WASHINGTON, June 15 — A year after President Bush and Secretary of State Condoleezza Rice announced a new strategy toward Iran, a behind-the-scenes debate has broken out within the administration over whether the approach has any hope of reining in Iran's nuclear program, according to senior administration officials.
The debate has pitted Ms. Rice and her deputies, who appear to be winning so far, against the few remaining hawks inside the administration, especially those in Vice President Dick Cheney's office who, according to some people familiar with the discussions, are pressing for greater consideration of military strikes against Iranian nuclear facilities.
In the year since Ms. Rice announced the new strategy for the United States to join forces with Europe, Russia and China to press Iran to suspend its uranium enrichment activities, Iran has installed more than a thousand centrifuges to enrich uranium. The International Atomic Energy Agency predicts that 8,000 or so could be spinning by the end of the year, if Iran surmounts its technical problems.
Those hard numbers are at the core of the debate within the administration over whether Mr. Bush should warn Iran's leaders that he will not allow them to get beyond some yet-undefined milestones, leaving the implication that a military strike on the country's facilities is still an option.
Even beyond its nuclear program, Iran is emerging as an increasing source of trouble for the Bush administration by inflaming the insurgencies in Iraq, Afghanistan, Lebanon and in Gaza, where it has provided military and financial support to the militant Islamic group Hamas, which now controls the Gaza Strip.
Even so, friends and associates of Ms. Rice who have talked with her recently say she has increasingly moved toward the European position that the diplomatic path she has laid out is the only real option for Mr. Bush, even though it has so far failed to deter Iran from enriching uranium, and that a military strike would be disastrous.
The accounts were provided by officials at the State Department, White House and the Pentagon who are on both sides of the debate, as well as people who have spoken with members of Mr. Cheney's staff and with Ms. Rice. The officials said they were willing to explain the thinking behind their positions, but would do so only on condition of anonymity.
Mr. Bush has publicly vowed that he would never "tolerate" a nuclear Iran, and the question at the core of the debate within the administration is when and whether it makes sense to shift course.
The issue was raised at a closed-door White House meeting recently when the departing deputy national security adviser, J. D. Crouch, told senior officials that President Bush needed an assessment of how the stalemate over Iran's nuclear program was likely to play out over the next 18 months, said officials briefed on the meeting.
In response, R. Nicholas Burns, an under secretary of state who is the chief American strategist on Iran, told the group that negotiations with Tehran could still be going on when Mr. Bush leaves office in January 2009. The hawks in the room reported later that they were deeply unhappy — but not surprised — by Mr. Burns's assessment, which they interpreted as a tacit acknowledgment that the Bush administration had no "red line" beyond which Iran would not be permitted to step.
But conservatives inside the administration have continued in private to press for a tougher line, making arguments that their allies outside government are voicing publicly. "Regime change or the use of force are the only available options to prevent Iran from getting a nuclear weapons capability, if they want it," said John R. Bolton, the former United States ambassador to the United Nations.
Only a few weeks ago, one of Mr. Cheney's top aides, David Wurmser, told conservative research groups and consulting firms in Washington that Mr. Cheney believed that Ms. Rice's diplomatic strategy was failing, and that by next spring Mr. Bush might have to decide whether to take military action.
The vice president's office has declined to talk about Mr. Wurmser's statements, and says Mr. Cheney is fully on board with the president's strategy. In a June 1 article for Commentary magazine, the neoconservative editor Norman Podhoretz laid out what a headline described as "The Case for Bombing Iran."
"In short, the plain and brutal truth is that if Iran is to be prevented from developing a nuclear arsenal, there is no alternative to the actual use of military force — any more than there was an alternative to force if Hitler was to be stopped in 1938," Mr. Podhoretz wrote.
Mr. Burns and officials from the Treasury Department have been trying to use the mounting conservative calls for a military strike to press Europe and Russia to expand economic sanctions against Iran. Just last week, Israel's transportation minister and former defense minister, Shaul Mofaz, visited Washington and told Ms. Rice that sanctions must be strong enough to get the Iranians to stop enriching uranium by the end of 2007.
While Mr. Mofaz did not threaten a military strike, Israeli officials said he told Ms. Rice that by the end of the year, Israel "would have to reassess where we are."
The State Department and Treasury officials are pushing for a stronger set of United Nations Security Council sanctions against members of Iran's government, including an extensive travel ban and further moves to restrict the ability of Iran's financial institutions to do business outside of Iran. Beyond that, American officials have been trying to get European and Asian banks to take additional steps, outside of the Security Council, against Iran.
"We're saying to them, 'Look, you need to help us make the diplomacy succeed, and you guys need to stop business as usual with Iran,' " an administration official said. "We're not just sitting here ignoring reality."
But the fallout from the Iraq war has severely limited the Bush administration's ability to maneuver on the Iran nuclear issue and has left many in the administration, and certainly America's allies and critics in Europe, firmly against military strikes on Iran. On Thursday, Mohamed ElBaradei, the head of the international nuclear watchdog agency, warned anew that military action against Iran would "be an act of madness."
The debate over "red lines" is a familiar one inside the Bush White House that last arose in 2002 over North Korea. When the North Koreans threw out international inspectors on the last day of that year and soon declared that they planned to reprocess 8,000 rods of spent fuel into weapons-grade plutonium, President Bush had to decide whether to declare that if North Korea moved toward weapons, it could face a military strike on its facilities.
The Pentagon had drawn up an extensive plan for taking out those facilities, though with little enthusiasm, because it feared it could not control North Korea's response, and the administration chose not to delivery any ultimatum. North Korea tested a nuclear weapon last October, and American intelligence officials estimate it now has the fuel for eight or more weapons.
Iran is far behind the North Koreans; it is believed to be three to eight years away from its first weapon, American intelligence officials have told Congress. Conservatives argue that if the administration fails to establish a line over which Iran must not step, the enrichment of uranium will go ahead, eventually giving the Iranians fuel that, with additional enrichment out of the sight of inspectors, it could use for weapons.
To date, however, the administration has been hesitant about saying that it will not permit Iran to produce more than a given amount of fuel, out of concern that Iran's hard-liners would simply see that figure as a goal.
In the year since the United States made its last offer to Iran, the Iranians have gone from having a few dozen centrifuges in operation to building a facility that at last count, a month ago, had more than 1,300. "The pace of negotiations have lagged behind the pace of the Iranian nuclear program," said Robert Joseph, the former under secretary of state for international security, who left his post partly over his opposition to the administration's recent deal with North Korea.
<http://online.wsj.com/article/SB118178756389534817.html?mod=googlenews_wsj> 14 June 2007
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CUTTING TIES Should States Sell Stocks To Protest Links to Iran? In Ohio, Rep. Mandel Pushes for Pullout; White House Opposed By NEIL KING JR.
COLUMBUS, Ohio -- Three years ago, Josh Mandel was fighting insurgents as a Marine in Iraq. Today, as a freshman state legislator here, he's aiming at another big target: Iran and its nuclear program.
In March, weeks after he was sworn in, Rep. Mandel startled veteran lawmakers when he announced plans for a bill that would force the state's five public pension funds to divest themselves of stock in foreign companies doing business in Iran. The funds manage over $180 billion in assets, and among the companies targeted were more than a dozen with major investments in Ohio, including Japan's Honda Motor Co.
"The state should not be investing people's hard-earned dollars in countries that are sworn to America's destruction," says the 29-year-old Republican lawmaker.
A new legislative movement is tapping a wellspring of anxiety over Iran and its perceived threat to U.S. troops in the Middle East and to U.S. allies such as Israel. It has sparked fierce debate over what role local governments should play in guiding U.S. foreign policy and in directing the investments of the nation's huge public pension funds, which altogether hold more than $1 trillion in assets. (See related article. [LINK: <http://online.wsj.com/article/SB118178438003134761.html?mod=Leader-US>])
At least 14 other statehouses across the country are considering similar anti-Iran efforts. Last week, Florida Gov. Charlie Crist signed the nation's first Iran-divestment bill into law, and the California Assembly unanimously passed a bill forcing the state's two huge public pension funds, with more than $410 billion in assets, to shed their Iran-related assets. That bill is now headed to the state Senate. Texas, Illinois, Michigan and New Jersey, among others, are also weighing divestment legislation.
Some of the bills broadly target all companies active in Iran, while others focus on companies involved only in its energy sector.
STAKES IN IRAN
• What's New: Fifteen statehouses are weighing bills that would force public pension plans to bail out of companies doing business in Iran.
• What's at Stake: The nation's public pension funds hold more than $1 trillion in assets.
• What It Means: The legislative movement has sparked debate over the role local governments should play in guiding U.S. policy and in directing the investment of public pension funds.
Congress is offering unusual support, as both parties search for ways to increase pressure on Iran. Last month, Democratic Sen. Barack Obama and Republican Sen. Sam Brownback, both presidential contenders, introduced legislation to support the local divestment bills and to shield divestment legislation from potential lawsuits challenging the states' right to enact laws that impact foreign policy.
The effect of the state divestment laws is likely to be mostly symbolic, as legislatures intend to give the funds a year or more to shed the targeted shares. Still, proponents hope divestment will weaken Iran's economy and destabilize its government. In the 1980s, a divestment campaign led dozens of U.S. companies to cease doing business in South Africa, helping end the apartheid system.
More recently, pressure over Sudan's handling of the atrocities in Darfur helped push British engine-maker Rolls-Royce PLC and two of Europe's largest technology companies, Germany's Siemens AG and Switzerland's ABB Ltd., to announce they are pulling out of the country.
Big Implications
The effort has big implications for the public pension fund industry. Forcing the sale of tens of billions of dollars in foreign-equity holdings in dozens of blue-chip companies could cost the funds tens of millions of dollars in administrative costs alone. Furthermore, the funds argue that buying and selling assets for political reasons undermines their responsibility to shareholders, and could set a precedent for passing laws targeting investments in China or elsewhere.
"No one is for terrorism," says Laura Ecklar, a spokeswoman for Ohio's second-largest fund, the $75 billion State Teachers Retirement System, which has strongly opposed the Mandel bill. "But no matter how noble the cause, pension funds shouldn't be used to set foreign policy."
The Bush administration is strongly opposed to the legislation, arguing that it threatens to torpedo the larger diplomatic effort to isolate Tehran. The U.S., Britain, France and Germany -- along with China and Russia -- have been stepping up economic pressure on Iran to try to persuade it to stop its uranium-enrichment work, which they believe to be part of an effort to develop nuclear weapons. The U.S. also alleges that Iran is supplying Shiite militia groups in Iraq with weapons, which are being used to kill U.S. troops.
While U.S. companies have long been barred from operating in Iran, more than 200 multinationals have investments there, from British-Dutch oil giant Royal Dutch Shell PLC and French telecommunications-equipment company Alcatel SA to Sweden's electronics company Telefon AB L.M. Ericsson.
[CHART: Targeted Shares <http://online.wsj.com/public/resources/images/P1-AI168_IRANFU_20070613210903.gif>]
Companies targeted by the various Iran bills say they are paying close attention to the effort. But so far, none appear to have backed away from doing business in Iran as a result. Many dispute the efficacy of economic sanctions, and all say their investments are unrelated to Iran's nuclear program.
Ohio's effort is driven by Mr. Mandel, who joined the Marines in 2000 after finishing college. He was summoned to Iraq in 2004, where he served for eight months as an intelligence specialist in al Anbar province, one of the roughest areas of the country.
Over 6-feet-tall and rail thin, Mr. Mandel is so young people mistook him for a page when he first arrived in Columbus. Citing his Marine affiliation, Mr. Mandel refuses to comment on Iraq. His campaign platform focused not on the war abroad, but on local issues like attracting jobs to the area and protecting the tax base of local schools.
The legislator says he got the idea for the bill in December, after reading an opinion piece written by Missouri's Republican state treasurer, Sarah Steelman. One of the movement's most-outspoken proponents, Ms. Steelman last year launched a "terror-free" public fund in Missouri that filters out shares from companies doing business in Iran, North Korea, Sudan or Syria, countries listed by the U.S. government as sponsors of terrorism. In 2005 she persuaded the state's retirement system to shed shares in the same companies.
Knowing he would need help battling the pension funds, Mr. Mandel recruited another newly elected Republican, Rep. Shannon Jones, to co-sponsor the bill. "When Josh came to me with this, I said, 'We're going to do what?' It was a crazy idea, but I was taken by it immediately," says Ms. Jones, a former congressional staff aide and Republican campaign worker from outside Dayton. "I couldn't get over the fact that my own retirement money is investing in a little bit of terror."
The two spent more than a month drafting the bill, introducing it in April along with a lengthy written defense to pre-empt potential criticism. While some senior Republicans were leery, the bill attracted 29 co-sponsors out of the state House of Representatives' 99 members.
But it drew immediate fire from Ohio's pension funds. Administrators complained that the measure, if passed, would affect shares of more than 170 international companies and require the funds to sell, by one estimate, more than $9 billion in holdings. Administrative costs of divestment alone would top $60 million, they said.
Rallying Forces
Rallying their forces, the funds emailed "action alerts" to thousands of the state's 1.3 million current and retired state employees, alleging that the bill could gut their retirement and health-care accounts and urging them to call their local representatives. "A delayed response may be devastating," read one alert sent out in May by the Ohio State Teachers Retirement System.
An even louder outcry arose from Ohio's industrial belt. The bill, which roped in companies with even small engagements with Iran, affected not only Honda, but DaimlerChrysler AG, Bridgestone Corp., Siemens and ThyssenKrupp AG, all of which have factories in Ohio. The pension funds estimated that the targeted companies employed more than 45,000 workers in the state.
One of the first critics to pull Mr. Mandel aside was Rep. Matt Szollosi, a freshman Democrat. His message: The bill would chill the investment climate in Ohio, a state already hard hit by the loss of manufacturing jobs. "I told him straight out that DaimlerChrysler has a new Jeep plant that straddles my district," Mr. Szollosi recalls. "They've invested up to $2.5 billion in that plant... . The bill as introduced would have had a devastating impact on Ohio from an economic-development standpoint."
'Dangerous Precedent'
The Ohio Chamber of Commerce also lobbied lawmakers to oppose the bill. Linda Woggon, who heads the chamber's governmental-affairs shop, sent a memo in May to members saying the bill would set a "dangerous precedent" by inserting politics into investment decisions and could put "our state's business climate at risk, especially in today's global economy." Most of the state's major newspapers, including the hometown Columbus Dispatch, editorialized against the bill.
Mr. Mandel's bill won some significant backers, too. James Woolsey, a former director of the Central Intelligence Agency under President Clinton, flew in to testify in favor of divestiture. Local Jewish groups organized a letter-writing and telephone campaign to push the bill. The powerful lobbying group, the American-Israeli Political Action Committee, also sent in advisers.
Then Ohio House Speaker Jon Husted, a Republican initially wary of the bill, advised Reps. Mandel and Jones how to beat back opposition. He said the bill had to get smaller, and shouldn't target companies active in Ohio.
So in May, Mr. Mandel and Ms. Jones decided to follow Florida's lead and only go after companies with investments of more than $20 million in Iran's energy sector. Many divestiture efforts focus on companies with investments in energy, which accounts for more than a quarter of Iran's total economic output. The companies include French energy company Total SA, Norway's Statoil ASA, and Malaysia's Petronas.
But the authors in Ohio also expanded the bill to include companies investing in Sudan's oil fields, in a bid to put pressure on the Sudanese government over Darfur.
On May 30, Mr. Mandel brought in some of his most powerful supporters -- Iraq war veterans. In Ohio and other states, the carnage in Iraq, fueled in part by Iran-supplied weapons, has given emotional impetus to the divestment movement. At the hearing, the father of an Ohio Marine told lawmakers how his son was killed last year in Iraq by a bomb traced back to Iran.
That day, the narrower bill sailed through the financial institutions committee by a vote of 17 to five. Backers included early critics like Rep. Szollosi, and, unexpectedly, Ohio's third-largest fund, the $12.5 billion Ohio Police and Fire Pension Fund. The fund had decided to remain neutral on the issue, a move seen as giving tacit support to the bill.
Hundreds of the fund's 52,000 active and retired members have served in Iraq. "Our members see things a little differently, say, from the teachers or other state employees," says fund director William Estabrook.
Last week, Speaker Husted postponed a full vote on the measure, and proposed a compromise in which the funds would voluntarily divest themselves from half of their Iran energy-related holdings within six months, and the remainder after that. In exchange, the House would refrain from passing mandatory legislation. Two days later, all five of the state funds agreed to the deal, though Rep. Mandel says he hasn't decided whether to support the compromise or push for a full vote of his bill.
Legislation in other big states has faced less opposition. Florida's Iran-divestment bill -- enacted into law last week -- won the backing of state veterans groups, the local AFL-CIO, and the state teachers union. The law, which also targets Sudan-related investments, takes aim at the shares of 25 companies in the $150 billion Florida Retirement System Fund, the state's main public pension fund. On the Florida list are Russia's two huge energy companies, OAO Gazprom and OAO Lukoil.
The fund put up little public opposition to the bill, despite an initial estimate that it could cost the fund up to $22 million in administrative fees.
California's divestment bill is the handiwork of freshman state Assemblyman Joel Anderson, a Republican from San Diego, who portrays the drive as a matter of simple investment logic. "Any idiot understands that Iran is a dumb place to be parking taxpayer money," he says.
Like Mr. Mandel, Mr. Anderson originally tried to push through a bill targeting the shares of all foreign companies in Iran. But he also finally settled on legislation focused on Iran's energy sector. His revised bill, which Gov. Arnold Schwarzenegger supports, could go before the California Senate as soon as September.
Divestment supporters are moving to another challenge. State pension funds invest much of their international holdings in index funds, making it impossible to shed individual company shares. Following Missouri's lead, Louisiana and other states are now looking to create funds that would bar the shares of companies active in any country listed by the U.S. as sponsors of terrorism.
The Bush administration is taking aim at states' efforts. Deputy Treasury Secretary Robert Kimmitt blasted the legislation in a speech last month, saying, "Our economic sanctions against Iran are intended to engage, not confront, our allies."
Mr. Mandel doesn't buy that there's a conflict between state measures and the administration's efforts in Washington. "The federal government is doing what it can," he says. "And so are we."
Write to Neil King Jr. at neil.king at wsj.com
RELATED ARTICLE
• Missouri Treasurer's Demand: 'Terror-Free' Pension Funds 6/14/06 <http://online.wsj.com/article/SB118178438003134761.html?mod=Leader-US>
-- Yoshie
