regime, which is not going to help us. the rest of it is going into turkey and the autonomous region of iraq. the krg has been escalating its po, as have the turks, but more can be done to stop the smuggling. >> most of the oil sold by isis has been inter-territorial. what is the likelihood it will , that they will increase their production of oil with a corresponding amount of oil? who are the most likely buyers in their exports? mr. harrell: thank you for the question.
4:53 am
i certainly hope we will not see an increase in production. i hope you keep military pressure on them. effectivesent pressure, including military pressure, we would see an increase. they know this is a major source of revenue for them. it is something they are interested in maintaining. they repair facilities when they can very quickly after strikes. we have to keep up the pressure or it will increase. the smuggling routes into turkey and elsewhere are long-standing smuggling routes that have existed for years. >> long before isis. mr. harrell: long before isis. >> that is where we are likely to see the most action? >> mr. harrell: yes. >> my time has expired. thank you. >> i have another set of questions, but i will defer my time. >> thank you. i just want to finish up.
4:54 am
dependent iran's economy is on oil -- if they could not export oil, what percent of their economy is oil? what would the ramifications be on the regime, on their economy generally, if they could not export oil? ms. vakhshouri: thank you for your question, senator. oil exportndency on revenue decreased since 2012. one issue was because of the restrictions on oil exports. oil exports dropped to almost half. the other was very low crude oil prices. othery, iran, compared to has the lowest dependency on oil exports.
4:55 am
i mentioned the share of export revenue in the domestic legit 23%ped from 70% in 2011 to in 2013. instead of exporting crude oil or natural, of course, natural gas is important because withng-term energy ties countries, but to produce more profit products, like refined petroleum products, refined ate, and from condens also using natural gas in chemical factories to increase petrol chemical facilities. they will increase production three times by 2020 and also export electricity. income, generate more more jobs for the government. it is harder to put a ban on and
4:56 am
export of electricity than crude oil or natural gas. it is harder for governments receiving electricity to stop importing electricity. >> all of that activity you describe is dependent on oil and gas. mean, iran has i lots of mining industries and other sources of income, like taxation, which has been increased in recent years to substitute oil revenue. but it comes from oil and gas. they are going to process it. >> i understand. thank you. >> i would actually like to keep with the subject but ask the question a little differently. lifting the sanctions with iran the energyaffects sector, specifically, how would it affect the conservative revolutionary
4:57 am
corporation and how businesses might be impacted. what impacts with this opening up have on getting a diversification of our influence in the energy sector? is a population of 80 million. it has a much more diverse economy than a country like qatar. what we have seen happen over the course of sanctions is that the foundations owned by the iranian revolutionary guards into the of crept economy and established monopolies, using the profits to fund their own activities. a long history of being competitive and capitalistic.
4:58 am
the internal political dynamic in iran, we have seen individuals who are much more trusted in integrating with the world economy, seeing the relaxation of sanctions as weakening those groups who have been opposed, using the sanctions to strengthen their own position. these groups are the people who are financing terrorists and engaged in other activities abroad. mr. harrell: thank you for the question, senator. i largely echo dr. crane's remarks and view of how the i.r.d.c. increased its influence during sanctions. the fact they remained sanctioned after the nuclear deal and the fact there is commitment both in washington and europe to keep up the d.c. and on the i.r.
4:59 am
making sure companies going into not do business has some potential to help none of -- some of the actors compete more effectively in the areas they are active. >> in energy? mr. harrell: yeah. thingldn't that be a good , if we had someone competing against them? mr. harrell: we would certainly want to see more competition to the i.r.g.c. sanctions were effective in getting us where we are today. c. expand itsr.g. role during the sanctions era. it would be good to see some of that get unwound, see it lose its influence in iran. >> thank you. to wrapebster, i want up my questions with one
5:00 am
directed to you. in your testimony, you talked about the issue of fair capacity out there, and recognizing that this cushion that has been available historically through opec countries, we have seen a decline in that capacity. productionnue to see at higher levels, that cushion is lessened. your comment about the risk premium, obviously, there is a whether we going on, are talking about iraq, iran, syria, saudi arabia, anywhere in the region. some discussion in this committee about what we really know about the spare capacity.
5:01 am
we do a lot of guessing, particularly when it comes to tenacious countries like saudi arabia. that weident are we really have an understanding as to what that cushion is, how reliable that is, and what does that do to this risk premium over this fear premium that factors into what is going on with not only accessibility supply, but the pricing? thank you for your question, senator. this is a very big issue. innow you have discussions terms of figuring out how much spare capacity actually is. the analytical community, we do not have guesses. we call them "analyses." it is a big question for markets. in 2000 eight, there is the assessment of saudi arabia has
5:02 am
historically had 12.5. make anty, you have to assumption on how much is actually there. million barrels a day or so is actually quite heavy. it is oil that is not terribly useful for the oil markets. there is uncertainty on how sustainable it is and what kind of oil it is. this shift from saudi arabia's spare capacity to more control in the united states system in oil and stocks is incredibly important because it is easy for someone like me to calculate how much we have. the fear premium, my concern is we have a lot of geopolitical risk, but the market is not paying attention because we are producing more oil than we are consuming around the world.
5:03 am
you can actually handle an outage without a lot of difficulty. but this is going to shift in the future. part of it is because of opec and saudi arabia's policy. whatever your assumption in terms of production capacity, it is shrinking. cantwell mentioned this in her first round of questioning that related to chokepoints, transportation issues that we face. you have a great deal of exposure and vulnerability when it comes to moving this resource. when we are talking about this risk premium, how do you factor ofthat geographic reality being able to safely and freely move these oil exports? thank you for your question,
5:04 am
senator. say chokepoints are critical for global markets. as ranking member cantwell there are 94 million barrels of demand everyday. most of that flows through the strait. where you could arguably go around, but you cannot go around the strait. it is avironment where tight market or there is a concern about harassment of operations or efforts to choke thesupply from the strait, availability of supply from other parts of the world that is not bottled up within the gulf
5:05 am
is incredibly important not just for u.s. energy security but global energy security. as weseems to me that talk about the direct connect between oil and funding, financing of terrorism around the world, that we can be focusing today on direct hits to the smallcks -- trucks on the ground. but that is just what we are focusing on right now. this is ay is that global trade in oil that allowed funding of terrorism that goes on around the world. we have these points of vulnerability as we are moving this resource, i think we need to be paying attention and understanding, again, the
5:06 am
implications of these restrictions. we have talked a little bit on today about the important role that the united us as can play in allowing greater level of energy security when we have access to increased supply that we can't roll. -- control. are not only using for ourselves, but really using to help our friends and allies in other parts of the world. i mentioned my concern about libya'secognizing that supply of oil into the market, if something happens, if there is continued unrest, the united states would have an opportunity to perhaps supplies some of those countries that libya has been providing oil to. , as we talk about
5:07 am
the issue of this 40-year-old recognizing that we are the only country that produces oil that has in place a exports, it is important that we put into context what it security only to our as a nation, but to the security whentions around the world we can help influence not only the supply, but how you can more safely move the necessary resources. senator warren has arrived. we have concluded our final remarks, but we will give you five minutes. >> i appreciate that, madam chair. i apologize for my absence. we had a bill signing for the new education bill. i appreciate the chance to be here. isisnow, one way to weaken
5:08 am
is to cut off access to its source of funding. my understanding is isis funds operations in part through oil , extracts, refines, in territories it controls. some of that money moves through the banking system, including through the more than 100 branches of iraqi and syrian national banks located in territory controlled or contested by isis. isis and thein how people who purchase oil from isis rely on the international banking system to move their money? mr. harrell: thank you, senator, very much for the question. i should begin by saying in my assessment, most of the oil trade begins as cash-based. they are taking literal cash, u.s. dollars, things like that. which they stockpile. they keep much of that money in
5:09 am
cash. dependent.ly cash as the volumes of cash build up, isis will be looking for ways to move that out, whether it is for management purposes, to move money to affiliates, i think it is important to continue to deny them access to the formal financial systems. one of the important steps on that front that the u.s. treasury department has taken, the treasury department has gotten the iraqi central-bank to shut down the access of the iraqi bank branches in isis territory in iraq. they should be shut off from the formal financial system. but we are seeing various , things exchange houses like that, looking at ways to move money in and out of isis territory. i think it would go directly from isis to the financial
5:10 am
system not very much. in the informal exchange houses to move it out and try to move it on. that is something critically important to address. >> you put it in a important way. making it clear that cash is critical to their operation. want to use any tool we can to try to disrupt the flow of cash and certainly through the banking system, but any tool we can to disrupt the flow of cash. that is part of the reason why president obama nominated adam zubin to serve as undersecretary in april. monitorrsecretary is to terrorist financing and his chief enforcer of sanctions against countries like iran, syria, and sudan.
5:11 am
that a critical position plays a key role in disrupting isis fighting. can you explain some of the tools the office of terrorism and financial crimes has to disrupt the flow of money from isis? mr. harrell: there are a number the treasury department under the office of financial crimes leadership has, including sanctioning money houses, banks that may deal with putting outncluding advisories to the financial sector about what to look for, what risks to look for. iraq,ing engaging with with turkey, with other governments in the region, including regulators, to make sure those regulators are taking steps to keep the money out of their jurisdiction. >> thank you.
5:12 am
despite the importance of attacking the financial foundation of isis, republican leadership has been holding up adam zubin's nomination for eight months. mr. zubin is impeccably qualified for the position. republicans do not contest that. he has worked at the treasury department for over a decade under democratic and republican administrations. i will be really brief because the chair has only given us extra time. do you think senate confirmation of mr. zubin will aid the fight against isis? mr. harrell: i absolutely think it would. i have had the privilege of working with adam zubin. he would be an indoor mislead effective leader. effective leader. >> thank you very much.
5:13 am
about takingious down isis, we need to aggressively target its use of the international financial system to move money around. congress does not look very serious about this threat when it indefinitely delays the confirmation of our top counterterrorism fighting official for months for no legitimate reason. it is long past time to confirm adam zubin. thank you. >> thank you, senator warren. thank you for the time you have given us.
5:14 am
5:15 am
5:16 am
5:17 am

18 Views

info Stream Only

Uploaded by TV Archive on