WASHINGTON (Reuters) ? Iran is feeling the bite from economic sanctions imposed over its nuclear program, which is capable of producing a weapon although Iranian leaders have not yet decided to do so, top U.S. intelligence chiefs told Congress on Tuesday.
"The sanctions have been biting much, much more literally in recent weeks than they have until this time," CIA Director David Petraeus said at a Senate intelligence committee hearing.
"What we have to see now is how does that play out, what is the level of popular discontent inside Iran, does that influence the strategic decision-making of the Supreme Leader and the regime, keeping in mind that the regime's paramount goal in all that they do is their regime survival," he said.
Iran's currency, the rial, has lost "considerable value" and there have been "runs on the bank" as Iranians try to dump domestic currency and acquire assets that will hold value better as inflation "takes off," Petraeus said.
But Director of National Intelligence James Clapper acknowledged that sanctions so far had not caused Iran's leaders to change their behavior or policies.
The U.S. hope is that recent sanctions "would have the effect of inducing a change in the Iranian policy towards their apparent pursuit of a nuclear capability," he said.
Senators at the hearing asked about Israel's concerns about Iran's nuclear program, amid speculation that Israel might launch a pre-emptive strike at the country's known nuclear sites.
Senator Dianne Feinstein, the panel's chairwoman, and Petraeus said they met recently with the director of Mossad, Israel's intelligence service.
"We're doing a lot with the Israelis, working together with them. And of course for them, this is, as they have characterized, is an existential threat," Clapper said.
Petraeus, appearing with other intelligence community leaders at an annual open hearing on global threats to U.S. security, said that China has reduced imports of Iranian oil but "it remains to be seen whether that continues."
"It appears that Saudi Arabian production is ramping up and can fill some of the demand that might have been met by Iranian exports now that there are the sanctions on the Central Bank of Iran," he said.
The United States imposed the harshest sanctions so far on Iran when President Barack Obama on December 31 signed into law new sanctions on transactions involving Iran's central bank.
The European Union last week imposed a ban on the import, purchase or transport of Iranian oil. Existing contracts can be honored up to July 1.
The West has imposed sanctions over the years due to concerns that Iran's nuclear development program is aimed at building a weapon. Iran says its program is for peaceful purposes.
The latest U.S. sanctions will have a deeper impact because the Central Bank of Iran handles a large volume of foreign bank transactions and receives the revenue for the roughly 70 percent of oil sold by the National Iranian Oil Company, Clapper said.
'CRITICAL YEAR'
"According to most timelines I've heard, 2012 will be a critical year for convincing or preventing Iran's development of a nuclear weapon," Feinstein, a Democrat, said.
Iran is keeping open the option to develop a nuclear bomb but U.S. intelligence agencies do not know whether its leaders ultimately will decide to build one, Clapper said in his written statement to the panel.
New U.S. sanctions were likely to have a greater impact than previous ones, but were not expected to lead to the downfall of Iran's leadership, Clapper said.
"We assess Iran is keeping open the option to develop nuclear weapons, in part by developing various nuclear capabilities that better position it to produce such weapons, should it choose to do so," he said in written testimony. "We do not know, however, if Iran will eventually decide to build nuclear weapons."
Iran's advances, particularly in uranium enrichment, strengthen the assessment that "Iran is well capable of producing enough highly-enriched uranium for a weapon if its political leaders, specifically the Supreme Leader himself, choose to do so," Clapper said. He referred to the country's most powerful leader, Ayatollah Ali Khamenei.
"Iran's economic difficulties probably will not jeopardize the regime, absent a sudden and sustained fall in oil prices or a sudden domestic crisis that disrupts oil exports," Clapper's written testimony said.
Iran has sought to "exploit the Arab Spring but has reaped limited benefits, thus far," the testimony said. Tehran's biggest regional concern is ally Syria, where a change in leadership would be a major strategic loss for Iran.
Nearly a year into the unrest, conflict in Syria is unlikely to be resolved quickly, and it is a matter of time before Syrian leader Bashar al-Assad falls, Clapper said.
"I personally believe it's a question of time before Assad falls, but that's the issue, it could be a long time," Clapper said. "Protraction of these demonstrations, the opposition continues to be fragmented, but I do not see how he can sustain his rule of Syria."
CHINA CONCERNED
Arab Spring uprisings fueled concern among Chinese leaders that similar unrest could undermine their rule, prompting Beijing to launch its harshest crackdown on dissent in at least a decade, Clapper said in his written testimony.
At the same time, worries about the global economy helped heighten Beijing's resistance to external pressure and suspicion of U.S. intentions, it said.
China continued a policy of permitting modest appreciation of the renminbi, "although it remains substantially undervalued," the testimony said.
Espionage by China, Russia, and Iran will pose significant security threats to the United States in coming years, the written statement said.
Russia and China are aggressive and successful in economic espionage against the United States, and "Iran's intelligence operations against the United States, including cyber capabilities, have dramatically increased in recent years in depth and complexity," the statement said.
Foreign intelligence services have targeted the unclassified and classified computer networks of U.S. government agencies, businesses and universities. "We assess that many intrusions into U.S. networks are not being detected," the statement said.
(Reporting By Tabassum Zakaria; Editing by Eric Walsh and Eric Beech)
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