Iran sanctions: Congressional Research Service report

Relations between the governments of the United States and Iran have been tense, often hostile, since the Iranian Revolution in 1979. After Iran began to develop a uranium enrichment program, however, tension has again risen acutely, and increasingly strict economic sanctions have been put in place — particularly on Iran’s crucial energy sector — by the U.S. and some of its Western and East Asian allies.

Legislation in the 112th Congress (2012) would “enhance both the economic sanctions and human rights-related provisions” of existing laws, according to a December 2011 Congressional Research Service report, “Iran Sanctions” (PDF). The report presents economic and legislative background information relevant to the evolving situation.

Key points made in the report are:

• Among the relevant laws and resolutions already in place targeting Iran’s energy and financial sectors are: the 1996 U.S. Iran Sanctions Act (ISA), a law that “mandates U.S. penalties against foreign companies that invest in Iran’s energy sector”; the 2010 U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act and a related 2011 Executive Order; the 2010 U.N. Security Council Resolution 1929; and a 2011 Treasury Department warning, under the USA Patriot Act, that “conducting transactions with the Iranian financial system constitutes a risk of facilitating Iranian proliferation and terrorism financing activity.”
• Iran’s energy sector continues to provide roughly 70% of its government revenue. The rate of oil production has remained constant at about 4.1 million barrels a day, and the country benefited from relatively high oil prices in 2011. Overall, Iran’s oil sector constitutes 20% of the country’s GDP, or $860 billion.
• The following countries, in order, were the top 10 buyers of energy from Iran in 2010: South Africa, China, Japan, India, Turkey, South Korea, Italy, Spain, the Netherlands and Taiwan.
• The United States has continued to allow some direct business transactions with Iran, including the sale of commercial airplane parts, as well as some food and medical products. Moreover, the “U.S. trade ban does not bar subsidiaries of U.S. firms from dealing with Iran, as long as the subsidiary has no operational relationship to the parent company.”
• The U.S. Treasury Department has long been involved in efforts to persuade foreign firms to shut Iran out of the international banking system. This campaign has also involved large fines for such companies as UBS and Dutch bank ABN Amro for transactions with Iran. Moreover, “in the biggest such instance, on December 16, 2009, the Treasury Department announced that Credit Suisse would pay a $536 million settlement to the United States for illicitly processing Iranian transactions with U.S. banks.”
• In addition, there are “clear indications that the sanctions — coupled with the overall sense that Iran is isolated from the international community — are causing substantial injury to its energy sector. U.S. officials in 2011 say that Iran has lost close to $60 billion in investment as numerous major firms have either announced pullouts from some of their Iran projects, declined to make further investments, or resold their investments to other companies.”
• Firms that continue to conduct business with Iran include “Alcatel-Lucent of France; Bank of Tokyo-Mitsubishi UFJ; Bosch of Germany; Canon of Japan; Fiat SPA of Italy; Ericsson of Sweden; ING Group of the Netherlands; Mercedes of Germany; Renault of France; Samsung of South Korea; Sony of Japan; Volkswagen of Germany; [and] Volvo of Sweden.”
• Despite all of the sanctions, there remains a “consensus that U.S. and U.N. sanctions have not, to date, accomplished their core strategic objective of causing a demonstrable shift in Iran’s commitment to its nuclear program.” As evidence, “International Atomic Energy Agency (IAEA) reports say that Iran’s stockpile of low-enriched uranium continues to expand as do its holdings of 20% enriched uranium. This latter material is a cause of U.S. concern because of the technological skill needed to produce that level of enrichment.”
• Furthermore, an “IMF study issued in August 2011 casts some doubt that international sanctions are seriously harming Iran’s economy. The study, based largely on a May 28-June 9, 2011, study visit, indicated that Iran’s GDP is growing at a rate of about 3.5% and is expected to increase to about 4.5% in the medium term.”

Tags: security, nuclear weapons, Middle East