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Friday, January 18, 2013

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 sanctions on Iran’s oil export lifeline, adversely affecting Iran’s economy to the point where key Iran leaders are considering the need for a nuclear compromise. Among the key causes of Iranian leaders’ growing economic worry:

  • Oil exports provide about 70% of Iran’s government revenues and Iran’s oil exports declined to about 1.25 million barrels by the end of 2012—a dramatic decline from the 2.5 million barrels per day Iran exported during 2011. The cause of the drop has been a European Union embargo on purchases of Iranian crude oil that took full effect on July 1, 2012 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). To date, 20 countries have been deemed in compliance. 
  • The loss of hard currency revenues from oil—coupled with the cut-off of Iran from the international banking system and the decline 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, in response, Iran has tried to impose currency controls and arrested some illegal currency traders. These steps have not restored public confidence in the regime’s economic management—inflation has soared, industrial production has fallen, and some of the more expensive medicines are reported to be in short supply. 

Sanctions may be slowing Iran’s nuclear and missile programs by hampering Iran’s ability to obtain some needed technology from foreign sources. However, Department of Defense and other assessments indicate that sanctions have not stopped Iran from developing some new weaponry with indigenous skills. 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 Assad government in Syria. And, international sanctions targeting the regime’s human rights abuses do not appear to have altered Iran’s repression of dissent or its efforts to monitor public use of the Internet.

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 112
th Congress, H.R. 1905, P.L. 112-158 (“Iran Threat Reduction and Syria Human Rights Act of 2012”), 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. A provision of the FY2013 National Defense Authorization Act (H.R. 4310, signed into law on January 2, 2013, as P.L. 112-239) sanctions transactions with several key sectors of Iran’s economic infrastructure such as energy and shipbuilding, and punishes sales of many material inputs for manufacturing. 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: January 10, 2013
Number of Pages: 86
Order Number: RS20871
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