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Wednesday, February 9, 2011

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

There appears to be a growing international consensus to adopt progressively strict economic sanctions against Iran to try to compel it to verifiably confine its nuclear program to purely peaceful uses. The U.S. view—shared by major allies—is that sanctions should target Iran’s energy sector that provides about 80% of government revenues, and try to isolate Iran from the international financial system. Measures adopted since mid-2010 by the United Nations Security Council, the European Union, and several other countries target those sectors, and complement the numerous U.S. laws and regulations that have long sought to try to pressure Iran. U.S. efforts to curb international energy investment in Iran’s energy sector began in 1996 with the Iran Sanctions Act (ISA), a U.S. law that mandates U.S. penalties against foreign companies that conduct certain business with Iran’s energy sector. ISA represented a U.S. effort to persuade foreign firms to choose between the Iranian market and the much larger U.S. and other developed markets. In the 111th Congress, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA, P.L. 111-195) expanded ISA significantly to try to restrict Iran’s ability to make or import gasoline, for which Iran depends heavily on imports. CISADA also adds a broad range of other measures further restricting the already limited amount of U.S. trade with Iran and restricting some high technology trade with countries that allow WMD-useful technology to reach Iran.

As indicators of the broadening international adoption of stricter sanctions against Iran, CISADA’s enactment followed the June 9, 2010, adoption of U.N. Security Council Resolution 1929. That Resolution, the latest in a series of U.N. resolutions against Iran that began in 2006, imposes a ban on sales of heavy weapons to Iran, and authorized - but did not mandate - sanctions on Iran’s energy or broad financial sector. European Union sanctions, imposed July 27, 2010, align the EU with the U.S. position, to a large extent, by prohibiting EU involvement in Iran’s energy sector and restricting trade financing and banking relationships with Iran, among other measures. National measures announced by Japan and South Korea in early September 2010— both are large buyers of Iranian energy—impose restrictions similar to those of the EU. Even India, perceived as highly hesitant to antagonize Iran, has begun to impose sanctions on Iran by refusing to use certain financial mechanisms to process payments to Iran.

Because so many major economic powers have imposed sanctions on Iran, the sanctions are, by all accounts, having a growing effect. In January 2011, Secretary of State Clinton claimed that sanctions have accomplished a core objective of slowing Iran’s nuclear program. Economically, the sanctions are reinforcing the effects of Iran’s economic mismanagement and key bottlenecks. Among other indicators, there has been a stream of announcements by major international firms during 2010 that they are exiting the Iranian market. Iran’s oil production has fallen slightly to about 3.9 million barrels per day, from over 4.1 million barrels per day several years ago, although Iran now has small natural gas exports that it did not have before Iran opened its fields to foreign investment in 1996. Sales to Iran of gasoline have fallen dramatically since CISADA was enacted. U.S. officials say that the cumulative effect of sanctions could harm Iran’s economy to the point where domestic pressure compels Iranian leaders to accept a nuclear compromise, although nuclear talks in late January 2011 made virtually no progress. Possibly in an effort to accomplish the separate objective of promoting the cause of the domestic opposition in Iran, the Obama Administration and Congress are increasingly emphasizing measures that would sanction Iranian officials who are human rights abusers and facilitate the democracy movement’s access to information. 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: February 3, 2011
Number of Pages: 64
Order Number: RS20871
Price: $29.95

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