Order Code RS20871
Updated January 25July 9, 2007
The Iran Sanctions Act (ISA)
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Summary
No firms have been sanctioned under the Iran Sanctions Act (ISA). Set to expire
in August 2006, bills in the 109th Congress, H.R. 282 (passed by the House on April 26,
2006), S. 333, and H.R. 6198 extended it and added provisions to apply it more strictly.
The latter bill, (P.L. 109-293, signed September 30, 2006),legislation in the 109th Congress (the “Iran Freedom Support Act, P.L.
109-293) extended it until December
31, 2011, changed its name from the Iran-Libya Sanctions Act (ILSA) to ISA by
terminating application to Libya, and allows substantial Administration flexibility in
applying the new provisions. This report will be updated. See also CRS Report
RL32048, Iran: 31, 2011, terminated application to Libya, and
added provisions, although with substantial Administration flexibility in
implementation. Proposed ISA-related legislation in the 110th Congress, such as H.R.
1400, would remove some of that flexibility. 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 ofISA
The Iran Sanctions Act, originally called the Iran-Libya Sanctions Act (ILSA), was
introduced during a tightening of U.S. sanctions on Iran during
the first term of the Clinton
Administration. In response to Iran’s stepped up nuclear
program and its support to
terrorist organizations (Hizbollah, Hamas, and Palestine
Islamic Jihad), President Clinton
issued Executive Order 12957 (March 15, 1995), which
bannedbanning U.S. investment in Iran’s
energy sector, and Executive Order 12959 (May 6,
1995), which bannedbanning U.S. trade with and
investment in that countryIran. The Clinton
Administration and many in Congress maintained that these sanctions would deprive Iran
of the ability to acquire weapons of mass destruction (WMD) and to fund terrorist groups
sanctions would curb the strategic threat from Iran by hindering its ability to modernize
its key petroleum sector. That sector, which generates about
20% of Iran’s GDP. Iran’s onshore oil
fields, as well as its oil industry infrastructure,
were are aging and neededneed substantial investment,
and its large natural gas resources (940
trillion cubic feet, exceeded only by those of
Russia) were not developed at all at the time
ILSA ISA was first considered.
U.S. allies refused to sanction Iran in the mid-1990s, and the Clinton Administration
and Congress believed that it might be necessary for the United States to try to deter
foreign their
investment in Iran. The opportunity to 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 after the February 1979 Islamic revolution on the grounds that foreign firms
would gain undue control over Iran’s resources. To accommodate that philosophy while
CRS-2
attracting needed foreign help, Iran developed . To
accommodate Iran’s philosophy to retain control of its national resources, Iran developed
a “buy-back” investment program under
in which foreign firms recoup their investments from
the proceeds of oil and gas discoveries
but do not receive equity stakes.
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Some in Congress, with input from the Clinton Administration, developed legislation
to sanction such investment. On September 8, 1995, Senator Alfonse D’Amato
introduced the Iran Foreign Oil Sanctions Act of 1995 to sanction foreign firms’ exportexports
to Iran of energy technology. The bill passed the Senate on December 18, 1995 (voice
vote) but, in response to criticism that U.S. monitoring of consideration of the difficulty of monitoring foreign exports to Iran would
be too difficult to implement, ,
sanctioned foreign investment in Iran’s energy sector. On
December 20, 1995, the Senate passed still
passed another version that appliedapplying all provisions to
Libya as well, which at the time was stillwas refusing to
yield for trial the two Libyan
intelligence agents suspected in the December 21, 1988,
bombing of Pan Am 103. The
House passed its version of the bill, H.R. 3107, on June 19, 1996 (415-0). The Senate
passed a slightly different version on July 16, 1996 (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 renewal maintained
that both countries would view ILSA’s expiration as a concession, reducing incentive for
further moderation. Renewal legislation (H.R. 1954) was enacted in the 107th Congress
(P.L. 107-24, August 3, 2001); it 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 that ILSA be repealed.
Key Provisions. ILSA
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. ISA requires the President to impose at least two out of a menu
of sixseven 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 (Section 6)
are: (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 militarilyuseful technology to the entity; (3) denial of U.S. bank loans exceeding $10 million in one
year to the entity; (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 and following).
The In the original law, the President may waive the
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
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).
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national interest (Section 9(c)). It terminated application to Iran if Iran ceases its efforts
to acquire WMD and is removed from the U.S. list of state
sponsors of terrorism. ILSA no longer appliesIts
application to Libya ifterminated when the President determinesdetermined on April 23, 2004, that
Libya hashad fulfilled the requirements of all U.N. resolutions relating to the downing of Pan
Am 103. (President Bush made that Libya certification on April 23, 2004.)
Early Reaction. on Pan Am 103.
Traditionally skeptical of economic sanctions as a policy tool,
European Union
states opposed ILSA, at first enactment,ISA as an extraterritorial application
of U.S. law. The EU threatened formal counter-action of U.S. law and threatened counteraction in the World Trade Organization
(WTO), and in (WTO). In April 1997, the United States and the
EU formally agreed to try to avoid
a trade confrontation over it (and a separate “Helms-BurtonHelmsBurton” Cuba sanctions law, P.L.
104-114). The agreement contributed to a May 18,
1998, decision by the Clinton
Administration to waive ILSA sanctions (“national interest”
grounds under— Section 9(c))
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. For
its part, the EU pledged to increase cooperation with the United States on nonproliferation and counter-terrorism. The Administration 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.
Modifications in the 109th Congress
As the 109th Congress expressed increasing concern about Iran’s expanding nuclear
program, ILSA was to terminate on August 5, 2006, unless renewed. Some Members
were also concerned that its provisions were not being applied to purported violators
because of Administration diplomatic considerations. ILSA-related legislation in the
109th Congress included the “Iran Freedom and Support Act,” H.R. 282 (Rep. RosLehtinen) and a companion, S. 333 (Sen. Santorum). These bills would not only extend
ILSA indefinitely but would also close some perceived ILSA loopholes and authorize
funding for pro-democracy activities in Iran. In particular, these bills increased the
requirements on the Administration to justify waiving sanctions on companies determined
to have violated ILSA provisions; made exports to Iran of WMD-useful technology or
“destabilizing numbers and types of” advanced conventional weaponry sanctionable; set
a 90-day time limit for the Administration to determine whether an investment constitutes
a violation of ILSA (there was no time limit previously); and increased 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 also cut U.S. foreign assistance to countries whose companies have
violated ILSA’s provisions and applied the U.S. trade ban on Iran to foreign subsidiaries
of U.S. companies. H.R. 282 was reported out by the House International Committee on
March 15, 2006, by a vote of 37-3, with slight amendment. The House passed it on April
26, 397-21. S. 333 had 61 co-sponsors as of June 21, 2006. To prevent ILSA expiration
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.
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while these bills were being considered, H.R. 5877, extending ILSA until September 29,
2006, was passed by both chambers and signed on August 4, 2006 (P.L. 109-267).
As the 109th Congress was completing its work, a House bill, H.R. 6198, addressed
the Administration’s concerns that H.R. 282 and S. 333 did not allow sufficient
Administration flexibility in their application. H.R. 6198, introduced on September 27,
2006, recommends, but does not require, a 180-day time limit for a determination of
violation. It also recommends against U.S. nuclear agreements with countries that have
supplied nuclear technology to Iran. It does not apply the trade ban to foreign subsidiaries
of U.S. firms, but it does make sanctionable sales of WMD-useful technology or
“destabilizing numbers and types of” advanced conventional weaponry. H.R. 6198 also
extends ILSA until December 31, 2011, and contains a provision to try to prevent moneylaundering by criminal groups, terrorists, or entities involved in proliferating WMD, and
it drops Libya from ILSA, as requested by the Administration. H.R. 6198 was passed by
the House and Senate by voice vote and unanimous consent, respectively, and President
Bush signed it on September 30, 2006 (P.L. 109-293). It formally changes the name of
the law to the Iran Sanctions Act (ISA).
Effectiveness and Ongoing Challenges
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 actual sanctions would not likely be imposed. Since the 1998 Total SA
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 projects have been determined to be violations or not since then. Still, some
energy experts believe that investment would have been much more extensive if not for
both ILSA as well as Iran’s stringent terms and purported aggressive negotiating style.
The new investment has not boosted Iran’s sustainable oil production significantly — it
is still about 4 million barrels per day (mbd)3 — and an analysis published by the National
Academy of Sciences says that Iranian oil exports are declining to the point where Iran
might have negligible exports of oil by 2015.4 Some questioned the study’s conclusions,
and others maintain that Iran’s gas sector, virtually non-existent in 1998, is becoming an
increasingly important factor in Iran’s energy future as a result of foreign investment.
Successive Administrations have wrestled with applications of ISA to some kinds
of international dealings with Iran. ISA’s definition of “investment” does not specifically
mention as violations 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 the law, because these routes would
“directly and significantly contribut[e] to the enhancement of Iran’s ability to develop
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
Stern, Roger. “The Iranian Petroleum Crisis and United States National Security,” Proceedings
of the National Academy of Sciences of the United States of America. Dec. 26, 2006.
CRS-5
petroleum resources.”5 The Clinton Administration used that argument to deter energy
routes involving Iran and thereby successfully promote an alternate 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 ISA to accommodate the needs of key regional allies for energy
supplies. A few weeks after ILSA was first 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 the law 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 sanctions on the project.
Further tests of ISA are looming, and some of the large, long-term deals between Iran
and Indian, Chinese, and Malaysian firms, listed below, have the potential to significantly
enhance Iran’s energy export prospects. The value of some of these agreements appears
to include long-term contracts to purchase Iranian oil and gas. A related deal, particularly
those involving Indian firms,6 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 to $7 billion project, which is
planned to begin construction in 2007 and to 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.” No U.S. official has directly
stated that it would be considered a violation of ILSA. 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 was no change in Administration opposition to it. Aside
from commercial considerations, the volatility of relations between India and Pakistan
could derail the project at any time.
The ISA is not the only mechanism available to the United States to try to limit
investment in Iran. The U.S. Treasury and State Departments have begun using U.S. trade
regulations to pressure European banks not to do business with Iran, with significant
effect on Iran. On December 20, 2005, the Treasury Department had fined Dutch bank
ABN Amro $80 million for failing to fully report the processing of financial transactions
involving Iran’s Bank Melli (and another bank partially owned by Libya). In 2004, the
5
6
This definition of sanctionable activity is contained in Section 5(a) of ILSA.
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.
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Treasury Department fined UBS $100 million for the unauthorized movement of U.S.
dollars to Iran and other sanctioned countries, and it and three other European banks,
HSBC (Britain), Credit Suisse (Switzerland), and Germany’s Commerzbank A.G, have
stopped dollar transactions from within Iran or pursuit of new business in Iran. The
restrictions on financing are, according to Iranian and outside observers, making it more
difficult to fund energy industry and other projects in Iran. On December 20, 2006, Iran’s
Oil Minister, Kazem Vaziri-Hamaneh, said “Currently, overseas banks and financiers
have decreased their co-operation,” and Iran would need to tap into a reserve fund to
finance some pending projects.
Post-1999 Foreign Investment in Iran Energy Sector
Date
Field
Company(ies)
Feb. 1999 Doroud (oil)
Totalfina Elf/ENI
Apr. 1999 Balal (oil)
Value
Output Goal
$1 billion
205,000 bpd
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)
$1.9 billion
2 billion cu.ft./day
July 2000
Phase 4 and 5, South Pars
(gas)
ENI
Mar. 2001 Caspian Sea oil exploration
GVA Consultants (Sweden) $225 million
June 2001 Darkhovin (oil)
ENI
May 2002 Masjid-e-Soleyman (oil)
Sep. 2002
Phase 9 and 10, South Pars
(gas)
$1 billion
160,000 bpd
Sheer Energy (Canada)
$80 million
25,000 bpd
LG (South Korea)
$1.6 billion
Oct. 2002 Phase 6, 7, 8, South Pars (gas) Statoil (Norway)
$2.65 billion
3 billion cu.ft./day
Feb. 2004 Azadegan (oil)
Inpex (Japan) 10% stake
$200 million
Japan stake
260,000 bpd
Oct. 2004 Yadavaran (oil)
Sinopec (China) and
ONGC (India)
$70 billion
(includes gas
purchases for
30 years)
300,000 bpd
June 2006 Gamsar block (oil)
Sinopec (China)
Jan. 2007
Golshan and Ferdows
(offshore gas)
SKS Ventures (Malaysia)
Totals
$50 million
unknown
$20 billion
(includes
downstream
development
and
transportation)
100 million cu.ft/day
$100 billion+
Oil: 1.2 million bpd
Gas: 5.1 billion
cu.ft/day+
$16 billion
3.6 billion cu.ft/day
Pending Deals
North Pars Gas Field (offshore gas)
China National Offshore
Oil Co.
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 (March 31, 1992) and 883 (November 11, 1993).
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-3
States on non-proliferation and counter-terrorism. The Administration indicated that EU
firms would likely receive waivers for future similar projects.
ISA 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 renewal maintained
that both countries would view its expiration as a concession. Renewal legislation was
enacted in the 107th Congress (P.L. 107-24, August 3, 2001); it changed the definition of
investment to treat any additions to pre-existing investment as new investment, and
required an Administration report on ISA’s effectiveness within 24 to 30 months of
enactment. That report was submitted to Congress in January 2004 and did not
recommend that ISA be repealed.
Modifications in the 109th Congress
During the 109th Congress, with U.S. concern about Iran’s nuclear program
increasing, ISA was to terminate on August 5, 2006. Some Members, concerned that its
provisions were not being applied to purported violators because of Administration
diplomatic considerations, introduced the “Iran Freedom and Support Act” (H.R. 282,
S. 333) to extend ISA indefinitely, to close some perceived loopholes, and to authorize
funding for pro-democracy activities in Iran. These bills increased the requirements on
the Administration to justify waiving sanctions on companies determined to have violated
ISA, made exports to Iran of WMD-useful technology or “destabilizing numbers and
types of” advanced conventional weaponry sanctionable, set a 90-day time limit for the
Administration to determine whether an investment constitutes a violation of ISA (there
is no time limit in the original law), and increased the threshold for terminating ISA. H.R.
282 also cut U.S. foreign assistance to countries whose companies have violated ISA and
applied the U.S. trade ban on Iran to foreign subsidiaries of U.S. companies. H.R. 282
was reported out by the House International Committee on March 15, 2006, by a vote of
37-3, with slight amendment. The House passed it on April 26, 397-21. S. 333 had 61
co-sponsors as of June 21, 2006. To prevent ISA expiration while these bills were being
considered, H.R. 5877, extending it until September 29, 2006, was passed and signed on
August 4, 2006 (P.L. 109-267).
Toward the end of the 109th Congress, H.R. 6198, a modified version of H.R. 282,
was introduced to address Administration concerns that H.R. 282 and S. 333 did not
allow sufficient Administration flexibility. It made sanctionable sales of WMD-useful
technology or “destabilizing numbers and types of” advanced conventional weapons and
adds a required determination that Iran “poses no significant threat” in order to terminate
application to Iran, a provision close to that contained in H.R. 282. It recommended, but
did not require, a 180-day time limit for a determination of violation and changed the
multi-lateral sanctions waiver provision (“4(c) waiver,” see above) to a national security
interest waiver. The law also recommended against U.S. nuclear agreements with
countries that have supplied nuclear technology to Iran, extended ISA until December 31,
2011, dropped Libya from ISA, and contained a provision to try to prevent moneylaundering by criminal groups, terrorists, or proliferators. It was passed by the House and
Senate by voice vote and unanimous consent, respectively, and was signed on September
30, 2006 (P.L. 109-293). It changed the name of ILSA to the Iran Sanctions Act (ISA).
CRS-4
Effectiveness and Ongoing Challenges
Some believe ILSA slowed Iran’s energy development initially, but, as shown by the
projects agreed to below, its deterrent effect appeared to weaken as foreign companies
began to perceive that sanctions could be avoided. The projects listed are said to be
under review for ISA sanctions by the State Department (Bureau of Economic Affairs),
but no determinations have been announced. State Department reports to Congress on
ISA, required every six months, state that U.S. diplomats raise U.S. policy concerns about
Iran with both investing companies and their parent countries. Most of the projects agreed
before 2004 are underway and, in many cases, now producing gas or oil. Still, some
energy experts believe that investment would have been much more extensive if not for
both ISA as well as Iran’s purported aggressive negotiating style. The new investment
has not boosted Iran’s sustainable oil production significantly — it is still about 4 million
barrels per day (mbd)3 — and an analysis published by the National Academy of Sciences
says that Iranian oil exports are declining to the point where Iran might have negligible
exports of oil by 2015.4 Some questioned the study’s conclusions, and others maintain
that Iran’s gas sector, virtually non-existent in 1998, is becoming an increasingly
important factor in Iran’s energy future as a result of foreign investment.
ISA’s definition of “investment” does not specifically mention oil or gas purchases
from Iran, or the building of energy transit routes to or through Iran. However, the
Clinton and Bush Administration position has been that the construction of energy routes
would violate the law, because these routes would “directly and significantly contribut[e]
to the enhancement of Iran’s ability to develop petroleum resources.”5 The Clinton
Administration used that argument to deter energy routes involving Iran and thereby
successfully promote an alternate route from Azerbaijan (Baku) to Turkey (Ceyhan). This
route became operational in 2005. However, neither Administration imposed sanctions
on another project viewed as beneficial to U.S. ally Turkey: a natural gas pipeline from
Iran to Turkey (each country constructing the pipeline on its side of their border). In July
1997, the State Department said that the project did not violate ISA because Turkey would
be importing gas from Turkmenistan, not Iran, and would therefore not benefit Iran’s
energy sector directly. However, direct Iranian gas exports to Turkey began in 2001, in
apparent contravention of Turkey’s pledges. It is not clear whether or not Iranian
investments in energy projects in other countries, such as reputed Iranian investment to
help build five oil refineries in Asia (China, Indonesia, Malaysia, and Singapore) and in
Syria, would constitute sanctionable investment under ISA.
Further tests of ISA are looming, and some of the large, long-term deals between Iran
and Indian, Chinese, and Malaysian firms, listed below, have the potential to significantly
enhance Iran’s energy export prospects. On the other hand, some of these deals are
believed to be preliminary agreements that might not necessarily be implemented. Most
of the value of these agreements includes long-term contracts to purchase Iranian oil and
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
Stern, Roger. “The Iranian Petroleum Crisis and United States National Security,” Proceedings
of the National Academy of Sciences of the United States of America. December 26, 2006.
5
This definition of sanctionable activity is contained in Section 5(a) of ILSA.
CRS-5
gas, and the exact investment amounts for the exploration and production phases of these
projects are not known. A related deal, particularly those involving Indian firms,6 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 to $7 billion project, which is planned to begin construction in 2007 and
to be completed by 2010. Since January 2007, the three countries have agreed on various
outstanding issues, including a pricing formula and the Indian and Pakistani split of the
gas supplies, but talks continue on several unresolved issues, including the pipeline route,
security, transportation tariffs, and related issues. U.S. officials, including Secretary of
State Rice, have “expressed U.S. concern” about the pipeline deal or have called it
“unacceptable,” but no U.S. official has stated outright that it would be sanctioned.
ISA is not the only mechanism available to the United States to try to limit
investment in Iran. Undersecretary of State Burns told Congress on March 29, 2007, that
U.S. officials are having some success persuading European governments to limit new
export credits guarantees to Iran. This result is due not only to U.S. diplomacy but also
to U.S. presentations of the financial risk posed by providing credit to Iran. The
Organization for Economic Cooperation and Development (OECD) in 2006 raised the
financial risk rating for Iran. The U.S. Treasury and State Departments have begun using
U.S. financial regulations in an apparently successful effort to pressure European banks
not to provide letters of credit for exports to Iran or to process dollar transactions for
Iranian banks. Undersecretary of State Burns and Undersecretary of the Treasury Stuart
Levey testified on March 21, 2007, that “... many leading foreign banks have either scaled
back dramatically or terminated entirely their Iran-related business ... concluding that they
simply did not wish to be a banker for a regime that deliberately conceals the nature of its
illicit business.” The restrictions on financing are, according to Iranian and outside
observers, making it more difficult to fund energy industry and other projects in Iran.
Proposed Further Amendments
In the 110th Congress, H.R. 1400 contains numerous provisions, some of which
pertain to ISA, others of which do not. For all its major provisions, see CRS Report
RL32048, Iran: U.S.Concerns and Policy Responses. Among ISA-related provisions,
H.R. 1400 would remove the Administration’s ability to waive application of sanctions
under ISA under Section 9(c), national interest grounds. However, the bill would not
impose on the Administration a time limit to determine whether a project is sanctionable.
Both it and other bills, its Senate counterpart S. 970, and another House bill, H.R. 957,
would expand the definitions of sanctionable entities to official credit guarantee agencies,
such as France’s COFACE and Germany’s Hermes, and apply ISA sanctions to
investment in Iran’s efforts to develop a liquified natural gas (LNG) sector; Iran currently
has no LNG export terminals. H.R. 1400 also would require the President to impose the
ban on U.S. procurement from any entity sanctioned under ISA, and impose one other of
the menu of sanctions. Another bill, H.R. 1357, would require government pension funds
6
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
to divest of shares in firms that have made ISA-sanctionable investments in Iran’s energy
sector, and call on private pension funds to divest as well. H.R. 2880 would make
sanctionable any sales to Iran of refined petroleum resources after December 31, 2007.
This latter bill apparently seeks to express support for possible U.N. Security Council
sanctions, said to be under consideration, to ban gasoline sales to Iran.
Post-1999 Foreign Investment in Iran’s Energy Sector
Date
Company(ies)
Value
Feb. 1999 Doroud (oil)
Totalfina Elf (France)/ENI
(Italy)
$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
Field
Phase 4 and 5, South Pars (gas) ENI
Mar. 2001 Caspian Sea oil exploration
GVA Consultants (Sweden)
June 2001 Darkhovin (oil)
ENI
May 2002 Masjid-e-Soleyman (oil)
Sep. 2002
Phase 9 and 10, South Pars
(gas)
?
$1.9 billion
2 billion
cu.ft./day
$225 million
?
$1 billion
160,000 bpd
Sheer Energy (Canada)
$80 million
25,000 bpd
LG (South Korea)
$1.6 billion
?
$2.65 billion
3 billion
cu.ft./day
Oct. 2002 Phase 6, 7, 8, South Pars (gas) Statoil (Norway)
$200 million Japan
stake
260,000 bpd
$70 billion (value
Yadavaran (oil); deal includes Sinopec (China) and ONGC
of exploration not
gas purchases for 30 years
(India)
known)
300,000 bpd
Feb. 2004 Azadegan (oil)
Oct. 2004
Output Goal
June 2006 Gamsar block (oil)
Inpex (Japan) 10% stake
Sinopec (China)
Totals
$50 million
?
$80 billion+
Oil: 1.2 million
bpd
Gas: 5 billion
cu.ft/day+
Pending Deals/Preliminary Agreements
Golshan and Ferdows (offshore gas,
includes downstream development and
transportation)
SKS Ventures (Malaysia)
North Pars Gas Field (offshore gas)
China National Offshore
Oil Co.
Phase 13 and 14 - South Pars (gas);
includes building a liquified natural gas
(LNG) terminal
Royal Dutch Shell and
Repsol (Spain)
$20 billion
$16 billion
(includes
purchases of the
gas
$10 billion
100 million
cu.ft/day
3.6 billion
cu.ft/day
?