Search Penny Hill Press

Friday, July 27, 2012

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

The current principal objective of international sanctions—to compel Iran to verifiably demonstrate that its nuclear program is for purely peaceful uses—may be on its way to achievement but has not been accomplished to date. The international coalition that is imposing progressively strict economic sanctions on Iran has broadened and deepened, producing significant effects on Iran’s economy. U.S. officials believe that these sanctions—which are now harming Iran’s oil export lifeline—caused Iran to return to the nuclear bargaining table in 2012 with greater apparent intent toward resolution. Many judge that Iran needs an easing of sanctions because the energy sector provides nearly 70% of Iran’s government revenues. Iran’s worsening economic situation is caused by:

  • A decision by the European Union on January 23, 2012, to wind down purchases of Iranian crude oil by July 1, 2012. EU countries buy about 20% of Iran’s oil exports. This embargo is coupled with decisions by several other Iranian oil customers to substantially reduce purchases of Iranian oil in order to comply with a provision of the FY2012 National Defense Authorization Act (P.L. 112-81, signed December 31, 2011). 
  • Together, these sanctions have reduced Iranian oil exports to about 1.2 million to 1.8 million barrels per day, down from an average of 2.5 million barrels per day for all of 2011, according to the Energy Information Administration in June 2012. This loss of sales is causing Iran to store oil aboard tankers and to reduce production somewhat. Once the EU embargo is fully implemented, Iran’s oil sales might fall further, and Iran is widely assessed as unable to indefinitely sustain that level of lost oil sales. The Iran oil purchase reductions also symbolize burgeoning international cooperation with U.S. and allied attempts to pressure Iran significantly. 
  • The willingness of other oil producers with spare capacity, particularly Saudi Arabia, a strategic rival, to sell additional oil to countries cutting Iranian oil buys. 
The signs of economic pressure on Iran are multiplying. The value of Iran’s rial has dropped by about 50% since September 2011. Iran is virtually cut off from the international banking system and is increasingly forced to trade through barter arrangements rather than hard currency exchange. Many major international firms have left the Iran market, many Iranian firms are reported to be closing and laying off workers, and the effect on the energy sector has been further deterioration of its oil and gas production. Still, Iran has small amounts of natural gas exports; it had none at all before Iran opened its fields to foreign investment in 1996.

Department of Defense and other assessments indicate that sanctions have not stopped Iran from building up its conventional military and missile capabilities. Iran is also judged not complying with U.N. requirements that it halt any weapons shipments outside its borders.

Despite the imposition of what many now consider to be “crippling” sanctions, some in Congress believe that economic pressure on Iran needs to increase further and faster. In the 112th Congress, legislation such as H.R. 1905 has passed the House and the Senate. Both versions, which contain some similar provisions, would enhance both the economic sanctions and human rights-related provisions of previous Iran sanctions laws, although the effects on Iran might not be dramatic. 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: July 16, 2012
Number of Pages: 86
Order Number: RS20871
Price: $29.95

Document available via e-mail as a pdf file or in paper form.

To Order:

RS20871.pdf  to use the SECURE SHOPPING CART


Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Follow us on TWITTER at or #CRSreports