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Wednesday, February 27, 2013

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

The principal objective of international sanctions—to compel Iran to reach an agreement that ensures that its nuclear program can only be used for civilian purposes—has not been achieved to date. However, the international community has imposed progressively strict sanctions on Iran’s key economic sectors, harming Iran’s economy to the point where key Iran leaders may be considering a nuclear compromise. Among the key causes of Iranian leaders’ growing concern:

  • Oil exports provide about 70% of Iran’s government revenues and Iran’s oil exports have declined to about 1.25 million barrels as of early 2013—a halving from the 2.5 million barrels per day Iran exported during 2011. The causes of the drop has been a European Union embargo on purchases of Iranian crude oil that took full effect on July 1, 2012 and 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, have caused a collapse in the value of Iran’s currency, the rial. That collapse prompted street demonstrations in October 2012. Other effects include high inflation (over 50% according to many experts), and a sharp drop in industrial production, as well as unintended consequences that include a shortage of some advanced Western-made medicines. 
  • Some Iranians, particularly those linked to the government and its hard currency reserves, are finding ways around the sanctions, including: creating front companies, using informal banking exchange mechanisms, cornering the market for some imports, investing in hard assets such as real estate and precious metals, and profiting from the drop in the value of Iran’s currency. 

Among other effects, 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 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. In the 112
th Congress, the Iran Threat Reduction and Syria Human Rights Act of 2012 (P.L. 112-158), made sanctionable numerous additional forms of foreign energy dealings with Iran, including shipping crude oil, and enhanced human rights-related provisions of previous Iran-related laws. A provision of the FY2013 National Defense Authorization Act (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. Because Iran is subject to extensive and overlapping sanctions, some experts believe that almost any additional sanctions conceived would be redundant or of only minor incremental effectiveness. 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: February 14, 2013
Number of Pages: 86
Order Number: RS20871
Price: $29.95

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