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Wednesday, November 16, 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 Iranian leadership feels pressured to accommodate core Western goals on Iran’s nuclear program. However, as of September 2011, Iran’s leaders have stated publicly that sanctions are hurting Iran and they have stated interest in new proposals that could form the basis of revived nuclear talks, a development that could change assessments of the effect of sanctions.

Whether or not core goals have yet been accomplished, the United States and its allies appear to agree that sanctions might yet succeed and that pressure should be added to further weaken Iran’s energy sector and isolate Iran from the international financial system. The energy sector provides nearly 70% of government revenues. Iran’s large trading community needs financing to buy goods from the West and sell them inside Iran. There have been a stream of announcements by major international firms since early 2010 that they are exiting or declining to undertake further work in the Iranian market, particularly the energy sector, taking with them often irreplaceable expertise. Partly as a result, Iran’s oil production has remained relatively steady at about 4.1 million barrels per day, defying Iranian efforts to increase production, and production could fall by another 25% over the next five years. However, Iran now has small amounts of natural gas exports; it had none at all 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.

What has generated U.S. optimism about the use of sanctions has been the broadening of international support for and compliance with them. 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. International sales to Iran of gasoline fell significantly subsequently. CISADA also included measures further restricting the already limited amount of U.S. trade with Iran, and 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.

In light of U.S. revelations in October 2011 of a purported Iranian plot to assassinate the Saudi Ambassador to the United States, some are calling for additional U.S. and international sanctions to reinforce those imposed in 2010. In the 112th Congress, legislation, such as S. 1048 and H.R. 1905, would enhance both the economic sanctions and human rights-related provisions of CISADA and other laws. Some want to see sanctions imposed on Iran’s Central Bank, or even a broad or partial embargo on Iran’s sale of oil, to reinforce the sanctions effects discussed above. 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: November 7, 2011
Number of Pages: 76
Order Number: RS20871
Price: $29.95

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