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Tuesday, December 24, 2013

Iran Sanctions - RS20871

Kenneth Katzman
Specialist in Middle Eastern Affairs

Strict sanctions on Iran—sanctions that primarily target Iran’s key energy sector and its access to the international financial system—harmed Iran’s economy to the point where Iran’s leaders, on November 24, 2013, accepted international proposals to at least temporarily halt further expansion of Iran’s nuclear program. The June 14, 2013, election of Hassan Rouhani as Iran’s president was an indication of the growing public pressure on the regime to achieve an easing of sanctions.

  • Oil exports fund nearly half of Iran’s government expenditures, and Iran’s oil exports have declined to about 1 million barrels per day—far below 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 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, caused a sharp drop in the value of Iran’s currency, the rial; raised inflation to over 50%; and reduced Iran’s accumulation of and access to reserves of foreign exchange. Iran’s economy shrank by about 5% since early 2012. 

  • Iran has tried, with limited success, to mitigate the effects of sanctions. Government-linked entities reportedly created front companies, and Iranian importers and exporters increasingly used barter trade and informal banking exchange mechanisms. Iran also increased 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 also slowed Iran’s nuclear and missile programs somewhat 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.

To some experts, the November 24, 2013, nuclear deal with the international community validated the strategy of sanctioning Iran. Some in Congress believe that economic pressure on Iran needs to increase further to shape a final nuclear deal and to ensure that the sanctions relief of the interim nuclear deal does not lead to a general unraveling of Iran sanctions. A bill in the 113
th 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, the Administration maintains that the sanctions relief contained in the November 24 nuclear deal is “limited, temporary, modest, and reversible”—about $6 billion in relief over the six month interim deal period. All major sanctions will remain in place during the interim agreement period, and applicable provisions will be waived or suspended only temporarily. The Administration argues that new sanctions would unravel the agreement and cause U.S. partners to potentially end the cooperation that has been key to the sanctions’ effectiveness. For a broader analysis of policy on Iran, see CRS Report RL32048 Iran: U.S. Concernsand Policy Responses, by Kenneth Katzman.
Date of Report: December 4, 2013
Number of Pages: 83
Order Number: RS20871
Price: $29.95

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