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Wednesday, April 14, 2010

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

Numerous laws and regulations have been adopted or issued to try to curb Iran's support for militant groups and slow its weapons of mass destruction programs. The sanctions are intended to reduce the revenue available to Iran's government and to generate domestic pressure within Iran to adopt policies more acceptable to the international community. The wide range of U.S. sanctions restrict U.S. trade with and investment in Iran, prohibit U.S. foreign aid to Iran, and require the United States to vote against international lending to Iran. Several laws and executive orders authorize the imposition of U.S. penalties against foreign companies that do business with Iran, as part of an effort to persuade foreign firms to choose between the Iranian market and the much larger U.S. market. Foreign subsidiaries of U.S. firms remain generally exempt from the trade ban since they operate under the laws of the countries where these subsidiaries are incorporated. Since 2006, the United Nations Security Council has imposed some sanctions primarily attempting to curtail supply to Iran of weapons-related technology but also sanctioning several Iranian banks. 

This paper is not a comprehensive assessment of the effectiveness of U.S. and international sanctions on Iran, in part because of the difficulty in determining how significant a factor sanctions are in Iran's domestic or foreign policy situations or decisions. U.S. officials have identified Iran's energy sector as a key Iranian economic vulnerability because Iran's government revenues are approximately 80% dependent on oil revenues and in need of substantial foreign investment. A U.S. effort to curb international energy investment in Iran began in 1996 with the Iran Sanctions Act (ISA), but no firms have been sanctioned under it. Still, ISA, when coupled with broader factors, may have influenced some international firms' decisions whether to invest in Iran. Iran has been unable to expand oil production beyond 4.1 million barrels per day, although it does now have a gas export sector that it did not have before Iran opened its fields to foreign investment in 1996. In an effort to further exploit Iran's weaknesses, in particular its dependence on imports of gasoline, in the 111th Congress, H.R. 2194 (which passed the House on December 15, 2009), would add as ISA violations selling refined gasoline to Iran; providing shipping insurance or other services to deliver gasoline to Iran; or supplying equipment to or performing the construction of oil refineries in Iran. A Senate version was passed on January 28, 2010 (S. 2799), which contains these sanctions as well as a broad range of other measures against Iran. It was passed as an amendment to H.R. 2194 on March 11, 2010, setting up conference action on the differing versions. 

While the oil and gas sector has been a focus of U.S. sanctions since the 1990s, the Obama Administration appears to be shifting - in U.S. regulations and in discussions with U.S. allies on a possible new U.N. Security Council Resolution - to targeting Iran's Islamic Revolutionary Guard Corps for sanctions. This shift is intended to weaken the Guard as a proliferation-supporting organization, as well as to expose its role in trying to crush the democratic opposition in Iran. A growing trend in Congress, reflected in several bills that are have passed or are in various stages of consideration, would sanction Iranian officials who are human rights abusers, facilitate the democracy movement's access to information, and express outright U.S. support for the overthrow of the regime. Possibly as a result of this trend, and the potential for doing business with Iran to harm corporate reputations, since 2010 began, several major international firms have announced an end to their business pursuits in Iran. For more on Iran, see CRS Report RL32048, 
Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman.

Date of Report: April 9, 2010
Number of Pages: 34
Order Number: RS20871
Price: $29.95

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