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Friday, October 19, 2012

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

The principal objective of international sanctions—to compel Iran to verifiably confine its nuclear program to purely peaceful uses—has not been achieved to date. However, a broad international coalition has imposed progressively strict economic sanctions on Iran’s oil export lifeline, producing increasingly severe effects on Iran’s economy. Many judge that Iran might soon decide it needs a nuclear compromise to produce an easing of sanctions because:

• Oil exports provide about 70% of Iran’s government revenues and Iran’s oil exports have declined sharply as a result of the sanctions. A European Union embargo on purchases of Iranian crude oil that took full effect on July 1, 2012. Previously, EU countries were buying 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).

• Together, these sanctions have reduced Iranian oil exports to about 1 million barrels per day as of October 2012, a dramatic decline from the 2.5 million barrels per day Iran exported during 2011. This loss of sales has caused Iran to reduce oil production, to the point where it is producing less oil than is Iraq.

• The loss of hard currency revenues from oil—coupled with the cut off of Iran from the international banking system and the reported depletion of Iran’s foreign exchange reserves—caused a collapse in the value of Iran’s currency, the rial, in early October. That collapse prompted street demonstrations and a halt to commerce by merchants who are uncertain how to price their goods. In response, Iran has tried to impose currency controls and arrested some illegal currency traders, although these steps are unlikely to restore public confidence in the regime’s economic management. Other oil producers, particularly Saudi Arabia, are selling additional oil to countries cutting Iranian oil buys, thus far preventing the lost Iranian sales from raising world oil prices.

Department of Defense and other assessments indicate that sanctions have not stopped Iran from building up its conventional military and missile capabilities, in large part with indigenous skills. However, sanctions may be slowing Iran’s nuclear program somewhat by preventing Iran from obtaining some needed technology from foreign sources. Iran is also judged not complying with U.N. requirements that it halt any weapons shipments outside its borders, particularly with regard to purported Iranian weapons shipments to help the embattled Asad government in Syria.

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, a House-Senate compromise version of an extensive Iran sanctions bill, H.R. 1905 (“Iran Threat Reduction and Syria Human Rights Act of 2012”), was passed by both chambers on August 1, 2012, and signed on August 10 (P.L. 112-158). The bill makes sanctionable numerous additional forms of foreign energy dealings with Iran, including shipments of crude oil, and enhances human rights-related provisions of previous Iran sanctions laws. Some press reports indicate that the 112th Congress might try to increase sanctions further in late 2012, possibly as an amendment to a FY2013 national defense authorization act. 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: October 15, 2012
Number of Pages: 86
Order Number: RS20871
Price: $29.95

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