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Iran Sanctions

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Order Code RS20871 Updated April 19, 20053, 2006 CRS Report for Congress Received through the CRS Web The Iran-Libya Sanctions Act (ILSA) Kenneth Katzman Specialist in Middle Eastern Affairs Foreign Affairs, Defense, and Trade Division Summary In August 2001,No firms have been sanctioned under the Iran-Libya Sanctions Act (ILSA), and it has terminated with respect to Libya. Renewed in August 2001 , P.L. 104-172) was renewed for another five years (P.L. 107-24). No firms have been sanctioned under ILSA, and ILSA has terminated with respect to Libya. In the 109th Congress, H.R. 282 and S. 333 contain provisions that would modify ILSA. This report will be updated to reflect legislative developments. See also CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, and CRS Issue Brief IB93109, Libya. Background and Passage of ILSA ILSA was conceived (P.L. 107-24), ILSA is scheduled to expire in August 2006. In the 109th Congress, H.R. 282 (reported out by the House International Relations Committee on March 15, 2006) and S. 333 would extend it indefinitely and modify it, including imposing a time limit for the Administration to determine whether an investment violates ILSA. This report will be updated. See also CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman. Background and Original Passage of ILSA ILSA was introduced in the context of a tightening of U.S. sanctions on Iran during the first term of the Clinton Administration. Sanctions were added as aIn response to Iran’s stepped up efforts to acquire nuclear expertise and its reputed stepped up nuclear program and its support to terrorist organizations, including organizations (Hizbollah, Hamas, and Palestine Islamic Jihad (PIJ). In 1995, President Clinton issued two executive orders, including Islamic Jihad), President Clinton issued Executive Order 12957 (March 15, 1995), which banned U.S. investment in Iran’s energy sector, and Executive Order 12959 (May 6, 1995), which banned U.S. trade with and investment in that country. The Clinton Administration and many in Congress maintained that the new U.S. these sanctions would deprive Iran of the ability to acquire weapons of mass destruction (WMD) and to fund terrorist groups by hindering its ability to modernize its key petroleum sector, which generates revenues that account for about 10% sector. That sector generates about 20%25 of Iran’s GDP. Iran’s onshore oil fields, as well as its oil industry infrastructure, are oldwere aging and needed substantial investment, and its large natural gas resources (believed second largest in the world, after resources (940 trillion cubic feet, exceeded only by those of Russia) were not developed at all at the time ILSA was first considered. After U.S. allies refused to adopt sanctions againstsanction Iran in the mid-1990s, and the Clinton Administration Administration and Congress believed that it might be necessary for the United States to try to deter foreign investment in Iran. The opportunity for such deterrenceto do so came in November 1995, when Iran launched its first major effort to open its energy sector to foreign investment., which Iran had banned this investment after the February 1979 Islamic revolution on the grounds that foreign firms would gain undue control or influence over over Iran’s resources. To accommodate that philosophy, while recognizing that its economy Congressional Research Service ˜ The Library of Congress CRS-2 was in jeopardy without foreign help, Iran developed a “buy-back” investment program while attracting needed foreign help, Iran developed a %22buy-back%22 investment program Congressional Research Service ˜ The Library of Congress CRS-2 under which foreign firms recoup their investments from the proceeds of oil and gas discoveries but do not receive equity positionsstakes. As Iran was announcing plans to open its energy sector to foreign investmentits plans, some in Congress, with input from the Clinton Administration, developed legislation to sanction such foreign investment. On September 8, 1995, Senator Alfonse D’Amato introduced the Iran Foreign Oil Sanctions Act of 1995, which would impose sanctions on to sanction foreign firms’ export to Iran of energy technology. The bill passed the Senate on December 18, 1995 (voice vote) but, in contrast to the introduced version, imposed sanctions on foreign investment in Iran’s energy sector. The focus on deterring investment appeared to take into account Clinton Administration concernswas concerned that U.S. monitoring of foreign exports to Iran would be too difficult to implement. On December 20, 1995, the Senate passed still another version with an amendment, sponsored by Senator Edward Kennedy, that applied all provisions to Libya as well as Iran. Observers widely interpreted the amendment as an effort to pressure Libya as well, which at the time was still refusing to yield for trial the two suspects in the December 21, 1988 bombing of Pan Am 103, both allegedly agents of Libyan intelligence. The House passed its version of the bill, H.R. 3107, on June 19, 1996 (415-04150). The Senate passed a slightly different version on July 16, 1996 by unanimous consent. The House agreed to the Senate amendment and the President signed the bill into law (P.L. 104-172) on August 5, 1996. Key ILSA (unanimous consent); the House concurred, and the President signed it into law (P.L. 104-172, August 5, 1996). ILSA was to sunset on August 5, 2001 (5 years after enactment), in the context of somewhat improved U.S. relations with both Iran and Libya. During 1999 and 2000, the Clinton Administration had eased the trade ban on Iran somewhat in response to the more moderate policies of Iran’s President Mohammad Khatemi. In 1999, Libya yielded for trial of the Libyan suspects in Pan Am 103. However, proponents of ILSA renewal maintained that ILSA was slowing investment in both countries and that both would view ILSA’s expiration as a concession, reducing their incentive for further moderation. Legislation to renew ILSA (H.R. 1954) was enacted in the 107th Congress (P.L. 107-24, August 3, 2001). The renewal law changed the definition of investment to treat any additions to pre-existing investment as a new investment, and required an Administration report on ILSA’s effectiveness within 24 to 30 months of enactment; that report was submitted to Congress in January 2004 and did not recommend ILSA be repealed. Key Provisions ILSA requires the President to impose at least two out of a menu of six sanctions on foreign companies (entities, persons) that make an “investment” of more than $20 million in one year in Iran’s energy sector.1 The six sanctions available under ILSA (Section 6) are the following: (1) denial of Export-Import Bank loans, credits, or credit guarantees for U.S. exports to the sanctioned firmentity; (2) denial of licenses for the U.S. export of military or militarily-useful technology to the sanctioned firmthat entity; (3) denial of U.S. bank loans exceeding $10 million in one year to the sanctioned firm to the entity; (4) if the sanctioned firmentity is a financial institution, a prohibition on that firm’sits service as a primary dealer in U.S. government bonds; and/or a prohibition on that firm’sits service as a repository for U.S. government funds (each counts as one sanction); (5) prohibition on U.S. government procurement from the sanctioned firmentity; and (6) a restriction on imports from the sanctioned firmentity, in accordance with the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. 1701 and following). 1 For Libya, the threshold was $40 million, and sanctionable activity included exportation to Libya of a broad range of technology of which the export to Libya was banned by Pan Am 103related Security Council Resolutions 748 (Mar. 31, 1992) and 883 (Nov. 11, 1993). CRS-3 Waiver/Expiration Provisions. The President may waive ILSA sanctions on Iran if the parent country of the violating firm agrees to impose economic sanctions on Iran (Section 4(c)) or if he certifies that doing so is important to the U.S. national interest (Section 9(c)). ILSA terminates for Iran if Iran ceases its efforts to acquire WMD and is removed from the U.S. list of state sponsors of terrorism. For Libya, ILSA terminates if the President determines that Libya has fulfilled the requirements of all U.N. resolutions relating to the downing of Pan Am 103. (President Bush made that certification on April 23, 2004, terminating ILSA for Libya.) Implementation and Effectiveness Traditionally skeptical of economic sanctions as a policy tool, the European Union states opposed ILSA as an extraterritorial application of U.S. law. The EU countries threatened formal counter-action in the World Trade Organization (WTO), and in April 1997, the United States and the EU formally agreed to try to avoid a trade confrontation over ILSA (and a separate “Helms-Burton” Cuba sanctions law, P.L. 104-114). The agreement contributed to a decision by the Clinton Administration to waive ILSA sanctions on the first project determined to be in violation: a $2 billion2 contract, signed in September 1997, for Total SA of France and its minority partners, Gazprom of Russia and Petronas of Malaysia to develop phases 2 and 3 of the 25-phase South Pars gas field. The Administration announced the “national interest” waiver (Section 9(c) of ILSA) on May 18, 1998, after the EU pledged to increase cooperation with the United States on non-proliferation and counter-terrorism. The announcement indicated that EU firms would likely receive waivers for future projects that were similar. As did its predecessor, the Bush Administration sought to work cooperatively with the EU to curb Iran’s nuclear program and limit its support for terrorism rather than risk a rift by imposing sanctions on EU (or other) firms. Some believe ILSA did slow Iran’s energy development initially, but, as shown by the projects agreed to below, its deterrent effect weakened as foreign companies began to perceive that ILSA sanctions would not likely be imposed. Since that sanctions waiver, about $11.5 billion in foreign investments in Iran’s energy sector have been agreed to. The new investment has not boosted Iran’s sustainable oil production significantly — it is still about 4 million barrels per day (mbd)3 — but the foreign investment apparently has slowed any deterioration. In addition, Iran’s gas sector, non-existent prior to the late 1990s, is becoming an increasingly important factor in Iran’s energy future as a result of foreign investment. Since the South Pars case, a number of investments in Iran have been formally placed under review for ILSA sanctions by the State Department (Bureau of Economic Affairs). State Department reports to Congress on ILSA, required every six months, state that U.S. diplomats raise U.S. policy concerns about Iran with both investing companies and their parent countries. However, no sanctions determinations have been announced since the South Pars case. Table 1 shows reported post-1999 energy investments in Iran. 2 Dollar figures for energy investment contracts with Iran represent public estimates of the amounts investing firms are expected to spend during the life of the project, which might in some cases be several decades. 3 Testimony of Deputy Assistant Secretary of State Anna Borg before the House International Relations Committee, Subcommittee on the Middle East and Central Asia. June 17, 2003. CRS-4 Table 1. Post-1999 Foreign Investment in Iran Energy Sector Date Field Company(ies) Value Output Goal Feb. 1999 Doroud (oil) Totalfina Elf/ENI $1 billion 205,000 bpd Apr. 1999 Balal (oil) Totalfina Elf/ Bow Valley (Canada)/ENI $300 million 40,000 bpd Nov. 1999 Soroush and Nowruz (oil) Royal Dutch Shell $800 million 190,000 bpd Apr. 2000 Anaran (oil) Norsk Hydro (Norway) July 2000 Phase 4 and 5, South Pars (gas) ENI $1.9 billion 2 billion cu.ft./day Mar. 2001 Caspian Sea oil exploration GVA Consultants (Sweden) $225 million June 2001 Darkhovin (oil) ENI May 2002 Masjid-e-Soleyman (oil) Sheer Energy (Canada) $1 billion 160,000 bpd $80 million 25,000 bpd Sep. 2002 Phase 9 and 10, South Pars (gas) LG (South Korea) $1.6 billion Oct. 2002 Phase 6, 7, 8, South Pars (gas) Statoil (Norway) $2.65 billion Feb. 2004 Azadegan (oil) Inpex (Japan) Totals 3 billion cu.ft./day $2 billion $11.5 billion 300,000 bpd Oil: 920,000 bpd Gas: 5 billion cu.ft/day ILSA and Emerging Energy Relationships. ILSA’s definition of “investment” does not specifically mention as violations of ILSA long-term oil or gas purchases from Iran, or the building of energy transit routes to or through Iran. However, the Clinton Administration position was that the construction of energy routes might violate ILSA, because these routes would “directly and significantly contribut[e] to the enhancement of Iran’s ability to develop petroleum resources.”4 The Clinton Administration used that argument to deter energy routes involving Iran and thereby successfully promote an alternate Caspian energy route from Azerbaijan (Baku) to Turkey (Ceyhan). This route, which became operational in 2005, bypasses both Iran and Russia. At the same time, the Clinton and Bush Administrations have adopted flexible interpretations of ILSA to accommodate the needs of key regional allies for energy supplies. A few weeks after ILSA was enacted, Turkey and Iran agreed to construct a natural gas pipeline from Iran to Turkey (each country constructing the pipeline on its side of their border). Turkey later announced that, at least initially, it would import gas only from Turkmenistan through this pipeline. In July 1997, the State Department said that the project did not violate ILSA because Turkey would be importing gas from Turkmenistan, not Iran, and the project would therefore not benefit Iran’s energy sector directly. Direct Iranian gas exports to Turkey began in 2001, in apparent contravention of Turkey’s pledges not to buy Iranian gas directly, but the Bush Administration has not imposed ILSA sanctions on the project. Further tests of ILSA are looming as Pakistan, India and China build energy ties to Iran; some deals might include pipeline projects to Iran. In October 2004, Iran negotiated a long-term agreement to allow China (Sinopec) and India (Oil and Natural Gas Corp., ONGC) to develop Iran’s Yadavaran oil field, which might be able to produce 300,000 4 This definition of sanctionable activity is contained in Section 5(a) of ILSA. CRS-5 barrels per day, in exchange for agreeing to purchase 10 million tons of Iranian LNG annually for 25 years. Under the preliminary agreement, Sinopec would obtain a 51% stake in Yadavaran and ONGC would get a 20% stake. Iran’s National Iranian Oil Company would obtain the remaining stake. In February 2006, China and Iran tried to finalize the deal in advance of any potential United Nations sanctions that might be imposed on Iran for its nuclear program. A related deal would allow the state-owned Indian Oil Company to develop part of South Pars and build an LNG plant in Iran. If implemented for the full duration of the agreements, these deals could total over $100 billion, although some question whether such long-term deals would be pursued to fruition or might instead be terminated much earlier. The agreements to import Iranian LNG would not appear to constitute an “investment” in Iran’s energy sector, as defined by ILSA. However, a related aspect of these deals, particularly those involving Indian firms, is the construction of a gas pipeline from Iran to India, through Pakistan, with a possible extension to China. All three governments have repeatedly reiterated their commitment to the $4 billion - $7 billion project, which is planned to begin construction in 2007 and be completed by 2010. Pakistan’s President Musharraf said in January 2006 that there is enough demand in Pakistan for Iranian gas to make the project feasible, even if India declines to join it. During her visit to Asia in March 2005, Secretary of State Rice “expressed U.S. concern” about the pipeline deal; other U.S. officials have called the project “unacceptable.” However, no U.S. official has directly stated that it would be considered a violation of ILSA.5 During his trip to India and Pakistan in March 2006, President Bush said the United States “understand[s]” Pakistan’s need for gas, appearing to suggest he would not oppose the pipeline, but Administration officials later said that there is no change in Administration opposition to it. In part seeking to assure implementation of a U.S.-India civilian nuclear cooperation agreement, India did vote for a U.S.-backed February 4, 2006, IAEA Board resolution referring Iran’s nuclear activities to the U.N. Security Council in March 2006, a move that could cause Iran to retaliate against India by excluding it from the deal. In addition, the volatility of relations between India and Pakistan, particularly the status of Jammu and Kashmir, could derail the project at any time. A House resolution (H.Res. 353), introduced July 11, 2005, expresses support for the gas pipeline project as a facilitator of India-Pakistan peace. Proposed ILSA Modifications: H.R. 282 and S. 333 ILSA terminates on August 5, 2006, unless renewed by Congress. ILSA-related legislative proposals in the 109th Congress would close some perceived ILSA loopholes: The “Iran Freedom and Support Act of 2005,” H.R. 282 (Ros-Lehtinen) and a companion, S. 333 (Santorum). H.R. 282 was marked up by the Middle East/Central Asia Subcommittee of the House International Relations Committee (HIRC) on April 13, 2005, and was reported out by the full committee on March 15, 2006,by a vote of 37-3, with 5 Some of the Indian companies that reportedly might take part in the pipeline project are ONGC Corp.; GAIL Ltd.; Indian Oil Corp.; and Bharat Petroleum Corp. Some large European companies have also expressed interest. See, Solomon, Jay and Neil King. “U.S. Tries to Balance Encouraging India-Pakistan Rapprochement With Isolating Tehran.” Wall Street Journal, June 24, 2005, p. A4. CRS-6 only slight amendment. H.R. 282 has 355 co-sponsors, and S. 333 has 50, as of April 3, 2006. The most significant ILSA-related provisions in both bills are as follows: ! increasing the requirements on the Administration to justify waiving sanctions on companies determined to have violated ILSA provisions (under Section 4(c) of ILSA, referring to parent countries’ cooperation with U.S. sanctions on Iran); ! removing the sunset provision; ! making exports to Iran of WMD-useful technology or “destabilizing numbers and types of” advanced conventional weaponry sanctionable; ! setting a 90-day time limit for the Administration to determine whether an investment constitutes a violation of ILSA. (There is no time limit in ILSA currently); and ! increasing the threshold for terminating ILSA by requiring the Administration to certify, in addition to existing termination requirements, that Iran “poses no threat” to the United States, its interests, and its allies. H.R. 282, as marked up by the Middle East Subcommittee, also: ! cuts U.S. foreign assistance to countries whose companies have violated ILSA’s energy investment provisions; ! applies ILSA’s provisions to foreign subsidiaries of U.S. companies; and ! requires public disclosure of investment funds that have investments in companies that have invested in Iran’s energy sector. Both bills have major provisions not only on ILSA but also to support a policy of promoting democracy in Iran. Testifying before HIRC on March 8, 2006, Undersecretary of State for Political Affairs Nicholas Burns said the Bush Administration does not oppose those democracy-related provisions, which largely reinforce existing Administration policy of increasing funding for pro-democracy activities in Iran. He testified that the Administration opposes the ILSA-related provisions of the legislation on the grounds that such new sanctions, which would almost certainly affect European companies, would divide the United States from its allies at a time when all parties are working together to curb Iran’s nuclear program. As noted above, HIRC reported out the bill after that testimony, despite the Administration’s position. Supporters of the proposed legislation believe that continued investment in Iran’s energy sector undermines U.S. and European efforts to contain Iran’s nuclear program and that stronger steps are needed to isolate Iran (50 U.S.C. 1701 and following). Waiver/Expiration Provisions. The President may waive ILSA sanctions if the parent country of the violating firm agrees to impose economic sanctions on Iran (Section 4(c)). This waiver provision did not apply to Libya. In addition, the President may waive sanctions on the grounds that doing so is important to the U.S. national interest (Section 9(c)). This waiver applied to both Iran and Libya. ILSA terminates for Iran if Iran ceases its efforts to acquire WMD and is removed from the U.S. list of state sponsors of 1 For Libya, the threshold was $40 million, and sanctionable activity included exportation to Libya of technology that could be used to develop its energy sector, to develop weapons of mass destruction (WMD), to enhance its conventional military, or to maintain its aviation capabilities (Section 5(b)(1)). These exports had been banned under Pan Am 103-related Security Council Resolutions 748 (March 31, 1992) and 883 (November 11, 1993). CRS-3 terrorism. For Libya, ILSA terminates if the President determines that Libya has fulfilled the requirements of all U.N. resolutions relating to the attack on Pan Am 103. (President Bush made that certification on April 23, 2004, terminating ILSA with respect to Libya.) Renewal and Modifications in 2001 ILSA was to sunset on August 5, 2001 (5 years after enactment). In the runup to ILSA’s expiration, Congress debated renewal of the law in the context of a somewhat improved climate in U.S. relations with both Iran and Libya. During 1999 and 2000, the Clinton Administration had eased sanctions somewhat in response to the somewhat more moderate foreign policy stances of Iran’s President Mohammad Khatemi. In 1999, Libya had yielded for trial of the Libyan suspects in Pan Am 103. However, proponents of renewal maintained that not only had ILSA accomplished some of its key objectives but that both Iran and Libya would view ILSA’s expiration as a concession, reducing their incentive to adopt policies the United States favors. Legislation to renew ILSA (H.R. 1954) was passed in the 107th Congress and signed on August 3, 2001 (P.L. 107-24). The law lowered the sanctionable investment threshold in Libya to $20 million in one year — the same as for Iran — and changed the definition of investment to treat any additions to pre-existing investment as a new investment. It required an Administration report on ILSA’s effectiveness within 24 - 30 months of enactment; that report was submitted to Congress in January 2004 and did not recommend ILSA be repealed. Implementation and Effectiveness of ILSA Traditionally skeptical of economic sanctions as a policy tool, the European Union states took particular exception to ILSA as an extraterritorial application of U.S. law. Some EU states criticized ILSA as a “double standard” in U.S. foreign policy, in which the United States worked against the Arab League boycott of Israel while at the same time promoted a worldwide boycott of Iran. The EU countries threatened formal counteraction in the World Trade Organization (WTO). In April 1997, the United States and the EU formally agreed to try to avoid a trade confrontation over ILSA and the “HelmsBurton” Cuba sanctions law (P.L. 104-114). The agreement contributed to a decision by the Clinton Administration to waive ILSA sanctions on the first project determined to be in violation — a $2 billion2 contract, signed in September 1997, for Total SA of France and its minority partners, Gazprom of Russia and Petronas of Malaysia to develop phases 2 and 3 of the 25-phase South Pars gas field. The Administration announced the waiver on May 18, 1998, citing national interest grounds (Section 9(c) of ILSA), after the EU pledged to increase cooperation with the United States on non-proliferation and counterterrorism. The announcement indicated that EU firms would likely receive waivers for future projects that were similar. The Bush Administration has largely adopted the same policy on ILSA as did the Clinton Administration, attempting to work cooperatively with the EU to curb Iran’s nuclear program and limit its support for terrorism. According to the Bush Administration’s mandated January 2004 assessment, ILSA has not stopped energy sector 2 Dollar figures for energy investment contracts with Iran represent public estimates of the amounts investing firms are expected to spend during the life of the project, which might in some cases be several decades. CRS-4 investment in Iran. However, some believe ILSA did slow Iran’s energy development, at least until foreign companies began to perceive that ILSA sanctions would not likely be imposed for investing in Iran. Iran’s sustainable oil production has not increased significantly since the early 1990s, despite the new investment,3 although foreign investment has slowed or halted deterioration in oil production. On the other hand, Iran’s gas sector, non-existent prior to the late 1990s, is becoming an increasingly important factor in Iran’s energy future as a result of foreign investment. Since the South Pars case, many projects — all involving Iran, not Libya — have been formally placed under review for ILSA sanctions by the State Department. Recent State Department reports on ILSA, required every six months, state that U.S. diplomats raise with both companies and countries the United States’ ILSA and policy concerns about potential petroleum-sector investments in Iran. However, no sanctions determinations have been announced since the South Pars case.4 Recent energy sector investment in Iran includes the following:5 ! A February 1999 contract to France’s Totalfina Elf and Italy’s ENI to develop the Doroud oil field. Estimated value: $1 billion. ! An April 1999 contract for Totalfina Elf, Canada’s Bow Valley, and ENI to develop the Balal oil field. Estimated value: $300 million. ! A November 1999 contract for Royal Dutch/Shell (U.K. and the Netherlands) to develop the Soroush and Nowruz oil fields. Estimated value: $800 million. ! A July 2000 award to ENI to develop phases 4 and 5 of South Pars. Estimated value: $1.9 billion. ! An April 2000 exploration contract for Norway’s Norsk Hydro to develop the Anaran oil field. Estimated value: unknown. ! A March 2001 award contract for Sweden’s GVA Consultants to lead exploration for oil in Iran’s portion of the Caspian Sea. Estimated value: $226 million ! A June 2001 contract for ENI to develop Iran’s Darkhovin oil field. Estimated value: $1 billion. Work has not begun. 3 Testimony of Deputy Assistant Secretary of State Anna Borg before the House International Relations Committee, Subcommittee on the Middle East and Central Asia. June 17, 2003. 4 The Clinton Administration reviewed several projects involving Libya, but U.S. officials said that foreign investment in Libya was more difficult to assess because Libya has consistently hosted foreign energy firms; projects there mostly represent continuations of investments made prior to ILSA’s enactment. 5 Work has begun on all of these agreements, unless specified. CRS-5 ! In May 2002, Canada’s Sheer Energy took a 49% stake in a project to develop the Masjid-e-Soleyman oil field. Estimated value: $80 million. ! A September 2002 award to South Korea’s LG Engineering Group, in partnership with two Iranian firms, to develop phases 9 and 10 of South Pars. Estimated value: $1.6 billion. ! An October 2002 contract for Norway’s Statoil to develop phases 6, 7, and 8 of South Pars. Estimated value: $2.6 billion. ! In February 2004, after several years of negotiations, Iran reached agreement with a Japanese consortium led by Inpex Corp. to develop the large Azadegan field. Estimated value: $2 billion. ! That same month, Iran signed an agreement with Total and Petronas to produce eight million tons of liquified natural gas (LNG) per year. Estimated value: $2 billion. Expected to start LNG exports by 2009. ! During 2004-January 2005, Iran reached several related agreements with energy companies in China and India under which (1) Iran would supply both China (Zhuhai Zhenrong) and India (ONGC and Petronet) with LNG over 25-30 year periods; (2) India’s ONGC and China’s Sinopec would receive stakes in the development of Iran’s Yadavaran oil field, which might be able to produce 300,000 barrels per day; and (3) the state-owned Indian Oil Company would develop part of South Pars gas field and build an LNG plant. If implemented for the full duration of the agreements, these deals could total over $100 billion. (Agreements to import Iranian LNG would not appear to constitute an “investment” in Iran’s energy sector, as defined by ILSA.) A major part of these deals is discussion of constructing a gas pipeline, as discussed below. Energy Routes Transiting Iran. ILSA’s provisions and its definition of “investment” do not specifically mention the development of energy transit routes through Iran as sanctionable activity. However, the Clinton Administration position was that the construction of such routes might constitute activity sanctionable under ILSA, because these routes would “directly and significantly contribut[e] to the enhancement of Iran’s ability to develop petroleum resources.”6 The Clinton Administration adopted that position to promote a Caspian energy route from Azerbaijan (Baku) to Turkey (Ceyhan) that would bypass Iran and Russia, and thereby deny Iran and Russia leverage over Western energy supplies. The Bush Administration has not announced any alteration of this stance. (The Baku-Ceyhan has been developed and is expected to be operational by mid 2005.) At the same time, the United States has responded to the needs of a key regional ally, Turkey, for energy supplies. A few weeks after ILSA was enacted, Turkey and Iran reached final agreement on a plan to construct a natural gas pipeline from Iran to Turkey, with each country constructing the pipeline on its side of their common border. Turkey 6 This definition of sanctionable activity is contained in Section 5(a) of ILSA. CRS-6 later announced that, at least initially, it would import gas from Turkmenistan through this new pipeline. In July 1997, the State Department said that the project did not qualify for ILSA sanctions because Turkey would be importing gas from Turkmenistan, not Iran, and the project would therefore not benefit Iran’s energy sector directly. However, direct Iranian gas exports to Turkey reportedly began in 2001, in apparent contravention of Turkey’s pledges to the United States that it would not buy Iranian gas directly, but the Bush Administration has not indicated it would impose ILSA sanctions on the project. Another test of Administration policy could be looming. As noted above, the 20042005 deals between Iran and Indian firms might include construction of a gas pipeline from Iran to India, through Pakistan, with a possible extension to China. Political differences, particularly between India and Pakistan, could slow or derail the pipeline proposal, but some commentators believe it both addresses regional energy needs and promotes political cooperation between India and Pakistan.7 During her visit to Asia in March 2005, Secretary of State Rice “expressed U.S. concern” about the pipeline deal, although neither she nor any other U.S. official has said it would be reviewed for ILSA sanctions. Indian officials have rebutted the U.S. opposition and have also continued to cooperate with Iran on regional rail and road links. Proposed ILSA Modifications: H.R. 282 and S. 333 There are some legislative proposals in the 109th Congress to close some perceived ILSA loopholes. The proposed legislation, H.R. 282 (Ros-Lehtinen) and a companion, S. 333 (Santorum) are similar to bills introduced in the 108th Congress (H.R. 3347 and H.R. 5193, introduced by Rep. Ros-Lehtinen). H.R. 282 was marked up by the Middle East/Central Asia Subcommittee of the House International Relations Committee on April 13, 2005. Both it and S. 333 have major provisions to express support for a policy of promoting democracy in Iran; the most significant ILSA-modification provisions of the bills are as follows: 7 ! requiring an administration report to Congress on countries cooperating (or not) with U.S. efforts to forge a multilateral Iran sanctions regime; ! making exports to Iran of WMD-related technology or destabilizing advanced conventional weaponry sanctionable activity under ILSA; ! requiring the President to certify that Iran is no longer a threat to U.S. national security or allies in order to terminate ILSA, and both bills would repeal the sunset provision of ILSA; ! the marked-up version of H.R. 282 calls on U.S. government and private sector fund managers to divest their funds of entities that invest in Iran’s energy sector and would cut assistance to countries whose companies conducted sanctionable investment in Iran. Perkovich, George and Revati Prasad. A Pipeline to Peace. Op-Ed, in New York Times, April 18, 2005.