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Friday, June 4, 2010

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

Numerous U.S. laws and regulations have been adopted to try to slow Iran's weapons of mass destruction programs and curb its support for militant groups. The U.S. belief is that sanctions can reduce the revenue available to Iran's government to support these activities and generate domestic pressure within Iran to adopt policies more acceptable to the international community. Some United Nations sanctions have been imposed since 2006, with many of those same objectives, although more narrowly targeted to avoid harming the civilian population of Iran. 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. 

Successive U.S. Administrations have identified sanctioning Iran's energy sector as a key 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's energy sector 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 to refrain from investing in energy projects 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 exploit Iran's dependence on imports of gasoline, in the 111th Congress, H.R. 2194 (which awaits conference action expected in late June 2010), 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. The Senate version would also add a broad range of other measures further restricting the already limited amount of U.S. trade with Iran. 

The effectiveness of U.S. and international sanctions on Iran, by most accounts, is unclear. Some Iranian economic sectors have clearly been harmed by sanctions, but any such effects have not, to date, caused a demonstrable shift in Iran's commitment to its nuclear program. The sanctions have also fostered a growing perception that Iran is an international outcast, demonstrated by the announcement over the past two years by several major international firms that they are ending their business pursuits in Iran. To try to further Iran's isolation and strengthen the domestic opposition, the Obama Administration and Congress appear to be increasingly emphasizing further measures that 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 opposition. For a broader analysis of policy on Iran, see CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman

Date of Report: May 26, 2010
Number of Pages: 44
Order Number: RS20871
Price: $29.95

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