Transcripts For CSPAN3 Key Capitol Hill Hearings 20151215

Reserve. Its there for a reason. The word strategic is there in a very significant place. On that front, the proposal by some to permanently ban production in a small sliver of the nonwilderness, which could be the strategic reserve, is just wrong. Its dead wrong. As terrorists threaten oil supplies in the middle east and as state sponsors prepare to make billions of dollars from selling our oil to allies, some within congress are talking about intentionally and severely hurting American Energy production. This hearing this morning is about education. Members of the house and senate and the Administration Must understand the economic and the geopolitical context of the National Interests that we are considering. This committee has a unique perspective, given that over 90 of Iraqi Government revenues are due to oil exports, given nearly 09 of syrias Oil Production is offline and given that oil accounts for over 40 of isis monthly revenue, according to ihs. So you can expect me as chairman to continue this conversation into next year as we conduct oversight on the federal governments Energy Related activities in the counterterrorism fight. With that, i will turn to senator cantwell for your comments this morning. Thank you, madam chair. I, too, want to welcome the former chair of the committee, senator Frank Murkowski and welcome him back to the hearing room and also welcome our witnesses and thank them for being here today. Todays hearing is an important opportunity as the chair woman said to learn about the Critical Issues of the energy world, the relationship between terrorism and global oil networks and foremost about Energy Security. I look forward to hearing the witnesses and i look forward at some point in time having the administration be a witness here as well. Perhaps we can do that in the future or have a hearing in a secure room to get into even more detail on this issue. But it is something i think we need to hear from them on. At the outset of the hearing, i want to make sure that im making my views known about how important Global Oil Markets are in fighting terrorism and particularly the role of the committee to consider the impacts of the activities or infrastructure, risk for u. S. And Global Energy security and supply and understanding the global picture. Iran and iraq have some of the Largest Oil Reserves in the world. By some estimates fourth and fifth largest in the world. So control over this oil has a major impact. Overall, the movement of oil from the middle east to World Markets is also key to the stability of global supplies. Global Energy Security depends on diversity of supplies in different countries. What happens still matters, because in addition to the United States, growing countries like china have an enormous energy need and they will continue to look for resources for those energy needs to be met. In todays market, where theres robust supply, it would take a significant disruption, maybe somewhere around 5 to 10 to really disrupt the market. To give that a sense of perspective, todays Global Production is approximately 94 Million Barrels per day. The isis Oil Production is about 35,000. So thats somewhere between onetenth less less than onetenth of 1 . Its clear though that this is a constantly shifting dynamic. And in a tight market, a very, very small amount of disruption can have a very, very significant impact. So i think todays discussions are about where and when we might anticipate disruptions and what to do about them and as i predict we will probably talk a lot today about actually following the money of where the oil revenue is going as a way to fight isis. In yesterdays Armed Services committee hearing, defense secretary ash carter laid out the strategy in degrading isis oil structure. He said, we have intensified the air campaign against isils Oil Enterprise, a critical pillar of isils financial infrastructure. In addition to destroying fixed facilities like oil and processing facilities, we have destroyed nearly 400 oil tankers, reduced the source of the daily revenue and theres more to come, end quote. We will certainly look forward to hearing more about what is to come. I will be first to say, we do need to do more. According to secretary carter, what made the recent strategy possible was new intelligence that had previously not been available. He said, quote, it allowed us to identify those parts of the Oil Infrastructure that are being used to actually fund isil. I recently was briefed by a state Department Special envoy for energy. I was pleased to hear that over the past year, we have eliminated almost all of isis Refining Capacity. I was pleased to hear that the raid on the home of a former isis oil emir in may produced actionable intelligence about that following the money and more effective targeting of that, whereas previously isis could repair damage from air strikes within a matter of days, the current targeting inflicts damage that will take many months, even a year to repair. Another piece of news is that isis no longer controls any of the fields in iraq. So while progress has been made, it is very important to understand how adaptable isis is. Thats why its important for us to adapt, too. Its clear that isis adapts their strategies and they have continued to look at this as a main resource. So we need to act swiftly and decisively as well. Isis is supported by fuel purchases by the assad regime. To me, that needs to end. One of the most troubling realities of the situation is that the isis oil is being purchased by their enemy, the assad regime, either paying cash or other means. The u. S. Treasury sanctioned a syria individual for facilitating this. Instead of focusing on alleged Oil Smuggling in turkey, russia needs to use its influence to stop assad regime from buying oil and gas from isis. I know secretary kerry is traveling there today. Maybe thats a conversation that he can have. But back to our larger issue here. The large and troubling issue is that for years terrorist organizations have been funded through oil sales. The chairwoman mentioned a few of those incidents in her statement. In nigeria, for example, oil the oil has fuelled conflicts since 2005. And boko haram is likely funded through the crude oil theft and sales. Nearly 40 of the u. S. Oil demand is met by oil and 93 of transportation is fuelled by oil. So i also think its important given these facts that these terrorist targeted organizations, we need to diversify our economy in the interest of National Security. In the past 6 of our nations gdp goes to purchasing petroleum. 40 years ago, we created the Strategic Petroleum reserve to prevent the Economic Security impacts of crude oil disruptions. The chairwoman and i remain committed to making sure the reserve is a strong asset for our nation. We recently worked to make sure that the reviews identification of Infrastructure Investment needed for the Strategic Petroleum preserve given the shift change over our resources and where those are, that those investments need to be made. In the transportation bill, sales of this were authorized. It needs to be protected from further shredding. Its important we have this as a resource for us to protect against instability in oil markets. While im sure were going to hear a lot of discussion today from our panelists about the larger implications of National Security and our dependence on oil, we need to continue to make sure that we are doing everything here at home to make sure that we are secure and that we are isolated to the greatest degree possible from these impacts on our economy. I thank you, madam chair. I look forward to hearing the witnesses. Thank you, senator cantwell, for a very strong statement. Appreciate it. Welcome to each of the panelists that have joined us here 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 led off by dr. Keith crane who is the senior economist for rand corporation. Welcome to the committee. He will be followed by mr. Peter harrell, who is the senior fellow for a center for new american security. Dr. Sara vakhshouri is the nonresident senior fellow for the atlantic council. Thank you for joining us. And we will wrap up the panel with mr. Jamie webster, who is the senior director for ihs. We appreciate you being here this morning. Not only your contribution but ihs has been a great source of information for the committee. We appreciate that as well. I would ask that you try to confine your remarks to about five minutes. Your full statements will be included as part of the record. Once you have concluded your testimony, we will have an opportunity to ask questions from the members here. With that, dr. Crane, if you would like to begin, please. Thank you. Thank you, chairman murkowski and Ranking Member cantwell for the opportunity to testify today. Im going to talk about isil the insurgency. Isil has a large number of affiliates. We know many people swear allegiance to it. It has been used for branding in afghanistan and elsewhere. Terrorist operations tend to cost little. Will focus on the big money, which is the insurgency. I will talk about what it costs isil to run its operations in those areas of iraq and syria that it controls. How does isil cover those costs . What can we do to reduce those revenues and how effective those measures are likely to be. Major costs are salaries for fights and large numbers of other people, please and intelligence operatives. Roughly, there could be 80,000 of those individuals, u. S. Intelligence agencies thinks theres 31,000 fighters. If you assume 400 a month, were looking at about 400 million there. Personnel costs are only a fraction of what they spend. There are other costs for hospitals and schools and ammunition and other supplies. So total costs are substantially higher. How does isil cover these costs . Oil and sales of oil and Refined Products are the single most important source of income running about 500 million a year. In the past, syria used to produce about a third of what north dakota produced. Today maybe 400,000, 500,000 per day. That has collapsed over the course of the civil war. We are looking at 35,000 to 50,000 barrels. Isil controls most. So sales are running from 40,000 to 50,000 Barrels Per Day. Most of those sales actually go to small entrepreneurs who run tea pot refineries in isilcontrolled territory. There are skads of these. They refine those products, diesel and gasoline, they go everywhere. They go into iraq. Of course, they go into syria. Theyre sold to isils enemies. They are used by isil. They go into turkey and elsewhere. In addition to that, as the chairman mentioned, a substantial number of barrels go to the syrian government. Thats the most important source of revenue. In addition to that, isil has been selling antiquities, which is stolen, which would run up to 100 million a year. The largest source of revenue is the other category which is extortion, theft of cars, kidnapping and taxes in quotes and tolls. What can we do to reduce those revenues . We have been targeting oil field facilities like loading depots and tanking trucks. We can put sanctions. And we have also we can use oil Trading Network to locate and neutralize oil leadership. How effective are these measures likely to be . It appears that our strategy of hitting Oil Separation and loading facilities and empty tanker trucks have put a dent in terms of revenues from oil. In addition, financial sanctions there are Larger Companies in syria, in the kurdish regions and elsewhere which have been dealing with isil that we could push back that we could put under sanction or threaten to do so. And theres a limited number of dealers who deal in antiquities or people have the money to spend to purchase these products these artifacts, thats another area where i think we could clamp down on. And then i think that our intelligence agencies, the u. S. Military, can focus on the networks. That said, these measures will not lead to the financial demise of isil. Theres other opportunities. Theres ways that they can do work around oil Refined Products. But they are good things to do. To conclude, measures to reduce funding for isil are an important component of our strategy to degrade the organization. Sales of oil Refined Oil Products are the most important Single Source of revenues and the tactics of focusing on that are an Excellent Way for our country to go ahead. That said, were not going to halt all sources of revenue that the organization obtains. Thank you. Thank you, dr. Crane. Mr. Harrell, welcome. Thank you very much. Push your button there. Chairwoman murkowski, Ranking Member cantwell, thank you for inviting me here to testify. Its a privilege to share my perspectives with you today. I intend to focus my spoken remarks today on the Islamic States oil trade which as dr. Crane is a principal source of revenue for the terrorist organization and one that must be shut down. Im going to keep my spoken remarks brief but 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 others, those probably amount to slightly more than the oil revenue. To give one example of the scale of what is in the other category of isil revenue, treasury assistant secretary Daniel Glazer estimated earlier this year based on intelligence of the u. S. Government had received that isil has managed to loot between 500 million and 1 billion in cash out of bank vaults that they have opened in isil territory. Clearly, you add that, the taxes, the extortion that they are able to get, all told, a very significant source of revenue. Clearly, the oil revenues are also critically important to isil. Like dr. Crane, i estimate that the Islamic State earns about 500 million per year from the oil trade. Mostly through the sale of crude oil in syria. Most, if not all, of the Islamic States Oil Production occurs at small wells in syria. There may be a small amount of Oil Production in iraq. But the vast majority occurs in syria. The oil is sold by isil at the well head for perhaps between 15 and 40 per barrel. Its sold to independent distributors who then onward sell it to the small refiners that dr. Crane talked about or move it on elsewhere in isil territory. According to most estimates, isil is earning between 1 and 1. 5 million per day in oil revenue. I should say those estimates are up to about three, four weeks ago when the u. S. Military began its escalated campaign against oil targets. Until about three or four weeks ago, those estimates had been remarkably stable for about a year. If you look back a year ago, the estimates were a million or slightly more per day. If you look three or four weeks ago, you are looking at broadly stable oil revenues in isil territory. As dr. Crane said, this is not high tech business. These are very rudimentary techniques to extract the oil. And the refiners and distributors are using to refine and distribute it. I assess most of the oil produced in isis territory is consumed in isis territory. There are more than 5 Million People living in that territory. Theres certainly ample local demand to consume virtually all of that production. That said, theres clearly some smuggling that is occurring. Sales to the assad regime are actually probably more natural gas than crude oil. Theres also ample evidence of smuggling into turkey, into the kurdish autonomous regions of iraq and potentially into jordan as well. A says most of that oil smuggled out is also consumed locally in those countries and is not entering in any meaningful way Global Oil Markets. So what can the u. S. Government and our Coalition Partners do to further attack this oil revenue . I think that the single most important step that the u. S. Government can take is to continue to escalate the military targeting of isil Oil Installations and the distribution network. The fact is the oil is being sold in isis territory. Its being sold for cash. Theres not a lot of leverage the International Sanctions can have on those operations that take place within their own territory. And taking out the infrastructure is probably most important step we can take. That said, there is, as i mentioned, obviously some smuggling that is occurring into adjacent countries. And i think the adjacent countries such as turkey need to step up their efforts to crack down on oil. They are turning back trucks where they can. The smuggling is continuing. I think those countries should increase their efforts by moving towards a posture of seizing and destroying both the trucks that are exiting and the oil that is exiting to create a deterrent rather than the Current Situation where the trucks will maybe be turned back at the border, they will wait a day or two and try again to be smuggles across. Third, i think that we need to escalate our efforts to target isis ability using sanctions to import replacement Oil Equipment as isis suffers more bombing of its Oil Equipment, it will look to procure replacement parts. The region is awash in replacement part. There are sanctions efforts that we can take to prevent the parts from flowing into isis territory. In closing, i would just note that while i have focused my remarks today on isis and the oil trade, there are clearly as both the chairwoman and the Ranking Member mentioned other linkages between terrorism and Global Oil Markets that need to be considered as we look at the Global Oil Security posture. And i would like to thank you very much for inviting me here to speak. Thank you, mr. Harrell. Dr. Vakhshouri. Thank you chairman murkowski, Ranking Member cantwell. I would like to thank you for the opportunity to be here before your committee and discuss the important issue you posed. Im looking forward to discuss this issue. Im going to focus in my remarks today on irans oil policy and return to the global oil market. I also should mention that this testimony and my remarks are my own views and not the atlantic council. Iran and western powers after a decade of dispute over tehrans Nuclear Program reached a final agreement in july 14, 2015. Iran being under different sanctions, its getting ready to reintegrate into the energy market. In 2012, the eu put a ban on import of Iranian Crude Oil. Also sanctions on ensuring the tankers that were carrying iran and crude oil. They were coupled with u. S. Sanctions on irans oil revenue and export and all of this caused irans oil export to cut by half. Irans oil export in 2011 was about 2. 5 million per barrel and it dropped to 1. 5 Million Barrels per day in 2012. Also their Production Cut by 17 in compared to prior 2011. The overall sanctions that were imposed on iran since 2012, the investment of upstream oil and gas in iran were hurt. However, still iran despite all the sanctions were successful to increase natural Gas Production and in 2014 for the first time the balance of natural gas trade was positive. After the nuclear deal, iran is going to come back to the market with totally different approach. Iran have witnessed despite all of its oil and gas resources, witnessed many ups and downs with its relation to International Oil companies and countries. So every time in response to the challenges it was facing, it came out with more with the policy of being more resilient. This is going to be the case this time, too. Irans Supreme Leader in 2014 announced the idea of economy resistance. It was in the response to 2012 sanctions that reduce irans oil export and oil revenue. The most goal and aim of the economy resistance would be to create more value added domestically but Processing Crude Oil and natural gas domestically and export the product instead of the raw material. Therefore, we are not going to see a huge amount of export from iranian both on gas and oil side coming to the market after the nuclear deal also in longterm in the next decade. Irans most focus would be on refinery capacity, downstream and also in chemical sites. These are the important measures that iran is going to take in order to reduce its dependency these are the important measures irans going to take in order to reduce depend sy on crude oil revenue. The current status of irans oil and gas fields indicate that iran is producing 2. 9 Million Barrels per day of crude ail today. And its ngl liquid and kond can sags product is about 700,000 Barrels Per Day. Irans plan is to the plans after the deal, its production is going to gradually rebound. We are expecting by mid next year in 2016, irans crude Oil Production to reach about 500 more than what it is today. They are going to have additional 200,000 barrels of crude oil. Iran oil minister is expect to announce iran is going to increase its export about 500,000 Barrels Per Day a day after the sanctions are remove and 500,000 Barrels Per Day in the next six months. But as i mentioned, in the longterm, irans going to increase mostly its natural gas. The focus is on natural gas, because its going to produce more and its more value than crude oil and use it in the factory and can convert into electricity for domestic use and international and for export. So what would be important is that if iran comes out of the isolation, its not going to be dependent on the Oil Export Revenue as much as it was before. Energy information forecast indicates irans revenue was about 92 billion per year. But this number dropped to 65 billion after that. Also, one thing that is important is the very low cost of production in iran and reform of the upstream investment regulation that could create incentives and opportunities for investors to invest in iran considering a very low oil prices. Also, iran have access by land to neighboring countries and could be potentially a transit point for the Energy Production and especially the oil and Gas Production in the north of caspian. My other fellow panelists mentioned in detail about the middle east oil being threatened 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 to expand its electricity export to these countries, neighbors countries like iraq or afghanistan or pakistan so the countries, even neighbors countries, even turkey. Export of 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. Im looking forward to the questions. Thank you, doctor. Mr. Webster, welcome. Thank you very much. Chairman murkowski, Ranking Member, cantwell, members of the committee, i appreciate the opportunity to testify before you today on Global Oil Markets and the potential and actual impacts of 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 where i lead the companys Global Oil Markets team. Ihs is a research consult. The current era of Oil Abundance and low oil prices does not eliminate the issues with geopolitical and terror risk. Though they may seem to have faded from a global oil standpoint at this point. With the rise of isis via the gaining of significant syrian and iraqi territory in 2014, and an increase in terrorism globally, this risk is going to be growing over the next several years. The likelihood of the what is called the risk premium or fear premium in oil prices is likely to return. So this temporary measure where we have dont have that is as a result of Lower Oil Prices due to the United States bringing on increased production as well as opec deciding not to change its policy both at the thanksgiving, november 27th meeting last year, and most recently last friday where they decided not to have any sort of production level at all. Instead, opec is increasing its production by 1. 5 Million Barrels a day since last fall with significant increases from saudi arabia and iraq. These have helped to push down prices even further. But are coming at a cost. That cost is lower opec Spare Capacity or the amount of additional production that a country could bring on should it choose to do so. This part summer, the increased production out of opec caused the Spare Capacity to reach levels as low as 2. 6 . The historic rule of thumb for opec Spare Capacity is generally 4 . The reason why we have been able to go so low at this point without price spikes is because we are in a very oversupplied market. This is partly due to the United States. This calculus, however, may shift as soon as the middle of next year. When the daily oversupply that is that amount of the 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 opecs Spare Capacity effectively vanishes and moves back down on a seasonal basis. This thin Spare Capacity level means that in 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 part by u. S. Productive capacities will take time for the market to calibrate and clear signals in terms of a policy standpoint would be greatly appreciated by the market at this particular time. The flexibility of u. S. Production growth really comes from a timing issue on both the up and down side. That is, that they can increase production quite quickly because the amount of time that is needed to bring production on is only about four months versus conventional production which where it can take several years to bring that production on. This means it can have a greater affect in terms of bringing production back online. These production outages that have plagued the oil market for the last several years are likely to increase in the future. Right now, since 2012, we have had an increase in terrorist attacks per ihs of about 25 with increases in attacks on Energy Infrastructure by about 5 . This means that over the next couple of years, geopolitical risk is going to come back into the market. In order to address these or now that this shift from the opec towards the United States comes with it a huge opportunity for the United States to help shore up not Just National Energy Security but Global Energy security. The two ways that i would say that it would be most helpful is, one, by allowing u. S. Crude oil exports and allowing u. S. Oil exports gives u. S. Producers the opportunity, should it make sense, to export oil in order to both 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 stock policy on a commercial side and on a strategic stockpile side. By having significant stocks within the United States that are in areas that we know that are safe, we can actually increase overall Energy Security. With that, i appreciate chairman murkowski, your leadership, and Ranking Member cantwell, your leadership as well on this. And would appreciate and happy to take any questions. Thank you, mr. Webster. A lot of issues raised here this morning. It seems to me that we could have two separate hearings, the points that you have hit on in your testimony, mr. Webster, talking about the Energy Security National Security implications of all that is happening within these oil markets is certainly one aspect of it. But then kind of following off senator cantwells 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. Mr. Harrell, i want to begin with you, because you have kind of helped break it down in terms of how we see the financing. Oil is a very significant piece, as we have mentioned, maybe about 40 . But 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 he is could late military targets. But you also indicated that you dont feel International Sanctions can 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 in terms of other areas where you think that sanctions are helpful or they are really not helping giving this situation on the ground in the Islamic State. Thank you very much, senator murkowski, for that question, giving me the chance to elaborate. I did not mean to imply that sanctions are not useful. I think sanctions are absolutely useful in this context. But i think that given the majority of the revenue that isis generates from oil sales is generated internally. Sanctions are going to have to play a supporting role. An Important Role but 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. 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 isiscontrolled territory into adjacent countries. And clearly, both the u. S. Government and our partners should be taking every step they can both to seal the borders and destroy the oil coming out and should be working to impose financial sanctions on the buyers of that oil whether in the kurdish autonomous part of iraq, in turkey, in jordan or elsewhere. Another area that i think sanctions could be useful is to go after isis procurement networks. Particularly for spare parts related to Oil Infrastructure. As the military intent increases, isis is going to be seeking to increase its procurement of replacement parts. Now, as i discussed and as dr. Crane discussed, a lot of this is fairly low tech kinds of equipment they need. And the middle east, syria, iraq, turkey are awash in Oil Equipment. So this is not going to be an easy task. But clearly sanctions should be imposed on anyone looking at selling oilrelated parts into isiscontrolled territory to keep those out of isis. Final area that i think sanctions could be useful is in ensuring that isis needs to be cut off from the International Oil system. They are piling up increasing piles of cash in their own territory, cache houses and elsewhere. It is a cash based revenue there. As they try to support affiliates and allies outside their core territory, they are clearly going to be looking to move some of that money out of the territory into the International Financial system. Im going to interrupt and ask with the remaining seconds of my time a question about libya. Because we talk a lot about whats going on in syria, iraq, iran. And libya, as we all remember, was a very difficult place and is still very a very difficult place with the level of violence and civil unrest. Mr. Webster, in terms of what how libya represents a potential source of revenue for isis, how does that factor into the discussion today . Thank you for your question, chairman murkowski. It is important to realize that libyan production before the civil war was 1. 6 Million Barrels a day. It dwarves the areas that isis is controlling now. Right now because of ava right of issues within the country, it is about 300 to 400 Million Barrels a day. Libyan production, as you said in your opening remarks, a shortage of was one of the drivers for driving up prices in 2008. My understanding is isis has a foot hold in sirt and is seeking to control some of the terminals and accessways for oil. So it is a big concern in the a amount of oil and what isis could potentially do. That could then be pushed into and allow them to create Additional Energy attacks in algeria, egypt and other places from within libya. Thank you. Senator cantwell. Thank you, madam chair. In speaking of vulnerabilities. I have two questions. One to you, mr. Webster, which is about the transportation, infrastructure. There are other things like 19 of all oil travels through there. That, i would assume, would represent an opportunity for someone and a concern. How important is it when you look at the transportation infrastructure overall vulnerabilities that we need to harden that we keep the Petroleum Reserve modernized . And a more specific regional question, i think mentioning that the Refining Capacity in in the isis region had been taken out. Which is the hardest to rebuild. You can bomb them, but it is not difficult to still continue to get the oil. This point about following the money and what impact could it have to get the assad regime off an oil from an economic perspective. Thank you, Ranking Member cantwell. The importance of transport and being a able to get oil and Refined Products to people is obviously very critical. That is critical for the Strategic Petroleum reserve. We have just under 700 Million Barrels residing there currently. While it would appear right now there is really no use for it at all, we have plenty of supply here in the United States, it is important to hold on to that and access that. Because of ava right of changes in terms of logistic is in the region and the types of crude we are importing and making within the United States, that ability to tap that both in terms of its volume and timing is incredibly important, even though it appears there is not much use for it. Okay. But in general, making sure that were protecting these if you were looking a at terrorism overall, protecting these transportation sectors of the major supply is something we should be concerned about . I absolutely agree, yes. Mr. H a arrell . Thank you very much, senator. Absolutely agree. I think if you look at the external buyers of isis oil, the assad regime and yet natural gas, assad regime is front and center of that. As you said in your opening remarks, it would be incredibly useful for russia to use the leverage it has over the assad regime to try to get them to cut out buying oil and gas from their own enemy, isis. That is indeed the largest external purchaser of isis produced hydrocarbons. And then about the impact of bombing the wells themselves . How is it for them to recover . They had these modular systems. What are we doing here . And why is this important to focus on the money aspect . Thank you very much. So as you noted last year when the military began bombing these modular refineries in syria, isis basically adapted. They moved or really the person refining the oil to what dr. Crane referred to as the tea kettle refineries where it is poeuld in open pot and refine indeed a crude way. From a military perspective, those are easy to repair and the well heads. Keeping up the pressure on those targets. So they know that if its going to take a week or two to repair it, it will be hit again right away, rather than a couple of months of production out of 245 before it is hit again. Keeping up the operational tempo of the military targets is important, as are the steps that the military has begun to take on the distribution network, trucks and things like that. To your point, very much need to focus on what happens with the money after isis earns it from the oil revenue. From a military front, there are things that can be done in terms of targeting cash houses, raids on high value targets. The military will say the a attack, the raid on abu sigh 6th, an isis financial manager earlier in the year, was a very important step. I think things like that can happen. And Money Exchange houses. We need to be adaptive to move fast as well . Absolutely. Thank you. Thank you, madam chair. Thank you, chair murkowski for having this hearing on this very, very important issue. Our National Security, protecting our families from terrible acts of reufpl i can tell you is on the minds of montanans around the day as i travel around the state. It is telling us how important American Energy independence and security is to our safety, to our prosperity, as well as the entire worlds. So, count me in and i think many here believe we should remove the ban of u. S. Oil exports and move forward and continue the u. S. In leadership and Oil Production. The irony to think that the president just moved forward with removing the ban on iranian oil exports. We are still the only nation with a ban. It is good for the american people. It is good for our economy. It is good for the world. The testimony you heard today, one of their leading sources of revenue is certainly from Oil Production. It seems pretty clear theres two parts of our strategy. One to be to increase u. S. Oil production, which hopefully will be working to address that through removing the oil export ban. The second is destroying isis Oil Production and revenues on that twopronged attack. In the last couple months we have seen the second largest terror attack in europe since 9 11. We have seen the largest, most lethal a attack on our soil since 9 11. Interestingly enough, it seems suddenly the tempo on attacks of oil isis have been increased. Cia director morrell said on charlie rose a couple weeks ago one of the reasons the u. S. Was to launch attacks, however, murrell said on charlie rose not doing this is because of Environmental Concerns coming from the administration. Do you think that made sense . Thank you, senator, for the question. Clearly the administration has had a number of concerns the last year as it has thought about the operational tempo of attacks, including the need to gather intelligence and the need to gather knowledge about what collateral costs might be. Whether to civilians or future syrian production. Certainly in my view, the attacks from isis that we and allies have faced in the last month, while it is important to consider collateral costs, the near term benefit of taking out revenues needs to weigh heavily on that scale. So i think it is important that we assess the costs we maintain a robust operational tempo and focus on taking oil. Obl minimizing those costs. Theres been the words by the administration, trying to contain isis, destroying isis an back to your testimony, saying that theyre, theyre leading sources of revenue is from oil if we cut off their revenues, that would be a very, very important part of destroying their capabilities to launch their terror attacks around the world. I think it is clear isis is not a threat we should contain. Its a threat we need to destroy. Thank you. Mr. Webster, weve heard these comments perhaps the limited attacks. In iraq and syria have been related to environmental any insights there . Senator, it is a little outside my expertise. Im just a Global Oil Markets guy. It seems when youre looking at this in terms of the costas it were in terms of Collateral Damage against what isis brings in increased risks to the Global Supply system over the next several years, so anything that can be done to roll that back and put into a better posture would be positive for the oil market. We dont want politicians running this war. We want the u. S. Military. Lets destroy isis. A question for you, how do you think removing the ban on crude oil exports will help reduce the worlds risk to terrorism . So by removing the export ban on the u. S. , what it does is it allows the u. S. Producers to ensure that they dont get such a big discount compared to global prices. So that maximizes their price, or as i would call it essentially removes what has been in the past i termed a policy discount. Now, this particular time, because of high refining runs in the United States, and because of the low price and because we have lower production, you probably actually wouldnt say see a lot of barrels leave if you had them today. However, it is important still to change this policy. By changing this policy it actually supports u. S. Production growth in the future rather than doing it when it suddenly becomes an emergency. Its an important policy for us because it allows us to increase u. S. Production. By increasing u. S. Production, u. S. Production is a much safer place for production to come from rather than other countries, so that increases overall Energy Security not just in the United States, but actually on a global basis. It must be remembered that oil markets is a global market. Thank you. Thank you, senator. I want to thank senator danes for his questions. They get to the heart of a number of these issues. I would certainly encourage him to rather than listening to the former director of the cia on charlie rose to talk to our current director of the cia and also the folks at dod who have been doing this targeting. The intel has changed. The abu sayyef raid was a major coup and made our efforts much more successful. But one of the things in talking to dod folks is how you make this targeting more successful while mitigating the fodder for isis to run this highly effective inspirational social media campaign, which has been an enormous problem for us. Obviously what happened in california was not directed. It was inspired. We need to keep that in mind. Mr. Harrell, you said in the past that the targeting has had limited impact on combatting isiss ability to generate funds and that their oil revenues are largely unchanged. Has the recent shift in terms of the oil tanker trucks, has that moved the needle substantially in your opinion and to what proportion in terms of their overall revenues . Thank you very much, senator, for the question. I should begin by saying facts on the ground on a short turnaround time frame are hard to gather from that part of the world. It certainly does appear, though, with that caveat, that the military campaign, the escalated military campaign, is having an impact. It is clear that it is serving as a obviously taking trucks out has an immediate impact. It is also serving as a deterrent to people who previously thought they could make some quick bucks loading oil and selling it, maybe thinking they need a new line of work. So i do think its clear that the impact on the trucks the attacks on the trucks are having an impact. I think the larger scale strikes, these are larger pieces of infrastructure is definitely having an impact. So i think what we are seeing is a useful and very welcome operational tempo that i hope is maintained going forward. I would agree with that estimate. Do you have opinions on whether it makes sense, in addition to targeting this sort of Large Industrial scale infrastructure like the separation plants, does it make sense to try and target these very small sort of teapot Refinery Operations . I think that is an excellent question. I think i would note two cautions about whether it makes sense to attack the teapot refineries. First is, by all assessments they are not actually directly run by isis. They are run by entrepreneurs who have the unfortunate reality of living under isis control. I dont ni ni way want to defend what theyre doing refining the oil, but they are not isis employees, so to speak. They are simple things and easily repaired. I think if there was a way to do it minimizing civilian casualties, maybe. But i think hitting those two criteria in practice is going to be somewhat challenging. I think that is exactly the challenge that our people at dod find themselves wrestling with each and every day. Dr. Crane, i want to ask you something related to this, although it doesnt directly touch on the Oil Financing piece. I want to understand how substantial is the Economic Impact of the Iraqi Government continuing to pay the salaries of iraqi employees who live in isiscontrolled territory. How big a problem is that . Obviously those salaries get taxed by isil as well. And much of that money is sort of propping up the economy in that contested area. Excellent question. Fortunately, the Iraqi Government has stopped paying that mosul. Some of the anbar communities continue to be paid. I couldnt think of a better policy decision. And i think the first decision on stopping payment july and mosul was probably the single biggest impact on isil finances that has taken place so far. So diplomatically we should be pursuing a complete cessation of financing those salaries throughout not only in mosul but in anbar and any isil held territory in iraq . Hopefully ramadi and fallujah will soon not be under isil control. I couldnt agree more. Thank you. Senator cassady . Thank you all. Its very stimulating. First, i would like to submit for the record an editorial we just published yesterday in regards to the nexus between u. S. Oil and actually reducing global co2 equivalent emissions and reducing funding for terrorism. We will include that as part of the record. They net three times the co2 as u. S. Gulf of mexico equivalents. If they bring up we put 2 million. If iran brings up 2 Million Barrels a day, they will emit 100,000 more metric tons per day than the u. S. Does from gulf of mexico. If one of the concerns from our colleagues on the other side is co2, emissions, it actually lowers global co2 emissions by exporting u. S. Oil. And let me credit my colleagues in the back, ms. Gorman and mr. Fra frampton in their help in researching this editorial. That said, mr. Crane, in your testimony you speak one thing we could do to help shut down is that although a isis is awash in cash, they do do business with Large Enterprises at some point may attempt to move it into banks if they have not already done so is. And you say they could increase costs. Why havent we already . Im thinking we should have done this a year ago. Has it been a pathway not pursued . My understanding is that they dont use banks much. The question is there is a number, as you know, heavy trucks, class a vehicles cost over 100,000 a year. Some of them are operated by fleet operators. Some are operating the vehicles. A lot of them are owneroperators. A lot of the trucks are owneroperators that are sanctioned. You mentioned specifically some charge companies that they must deal with. Right. Im sensing you have a sense which Large Companies those are. Have we gone after those Large Companies . There are some in the kri and Kurdish Regional government area that have been accused of doing this. I do not know if we have actual intelligence. Got you. Mr. Webster, you emphasize that u. S. Shale production has contributed not only to u. S. , but also global National Security. It would do more so if we allow oil experts. Im struck that we just assume fracking industry can rise and fall effortlessly. But from the field im hearing because prices have remained low so long, the production is being idled and the workers dispersed. We cant ramp up in a week but rather reassemble in a period of time. And the longer we go the longer it takes to do so. Is that a correct assessment . Thank you, senator, for that question. Actually, that is correct. The longer that the fields that you kind of move out and lay off the crews, the longer it takes to reassemble them both in terms of the kits required, but also in terms of the personnel. So while you can bring production back up when there are market signals, the longer they are not, you know, kind of at the high level of investment, the longer it does take. The more we dillydally, the more the risk thereby hurting national and global security. The more the price e÷is low d the more youre not moving. The Carnegie Institute for International Peace does point out that iranian Oil Production emits three times the co2 as u. S. Oil production. But you mentioned they would like to move to refinery capacity. Have the iranians ever shown in the refinery business, any particular concern for co2 emissions . Well, of course, senator, first, thanks for your question. I cant compare the efficiency and the facilities and emissions in iran and the United States, but, yes, they are going to be producing more emission than those in the United States. But i would like to mention something. And thats about irans export or irans crude oil. Thats a different type in iran. Just different markets and different refineries that are im sorry. Im out of time. And i have one more statement to make. Can i ask you to hold that and submit that answer for the record . I apologize. Sure. Just one more important, it would be for the refinery. It would not be as emitive . Yes. Let me finish by saying this. We heard from secretary ms. Yellen the other day that a decrease in u. S. Oil production is now a drag on the economy. We hear from the Aspen Institute if we allow oil, we create 630,000 jobs per year and increase gdp 141 billion. We hear from mr. Webster by exporting oil we will increase national and global security. But if we dont tend to it we will lose that opportunity. Both on an economic and National Security and i might add environmental basis theres such a strong case for allowing u. S. Exporting of oil. I cannot imagine why the administration does not. Well said, senator cassady. Thank you, madam chair. I was curious as to what happens we understand isil derives a lot of its revenues from taxation. And dr. Crane, you mentioned, iraq stopping its payments to persons who live in isilcontrolled territory was a really good thing, but what happens to those people . What income do they rely upon live their lives . Is there any concern that stopping what amounts to massive amounts of payments, what happens to these people and where they might turn . Very good question. And that is why the Iraqi Government has been so hesitant to turn off those payments. What were seeing, though, is that people leave isilcontrolled territory. Yazid yazidis, iraqi christians, iraqi sunnis have been attacked by isil. So isil is trying to keep people there. But what is happening is we are seeing people leave once they if youre an iraqi teacher, civil servant, or doctor and you leave mosul and go to baghdad or Kurdish Regionalcontrolled territory, your salary will be restored. It is not clear how much they got to keep. Isil is not a charitable institution. So it just leads to further instability in other areas. You talked about targeting cash houses, exchange houses, going after some of the Financial Institutions that support isil. And so this position is vacant, and this is a person who leads the effort of our country to Counter Terrorist financing, so how important is it for us to fill this position at this point . Thank you very much, senator, for that question. I worked closely with the administrations nominee for that position, adam zubin when i was working at the state department. He is certainly an incredibly effective individual at combatting the financing of terrorism. And i think it would be very valuable for the Treasury Department to have him confirmed. He is obviously working diligently every day. But as you know, senator, theres a difference between working in an acting capacity over there and actually being confirmed and in full authority. And so i certainly thing when youre looking 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 disagree we should go ahead with this confirmation at this point . Nobody disagrees . Thank you. Another question for you, mr. Harrell. You noted in your testimony that there is a flow of oilrelated equipment that supports isils revenue stream from oil and we should target this flow of oilrelated equipment, so do you have any thoughts on how the u. S. Could best do that . For example, do we know who is supplying all these oilrelated equipment and what we can do to stop them from continuing to sell this equipment to isil . Thank you, senator. I think the answer to the second question is the information is obviously imperfect. And gathering Additional Information so that the Treasury Department can sanction the supply networks is valuable. I also think short of sanctions there are a couple of steps that can be taken. For example, reaching out to businesses, both the governments in the region and also the traders in the region, to make them aware of this problem and the potential sanctions, consequences if they do sell equipment to isil. The region is awash in it. Some people will sell deliberately. Some will sell to any buyer that comes across their door. And making sure the businessmen who are selling this stuff are taking steps. It will be helpful, yes. I think it would be valuable instead of having sanctions focused on sales to isis, which can be hard to show, sales across the board rder into isiscontrolled territory would be an enforcement issue. I am running out of time. But where would these what countries are the most likely suppliers of this type of equipment that the u. S. Could engage in and have discussions with them to cease these items . Iran and turkey. I would recommend engagement there. Thank you. Senator gardener. Thank you, chairman murkowski for this hearing today. For the witnesses, thank you for your time today. The first question i would direct to mr. Webster, earlier this week we heard testimony from the department of state. Talking about the impact of the sanctions we had in place against iran. They had cost 150 billion because of lost oil revenues. How long will it take for iran to recoup money once sanctions are lifted . I look at volume generally and not dollars. Would you take a crack at that . The volume of their export have developed severely on their numbers. At this current moment, they dont have access to their funds outside of iran, but on the numbers, i cannot give a statement. But on the portions, their export and revenue dropped significantly even in their budget because prior to 2011, irans oil export income was 80 of its export revenue and 60 of its government revenue. Even the share of the budget, oil revenue in their budget, drops from 70 to 33 . It will be recouped by additional sales once the sanctions are lifted, correct . Theyll be making money . They make money, of course. Will some of that money be used for funding of terrorism . Senator, im not an expert in terrorism, but i look into the industry. I think after 2012 sanctions the influence of the groups the u. S. Consider in support of terrorism increase because they have better access to the networks. Mr. Harrell, dr. Crane, i would like to add that. Increased sales from iranian oil allowed once the sanctions are lifted, that money will go toward statesponsored terrorism, correct . At least some of that money. Some of the money will go to the syrian regime. Which is killing its own people . Right. The bigger issue i cant imagine at Current Oil Prices theyll recoup 100 billion any time in the next two decades. But if they are at the making money, some will go to statesponsored terrorism. Would you like to comment on that . Thank you, senator. I know low oil prices have been hard. But it has deprived revenues to iran, russia that depend on oil revenues let me stop you right there. Exporting for the u. S. To change its export policy that would actually improve u. S. National security . I would have to defer to the other experts on the domestic implications of that. I think you said depriving iran the revenue has helped our National Security. Yes. Displacing under exports would also help our National Security, right . Clearly low oil prices help our National Security. There are strong National Security arguments for allowing u. S. Exports as part of a balance package. It addresses a variety of environmental issues. Im not the expert on the domestic side of this. Let me jump to you. Does allowing export improve our National Security . Absolutely, senator. Thank you. Leaders have been talking about u. S. Exports. However, they have said in various countries, we have heard the teams traveling from japan, for instance, to iran to talk about Additional Energy opportunities there. Do you anticipate some of our closest allies entering into export agreements with iran . Thank you, senator, for that question. I know that iran right now is trying to get its terms together so that it can entice some of these companies to come back. It might take a bit of time to do that. But i do think iran does represent a lot of opportunities for these companies and countries outside the United States. And i have no question that there will be absolute interest by those. Thank you, i want to ask one final question. Several of us have requested the president increase the deployment and embedding of joint terminal attack controllers, jtacs, to help find and identify targets on the ground. Would that be useful in targeting Oil Production, oil development, Oil Transportation in syria by isis . I would love to hear anybodys response who is willing to answer the question. Dr. Crane, we will start with you. This is kind of personal. I was in iraq for three months in 2003. Five people i knew were killed. My daughter works with the navy s. E. A. L. S. Every time we deploy u. S. Troops i recognize theres cost with that as well. It would probably improve targeting. Mr. Harrell. I would just echo dr. Cranes comment. Gathering more intelligence helps improve targeting. Anybody else care to answer . Thank you. My time has expired. I find your testimony fascinating. Read every word of it. In the testimony you state we have to acknowledge that u. S. And Coalition Efforts to date have at most limited success in reducing oil revenues. You went on to explain the current estimates of a Million Dollars to a million and a half dollars a day are largely unchanged estima unchanged from an estimated million today that the undersecretary estimated from the trade a year ago, november 2014. Finally you say one of the lessons of the last year is that limited strikes on isil Oil Infrastructure are not strategically effective. Are you certain the Obama Administration between 2009 and 2014, you worked on president obamas 2008 campaign. So can you give us any insight as to why the president has decided not to change his strategy against isis in light of these and other failures . Thank you, senator for the question. I do actually think the significantly increased operational tempo and range of targets that weve seen dod begin striking over the last three or four weeks is a very important step. Appears to be having an impact, although the results are early and it is hard to gather information from the ground, but i think that that is a very important step. And i certainly hope we see continued escalation of the targeting of this Oil Infrastructure. For the first year or so we dont have what we have seen the last three or four weeks. You actually commended the recent air strikes in your testimony on the oil tanker trucks that produce oil in the isiscontrolled territory. Larger pieces of isis Oil Infrastructure are more difficult to repair or place. You went on about how easy it was to repair some of the things we were shooting at before. You state more needs to be done. You explain strikes on oil in infrastructure need to be comprehensive. And there should be no part of isil Oil Enterprise where people feel safe to work. As a former official in the Obama Administration, do you believe the administration is prepared to take those additional steps that you have outlined . I certainly think what all of us have seen over the last month is a welcomed increase in operational tempo. I wouldnt say obviously it does take time to develop targeting packages. I think the raid on the isis oil minister essentially in may provided a variety of Important Information thats been useful for targeting. It no doubt took time to decode, translate all that information and use it. Certainly where we are today is a welcomed tempo, and i hope it continues. I did want to ask along those lines you mentioned government officials have concerns about avoiding permanent damage to syrian Oil Infrastructure given that oil will be a key piece of rebuilding a postconflict syria. I wonder to what extent officials in the Obama Administration continued to have these concerns. Senator, thank you very much. I obviously cant speak to the current thinking of the Obama Administration. I do think while there are legitimate concerns, you always want to weigh collateral costs. In my view, it is the weight of destroying the infrastructure needs to weigh very heavily on the scales. So you would agree it is more important to first defeat isis and then worry about the details of rebuilding syria . I think clearly isis is the most serious terrorist threat we face today, and we need to take all practical steps to defeat them. You also talk a bit about beyond oil the natural gas business in syria, explaining over the last year isis captured important syrian natural gas fields. Multiple sources indicate that isis sells natural gas to the assad regime, largely to fuel electricity production. Finally you say you have heard from u. S. Government sources that the natural gas trade between isis and the assad regime is at this point is significantly larger than the oil trade between them. Do you know how much isis earns from producing and selling their natural gas . I unfortunately dont have a good estimate or breakdown for that specific number. The information i think i and probably other experts have gotten on that front has been n anecdotal. Dr. Crane, would you like to weigh in . It is a complicated question what has happened is they shipped the natural gas to a generator. Isil is paid in the form of electricity. Dollar amount is not useful. It does help isil to have access to electric power. My final question, mr. Harrell, as well as dr. Crane, if he wants to jump in, do you believe it is easier or more difficult to cut off this in terms of natural gas versus oil . Any thoughts . Obviously the revenue is different. Natural gas is the generating plant it goes to. It would be hard to target the pipeline because it is hard to hit. Whether the United States government would want to target an electric power plant in syria is above my pay grade, but its a pretty serious question. It has a lot of implications for the horrible situation in syria. As we mentioned on the oil side, we will decrease revenues but its not going to go away. You can haul it in pickup trucks, things like that. Its helpful, but it doesnt make it disappear. Thank you, mr. Chairman. And thank you all. This has been a very interesting discussion. I want to pivot a little bit to saudi arabia. Saudi arabia has continued to ramp up their production even as the price of oil has gone down. I think they are experiencing a bit of a fiscal crisis over there, lack of revenues. I have a report here. I think the data is from the imf. In order for saudi arabia to balance their budget in 2015, the price of oil would have to 106 and its obviously much, much less than that. Of course they have a lot of reserves. And they are im sure drawing on them as we speak. I would like to ask in light of that and if we do support an oil glut, do you anticipate this will bring about in a country such as saudi arabia an instability that could make those countries even more vulnerable to isis or somebody or a terrorist group to be able to come in and i dont to say take over, but become a part of that. Is that a fear or is that something dr. Crane, do you have an opinion on that . Yeah. Saudi arabia has substantial reserves, as you know. They can run a deficit for a long period of time. I think more importantly when i work both in iraq and qatar as well, there is a tremendous amount of waste in government expenditur expenditures, low electricity, very low prices for gasoline or whatever. When the iraqis finally did raise prices up from a nickel a gallon up to something sensible, there wasnt a peep from the population. So i think what we have seen in regimes that are autocratic like saudi arabia, that when governments make these cuts in very wasteful subsidies, theres a lot of wasteful investment. Saudi arabia, theyve been able to weather the storm. And should be able to for quite sometime. Mr. Webster, weve talked a lot about who is using the revenues, how they are used. Can we boil it down simplistically to say this percent of the oil thats cap t captured by isis is used internally . Is it 50 . 70 . What percent is sold certainly . Thank you for your question. Im not sure i can answer. Our assessment is close to a couple of my colleagues here. It is about 45 come from oil. But in terms of its distribution, rather, if its within isis territory or put out elsewhere, im not aware. Does anyone have an opinion . Is what im trying to get at, if 50 of the oil revenues, we have talked about how to stem the tide here. A lot of it is the financial sanctions. You say they dont go through the banks. They are not using a formalized Financial System. If they are selling this to countries theres some way to track follow the old movie line, follow the money. I guess thats the question im trying to get to. Where do we look for this money where we can find a formalized Financial System that we can impose as a Global Community i would think financial sanctions. Unfortunately, the single largest set of buyers for the oil has been these small teapot refineries. Once it goes to gasoline and diesel, it goes everywhere and its gone all over the place. The largest single sales has been to the syrian government, 20,000odd barrels a day. We dont have a lot of influence with the government. But thats the sad truth. I do think, however, targeting, you know, classa vehicles, trucks, are expensive. Targeting those two, three, four times before they engage in hauling this stuff around, it doesnt move by itself. All right. Thank you. Thank you, madame chairman. Thank you and the Ranking Member for holding this hearing. Lifting the export ban is important for our country and will help with National Security through Energy Security by helping to grow our oil and gas industry and energy in this country. We create stronger economy, more jobs, but produce more energy here at home and are able to supply our allies with oil and gas as well. So i just id each of you to react if you agree with that generally. And if not, why not . So ill start with dr. Crane. Yeah. As an economist putting structures on markets is efficiency cost. Mr. Harrell . Thank you very much. I think from a National Security perspective, theres strong arguments for allowing u. S. Oil exports. I cant speak to the domestic side of that equation. I think its important for the Global Energy security, particularly considering that the investment in opec oil is reducing and the share of oil export is going to increase from 50 today to 75 in the next decade. So it is important to have especially middle east tackling all of these terrorist attacks and threats. It is important to have alternative resources, especially from the u. S. Mr. Webster . Thanks for your question, senator. As you are probably aware, i just put out a couple of studies on the crude export issue. And our findings is that this is a clear win for the u. S. Economy. And also for Energy Security. Its difficult to find a case where this is not a positive. Thank you. Doctor, when the United States put the restrictions in place, the sanctions in place on iran, at that time i believe iran was exporting 2. 5 Million Barrels a day. After those sanctions had gone into place, i believe their exports declined to just barely over 1 Million Barrels a day. With the president s plan to lift sanctions, can you tell us what you anticipate in terms of exports, growing volume of e potimeline as you see them grow . Thank you very much for your question, senator. Under immediate rebound of Iranian Crude Oil on, depending on the timeline of the sanction roll back, iran can add about 400,000 to 500,000 a day by next year. And 150,000 to 200,000 Barrels Per Day. Irans near term plans is to ramp up its crude oil capacity of pre2012 of 4 Million Barrels a day to 5. 7 Million Barrels per day. Which out of these 5. 7 Million Barrels per day, 1 million would become inside. Really the capacity of irans production by the end of 2020 would be about 4. 7 Million Barrels per day. And they have already done the investment. So they will be able to reach to this Production Capacity by 2020. And 700,000 barrels a day would be new oil from new fields. And the rest would be the metro oil, old fields. So you are saying they already have the capital to make the investment to achieve that. And by 2020 they would export the equivalent of 4 million bierl barrels a day . Produce. And how much of that would they export . So the export, irans main plan is to acquire pre2012 sanctions level of 2. 5. And their opec position, so that would be their main priority. Out of this 5. 7, 1 million of it would be common site. The refinery will increase to 1 Million Barrels per day by 2020. So irans total overall export is not going to increase in a best scenario more than 500 if everything goes well. On the investment side, it is expected that irans total upstream and downstream is 200 billion to 250 billion of invest, but for increasing to reaching its medium Term Crude Oil and natural Gas Production. By 2020, they only need 50 billion investment. Do you estimate them going back to the roughly 2. 5 billion a day export by the 2020 timeline . My anticipation irans oil anticipation is by the end of 2016. But our anticipation is that by it takes some time. So maximum production increased from iran would be about 500,000 barrels of crude oil and 200. It would take another year for iran to build that capacity. Because they have to shut down some of the fields. And to regain that back, that Production Capacity, also considering that irans oil fields are going to take some time. And why do you think saudi arabia is pushing volume so aggressively in terms of Oil Production and export . Why is saudi arabia doing that . Well, i think for different reasons. First and most, is that saudi by reducing their prices, the demand hopefully would raise. And United States demand gasoline market would be also important for saudis. We see that how the Transportation System how we moved from the fossil fuels to other renewable sources of energy. Also, the expansion of u. S. Crude Oil Production and generally opec production. I dont see why saudis, they dont see any reason to give back the Market Access to iran, the market to iran. Saudi and kuwait are substituting Oil Production drop of sanction since 2012 sanctions. And i dont see any reason for saudis politically and also marketwise to lose this Market Access. And something that is important is how opec is functional in the next decade or next few years. Just the way we see iraq is signing the contract and its upstream energy industry. And iranian oil, new Oil Investment regulations, would allow the companies the increase more production. Because the price are so low, they have to increase their production to make their money back. So its going to be very tough to keep that balance between the opec members. Madame chairman, i have one more question. Do you want meet to wait or can i ask . I will defer. Very good, thank you. Thank you, madam chair. Thanks to you all for being here today. Mr. Harrell, i would like to start with you, if thats all right. In your testimony you point out that the u. S. And allies have had some limited success in reducing the oil revenues that isis has been able to get, which remain at about a Million Dollars to 1. 5 per day, as i understand it. Can you tell me why is it that current policies have failed to effect what we regard as isis second largest source of revenue . Thank you very much, senator, for the question. And i should begin by saying i do think that the sort of recently increased tempo of military strikes over the last month or so is having an impact and is an important move in Strategic Direction of how to attack this. The fundamental challenge the u. S. Faces there is because this oil is largely produced in, you know, small kinds of wells and distributed pretty widely and large ely consumed in isis own territory or sold to the assad regime, it is really a military decision, a military set of tools. It is our first and most important. Sanctions can be an important set of tools. It is a military set of tools that has got to be front and center here. And i think that, you know, it probably took the administration some time to decipher the intelligence to figure out where the assets to strike are. About what kinds of assets are available to strike those targets to get to where we are today where there is an increased military tempo. I do hope that the increased military tempo we are seeing will be contained and indeed escalated going forward, because i do think that is front and center the best way to target this source of revenue. Increased military involvement certainly would help when were targeting going after isis targets. What about the policing against isiss black market activities as conducted by neighboring arab states . Do you think that is likely to help also with regard to our efforts to hinder isis Oil Production . I absolutely think that is also very useful step saying that most of the oil is consumed in isis territory or sold to assad doesnt mean all of it. There is clearly some smuggling happening. And i think getting the adjacent states to actually seize and destroy the vehicles that are being used for smuggling, the oil thats being turned back so th actually take this commitment out of commission would be a very important step. And i also think that intelligence gaps are real. I have worked on the government side. I understand how hard it is to get intelligence. But taking sanctions against the guys who are ultimately buying it in turkey, krg, where you can identify where they are is an important step to take. Theres also ample evidence of smuggling into turkey, into the kurdish autonomous regions of iraq and potentially into jordan as well. Most of that oil smuggled out is also consumed locally in those countries and is not entering in any meaningful way Global Oil Markets. So what can the u. S. Government and our Coalition Partners do to further attack this oil revenue . I think that the single most important step that the u. S. Government can take is to continue to escalate the military targeting of isil Oil Installations and the distribution network. The fact is the oil is being sold in isis territory. Its being sold for cash. Theres not a lot of leverage the International Sanctions can have on those operations that take place within their own territory. And taking out the infrastructure is probably most important step we can take. That said, there is, as i mentioned, obviously some smuggling that is occurring into adjacent countries. And i think the adjacent countries such as turkey need to step up their efforts to crack down on oil. They are turning back trucks where they can. The smuggling is continuing. I think those countries should increase their efforts by moving towards a posture of seizing and destroying both the trucks that are exiting and the oil that is exiting to create a deterrent rather than the Current Situation where the trucks will maybe be turned back at the border, they will wait a day or two and try again to be smuggles across. Third, i think that we need to escalate our efforts to target isis ability using sanctions to import replacement Oil Equipment as isis suffers more bombing of its Oil Equipment, it will look to procure replacement parts. The region is awash in replacement part. There are sanctions efforts that we can take to prevent the parts from flowing into isis territory. In closing, i would just note that while i have focused my remarks today on isis and the oil trade, there are clearly as both the chairwoman and the Ranking Member mentioned other linkages between terrorism and Global Oil Markets that need to be considered as we look at the Global Oil Security posture. And i would like to thank you very much for inviting me here to speak. Thank you, mr. Harrell. I have another set of questions but ill defer my time and go back to senator hogan. Thank you, madam chairwoman. I want to finish up with dr. Vakhshouri about how dependent irans economy is on oil. If they couldnt export oil, how much difficulty would that present for them . What percent of their economy is oil and what would the ramifications be on their regime and economy in general if they were not able to export oil . Thank you for your question, senator. As i mentioned earlier, irans dependency on oil decreased significantly in 2012. One issue was because of simply the restrictions on their oil export, and that oil export almost dropped to half. The other one was the very low crude oil prices. Already iran, compared to other producers of opec and among the persian gulf producers, iran has less dependency on oil export. I mentioned that the share of Oil Export Revenue in irans domestic budget dropped from 70 in 2011 to 33 in 2015. What iran is thinking now is just instead of exporting crude oil or natural gas, of course export of natural gas is important for iran because it creates longterm energy ties with recipient countries. But to produce more processed products, like Refined Petroleum products, the Refined Products that comes from their condensate, lighter and middle distillates, and using natural gas in their petrochemical factories, theyre going to increase their petrochemical facilities and Production Capacity almost three times by 2025. And also export of electricity. And it would be of course more generates more income, more jobs for the government, and also is harder to put a ban on export of electricity at some point than export of crude oil or natural gas. Its harder for governments that are receiving electricity politically to be convinced to stop importing electricity. But all that Economic Activity you describe is dependent on oil and gas. Iran has lots of Mining Industry and lots of other sources of income like taxing, taxatio taxations, which have been increased in recent years to substitute some of their oil revenue, but of course it comes from oil and gas. But theyre going to process it inside. No, i understand. Thank you. And thank you, madam chair. Thank you, madam chair. I would like to keep with the subject, but ask the question a little differently, and that is, lifting the sanctions with iran and how it affects its Energy Sector, and specifically how it affects the conservative Iranian Revolutionary Guard Corporation and how diversifying business might be impacted. So either mr. Harrell or dr. Crane, what impacts would this opening up might have on getting a diversification of power and influence at least in the Energy Sector . As you know, iran is 80 million population. It has a much more diverse economy than a country like qatar. And what weve seen happen over the course of the sanctions is that foundations called the siege, which are owned by the iranian revolution or controlled by the Iranian Revolutionary guards have kind of crept into the economy and established monopolies and siphoned off, used those profits to fund their own activities. And iran has a long history of being very competitive and capitalistic. Its had markets, bazaarries, are focused on bazaarries. The internal political dynamic in iran, we have seen individuals who are much more interested in integrating with the rest of the world economy, or seeing the relaxation of sanctions as weakening those groups that have been opposed to you know, have been using the sanctions to strengthen their own position. And these groups are the people who, you know, are financing terrorists and are engaged in other activities abroad. Mr. Harrell . Thank you very much for the question, senator. I just largely echo dr. Cranes remarks and view of how the irgc did increase its influence during the sanctions era. I think that the fact that the irgc remains sanctioned even after the nuclear deal and the fact that theres commitment both here in washington and in europe to really keep up the pressure on the irgc and make sure the Companies Going into iran do not do business with the irgc has some potential to help some of the nonirgc actors in iran compete more effectively against the irgc in these economic areas where the irgc is active. In energy . Yeah. Which wouldnt that be a good thing . If we had somebody competing with them . Look, i certainly think we want to see more competition emerge for the irgc. The sanctions were very effective i think in getting us to where we are today with the nuclear agreement. But, you know, we did see the irgc expand its role in a diminishing pie in iran during the sanctions era. And i think it would be good to see some of that get unwound and see the irgc obviously lose its influence within iran. Thank you. Thank you, madam chair. Mr. Webster, i want to wrap up my questions with one directed to you. And in your testimony, you talked about the issue of Spare Capacity that is out there. And recognizing that this cushion that has been available historically through opec countries, weve seen a decline in that Spare Capacity. And as we continue to see production up at higher levels, that Spare Capacity or cushion is lessened. And your comment about the risk premium or the fear premium, well, obviously theres a lot of risk going on. Whether you are whether were talking about iraq, iran, syria, saudi arabia, anywhere in the region. We have had some discussion in this committee about what we really know about the Spare Capacity. We do a lot of guessing, i think particularly when it comes to countries like saudi arabia. How confident are we that we really have an understanding as to what that cushion is, how reliable that is, and what does that do to this risk premium or this fear premium that factors into what is going on with not only accessibility of supply but the pricing . Thank you for your question, senator. This is a very big issue. And i know you have discussions in terms of figuring out how much Spare Capacity actually is. On the Analytical Community we dont have guesses, we call them analyses, but its right up there. The question is a big question for markets. When you got to this in 2008, there was always that assessment of, you know, saudi arabia has historically claimed it as 12. 5 or 12 without the partition neutral zone. But in reality, you have to make an actual assumption on what is there and usually the last Million Barrels a day or so is quite heavy. So its actually oil that is actually not terribly useful for oil markets. So its both an uncertainty on how much there actually is and how sustainable it is, and what kind of oil it is. So this shift from Saudi Arabian Spare Capacity to more control within the United States system, both in terms of shale oil and in terms of stocks, is incredibly important, because it is much more easy for someone like me to calculate just how much we have there. So this fear premium, this is my concern, in the coming years right now we have a lot of geopolitical risk out there. But the market isnt really paying attention to that right now, because we are producing more oil than we are consuming around the world right now. And so you could actually handle an outage right now without a whole lot of difficulty. But this is going to shift in the future. And part of it is because of opec and saudi arabias policy where theyre actually increasing their production, and whatever your assumption is in terms of their total productive capacity, there is no question it is shrinking. So senator cantwell mentioned this in her first round of questioning, and that related to some of the choke points, the transportation issues that we face. Youve got the strait of hormuz sitting out there with a great deal of exposure and vulnerability. When it comes to moving this resource. When were talking about this risk premium, how do you factor in the geographic reality of being able to safely and freely move these oil exports . Thanks for your question, senator. The strait of hormuz is i would say probably the most critical choke point for Global Oil Markets. So as Ranking Member cantwell mentioned in her opening statement, theres about 94 Million Barrels of supply or demand every day. About 17 million of that actually flows through the strait of hormuz. While you have other places like the strait of malaka where you could go around it, you cant go around the strait of hormuz, yo hormuz. You need to go through it. So. When you get into an environment where it is either a tight market or a concern that except might happen in terms of harassment operations or some effort to try to choke off supply from the strait of hormuz, you know, the availability of supply from other parts of the world that is not bottled up within within the gulf is incredibly important for the for not just u. S. Energy security but also Global Energy security. It just seems to me that, as were talking about the connect the direct correct between oil and funding or financing of terrorism around the world, that we can be focusing today on direct hits to small trucks or how were moving vehicles that are transporting oil on the ground. But its thats just what were focusing on right here, right now. The reality is that this is a global trade in oil that allows for a funding of terrorism that goes on around the world. And where we have these points of vulnerability as were moving these resources, i think we need to be paying attention and understanding, again, the implications of these restrictions. And weve talked a little bit on the dais here today about the Important Role that the United States can play in allowing us a greater level of Energy Security when we have access to increased supply that we control, that were producing, that we are putting out on the market, that we 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, recognizing that libyas supply of oil out into the market, if something happens, if there is a continued unrest, violence there, the United States would have an opportunity to perhaps supply to some of those countries that libya has been providing oil to. I think that, as we talk about the issue of this 40yearold export ban and as was pointed out by senator daines, recognizing that we are the only country that produces oil that has in place a ban on export, i think its important that we put into context what it means not only to our security as a nation but to the security of nations around the world when we can help influence not only the supply but how you can more safely move the necessary resource. I see that senator warren has arrived. Weve just concluded our final remarks, but well give you the courtesy of your five minutes. I very much appreciate that, madam chair. I apologize for my absence. We had a bill signing for the new education bill. Wow i appreciate the chance to be here. You know, one way to weaken isis is to cut off access to its source of funding. My understanding is that isis funds its operations in part through the sale of the oil it seizes, that it extracts and refines in the territories that it controls. Some of that money ends up moving through the banking system, including through the more than 100 branches of iraqi and Syrian National banks that are located in territory controlled or contested by isis. Mr. Harrel, can you explain how isis and the people who purchase oil from isis rely on the International Banking system to move their money. Thank you, senator, very much for the question. I should begin by saying, in my assessment, most of the oil trade begins very much as a cashbased trade. Isis selling oil at the well heads, taking literal cash, u. S. Dollars, which they stockpile. I think they actually do keep much of that money in cash over time. Its a cashbased economy there, heavily cash did have dependent. Clearly as the volumes of cash build up isis is and will be looking for ways to move that out, whether its just for sort of management purposes, whether its to move money to affiliates. And i think its very important to continue to deny them access to the formal Financial System. I think one of the important steps on that front that u. S. Treasury department has taken is the u. S. Treasury department has gotten the Iraqi Central Bank to shut down the access of the iraqi Bank Branches inside isil isis territory in iraq. So they should now be shut off from the formal Financial System, but we are seeing various Informal Exchange houses, you know, money and things like that, looking at ways to move money in and out of isis territory. So i dont think it would go direct from isis to the formal Financial System very much because the banks are shut down, but i do think theyre looking and they have ways with some of the informal Money Exchange houses to first move it out and then try to move it on. And thats certainly something that its critically important to address. Well, i think you put it in a very important way, but making it clear that cash is critical to their operations, and obviously we want to use any tool that we can to try to disrupt the flow of cash and certainly through the banking system. But any other tool we can to disrupt the flow of cash. And that is part of the reason why president obama nominated adam zuben to serve as treasury undersecretary for terrorism and financial crimes back in april. The undersecretary is responsible for combatting terrorist financing and he is the u. S. Governments chief enforcer of our financial sanctions against countries like iran, syria and sudan. It is absolutely critical position and one that plays a key role in disrupting isis finances. I think you have partly identified what weve already done there. Mr. Harrel can you explain some of the tools you have to disrupt the flow of money to isis . I think there are a am in of tools that the Treasury Department under the office of terrorism and financial crimes leadership has, including sanctioning money houses and banks that may deal with isis, with isis cash, including putting out, short of sanctions, putting out advisories to the Financial Sector about what typologies to look for, what risks to look for so there is greater information there, including engaging with iraq, turkey, with other governments in the region including their regulators to make sure that those regulators are taking the steps to keep that money out of their jurisdictions. Thank you. Despite the importance of attacking the Financial Foundation of isis, the Republican Leadership has been holding up adam zubins n nomination for eight months. He is impeccably qualified for this position. Even republicans dont contest that. He has worked at the Treasury Department for over a deckid under both democratic president ial candidate and republican administrations. Mr. Harrel, lets be brief because the chair has given us extra time. Do you think the Senate Confirmation of mr. Zubin would aid in the fight against isis. I do. I have had the privilege of working with adam zubin for a number of years when at the state department. He would be once confirmed an normsly effective leader. Being confirmed in the job is different from serving in an active capacity. We need to aggressively target its use of the International Financial system to sell oil and to move money around. Congress doesnt look very serious about this threat when it indefinitely delays the confirmation of our top counterterrorism financing official for months, for no legitimate reason. It is long past time to confirm adam zubin, to be undersecretary for terrorism and financial crimes. Thank you, madam chair. Thank you, senator warren. With that, ladies and gentlemen, thank you for the time that you have given us and all that you have shared. Good and helpful information. Appreciate it. We stand adjourned. Cspan takes you on the road to the white house and into the classroom. This year our student cam documentary contest asks students to tell us what issues they want to hear from the president ial candidates. Follow cspans road to the white house coverage and get all the details about our student cam contest at cspan. Org. Our live landmark cases series continues in a moment. Tonight well look at the Supreme Court case miranda versus arizona about criminal suspects and their constitutional right to an attorney and against selfincrimination. After that, a conversation on pakistans Nuclear Program. All persons having business before the honorable the Supreme Court of the United States are admonished to draw near and give their attention. Landmark cases, cspans special history series produced in cooperation with the National Constitution center, exploring the human stories and constitutional dramas behind 12 historic Supreme Court decisions. Number 759. Ernest miranda, petitioner, versus arizona. Well hear arguments in number