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Friday, October 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 to the point where Iran’s public and some of its leaders appear willing to accept some international proposals to limit Iran’s nuclear program to purely peaceful purposes. The June 14, 2013, election as president of Hassan Rouhani, who ran on a platform that included achieving an easing of sanctions, is an indication of the growing public pressure on the regime. 
• Oil exports fund nearly half of Iran’s government expenditures, and Iran’s oil exports have declined to about 1.1 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 reducing purchases of Iranian oil. Twenty countries that buy Iranian oil have 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%, reduced Iran’s reserves of foreign exchange; and caused much of Iran’s oil revenues to go unused in third-country accounts. Iran’s economy shrank slightly from 2012 to 2013 and will likely do so again during 2013. There have also been unintended consequences, including a shortage of some advanced medicines.

• Iran has tried, with mixed success, to mitigate the effects of sanctions. Government-linked entities are creating front companies, and Iranian importers and exporters are increasingly using barter trade and informal banking exchange mechanisms. Iran is also 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 might also be slowing Iran’s nuclear and missile programs by hampering Iran’s ability to obtain needed foreign technology. But 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 monitoring of the Internet.

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 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, among other provisions, accelerate the oil purchase reductions required to maintain a sanctions exemption. However, some argue that new sanctions should not be imposed until Rouhani’s diplomatic overtures on the nuclear issue are tested and that there be consideration of easing sanctions if a nuclear deal is reached. 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 11, 2013
Number of Pages: 80
Order Number: RS20871
Price: $29.95

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