Iran sanctions.(Congressional Research Service)(Report)

 Contents  Overview   The Iran Sanctions Act (ISA)       Key Provisions/'Triggers" and Available Sanctions       Waiver and Termination Authority       Effectiveness and Ongoing Challenges       Energy Routes and Refinery Investment       Significant Iranian Energy Purchase Agreements       Efforts in the 110th Congress to Expand ISA Application   Legislation in the 111th Congress: Targeting Gasoline Sales   Administration Responses and Review Relationships to Other U.S. Sanctions   Ban on U.S. Trade and Investment With Iran   Treasury Department "Targeted Financial Measures"   Terrorism List Designation-Related Sanctions      Executive Order 13224   Proliferation-Related Sanctions   Relations to International Sanctions   Efforts to Promote Divestment and Internet Freedom   Blocked Iranian Property and Assets 

December 9, 2009

Summary

Iran is subject to a wide range of U.S. sanctions, restricting trade with, investment, and U.S. foreign aid to Iran, and requiring the United States to vote against international lending to Iran. Several laws and Executive Orders authorize the imposition of U.S. penalties against foreign companies that do business with Iran, as part of an effort to persuade foreign firms to choose between the Iranian market and the much larger U.S. market. Most notable among these sanctions is a ban, imposed in 1995, on U.S. trade with and investment in Iran. That ban has since been modified slightly to allow for some bilateral trade in luxury and humanitarian-related goods. Foreign subsidiaries of U.S. firms remain generally exempt from the trade ban since they are under the laws of the countries where they are incorporated. Since 1995, several U.S. laws and regulations that seek to pressure Iran's economy, curb Iran's support for militant groups, and curtail supplies to Iran of advanced technology have been enacted. Since 2006, the United Nations Security Council has imposed some sanctions primarily attempting to curtail supply to Iran of weapons-related technology but also sanctioning some Iranian banks.

U.S. officials have identified Iran's energy sector as a key Iranian vulnerability because Iran's government revenues are approximately 80% dependent on oil revenues and in need of substantial foreign investment. A U.S. effort to curb international energy investment in Iran began in 1996 with the Iran Sanctions Act (ISA), but no firms have been sanctioned under it and the precise effects of ISA--as distinct from other factors affecting international firms' decisions on whether to invest in Iran--have been unclear. While international pressure on Iran to curb its nuclear program has increased the hesitation of many major foreign firms to invest in Iran's energy sector, hindering Iran's efforts to expand oil production beyond 4.1 million barrels per day, some firms continue to see opportunity in Iran. This particularly appears to be the case for companies in Asia that appear eager to fill the void left by major European and American firms and to line up steady supplies of Iranian oil and natural gas.

Some in Congress express concern about the reticence of U.S. allies, of Russia, and of China, to impose U.N. sanctions that would target Iran's civilian economy. In an attempt to strengthen U.S. leverage with its allies to back such international sanctions, several bills in the 111th Congress would add U.S. sanctions on Iran. For example, H.R. 2194, H.R. 1985, H.R. 1208, and S. 908 would include as ISA violations selling refined gasoline to Iran; providing shipping insurance or other services to deliver gasoline to Iran; or supplying equipment to or performing the construction of oil refineries in Iran. Several of these bills would also expand the menu of available sanctions against violators. A bill reported by the Senate Banking Committee, S. 2799, contains these sanctions as well as a broad range of other measures against Iran, including reversing previous easings of the U.S. ban on trade with Iran, and protecting investment funds from lawsuits for divesting from companies active in Iran. Some see such legislation as supporting Obama Administration policy by threatening Iran with further isolation, while others believe such legislation would reduce European cooperation with the United States on Iran. Still others say these proposals could backfire by strengthening the political control exercised by Iran's leaders.

For more on Iran, see CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman.

Overview

This report analyzes various U.S. sanctions in place against Iran, and their relationship to each other as well as to U.N. sanctions imposed since 2006 because of Iran's continued nuclear program development. A particular focus of this report is the Iran Sanctions Act (ISA), which has been the focus of differences of opinion between the United States and its European allies. Some of the congressional proposals, over the past few years, to expand ISA's application have also been the basis of discussion between the United States and other countries ("P5+1" multilateral working group on Iran--United States, France, Britain, Russia, China, plus Germany)--about possible new U.N. sanctions against Iran's energy sector. These sanctions are under consideration because Iran has refused to accept details of a plan, reached during October 1, 2009, talks between Iran and the P5+1, to send most of its enriched uranium out of Iran for reprocessing into medical uses.

Although the Obama Administration has emphasized potential benefit of direct engagement with Iran, it has not altered any U.S. sanctions on Iran. President Obama renewed for another year the U.S. trade and investment ban on Iran (Executive Order 12959) in March 2009. Section 7043 of P.L. 111-8, the FY09 omnibus appropriation, (signed March 8, 2009) required, within 180 days, an Administration report on U.S. sanctions, including which companies are believed to be violators, and what the Administration is doing to enforce sanctions on Iran. That deadline was October 8, 2009; the required report has not been published to date. A provision of the FY2010 National Defense Authorization Act (P.L. 111-84) requires an Administration report, not later than January 31, 2010, on U.S. enforcement of sanctions against Iran, and the effect of those sanctions on Iran.

The Iran Sanctions Act (ISA)

The Iran Sanctions Act (ISA) is one among many U.S. sanctions in place against Iran. However, it has attracted substantial attention because it authorizes penalties against foreign firms, and because several bills pending in the 111th Congress propose amending the Act to curtail additional types of activity, such as selling gasoline to Iran or associated shipping services. In the past, the parent countries of such firms, many of which are incorporated in Europe, have tended to object to sanctions such as ISA, even though European countries generally share the U.S. goal of ensuring that Iran does not become a nuclear power. American firms are restricted from trading with or investing in Iran under separate U.S. executive measures.

Originally called the Iran and Libya Sanctions Act (ILSA), ISA was enacted to complement other measures--particularly Executive Order 12959 of May 6, 1995, that banned U.S. trade with and investment in Iran--intended to deny Iran the resources to further its nuclear program and to support terrorist organizations such as Hizbollah, Hamas, and Palestine Islamic Jihad. Iran's petroleum sector generates about 20% of Iran's GDP, but its onshore oil fields and oil industry infrastructure are aging and need substantial investment. Its large natural gas resources (940 trillion cubic feet, exceeded only by Russia) were undeveloped when ISA was first enacted. Iran has 136.3 billion barrels of proven oil reserves, the third largest after Saudi Arabia and Canada.

In 1995 and 1996, U.S. allies did not join the United States in enacting trade sanctions against Iran, and the Clinton Administration and Congress believed that it might be necessary for the United States to try to deter their investment in Iran. The opportunity to do so came in November 1995, when Iran opened its energy sector to foreign investment. To accommodate its ideology to retain control of its national resources, Iran used a "buy-back" investment program in which foreign firms recoup their investments from the proceeds of oil and gas discoveries but do not receive equity. With input from the Administration, on September 8, 1995, Senator Alfonse D'Amato introduced the "Iran Foreign Oil Sanctions Act" to sanction foreign firms' exports to Iran of energy technology. A revised version instead sanctioning investment in Iran's energy sector passed the Senate on December 18, 1995 (voice vote). On December 20, 1995, the Senate passed a version applying the legislation to Libya as well, which was refusing to yield for trial the two intelligence agents suspected in the December 21, 1988, bombing of Pan Am 103. The House passed H.R. 3107, on June 19, 1996 (415-0), and then concurred on a slightly different Senate version adopted on July 16, 1996 (unanimous consent). It was signed on August 5, 1996 (P.L. 104-172).

Key Provisions/"Triggers" and Available Sanctions

ISA consists of a number of "triggers"--transactions with Iran that would be considered violations of ISA and could cause a firm or entity to be sanctioned under ISA's provisions. ISA provides a number of different sanctions that the President could impose that would harm a foreign firm's business opportunities in the United States. ISA does not, and probably could not legally or practically, compel any foreign government to take any specific action against one of its firms.

ISA requires the President to sanction companies (entities, persons) that make an "investment" of more than $20 million in one year in Iran's energy sector, (1) or that sell to Iran weapons of mass destruction (WMD) technology or "destabilizing numbers and types" of advanced conventional weapons. (2) ISA is primarily targeting foreign firms, because American firms are already prohibited from investing in Iran under the 1995 trade and investment ban discussed earlier.

Once a firm is determined to be a violator, ISA requires the imposition of two of a menu of six sanctions on that firm. The available sanctions the President can select from (Section 6) include (1) denial of Export-Import Bank loans, credits, or credit guarantees for U.S. exports to the sanctioned entity; (2) denial of licenses for the U.S. export of military or militarily useful technology; (3) denial of U.S. bank loans exceeding $10 million in one year; (4) if the entity is a financial institution, a prohibition on its service as a primary dealer in U.S. government bonds; and/or a prohibition on its serving as a repository for U.S. government funds (each counts as one sanction); (5) prohibition on U.S. government procurement from the entity; and (6) restriction on imports from the entity, in accordance with the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. 1701).

Waiver and Termination Authority

The President has the authority under ISA to waive the sanctions on Iran if he certifies that doing so is important to the U.S. national interest (Section 9(c)). There was also waiver authority in the original version of ISA if the parent country of the violating firm joined a sanctions regime against Iran, but this waiver provision was made inapplicable by subsequent legislation. ISA application to Iran would terminate if Iran is determined by the Administration to have ceased its efforts to acquire WMD and is removed from the U.S. list of state sponsors of terrorism, and no longer "poses a significant threat" to U.S. national security and U.S. allies. (3) Application to Libya terminated when the President determined on April 23, 2004, that Libya had fulfilled the requirements of all U.N. resolutions on Pan Am 103.

Traditionally reticent to impose economic sanctions, the European Union opposed ISA as an extraterritorial application of U.S. law. In April 1997, the United States and the EU agreed to avoid a trade confrontation in the World Trade Organization (WTO) over it and a separate Cuba sanctions law, (P.L. 104-114). The agreement contributed to a May 18, 1998, decision by the Clinton Administration to waive ISA sanctions ("national interest"--Section 9(c) waiver) on the first project determined to be in violation--a $2 billion (4) contract (September 1997) for Total SA of France and its partners, Gazprom of Russia and Petronas of Malaysia to develop phases 2 and 3 of the 25-phase South Pars gas field. The EU pledged to increase cooperation with the United States on non-proliferation and counter-terrorism, and the Administration indicated future investments by EU firms …