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Wednesday, September 25, 2013

Iran Sanctions

Kenneth Katzman
Specialist in Middle Eastern Affairs

Increasingly strict sanctions on Iran—sanctions that primarily target Iran’s key energy sector and its access the international financial system—have harmed Iran’s economy, but not to the point where key Iran leaders have agreed to international proposals to limit Iran’s nuclear program to purely peaceful purposes. However, the June 14, 2013, election as president of Hassan Rouhani, who ran on a platform that included achieving an easing of sanctions, suggests that many Iranians want their leaders to compromise on the nuclear issue if doing so will improve the economy.

• Oil exports fund nearly half of Iran’s government expenditures, and Iran’s oil exports have declined to just over 1 million barrels—less than half of the 2.5 million barrels per day Iran exported during 2011. The causes of the drop have been a European Union embargo on purchases of Iranian crude oil and decisions by other Iranian oil customers to obtain exemptions from U.S. sanctions by substantially reducing purchases of Iranian oil. Twenty of Iran’s oil customers maintain such exemptions.

• The loss of revenues from oil, coupled with the cut-off of Iran from the international banking system, has caused a sharp drop in the value of Iran’s currency, the rial, raised inflation to over 50%, and caused much of Iran’s oil revenues to sit unused in third-country accounts. Iran’s economy shrank slightly from 2012-2013 and will likely do so again during 2013. There have also been unintended consequences including a shortage of some advanced medicines.

• Iran has mitigated some of the economic and political effects of sanctions. Government-linked entities are creating front companies and making increased use of barter trade. Iranian traders are using informal banking exchange mechanisms and, benefitting from the fall in the value of Iran’s currency, increasing non-oil exports or exports of hydrocarbon products other than crude oil, such as gas condensates. Affluent Iranians have invested in—and driven up prices for—real estate and securities listed on the Tehran stock exchange. Sanctions have not compelled Iran to change its position on its nuclear program, but might be slowing Iran’s nuclear and missile programs by hampering Iran’s ability to obtain needed foreign technology. U.S. assessments indicate that sanctions have not stopped Iran from developing new conventional weaponry indigenously. Based largely on its provision of arms to the embattled Assad government in Syria, Iran is also judged as not complying with U.N. requirements that it halt any weapons shipments outside its borders. And, sanctions do not appear to have altered Iran’s repression of dissent or its efforts to monitor public use of the Internet.

Some in Congress believe that economic pressure on Iran needs to increase. In the 112th Congress, the Iran Threat Reduction and Syria Human Rights Act of 2012 (P.L. 112-158) made sanctionable the shipping of Iranian crude oil, and it 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 economy. A bill in the 113th Congress, H.R. 850, passed by the House on July 31, 2013, would expand the range of Iranian economic sectors subject to sanctions, sanction banks that exchange Iran’s hard currency abroad, and accelerate the oil purchase reductions required to maintain a sanctions exemption. 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: September 9, 2013
Number of Pages: 82
Order Number: RS20871
Price: $29.95

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