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Wednesday, September 21, 2011

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

There is broad international support for imposing progressively strict economic sanctions on Iran to try to compel it to verifiably confine its nuclear program to purely peaceful uses. Many U.S. and international officials appear to agree that the sanctions have not, to date, hurt Iran’s economy to the point at which the core Western goals on Iran’s nuclear program can be accomplished. Nuclear talks in December 2010 and in January 2011 made virtually no progress, suggesting that Iran’s leaders did not feel sufficiently pressured by sanctions to offer major concessions to obtain a nuclear deal. However, Iran’s stated interest in new proposals for reviving talks, expressed in September 2011, could change that assessment.

There is broad agreement that, because so many major economic powers have imposed sanctions on Iran, key sectors of Iran’s economy are being harmed to an extent, reinforcing the effects of Iran’s economic mismanagement. There have been a stream of announcements by major international firms since early 2010 that they are exiting the Iranian market, taking with them often irreplaceable expertise. Partly as a result, 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, and could fall by another 25% over the next five years, although Iran now has small natural gas exports that it did not have before Iran opened its fields to foreign investment in 1996. Several countries, particularly India, have held back or delayed billions of dollars in oil payments for Iran because bank payments mechanisms have been shut down by sanctions. However, Iran’s overall ability to limit the effects of sanctions has been aided by relatively high oil prices in 2011.

The United States and its allies appear to agree that sanctions are an effective tool that should be pursued, and that sanctions should continue to weaken Iran’s energy sector and isolate Iran from the international financial system. The energy sector provides about 70% of government revenues. Iran’s large trading community depends on financing to buy goods from the West and sell them inside Iran. Using the authorities of U.N. Security Council Resolution 1929, adopted June 9, 2010, measures adopted since mid-2010 by the United Nations Security Council, the European Union, and several other countries target those sectors. These national measures complement the numerous U.S. laws and regulations that have long sought to try to pressure Iran, particularly the Iran Sanctions Act (ISA)—a 1996 U.S. law that mandated U.S. penalties against foreign companies that invest in Iran’s energy sector. In the 111th Congress, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA, P.L. 111-195) expanded ISA to sanction Iran’s ability to obtain or make gasoline, for which Iran depends heavily on imports. Sales to Iran of gasoline have fallen significantly since. CISADA also contained a broad range of other measures further restricting the already limited amount of U.S. trade with Iran.

In addition to its economic sanctions provisions, CISADA contained measures to promote the cause of the domestic opposition in Iran by sanctioning Iranian officials who are human rights abusers and facilitating the democracy movement’s access to information technology. This is a trend that is increasingly taking hold in the Obama Administration and in partner countries. The increasing emphasis on human rights-related laws and sanctions reflects a growing belief that there are few new economic sanctions that can be successfully agreed on or imposed. In the 112th Congress, legislation, such as S. 1048 and H.R. 1905, has been introduced to enhance both the economic sanctions and human rights-related provisions of CISADA and other laws. 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: September 12, 2011
Number of Pages: 71
Order Number: RS20871
Price: $29.95

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