Order Code RL32048
CRS Report for Congress
Received through the CRS Web
Iran: U.S. Concerns and
Policy Responses
Updated July 20, 2004
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Iran: U.S. Concerns and Policy Responses
Summary
The Bush Administration has generally continued the Iran policies of previous
administrations by attempting to contain Iran while pursuing limited engagement
with it. At times, the Administration has appeared to favor a strategy of regime
change, although without taking concrete steps in that direction. During the previous
Administration, signs of moderation in Iran had stimulated the United States to try
to engage Iran in broad, official talks. Relations took a downturn after the September
11, 2001, attacks on the United States when the issue of international terrorism took
center stage. President Bush singled out Iran, North Korea, and Iraq as part of an
“axis of evil” in his January 29, 2002, State of the Union message. Since then,
common interests in stability in post-conflict Afghanistan and post-Saddam Iraq have
led to occasional direct contact.
Iran’s alleged efforts to acquire weapons of mass destruction (WMD) and
delivery means, coupled with its support of terrorist groups, have long been key U.S.
concerns. The Bush Administration and many in Congress are expressing strong
suspicions of Iran’s nuclear intentions; these concerns have been heightened by
reported major strides in Iran’s nuclear program and halting and incomplete
cooperation with a strict program of International Atomic Energy Agency (IAEA)
inspections and safeguards. Another U.S. concern has been Iran’s active opposition
to the U.S.-led Middle East peace process, including material support to Hizballah
in Lebanon and such Palestinian groups as Hamas and Palestinian Islamic Jihad. Iran
was quietly helpful in the U.S. effort to oust Iraq’s Saddam Hussein, a longtime
Tehran adversary, although Iran reportedly is supporting Shiite Islamic factions there
that do not espouse most Western values. Some senior Al Qaeda activists are in Iran
as well, although Iran claims they are “in custody” and will be tried. Iran’s human
rights practices and limits on democracy are frequently criticized by U.S. officials
and Members.
The Bush Administration reportedly has been mulling a series of further policy
options to curb Iran’s nuclear program and other aspects of Iranian policy it finds
objectionable. These options included the adoption of a regime change policy,
military action against suspected nuclear facilities, and a push for international
sanctions to supplement U.S. unilateral sanctions already in force. U.S. sanctions
currently in effect ban or strictly limit U.S. trade, aid, and investment in Iran, and
penalize foreign firms that invest in Iran’s energy sector. Some believe that Iran has
elements of democracy, including presidential elections, that could enable direct U.S.
engagement with Iran to yield progress on the nuclear as well as other major issues.
According to this view, new sanctions or military action could harden Iran’s positions
without necessarily easing the potential threat posed by Iran.
For further information, see CRS Report RS21592, Iran’s Nuclear Program:
Recent Developments, and CRS Report RS21548, Iran’s Ballistic Missile
Capabilities. This report will be updated as warranted by developments.

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Contents
Threat Assessments and U.S. Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability and Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2004 Political Crisis and February 2004 Majlis Elections . . . . . . . . . . . 3
Major Dissidents and Anti-Regime Groups . . . . . . . . . . . . . . . . . . . . . . 4
People’s Mojahedin Organization of Iran (PMOI) . . . . . . . . . . . . . . . . 5
Pro-Shah Activists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Human Rights Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Religious Persecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Trial of 13 Jews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . 7
Nuclear Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
October 21, 2003, Joint Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Chemical and Biological Weapons . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Missiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Foreign Policy and Support for Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . 12
Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Supporting Anti-Peace Process Groups . . . . . . . . . . . . . . . . . . . . . . . . 15
Relations With Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . 16
Al Qaeda/Afghanistan/Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
U.S. Policy Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Bush Administration Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Regime Change Policy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Engagement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Military Action? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
International Sanctions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Bam Earthquake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Counternarcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Iran-Libya Sanctions Act (ILSA) . . . . . . . . . . . . . . . . . . . . . . . . . 26
Caspian/Central Asian Energy Routes Through Iran . . . . . . . . . . . . . . 27
Allied Country Policies Toward Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Britain/France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Japan-Iran Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Multilateral/International Lending to Iran . . . . . . . . . . . . . . . . . . . . . . 28
WTO Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Travel Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Assets Disputes/Victims of Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . 30
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

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Iran: U.S. Concerns and
Policy Responses
Threat Assessments and U.S. Concerns
Part of the debate over U.S. policy toward Iran centers on the nature of the
current regime. Some experts believe that Iran is a threat to U.S. interests because
hardliners in Iran’s regime continue to dominate and set a policy direction intended
to challenge the United States’ pre-eminent influence in the region. The elements of
that challenge include attempting to acquire weapons of mass destruction (WMD),
supporting terrorist groups, and, in some past cases, backing dissident movements
attempting to destabilize pro-U.S. regimes in the region. Others believe that common
strategic interests in stability in Central Asia and the Persian Gulf could drive Iran
to become a potential ally of the United States on at least some issues. In the view
of some, this process could occur whether or not moderates prevail politically inside
Iran. Still others maintain that Iran will constitute a major threat to U.S. interests
unless and until all elements of the current regime are removed and replaced with a
non-Islamic, pro-Western government.
Political History
The United States was an ally of the late Shah of Iran, Mohammad Reza Pahlavi
(“the Shah”), who ruled from 1941 until his ouster in February 1979. The Shah
assumed the throne when Britain and Russia forced his father, Reza Shah Pahlavi
(Reza Shah), from power because of his perceived alignment with Germany in World
War II. Reza Shah had assumed power in 1921 when, as an officer in Iran’s only
military force, the Cossack Brigade, he launched a coup against the government of
the Qajar Dynasty.
The Shah was anti-Communist, and the United States viewed his government
as a bulwark against the expansion of Soviet influence in the Persian Gulf. In 1951,
he appointed a popular nationalist parliamentarian, Dr. Mohammad Mossadeq, as
Prime Minister. Mossadeq was widely considered left-leaning, and the United States
was wary of his policies, which included his drive for nationalization of the oil
industry. Mossadeq’s followers began an uprising in August 1953 when the Shah
tried to dismiss Mossadeq, and the Shah fled. The Shah was restored in a CIA-
supported coup that year, and Mossadeq was arrested.
The Shah tried to modernize Iran and orient it toward the West, but in so doing
he also tried to limit the influence and freedoms of Iran’s Shiite clergy. He exiled
Ayatollah Ruhollah Khomeini in 1964 because of Khomeini’s active opposition to
the Shah, opposition based on the Shah’s anti-clerical policies and what Khomeini
alleged was the Shah’s forfeiture of Iran’s sovereignty to its patron, the United States.

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Khomeini settled in and taught in Najaf, Iraq, before going to France in 1978,
from which he stoked the Islamic revolution. Mass demonstrations and guerrilla
activity by pro-Khomeini forces, allied with a broad array of anti-Shah activists,
caused the Shah’s government to collapse in February 1979. Khomeini returned
from France and, on February 11, 1979, declared an Islamic Republic of Iran. The
Islamic republic is characterized by direct participation in government by Shiite
Islamic theologians, a principle known as velayat-e-faqih (rule by a supreme Islamic
jurisprudent). Khomeini was strongly anti-West and particularly anti-U.S., and
relations between the United States and the Islamic Republic turned hostile even
before the November 4, 1979, seizure of the U.S. Embassy by pro-Khomeini radicals.
Regime Stability and Human Rights
After about a decade as leader of the revolution, Ayatollah Khomeini died on
June 3, 1989. His regime continues, now led by his clerical disciples. Upon
Khomeini’s death, Ayatollah Ali Khamene’i, then serving as president, was named
Supreme Leader. Khamene’i had been elected president in 1981 and was re-elected
in 1985. Khamene’i lacks the unquestioned spiritual and political authority of
Khomeini, but Khamene’i appears to face no direct threats to his position.
The United States does not have a declared policy of changing Iran’s regime,
although some who favor a regime change policy point to a growing movement by
pro-reform elements against the more conservative clerics that still dominate Iran’s
top leadership. Since February 2002, Director of Central Intelligence (DCI) George
Tenet has been saying that Iran’s reform movement is “losing momentum” to the
“unelected” hardliners, including the Supreme Leader, Ayatollah Ali Khamene’i
(successor to Ayatollah Khomeini) who controls appointments to key institutions
such as the twelve-member (six clerics and six lawyers) Council of Guardians and
the military. Khamene’i was not elected Supreme Leader upon Khomeini’s death,
but was selected by an “Assembly of Experts” that chooses the person who will fill
that position and can amend Iran’s constitution. The Assembly of Experts is an
elected body. Even before the February 2004 victory in parliamentary elections by
conservatives, Khamene’i and his allies had largely constrained the influence of the
elected President, Mohammad Khatemi, who was re-elected on June 8, 2001 by a
landslide 77% of the vote against nine more conservative candidates. Khatemi
remains popular, by most accounts. His reelection victory was larger than his 69%
first win in May 1997. His supporters held about 70% of the seats in the 2000-2004
Majlis after their victory in the February 18, 2000, elections.
Khatemi is a mid-ranking cleric, one rank below Ayatollah. He served as
Minister of Culture and Islamic Guidance in the early 1990s. He was dismissed from
that post in 1993 because of criticism that he was allowing Western cultural material
to receive wider distribution in Iran. From his dismissal until his election in 1997,
he was head of Iran’s national library. He derives key political support from a
reformist grouping called the Islamic Iran Participation Front, headed by his brother,
Mohammad Reza Khatemi, who was a deputy speaker in the 2000-2004 Majlis.
Another group, the student-led Office for Consolidation and Unity, is generally pro-
Khatemi but has reportedly become somewhat critical of him for failing to challenge
the hardliners assertively. A third major pro-Khatemi grouping is the Mojahedin of
the Islamic Revolution organization (MIR), composed mainly of left-leaning Iranian

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figures who, during the 1980s, sought greater state control of the economy and export
of Iran’s Islamic revolution to other countries in the region. A fourth grouping
considered supportive of Khatemi and the reformists is the Society of Combatant
Clerics. A prominent member of that grouping is Mehdi Karrubi, who was speaker
of the 2000-2004 Majlis. Karrubi is a possible candidate to run for president in 2005
elections; another possible reformist candidate is former Culture Minister Ataollah
Mohajerani.
Despite Khatemi’s popularity, the hardliners thwarted many of his programs and
initiatives. Since early 2000, hardliners in the judiciary have closed more than 70
reformist newspapers, although many have tended to reopen under new names, and
imprisoned or questioned several editors and even some members of the Majlis.
Since mid-2002, Khatemi, partly in response to his reformist critics, became more
vocal in criticizing obstructions by hardliners, and in late August 2002, he proposed
new legislation that would strengthen the power of his office; it was passed by the
elected 290 seat Majlis (parliament) but was blocked by the Council of Guardians.
Khatemi suffered his first electoral setback in February 28, 2003 local elections, with
hardliners winning most of the seats from Tehran in a low turnout (14%) election that
suggested reformist disillusionment at the slow pace of reform.
Indications of popular dissatisfaction re-surfaced with major student
demonstrations on June 8, 2003, the fourth anniversary of the violent suppression of
students and others who were rioting in favor of faster reform. Some of the 2003
protesters called for Khatemi to resign for being ineffective in promoting reform.
President Bush issued statements in support of the demonstrators, although Secretary
of State Powell said the protests represented a “family fight” within Iran in which the
United States should not seek a role. Press reports say as many as four students
might have been killed by regime security forces during the days of protest.
2004 Political Crisis and February 2004 Majlis Elections. The power
struggle caused a crisis in the run-up to the February 20, 2004, Majlis elections. The
hardliner-dominated Council of Guardians disqualified about 3,600 mostly reformist
candidates for the upcoming election, including 83 members of the current Majlis.
(The disbarred incumbents included deputy speakers Mohammad Reza Khatemi and
Behzad Nabavi.) Khatemi and Majlis leaders attempted to resolve the crisis in talks
with Khamene’i, but the Council of Guardians refused to strictly follow Khamene’i’s
urging to reinstate most candidates; the body restored eligibility for about 1,100
disbarred candidates but increased the number of disqualified incumbents to 87. The
Interior Ministry (which ran the elections) and many reformists said the elections
should have been postponed in order to be free and fair. However, Khatemi said he
would obey Khamene’i’s directive to hold the elections on time.
Khatemi’s party grouping (the Iran Participation Front) boycotted the elections
and urged a general boycott, but some reformist factions continued to participate. As
was widely predicted before the election, conservatives fared well and won a majority
— about 155 out of the 290 Majlis seats. Turnout was about 51%, according to the
reformist-controlled Interior Ministry, signaling that Iranians did not necessarily
answer the call of some reformists not to participate. Iran’s official media, controlled
by conservatives, put the turnout at about 60%, while some reformists said turnout
was only about 35%. On May 3, 2004, Khatemi issued a statement that reform of the

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CRS-4
system was “inevitable” and suggesting that those blocking reforms were a minority
who would eventually be compelled to give way for reform.
As a result of the election-related maneuvering, a moderate-conservative
grouping called the Builders of Islamic Iran, led by former Labor Minister Ahmad
Tavakkoli, emerged as a key bloc in the new Majlis. The chairman of the
Expediency Council, former two-term president (1989-1997) Ali Akbar Hashemi-
Rafsanjani, has seen his influence bolstered; he is considered the patron of many
conservatives in the Majlis. One of his allies, the Secretary General of the Supreme
National Security Council Hassan Rouhani, a defense and foreign policy
decisionmaking body, is touted as a possible candidate for president in 2005.
Several governments, the United States and the European Union countries,
criticized the election as unfair because of the widespread disqualification of the
reformists. Just before the elections, on February 12, 2004, the Senate passed by
unanimous consent S.Res. 304, expressing the sense of the Senate that the United
States should not support the elections (because of the exclusion of many reformist
candidates) and should advocate “democratic government” in Iran. After the
elections, on February 24, 2004, President Bush said “I join many in Iran and around
the world in condemning the Iranian regime’s efforts to stifle freedom of speech. I
am very disappointed.” A reported CIA assessment said the election dealt a severe
blow to the reformists and that the election might deepen popular discontent with the
clerical regime, but that Iran’s foreign and defense policies would likely not change
much because decisions on these issues were already largely in the hands of
Khamene’i and other conservatives.1
Major Dissidents and Anti-Regime Groups. In addition to the reformist
camp that seeks to moderate the Islamic system of government from within the
political structure, several major dissidents and opposition groups seek more
sweeping change. One dissident cleric, Ayatollah Hossein Ali Montazeri, was
released in January 2003 from several years of house arrest. In September 2003, he
criticized the seizure of the U.S. Embassy in 1979 as well as the core principle of the
revolution: direct participation in government by the clerics. He had been
Khomeini’s designated successor until 1989, when Khomeini dismissed Montazeri
for allegedly protecting liberal intellectuals and other opponents of clerical rule. He
remains under scrutiny by the regime, according to several press reports. Other
prominent dissidents include exiled theoretician Abd al-Karim Soroush, former
Interior Minister Abdollah Nuri, and political activist Hashem Aghajari of the MIR,
who was initially sentenced to death for blasphemy but whose sentence was
overturned on review.
Some believe that the United States should support exiled opposition groups,
which are banned inside Iran and seek the outright replacement rather than reform of
the current regime. According to available information, no exile group is currently
funded by the United States. In 1995, the Clinton Administration accepted a
House-Senate conference agreement to include $18-$20 million in funding authority
1 Jehl, Douglas. CIA Says Election in Iran Dealt Blow to Reform. New York Times,
February 26, 2004.

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for covert operations against Iran in the FY1996 intelligence authorization act (H.R.
1655, P.L. 104-93), about $14 million more than requested, according to a
Washington Post report of December 22, 1995. The Clinton Administration
reportedly focused the covert aid on changing the regime’s behavior, rather than its
overthrow. The conference report on H.R. 2267 (H.Rept. 105-405), the FY1998
Commerce/State/ Justice appropriation, provided an initial $4 million for a “Radio
Free Iran,” to be run by Radio Free Europe/Radio Liberty (RFE/RL). The radio,
which the Administration called the Farsi service of RFE/RL, began operations in
Prague on October 31, 1998, and has become, as of December 2002, Radio Farda
(“Tomorrow” in Farsi), which broadcasts nearly around the clock. Another U.S.-
sponsored TV broadcast service to Iran, under the auspices of the Voice of America,
began operations on July 3, 2003.
People’s Mojahedin Organization of Iran (PMOI). One major exiled
opposition group is the People’s Mojahedin Organization of Iran (PMOI). Since the
late 1980s, the State Department has refused contact with the PMOI and its umbrella
organization, the National Council of Resistance (NCR). The PMOI, formed in the
1960s to try to overthrow the Shah of Iran, advocated Marxism blended with Islamic
tenets. It allied with pro-Khomeini forces during the Islamic revolution but was later
excluded from power and forced into exile and into the underground. The State
Department designated the PMOI as a foreign terrorist organization (FTO) in
October 1997 under the Anti-Terrorism and Effective Death Penalty Act of 1996, and
the NCR was named as an alias of the PMOI in the October 1999 re-designations.
The FTO designation was prompted by PMOI attacks in Iran that sometimes killed
or injured civilians, and its alleged killing of seven American defense advisers to the
former Shah in 1975-76. In November 2002, a letter signed by about 150 House
Members was released, asking the President to remove the PMOI from the FTO list.
U.S. forces attacked PMOI military installations in Iraq during Operation Iraqi
Freedom and, after temporarily agreeing to a ceasefire with PMOI military elements
in Iraq, subsequently confined them to their Ashraf camp near the border with Iran.
Press reports in late May 2003 said some Administration officials, particularly in the
Defense Department, want the group removed from the FTO list and a U.S. alliance
with the group against the Tehran regime.2 However, on August 14, 2003, the State
Department designated the NCR offices in the United States an alias of the PMOI
and NCR and ordered those facilities closed. National Security Adviser Condoleezza
Rice said in mid-November 2003 that the United States is unambiguously treating the
group as a terrorist organization. In December 2003, Iraq’s Governing Council voted
to expel members of the group from Iraq, although the Council was not sovereign in
Iraq and the fate of the PMOI detainees at the Ashraf camp might be subject to
negotiations between U.S. officials in Iraq and a new interim government that took
office on June 28, 2004.
In other action against the group, on June 17, 2003, France arrested about 170
PMOI members, including its co-leader Maryam Rajavi (wife of PMOI founder
Masoud Rajavi, who is still based in Iraq.) She was subsequently released. For
2 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal, May 12, 2003.

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further information, see CRS Report RL31119, Terrorism: Near Eastern Groups and
State Sponsors, 2002.
Pro-Shah Activists. Some Iranians follow the U.S.-based son of the late
former Shah. On January 24, 2001, the son, Reza Pahlavi, who is about 46 years old,
ended a long period of inactivity by giving a speech in Washington calling for unity
in opposition to the current regime as well as the institution of a constitutional
monarchy and genuine democracy in Iran. He has since broadcast messages into Iran
from Iranian exile-run stations in California, and press reports say a growing number
of Iranians inside Iran are listening to his broadcasts, although he is not believed to
have a major following there.3 Deputy Secretary of State Armitage testified before
the Senate Foreign Relations Committee on October 28, 2003, that the United States
might consider, on a case-by-case basis, providing funds to Iranian exile stations,
using funds from the broader Middle East Partnership Initiative. (That program is
an effort to promote democracy in the Middle East, but the State Department has
determined that funds from this program, which are Economic Support Funds, cannot
be used in Iran.) He also testified that, following a request to the Cuban government,
the jamming from Cuba of Iranian exile and U.S. broadcasting to Iran had ceased; the
jamming was carried out by Iranians in Cuba, not the Cuban government, according
to Armitage.
Human Rights Record. Recent U.S. Administrations, including the State
Department’s human rights report for 2003 released February 25, 2004, have harshly
criticized Iran’s human rights record. U.S. policy has not generally considered Iran’s
human rights record as a strategic threat to U.S. interests or an obstacle to the
beginning of a U.S.-Iran dialogue. U.S. and U.N. human rights reports cite Iran for
widespread human rights abuses (especially of the Baha’i faith), including
assassinations and executions of regime opponents (Kurds, People’s Mojahedin, and
others) in Iran and abroad. These reports note that Khatemi’s efforts to promote rule
of law have met repeated challenges from hardliners. One major recent case was the
apparent beating death while in Iranian detention of a Canadian journalist of Iranian
origin, Zahra Kazemi. She had been detained in early July 2003 for filming outside
Tehran’s Evin prison. The trial of an intelligence agent who allegedly conducted the
beating was abruptly suspended on July 18, 2004, pending a verdict.
Iran’s hardliners significantly downplayed the naming in October 2003 of
Iranian human rights/women’s rights lawyer Shirin Ebadi as winner of the Nobel
Peace prize. Reformist newspapers acknowledged and at least mildly praised her
award. In the 108th Congress, resolutions (S.Res. 82 and H.Res. 140) were
introduced on March 12, 2003, expressing concern over Iran’s human rights record,
particularly its treatment of women.
Religious Persecution. By almost all accounts, religious persecution
continues, especially against the Baha’i community, because Iran’s Shiite Muslim
clergy views the sect as heretical. Two Baha’is (Dhabihullah Mahrami and Musa
Talibi) were sentenced to death in 1996 for apostasy. On July 21, 1998, Iran
3 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, August 26, 2002.

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executed Ruhollah Ruhani, the first Bahai executed since 1992 (Bahman Samandari).
The United States condemned the execution. In February 2000, Iran’s Supreme
Court set aside the death sentences against three other Baha’is. On April 21, 1999,
the Clinton Administration expressed concern about the sentencing to prison of four
Baha’is. Several congressional resolutions have condemned Iran’s treatment of the
Baha’is, including S.Con.Res. 57, which passed the Senate July 19, 2000, and
H.Con.Res. 257, which passed the House on September 19, 2000. In the 108th
Congress, H.Con.Res. 319 contained sense of Congress language on the Baha’is
similar to that in previous years. Since March 1999, the State Department has each
year named Iran as a “Country of Particular Concern,” under the International
Religious Freedom Act, and little progress in Iran’s performance on this issue was
noted in the December 2003 international religious freedom report. No sanctions
have been added because of this designation, on the grounds that Iran is already
subject to extensive U.S. sanctions.
Trial of 13 Jews. Although the 30,000-member Jewish community (the
largest in the Middle East aside from Israel) enjoys more freedoms than Jewish
communities in several other Muslim states, during 1993-1998, Iran executed five
Jews allegedly spying for Israel. In June 1999, Iran arrested 13 Jews, who were
teachers, shopkeepers, and butchers, from the Shiraz area that it said were part of an
“espionage ring” for Israel. After an April - June 2000 trial, ten of the Jews and two
Muslims accomplices were convicted (July 1, 2000) and received sentences ranging
from 4 years to 13 years. Three Jews were acquitted. On September 21, 2000, a
three-judge appeals panel reduced the sentences slightly, now ranging from two to
nine years. On February 8, 2001, Iran’s Supreme Court let the revised sentences
stand. In March 2001, Iran released one of the Jews on the grounds that his sentence
included time served; another was released on January 16, 2002; and three more were
given early release in October 2002. Iran said on April 24, 2003, that the remaining
five had been released.
Iran’s Strategic Capabilities and Weapons of
Mass Destruction Programs
For the past two decades, the United States has sought to contain the strategic
threat posed by Iran’s WMD programs. Iran is not considered a major conventional
threat to the United States, but some of its weapons of mass destruction (WMD)
programs, particularly its nuclear and ballistic missile programs, have made
significant progress and could potentially put U.S. allies and forces at risk.
Iran’s armed forces total about 550,000 personnel, including both the regular
military and the Revolutionary Guard. The latter is generally loyal to the hardliners
and, according to some recent press reports, becoming more assertive in political
decisions. Guard personnel recently closed part of a new airport in Tehran when the
government chose a foreign contractor to run the airport.
Iran’s ground forces are likely more than sufficient to deter or fend off
conventional threats from Iran’s relatively weak neighbors such as post-war Iraq,
Turkmenistan, Azerbaijan, and Afghanistan. Iran has tried to maintain good relations
with its more militarily capable neighbors such as Turkey and Pakistan. According

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CRS-8
to U.S. military officials, Iran’s forces could block the Strait of Hormuz at the
entrance to the Persian Gulf, at least temporarily. However, Iran is largely lacking
in logistical ability to project power far beyond its borders. No military tensions are
currently evident between Iran and U.S. military forces in the Persian Gulf region,
and U.S. military officials say that their encounters with Iranian naval vessels in the
Gulf have been more professional since Khatemi took office.
Iran’s conventional capabilities have concerned successive U.S. Administrations
far less than have Iran’s attempts to acquire weapons of mass destruction (WMD).
Partly because of recent acceleration of some of Iran’s WMD programs, particularly
its nuclear program, President Bush, in his January 29, 2002 State of the Union
message, labeled Iran part of an “axis of evil” along with Iraq and North Korea.
Iran may see WMD, particularly the acquisition of a nuclear weapons capability,
as a means of ending its perceived historic vulnerability to U.S. domination, or as a
symbol of Iran’s perception of itself as a major nation. Some observers see Iran’s
WMD programs as an instrument for Iran to dominate the Persian Gulf region. There
are also fears Iran might transfer WMD to some of the extremist groups it supports,
such as Lebanese Hizbollah, although there is no evidence to date that Iran has taken
any steps in that direction. Iran’s programs continue to be assisted primarily by
entities in Russia, China, and North Korea. For further information, see CRS Report
RL30551, Iran: Arms and Weapons of Mass Destruction Suppliers.
Nuclear Program.4 U.S. and European concerns about the scope of Iran’s
nuclear program have grown over the past few years, and U.S. and European policies
have largely converged on the issue. The Bush Administration asserts that Iran is
working toward a nuclear weapons capability, that it has violated its obligations
under the 1968 Nuclear Non-Proliferation Treaty (NPT), and that Iran’s assertions
that its nuclear program is for peaceful purposes only are not credible. On June 18,
2003, President Bush stated that the United States would “not tolerate construction”
of a nuclear weapon by Iran, and he told journalists on April 21, 2004, that Iran “will
be dealt with, starting through the United Nations,” if it does not fully cooperate with
International Atomic Energy Agency (IAEA) inspections. No specific consequences
have been threatened to date, but the Bush Administration, unsatisfied with progress
on curbing Iran’s nuclear program, appears to want to begin discussing with U.S.
allies and others the possible imposition of international economic sanctions.5 In
contrast to the U.S. position, IAEA director Mohammad El Baradei has said that the
“jury is still out” on whether Iran is trying to develop a nuclear weapon. IAEA
Director General Mohammad Baradei met with President Bush on March 17, 2004,
and Iran was reportedly a focus of their discussions; Baradei said after the meeting
that U.S.-Iran talks could be a key to resolving outstanding nuclear issues.
A congressional resolution, H.Con.Res. 398, passed the House on May 6, 2004,
by a vote of 376-13; it calls for all parties to the NPT, including the United States,
to use “all appropriate means to deter, dissuade, and prevent Iran from acquiring
4 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments.
5 “U.S. Wants Iran Breaches Reported to U.N. Council.” Reuters, June 18, 2004.

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nuclear weapons, including ending all nuclear and other cooperation with Iran...”
The resolution calls on U.S. allies and others to cease investing in Iran and to
cooperate with IAEA investigations into foreign assistance to Iran’s nuclear program.
After years of public and governmental assessments of Iran’s nuclear program
— assessments that acknowledged substantial uncertainty about the quality and
amount of firm information — U.S. and European suspicions were heightened
considerably in December 2002 when Iran confirmed PMOI and other allegations
that it was building two additional facilities, at Arak and Natanz, that could be used
to produce fissile material that could be used for a nuclear weapon. Natanz could
produce enriched uranium by 2005, and the Arak facility reportedly is a heavy water
production plant. Heavy water is used in a reactor that is considered ideal for the
production of plutonium. These revelations, coupled with other information that has
been produced from recent IAEA visits to Iran, has caused some observers to
estimate that by some time in 2005, Iran’s nuclear program will have advanced to the
point at which it cannot be curbed.6
Despite the stepped up international attention and European and other support
for the U.S. position, throughout most of 2003 Iran still refused to sign the
“Additional Protocol” to the NPT, which would allow for enhanced inspections. Iran
did modify its safeguards agreement to provide advanced notice of new nuclear
facilities construction. On September 12, 2003, the IAEA Board of Governors
adopted a statement giving Iran until the end of October 2003 to provide additional
information that would prove that it is not working on a nuclear weapon. The setting
of the deadline came amid IAEA reports that it had found some highly enriched
uranium at two sites in Iran, (Natanz and the Kalaye Electrical Company).
At the same time, Russia, despite its own growing concerns about Iran’s
intentions, has been working to complete a nuclear power plant at Bushehr, a project
implemented under a January 1995 contract with Iran. Iran said in October 2003 it
would sign an agreement under which Russia would reprocess the plant’s spent
nuclear material, but no firm agreement has been signed to date. Russian officials
say the accord is ready for signature and might be signed in the fall of 2004 during
a planned visit by the head of Russia’s nuclear agency. The recent new revelations
about Iran’s nuclear program have apparently made Russia more skeptical of Iran’s
promises, and work on Bushehr was halted temporarily during 2003, and the plant
is not expected to become operational until some time in 2005.7 Russian President
Vladimir Putin, after meeting with President Bush on September 27, 2003, said the
Bushehr project would resume but that Russia would contribute to the international
effort to ensure that Iran does not develop a nuclear weapon. IAEA Director Baradei
said in June 2004 that the Bushehr project itself is not a cause for international
concern as accelerating an Iranian nuclear program.
October 21, 2003, Joint Statement. With pressure growing on Iran to
meet the October deadline for full disclosure, the foreign ministers of Germany,
6 Iran’s Mushrooming Threat. Washington Times editorial. June 16, 2004.
7 Isachenkov, Vladimir. “Russia to Ship Nuclear Fuel to Iran Even Without Stricter U.N.
Monitoring.” Associated Press, June 2003.

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France, and Britain accepted an invitation from Iran to visit. On October 21, the
three countries and Iran issued a joint statement in which Iran pledged, in return for
promises of future exports of peaceful nuclear technology, the following:
! to fully disclose to the IAEA all aspects of its past nuclear activities;
! to sign and ratify the Additional Protocol; and
! to temporarily suspend uranium enrichment activities.
On October 22, Iran handed over to the IAEA a thick file that it said detailed all
its nuclear activities. U.S. officials, including President Bush, said the European-
Iranian agreement represented progress and a “positive development,” but that Iran
would ultimately be judged by its implementation. Some outside experts maintain
that the joint statement did not ensure that Iran could not use an alternate route, such
as plutonium production, to develop nuclear weapons.8 Khamene’i publicly backed
the deal in early November 2003, amid demonstrations against the deal by Iranian
hardliners. Iran signed the Additional Protocol on December 18, 2003 and says it
will abide by its provisions, although the Majlis has not yet ratified it.
In its November 10, 2003 and February 24, 2004 reports, the IAEA said that Iran
had committed violations of its agreements, including unreported uranium
enrichment, over an 18-year period, and that Iran did not declare designs, found in
Iran by the IAEA in early 2004, of advanced uranium enrichment centrifuges, parts
of which Iran made itself. The latter report added that traces of both highly enriched
and low-enriched uranium had been found at two sites in Iran.9 The latter report
added that the Iranian military has been involved in manufacturing centrifuge
equipment. IAEA board resolutions adopted after these reports condemned Iran’s
previous violations and said Iran had not resolved outstanding issues, but welcomed
what cooperation Iran has been providing.
The IAEA last visited Iran in mid-April 2004 to verify Iran’s pledge that it had
stopped manufacturing centrifuges for uranium enrichment. The IAEA issued
another report on May 31, 2004, which said Iran is continuing to make parts and
materials that could be used in a nuclear weapons program. On June 18, 2004, amid
reports Iran had bulldozed or altered suspected nuclear sites, the IAEA adopted
another resolution rebuking Iran for failing to clear up questions about highly
enriched uranium found in Iran and Iran’s efforts to build or acquire enrichment
centrifuge equipment. The United States said after the adoption of the resolution that
Iran’s lack of full compliance should be reported to the United Nations Security
Council, which would have the power to impose economic sanctions. After the
rebuke, Iran said it would resume building centrifuges for uranium enrichment,
although it said it remained committed to suspending actual enrichment activity.
Iran has become connected to allegations that the founder of Pakistan’s nuclear
weapons program, Abdul Qadeer (A.Q.) Khan, sold Iran and other countries (Libya,
North Korea) nuclear technology and designs. In late January 2004, Pakistan’s
8 Milhollin, Gary. “The Mullahs and the Bomb.” New York Times, October 23, 2003.
9 Murphy, Francois. U.N. Watchdog Accuses Iran of Unanswered Questions. Reuters,
February 25, 2004.

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CRS-11
government said its investigation concluded that at least two nuclear scientists,
including Khan, provided unauthorized assistance to Iran’s nuclear weapons program
during the 1980s.10 In February 2004, Khan publicly admitted selling such goods to
Iran, Libya, and North Korea.
Chemical and Biological Weapons. Official U.S. reports and testimony,
particularly the semi-annual CIA reports to Congress on WMD acquisitions
worldwide, state that Iran is seeking a self-sufficient chemical weapons
infrastructure, mainly from Chinese sources, and that it is stockpiling chemical
weapons, including blister, blood, and choking agents. This raises questions about
Iran’s compliance with its obligations under the Chemical Weapons Convention
(CWC), which Iran signed on January 13, 1993, and ratified on June 8, 1997. Recent
CIA reports to Congress say Iran may have some capability to produce biological
agents, but that its ability to make weapons from them is limited.11
Missiles. Largely with Russian help, Iran is making progress in its missile
program. Two of its first three tests of the 800-mile range Shahab-3 (July 1998, July
2000, and September 2000) reportedly were inconclusive or unsuccessful, but Iran
conducted an apparently successful series of final tests in June 2003, subsequently
calling the missile operational and formally delivered several of them to the
Revolutionary Guard. Iran publicly displayed six Shahab-3 missiles in a parade on
September 22, 2003. If the missile is operational with the capabilities Iran claims,
that would put virtually all of Iran’s potential regional adversaries, including Israel,
as well as U.S. bases in Turkey, within reach. Iran is also trying to make a 1,200
mile range Shahab-4, but U.S. officials told journalists in late October 2002 that an
Iranian test of an extended-range Shahab had failed. Other press reports in August
2003 said Iran is in talks with North Korea to procure copies of that country’s
“Taepodong 2” missile, which would enable Iran to strike Europe and East Asia. On
November 7, possibly as a confidence-building measure to coincide with its nuclear
agreement with the European foreign ministers, Iran said it would abandon
development of the Shahab-4.
In March 2002, an intelligence community official upgraded the missile threat
from Iran, testifying that the United States would “most likely” face an
intercontinental ballistic missile threat from Iran by 2015.12 On September 6, 2002,
Iran said it successfully tested a 200 mile range “Fateh 110” missile, and Iran said in
late September 2002 that it had begun production of the missile.13 (For more
information, see CRS Report RS21548, Iran’s Ballistic Missile Capabilities.)
10 Lancaster, John and Kamran Khan. Pakistanis Say Nuclear Scientists Aided Iran.
Washington Post, January 24, 2004.
11 “Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons
of Mass Destruction and Advanced Conventional Munitions, 1 January Through 30 June
2002” [http://www.cia.gov/cia/reports/721_reports/jan_jun2002.html].
12 “Greater U.S. Concern About Iran Missile Capability.” Reuters, March 11, 2002.
13 “Iran: New Missile on the Assembly Line.” New York Times, September 26, 2002.

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Foreign Policy and Support for Terrorism
Iran’s support for terrorist groups has long concerned U.S. Administrations,
particularly since it gives Tehran an opportunity to try to obstruct the U.S.-led Middle
East peace process. Tehran contends that the Arab-Israeli peace process is inherently
weighted toward Israel, a U.S. ally, and cannot result in a fair outcome for the
Palestinians. Iran’s continued support for anti-Israel terrorism contributed to
President Bush’s strong criticism of Iran in his 2002 State of the Union message.
The State Department report on international terrorism for 2003, released April 30,
2004, again stated, as it has for most of the past decade, that Iran “remained the most
active state sponsor of terrorism in 2002,” although the report attributes the terrorist
activity to two hardline institutions — the Revolutionary Guard and the Intelligence
Ministry.14 (See also CRS Report RL31119, Terrorism: Near Eastern Groups and
State Sponsors, 2002.)
Analysts see Iran’s support for terrorist groups as one element in a broader
foreign policy.15 Its policy is a product of the ideology of Iran’s Islamic revolution,
blended with and sometimes tempered by longstanding national interests that predate
the Islamic revolution. Iran has tried to establish relatively normal relations with
most of its neighbors, but, in its relations with some neighbors it has tried to actively
influence internal events by promoting minority or anti-establishment factions.
Persian Gulf States. During the 1980s and early 1990s, according to U.S.
officials and outside experts, Iran sponsored Shiite Muslim extremist groups opposed
to the monarchy states of the 6-member Gulf Cooperation Council (GCC; Saudi
Arabia, Kuwait, Bahrain, Qatar, Oman, and the United Arab Emirates). These
activities appeared to represent an effort by Iran to structure the Gulf region to its
advantage by “exporting” its Islamic revolution. However, Iran’s efforts were
unsuccessful, and led the Gulf states to ally closely with the United States to confront
Iran. By the mid-1990s, Iran began to shift more away from confrontation with the
Gulf states — a policy shift that accelerated after the election of Mohammad
Khatemi as president. Khatemi has largely succeeded in improving relations with the
Gulf states by reducing support for Shiite dissident movements there. (See CRS
Report RL31533, Persian Gulf States: Post-War Issues for U.S. Policy, 2003.)
Many observers closely watch the relationship between Iran and Saudi Arabia
as an indicator of Iran’s overall posture in the Gulf. During the 1980s, Iran
sponsored disruptive demonstrations at annual Hajj pilgrimages in Mecca, some of
which were violent, and Iran sponsored Saudi Shiite dissident movements. Iran and
Saudi Arabia restored relations in December 1991 (after a four-year break), and
progressively higher level contacts have taken place since December 1997. In May
1999, Khatemi became the first senior Iranian leader to visit Saudi Arabia since the
Islamic revolution; he visited again on September 11, 2002. Supreme Leader
Khamene’i has been invited to visit the Kingdom as well but has not done so. The
exchanges suggest that Saudi Arabia has tried to move beyond the issue of the June
14 U.S. Department of State. Patterns of Global Terrorism:2002. Released April 2003
15 Kemp, Geoffrey. Forever Enemies? American Policy and the Islamic Republic of Iran.
Carnegie Endowment for International Peace, 1994. Pp. 82-88.

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25, 1996, Khobar Towers housing complex bombing, which killed 19 U.S. airmen,
and was believed by some to have been orchestrated by Iranian agents.16
On June 21, 2001, a federal grand jury in the United States indicted 14 suspects,
13 Saudis and a Lebanese citizen, for that bombing. The indictment indicated that
Iranian agents may have been involved, but no indictments of any Iranians were
announced. In June 2002, Saudi Arabia reportedly sentenced some of the eleven
Saudi suspects held there. On December 18, 2003, former FBI Director Louis Freeh
testified in a civil trial on behalf of American victims of the Khobar bombing, saying
that there was “overwhelming evidence” that senior Iranian officials directed and
financed that bombing. (See CRS Issue Brief IB93113, Saudi Arabia: Postwar
Issues and U.S. Relations.)
Relations between Iran and the United Arab Emirates (UAE) have been strained
since April 1992, when Iran asserted complete control of the Persian Gulf island of
Abu Musa, which it and the UAE shared under a 1971 bilateral agreement. (In 1971,
Iran, then ruled by the U.S.-backed Shah, seized two other islands, Greater and
Lesser Tunb, from the emirate of Ras al-Khaymah, as well as part of Abu Musa from
the emirate of Sharjah.) The UAE wants to refer the dispute to the International
Court of Justice (ICJ), but Iran insists on resolving the issue bilaterally. In concert
with Iran’s reduction of support for Gulf dissident movements, UAE-Iran tensions
have eased substantially, but Iran maintains it has sovereignty over the islands. The
United States, which is concerned about Iran’s military control over the islands,
supports UAE proposals but takes no position on sovereignty.
Qatar is wary that Iran might seek to encroach on its large North Field (natural
gas), which it shares with Iran (the Iranian side is called South Pars). The North field
is in operation and produces natural gas for export; Iran’s side of the field is at an
earlier stage of exploitation. Qatar’s fears were heightened on April 26, 2004, when
Iran’s deputy Oil Minister said that Qatar is probably producing more gas than “her
right share” from the field and that Iran “will not allow” its wealth to be used by
others.
Iraq. Senior U.S. officials have, on several occasions since the fall of Saddam
Hussein on April 9, 2003, warned Iran not to interfere in post-war Iraq by trying to
establish a pro-Iranian Islamic republic there. U.S. officials, including Defense
Secretary Donald Rumsfeld, have said they will not accept an Iran-style Islamic
republic in post-Saddam Iraq. Iran publicly opposed the major U.S. military
offensive against Iraq on the grounds that it was not authorized by the United
Nations, but many observers believe Iran was relieved to see its erstwhile nemesis
Saddam Hussein removed and hoped his fall would bring to power pro-Iranian Shiite
Muslim groups.17 Iran welcomed Iraq’s Governing Council as a legitimate authority
when it was appointed in July 2003, and it pledged some, mainly in-kind, assistance
for Iraq’s reconstruction at the October 23-24, 2003, donors conference in Madrid.
16 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001.
17 “Iran’s Kharrazi Hopes for Shiite Role in Iraq.” Reuters, April 9, 2003.

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Recently, as violence in Iraq has escalated, Iran has criticized the U.S. presence in
Iraq as repressive of the Iraqi people while failing to stabilize Iraq.
The main thrust of Iran’s strategy in Iraq appears to be to persuade all Shiite
Islamist factions in Iraq to work together to ensure Shiite Muslim dominance of post-
Saddam Iraq. Iran’s primary proteges in Iraq are Shiite Islamist groups based in
southern Iraq, groups that Iran has supported since its 1979 Islamic revolution. The
most pro-Iranian of these parties is the Supreme Council for the Islamic Revolution
in Iraq (SCIRI), followed closely by the Da’wa (Islamic Call) party. SCIRI was
headed by Ayatollah Mohammad Baqr al-Hakim, the late Ayatollah Khomeini’s
choice to head an Islamic republic in Iraq, and who returned to Iraq on May 10, 2003.
He was killed in a major car bombing in Najaf on August 29, 2003, conducted by
unknown assailants, and was succeeded as SCIRI head by his younger brother, Abd
al-Aziz al-Hakim. Since then, Tehran has continued to expand ties to Grand
Ayatollah Ali al-Sistani, the 75-year-old Shiite cleric who is emerging as the leading
Shiite political figure in Iraq. He was born in Iran, moving to Najaf, Iraq at the age
of 21. Sistani is taking strong stands on U.S. plans for political transition in Iraq, but
Sistani has, throughout his career, differed with Iran’s doctrine of direct clerical
involvement in government.
Some reports allege that Iran is backing radical Shiite cleric Moqtada al-Sadr,
whose followers have staged an uprising against U.S. and allied forces in Iraq since
early April 2004.18 However, Sadr is viewed as a challenger to Sistani and the other
mainstream Shiite Islamist groups, and backing him might appear contrary to
Tehran’s overall strategy for Iraq, and therefore unlikely. On the other hand, it is
possible that some in Iran might want to engage Sadr to bring him into the broader
Iraqi Shiite fold or to ensure that Iran has contact with him should he prevail in any
internal Iraqi power struggle.
Iran reportedly might have used its influence in Iraq to develop sources of
information on U.S. operations in Iraq. Press reports say Iraqi political leader Ahmad
Chalabi gave his Iranian contacts information on U.S. acquisition of Iranian
intelligence codes.19 Chalabi has denied the allegations. Some experts say that most
Iraqi Shiites generally stayed loyal to the Iraqi regime during the 1980-1988 Iran-Iraq
war and oppose any extensive Iranian influence over post-Saddam Iraq. (For more
information on Shiite and other contenders for power in Iraq, see CRS Report
RL31339, Iraq: U.S. Regime Change Efforts and Post-Saddam Governance.)
On June 21, 2004, Iran seized eight British seamen on a mission in the waterway
between Iran and southern Iraq. Iran released the British personnel after a few days’
detention, although Britain says Iran had steered the British personnel into Iranian
waters. The seizure could be related to a reported Iranian buildup of military force
in areas near the border with Iraq, and other reports of Iranian attempts to move the
Iranian border slightly into territory that now belongs to Iraq. The Iranian
18 Wong, Edward. “Iran Is In Strong Position to Steer Iraq’s Political Future.” New York
Times, July 3, 2004.
19 Risen, James and David Johnston. “Chalabi Reportedly Told Iran That U.S. Had Code.”
New York Times, June 2, 2004.

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conventional military moves at the border could reflect Iranian nervousness about
U.S.-led coalition operations in Iraq or possibly be part of the broader attempt to
bolster Iraqi Shiites politically.
Beginning in 1998, Saddam Hussein had sought to improve relations with Iran
to reduce Iraq’s regional isolation. Iran and Iraq exchanged almost all remaining
prisoners from the Iran-Iraq war. An October 2000 visit to Iraq by Iran’s Foreign
Minister Kamal Kharrazi resulted in agreement to abide by the waterway-sharing and
other provisions of their 1975 Algiers Accords, which Iraq had abrogated prior to its
September 1980 invasion of Iran. In exchange for a share of the proceeds, Iran’s
naval forces sometimes cooperated with Iraq’s illicit export of oil through the Gulf.
Iran did not return the military and civilian aircraft flown to Iran at the start of the
1991 Gulf war, and some post-Saddam Iraqi politicians have said they want Tehran
to return the aircraft now that Saddam is gone.
Supporting Anti-Peace Process Groups. Many of the U.S. concerns
about Iran’s support for terrorism center on its assistance to groups opposed to the
Arab-Israeli peace process, primarily Hamas, Palestinian Islamic Jihad (PIJ),
Hizballah, and the Popular Front for the Liberation of Palestine-General Command.
U.S. terrorism reports, including the State Department report on global terrorism for
2002, said that following the start of the September 2000 Palestinian uprising, Iran
increased its covert support for terrorism by encouraging coordination among
Palestinian terrorist groups. Iran also has sometimes openly incited anti-Israel
violence, including hosting conferences of anti-peace process organizations (April
24, 2001, and June 2-3, 2002). In early January 2002, according to U.S. and Israeli
officials, Iran made a shipment, intercepted by Israel, of 50 tons of arms bought by
the Palestinian Authority (PA). This action surprised many observers because Iran
has traditionally had few ties to the non-Islamist Palestinian organizations, including
elements linked to the PA, that have conducted some of the day-to-day violence
against Israel in the current uprising.
On the other hand, there appear to be differences within Iran’s leadership on
Iran’s policy toward the peace process. Khamene’i has continued to call Israel a
“cancerous tumor” and make other statements suggesting that he seeks Israel’s
destruction. Khatemi, while publicly pledging support for the anti-peace process
groups, has sometimes tried to moderate Iran’s position somewhat. On October 15,
2002, the Iranian Foreign Ministry, considered an institutional ally of Khatemi, said
Iran would not seek to block any final, two-state Israeli-Palestinian settlement.
In early January 2004, Iran said it was close to agreement to restore full
diplomatic ties with Egypt. Iran severed those ties to protest Egypt’s 1979 peace
treaty with Israel. Iran is in the process of meeting an Egyptian demand to rename
a Tehran street that is named after Khalid Islambouli, lead assassin of Anwar as-
Sadat.
A small number (about 200) of Iranian Revolutionary Guards reportedly remain
in Lebanon to coordinate Iranian arms deliveries to Hizballah, which are offloaded

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in Damascus and trucked into Lebanon.20 The shipments have included Stingers
obtained by Iran in Afghanistan, mortars that can reach the Israeli city of Haifa if
fired from southern Lebanon, and, in 2002, over 8,000 Katyusha rockets, according
to Israeli leaders.21 In mid-April 2002, Foreign Minister Kharrazi visited Lebanon
and urged Hizballah to exercise restraint on the Israeli-Lebanese border at a time of
heightened tensions between Israel and the Palestinians. However, Hizballah is
believed by some experts to take its cues from harder line Iranian elements. In May
2003, Khatemi made the first top level Iranian visit to Lebanon since the 1979
revolution. On March 11, 2003, an Argentinian judge issued arrest warrants for four
Iranian diplomats, including former Intelligence Minister Ali Fallahian, for alleged
complicity in the July 18, 1994 bombing of a Jewish community center in Buenos
Aires, which killed 85. Hizballah is believed to have committed the act, as well as
the March 17, 1992 bombing of Israel’s embassy in that city.
Relations With Central Asia and the Caspian. Iran’s policy in Central
Asia has thus far emphasized economic cooperation over Islamic ideology. Iran has
become increasingly assertive in its relations with Azerbaijan, even though that
country’s population, like Iran’s, adheres to Shiite Islam. In early 1992, Iran led the
drive to bring the Central Asian states and Azerbaijan into the Economic Cooperation
Organization (founded in 1985 by Iran, Pakistan, and Turkey, as a successor to an
organization founded by those states in 1964). Iran is hoping to attract energy
pipeline routes through it, rather than through other countries. However, Iran does
host at least one anti-Azerbaijan guerrilla leader (Hasan Javadov), and it allegedly
harbors leaders of the Islamic Movement of Uzbekistan (IMU), including founder
Tahir Yuldashev.
Tensions with Azerbaijan flared in late July 2001 over energy exploration rights
in the Caspian; Iranian warships and combat aircraft threatened a British Petroleum
(BP) ship on contract to Azerbaijan out of an area of the Caspian Iran considers its
own. The United States called that action provocative, and it offered new border
security aid and increased political support to Azerbaijan. Iran and Armenia, an
adversary of Azerbaijan, agreed on expanded defense cooperation in early March
2002. Iran-Azerbaijan tensions eased somewhat in conjunction with the mid-May
2002 visit of Azerbaijan’s President Heydar Aliyev to Iran, although there was little
evident progress on a bilateral division of their portions of the Caspian.
Al Qaeda/Afghanistan/Pakistan. Iran long opposed the puritanical Sunni
Muslim regime of the Taliban in Afghanistan on the grounds that it oppressed Shiite
Muslim and other Persian-speaking minorities. Iran nearly launched a military attack
against the Taliban in September 1998 after Taliban fighters captured and killed
several Iranian diplomats based in northern Afghanistan, and it provided military aid
to the anti-Taliban Northern Alliance coalition, made up of mostly Persian-speaking
minority groups. Iran, along with the United States, Russia, and the countries
bordering Afghanistan, attended U.N.-sponsored meetings in New York (the Six
Plus Two group) to try to end the internal conflict in Afghanistan. Iran and the
20 Wright, Robin. “U.S. Blocks A Key Iran Arms Route to Mideast.” Los Angeles Times,
May 6, 2001.
21 “ Israel’s Peres Says Iran Arming Hizbollah.” Reuters, February 4, 2002.

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United States also participated in a U.N.-sponsored group in Geneva, which includes
Italy and Germany.
Iran tacitly supported the U.S.-led war on the Taliban and Al Qaeda by offering
the United States search and rescue of any downed service-persons and the
transshipment to Afghanistan of humanitarian assistance. However, some of Iran’s
subsequent activities in Afghanistan reflect official suspicion of the United States
and the influence of hardliners in Iran’s regime. Iran is said to fear the pro-U.S. tilt
of the new government of Afghanistan and it is moving to restore Iran’s traditional
sway in western, central, and northern Afghanistan where Persian-speaking Afghans
predominate. There have been press reports and U.S. official statements since
January 2002 that hardliners in Iran have been harboring, or at least not aggressively
moving to arrest, senior Al Qaeda operatives who have fled Afghanistan.22 U.S.
charges on this issue were renewed after the May 12, 2003 bombings in Riyadh,
Saudi Arabia, believed conducted by Al Qaeda, against four expatriate housing
complexes. Recent findings of the U.S. bipartisan commission looking into the
September 11, 2001 attacks assert that Iran and Al Qaeda might have cooperated to
an extent in the Khobar Towers attacks and that several of the September 11
hijackers might have transited Iran. On the latter issue, the September 11
commission reportedly will not assert that the Iranian government cooperated with
or necessarily knew about the September 11 plot, although a Middle Eastern press
report (Sharq al-Awsat) on July 19, 2004, said a senior Iranian revolutionary guard
officer assisted their passage.23 In response to reports of the September 11
commission’s upcoming findings, President Bush said the United States would
continue to investigate possible ties between Iran and Al Qaeda.
Iran has tried to head off some of the criticism that it is tolerant of or even
cooperating with Al Qaeda. On July 23, 2003, Iranian officials, for the first time,
asserted Iran had “in custody” senior Al Qaeda figures, purported to include Al
Qaeda spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl,24 and possibly
also Osama bin Laden’s son, Saad, and Ansar al-Islam (a faction based in Iraq)
operative Abu Musab al-Zarqawi. Iran said in late January 2004 that it would try the
high-ranking Al Qaeda members in Iran, but U.S. officials called on Iran to fulfill its
“international obligations in the global war on terrorism” by turning them over to
their countries of origin for trial. Hardliners in Iran reportedly want to support or
protect Al Qaeda activists as leverage against the United States and its allies. Some
reports say Iran might want, in return for extraditing the Al Qaeda suspects, a U.S.
pledge to hand over to Iran those PMOI activists still in Iraq (see above information
on the PMOI).
Other press reports say Iran is arming local Afghan strongmen including Herat
governor Ismail Khan, Mazar-e-Sharif governor Abdul Rashid Dostam, and others,
and President Bush has warned Iran not to seek to exert influence over the new
22 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires, May 19, 2003.
23 Iran General Helped 9/11 Plotters’ Transit-Report. Reuters, July 19, 2004.
24 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.

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government of Afghanistan. Apparently seeking to deflect the U.S. criticism, in
March 2002 Iran expelled Gulbuddin Hikmatyar, an opponent of the new Afghan
government. The expulsion followed a February 24, 2002, visit to Iran by Afghan
leader Hamid Karzai; the two countries agreed to broad cooperation. (See CRS
Report RL30588, Afghanistan: Current Issues and U.S. Policy Concerns.)
U.S. Policy Responses
The February 11, 1979, fall of the Shah of Iran, a key U.S. ally, opened a long
rift in U.S.-Iranian relations, but there have been several periods since 1997 when
a significant and sustained thawing appeared imminent. On November 4, 1979,
radical “students” seized the U.S. Embassy in Tehran and held its diplomats hostage
until minutes after President Reagan’s inauguration on January 20, 1981. The United
States broke relations with Iran on April 7, 1980, and the two countries had only
limited and mostly indirect official contact thereafter. An exception was the abortive
1985-86 clandestine arms supply relationship with Iran in exchange for some
American hostages held by Hizballah in Lebanon (the so-called “Iran-Contra
Affair”). Despite the Iran-Contra Affair, U.S. policy throughout most of the 1980s
featured a marked tilt toward Iraq in the 1980-88 Iran-Iraq war. The tilt included
U.S. diplomatic attempts to block conventional arms sales to Iran, providing
battlefield intelligence to Iraq,25 and, during 1987-88, direct skirmishes with Iranian
naval elements in the course of U.S. efforts to protect international oil shipments in
the Gulf from Iranian attacks.
The end of the Iran-Iraq war in August 1988 appeared to lay the groundwork for
a reduction in U.S.-Iran hostility. In his January 1989 inaugural speech, President
George H.W. Bush said that, in relations with Iran, “goodwill begets goodwill,”
holding out the prospect for better relations if Iran helped obtain the release of U.S.
hostages held by pro-Iranian groups such as Hizballah in Lebanon. Iran reportedly
did assist in obtaining the release of all U.S. and other Western hostages in Lebanon
by December 1991, but no substantial thaw followed, possibly because Iran
continued to back Hizballah and other groups opposed to the U.S.-sponsored Middle
East peace process. The George H.W. Bush Administration devoted substantial
attention to that process, organizing the October 1991 Madrid Conference that
brought Israel to the table with Syria, Lebanon, Jordan, and the Palestinians.
Upon taking office in 1993, the Clinton Administration moved to further isolate
Iran as part of a strategy of “dual containment” of Iran and Iraq. In 1995 and 1996,
the Clinton Administration and Congress added sanctions on Iran in response to
growing concerns about Iran’s weapons of mass destruction, its support for terrorist
groups, and its efforts to subvert the Arab-Israeli peace process. (For more
information on economic sanctions against Iran, see below.) The election of Khatemi
in May 1997 precipitated a shift in U.S. policy toward engagement; the Clinton
Administration offered Iran official dialogue, with no substantive preconditions. In
25 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis. New York: John Wiley and Sons, 1991. P. 168.

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January 1998, Khatemi publicly agreed to increase “people-to-people” exchanges
with the United States but ruled out direct talks.
In a June 1998 speech, then Secretary of State Albright stepped up the U.S.
outreach effort by calling for mutual confidence building measures that could lead
to a “road map” for normalization of relations. Encouraged by the reformist victory
in Iran’s March 2000 parliamentary elections, Secretary Albright gave another speech
on March 17, 2000, acknowledging past U.S. meddling in Iran, announcing an easing
of sanctions on some Iranian imports, and promising to work to resolve outstanding
claims disputes. Iran called the steps insufficient to warrant direct dialogue. In
September 2000 meetings at the United Nations in connection with the Millennium
Summit, Albright and President Clinton sent a positive signal to Iran by attending
Khatemi’s speeches.
Bush Administration Policy
Until early 2002, the Bush Administration appeared to be continuing the Clinton
Administration efforts to establish formal ties to Iran by building on the cooperation
between the two countries in Afghanistan. The Administration’s November 13, 2001
continuation of the 1979 national emergency on Iran said that U.S. “relations with
Iran have not yet returned to normal,” a far softer statement than previous
justifications sighting a continued threat from Iran. However, because of Iran’s long
sponsorship of terrorist groups, the September 11, 2001 attacks stimulated discussion
of new policy options toward Iran, some of which were intended to isolate and
pressure Iran rather than engage it. As an example of continuing tensions between
the United States and Iran, in late June 2004 the United States expelled two Iranian
guards at Iran’s mission to the United Nations in New York for filming sensitive sites
in New York.
Regime Change Policy? Some believe that only a change of regime would
reduce substantially the strategic threat from Iran because the current regime harbors
ambitions fundamentally at odds with the United States and its values. Many
question the prospects of success for this option because of the weakness of
opposition groups committed to major change of Iran’s regime, as well as the history
of anti-Americanism on the part of some Iranian opposition groups. Others question
whether regime change, even if achievable, could succeed in time to prevent Iran’s
acquiring a nuclear weapons capability.
The Bush Administration has shown some inclination for this option since U.S.-
Iran relations worsened in January 2002 over allegations of Iran’s sale of arms to the
Palestinian Authority and reputed meddling in Afghanistan. President Bush named
Iran as part of an “axis of evil,” along with Iraq and North Korea, in his January
2002 State of the Union message. On July 12, 2002, President Bush issued a
statement supporting those Iranians demonstrating for reform and democracy, a
message he reiterated on December 20, 2002, when he inaugurated a new U.S. radio
broadcast to Iran, Radio Farda (“Tomorrow” in Farsi). The statements appeared to
signal a shift in U.S. policy from attempting to engage and support Khatemi to
publicly supporting Iranian reformers and activists, some of whom believed Khatemi
has made insufficient progress toward reform. These U.S. moves were interpreted
as steps toward a regime change policy for Iran.

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The apparent shift toward a regime change strategy was mirrored in legislation.
Two resolutions introduced in late July 2002 (S.Res. 306 and H.Res. 504) called for
positive U.S. gestures toward “the people of Iran, and not political figures whose
survival depends upon preservation of the current regime.” A Senate bill, S. 1082,
introduced May 19, 2003, by Senator Sam Brownback, has been widely interpreted
as urging support for ideas associated with the son of the late Shah (see above); it
calls for the use of some U.S. funds for the holding of an internationally-monitored
democratic referendum in Iran. A House bill (H.R. 2466), introduced by
Representative Brad Sherman, contains similar provisions and adds sections
reimposing import sanctions on luxury goods from Iran. Elements of these bills,
particularly a section calling on the Administration to try to block international
lending to Iran, were incorporated into the House-passed version of the FY2004
foreign relations authorization bill (H.R. 1950). On July 16, 2004, Senator Santorum
introduced S. 2681, expressing the sense of Congress that U.S. policy toward Iran
should be that of regime change, and authorizing $10 million in U.S. assistance to
pro-democracy groups opposed to Iran’s regime. A July 19, 2004 New York Times
report says Senator Brownback plans to introduce legislation that will contain regime
change provisions with respect to Iran that are similar to those applied to Iraq in a
1998 bill — the Iraq Liberation Act (P.L. 105-338). That bill authorized drawdowns
of U.S. military assistance to anti-Saddam groups.
Congressional sentiment for democracy promotion in Iran manifested in foreign
aid appropriations for FY2004. The FY2004 foreign operations appropriation
provides (H.R. 2673, P.L. 108-199) provides “notwithstanding any other provision
of law” up to $1.5 million for “making grants to educational, humanitarian and non-
governmental organizations and individuals inside Iran to support the advancement
of democracy and human rights in Iran.” The State Department has determined that
the funds cannot be channeled through the Middle East Partnership Initiative,
because that program’s funds are Economic Support Funds (ESF) and cannot be used
in Iran. The $1.5 million “soft earmark” is being used for Iran-related programs run
through the National Endowment for Democracy (NED), funded by the State
Department’s Bureau of Democracy and Labor (DRL). The State Department report
on U.S. efforts to promote democracy and human rights abroad (2003-2004) implies
that U.S. efforts to do so are somewhat limited by lack of U.S. access to Iran, and it
states that “Iran is currently ineligible for most official programmatic assistance from
the United States pursuant to U.S. law,” which could imply that use of U.S. funds for
groups operating inside Iran, as stated in the FY2004 foreign operations law, might
be difficult. Another issue is whether such democracy promotion efforts would be
interpreted within Iran as U.S. meddling — a sensitive issue in Iran — and whether
these programs would reach sufficient numbers of Iranians to be effective.
Toward the end of 2003, the forces within the Bush Administration advocating
regime change policy appeared to diminish. On October 28, 2003, Deputy Secretary
of State Armitage testified before the Senate Foreign Relations Committee that the
United States “does not have a regime change policy toward Iran.” The waning talk
of a regime change policy might have reflected the U.S. difficulty in stabilizing Iraq,
as well as Iran’s pledges in late 2003 to open its nuclear program to greater
international scrutiny.

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CRS-21
Engagement? Some U.S. officials have long believed that a policy of
engagement would be more successful in curbing Iran’s nuclear program and support
for terrorist groups. The Bush Administration has pursued this option to some extent,
despite sometimes appearing to lean toward regime change. In May 2003 both
countries publicly acknowledged that they were conducting direct talks in Geneva on
Afghanistan and Iraq.26 This marked the first confirmed direct dialogue. However,
Iran said the talks did not indicate that the two countries were on the verge of
restoring diplomatic relations. One press report says that, in May 2003, Iran
proposed to the United States a roadmap to normalized relations, but the offer
received no response because of opposition from those in the Administration who do
not believe extensive engagement would yield sufficient benefits.27 The United
States broke off the dialogue, at least temporarily, following the May 12, 2003,
bombing in Riyadh that some press reports say might have been planned by Al Qaeda
activists located in Iran. In the context of increasing U.S. and international pressure
on Iran for its suspected efforts to acquire a nuclear weapons capability, Jordan’s
King Abdullah, after visiting Iran in mid-September 2003, reportedly told the Bush
Administration that he sensed that Iran wanted to resume dialogue with the United
States on Iraq and Afghanistan issues.28 In his October 28, 2003, testimony,
discussed above, Deputy Secretary of State Armitage said the United States is
prepared to resume that dialogue, although Iran has not yet assented to resume those
talks.
On December 29, 2003, following U.S.-Iran contact to coordinate U.S. aid to
victims of the December 2003 earthquake in Bam, Iran, Secretary of State Powell
said that the United States is open to resuming dialogue with Iran. Subsequently,
major U.S. newspapers reported that the Administration asked Iran if it would
welcome a high-level delegation to Iran, headed by Senator Elizabeth Dole and a
Bush family member, to build on the apparent goodwill generated by U.S. earthquake
relief efforts. However, Iran rebuffed the offer of the Dole mission, at least for the
present time, and some Iranian leaders, including Khatemi, said that the cooperation
on earthquake relief would not translate into a major thaw in U.S.-Iran relations. A
congressional resolution, H.Res. 526, passed March 2, 2004, by a vote of 381-0,
expressed sympathy for the Bam earthquake victims.
Further indications of possible engagement came in early 2004. Several
Members of Congress and congressional staff had dinner with visiting Iranian
Representative to the United Nations Mohammad Javad Zarif. At the dinner, U.S-
Iran relations were discussed, as was a trip to Iran by congressional staff.29 Following
26 Wright, Robin. “ U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.
27 Dinmore, Guy. US Split Over Iranian Bid to Renew Relations. London Financial Times,
March 17, 2004.
28 Kessler, Glenn. “Jordan’s King Sees Hope for Iran Talks.” Washington Post, September
18, 2003.
29 Schweid, Barry. “U.S. Congressional Staffers to Visit Iran.” Associated Press, January
30, 2004. The CRS author of this report participated in the dinner.

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CRS-22
public discussion of the proposed staff visit, Iran’s Foreign Minister Kharrazi said
such a visit is “not on our agenda” at this time.30
On the other hand, revelations since February 2004 that Iran has not been
disclosing all aspects of its nuclear program, as promised — coupled with the
February 2004 “Majlis elections crisis” (see above) — have stalled any movement
toward further U.S.-Iran engagement. Although Iran’s conservatives are open to
dialogue with the United States, the Bush Administration has strongly criticized Iran
on both fronts. Two forthcoming research institute reports — one by the Council
on Foreign Relations and one by the Atlantic Council — are expected to recommend
further pursuit of an engagement strategy with Iran, arguing that engagement could
help promote regional stability and progress on issues in which there is U.S.-Iran
agreement.31
Military Action? Even before the October 21, 2003, joint nuclear statement
with the European countries, there was little evidence of any discussion within the
Administration of major U.S. military action to remove Iran’s regime. Among
outside experts, there has been speculation since the U.S.-led war against Iraq (begun
March 19, 2003) that the United States might undertake major military action against
other perceived threats such as Iran or Syria. Some believe that military action
against Iran should be taken if it is demonstrated that Iran has had operational
linkages to Al Qaeda or had prior knowledge of the September 11, 2001 attacks on
the United States. Some supporters of military action against Iran say that U.S.
forces are likely spread too thin, including about 140,000 deployed in Iraq, to
undertake it at this time. Opponents of such action say that U.S. forces would be
greeted with hostility by most Iranians and that Iran already has elements of
democracy that could be promoted without the U.S. use of force.
Some experts believe that the United States should focus first and foremost on
Iran’s nuclear capability, and that limited military action, such as air strikes against
suspected nuclear sites, could be a potentially useful option. Expressing particular
fear that Iran might achieve a nuclear weapons capability, some Israeli officials have
openly discussed the possibility that Israel might strike Iran’s nuclear infrastructure,
although Israel does not necessarily have the capabilities that the United States
possesses that could conceivably make such action effective. U.S. military analysts
note that U.S. forces in the Gulf region could potentially be used against Iran, if the
President so decides. A related option, which might involve U.S. naval forces in the
Gulf, would be to institute searches of Iran-bound vessels suspected of containing
WMD-related technology. The Administration has discussed with its allies a similar
measure that could be used to block North Korea’s technology exports and alleged
drug smuggling,32 an initiative that has won allied support. In contrast, some officials
30 Fox News, February 1, 2004.
31 Wright, Robin. U.S. Faces a Crossroads on Iran Policy. Washington Post, July 19, 2004.
32 Kralev, Thomas. “U.S. Asks Aid Barring Arms From Rogue States.” Washington Times,
June 5, 2003.

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of allied governments, including Britain, have called for greater cooperation with Iran
to curb the movement of smugglers and terrorists across the Persian Gulf.33
International Sanctions? Iran is not subject to U.N. sanctions. However,
the Bush Administration is now seeking referral of Iran’s lack of full compliance on
nuclear issues to the U.N. Security Council for consideration of international
sanctions. If international sanctions are considered, some options that have been
used or considered in similar cases could be imposing an international ban or
limitations on purchases of Iranian oil or other trade, mandating reductions in
diplomatic exchanges with Iran or flight travel to and from Iran, and limiting further
lending to Iran by international financial institutions. It is not certain that the U.N.
Security Council or the boards of directors of international financial institutions
would back such proposals. Versions of some of these options have been sought by
some recent U.S. Administrations and recent legislation, but as discussed below, the
United States has generally had difficulty imposing any formal multilateral sanctions
on Iran. The sections below analyze U.S. sanctions on Iran, as well as past efforts to
persuade U.S. allies and other countries to pressure Iran economically.
U.S. Sanctions
Since the November 4, 1979 seizure of the U.S. hostages in Tehran, U.S.
economic sanctions have formed a major part of U.S. policy toward Iran. On
November 14, 1979, President Carter declared a national emergency with respect to
Iran, renewed every year since 1979. To date, few, if any, other countries have
followed the U.S. lead by imposing sanctions on Iran, and no U.N. sanctions exist on
that country. Some experts believe that U.S. sanctions have hindered Iran’s
economy, forcing it to curb spending on conventional arms purchases, but others
believe that sanctions have had only marginal effect, and that foreign investment has
flowed in despite U.S. sanctions.34 Those who take the latter view maintain that
Iran’s economic performance fluctuates according to the price of oil, and far less so
from other factors. Because oil prices remain relatively high, Iran’s economy is
expected to grow about 4% in 2003. Most analysts seem to agree that sanctions
would have had a far greater effect on Iran if they were multilateral or international.
Terrorism/Foreign Aid Sanctions. In January 1984, following the October
1983 bombing of the U.S. Marine barracks in Lebanon, believed perpetrated by
Hizballah, Iran was added to the so-called “terrorism list.” The terrorism list was
established by Section 6(j) of the Export Administration Act of 1979, imposing
economic sanctions on countries determined to have provided repeated support for
acts of international terrorism. The designation bans direct U.S. financial assistance
and arms sales, restricts sales of U.S. dual use items, and requires the United States
to oppose multilateral lending to the designated countries. Separate from its position
on the terrorism list, successive foreign aid appropriations laws since the late 1980s
ban direct assistance to Iran (loans, credits, insurance, Eximbank credits) and indirect
assistance (U.S. contributions to international organizations that work in Iran).
33 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.
34 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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Section 307 of the Foreign Assistance Act of 1961 (added in 1985) names Iran as
unable to benefit from U.S. contributions to international organizations, and require
proportionate cuts if these institutions work in Iran. Iran also has been designated
every year since 1997 as not cooperating with U.S. anti-terrorism efforts, under the
Anti-Terrorism and Effective Death Penalty Act (P.L. 104-132). That act penalizes
countries that assist or sell arms to terrorism list countries.
U.S. regulations do not bar disaster relief and the United States donated
$125,000, through relief agencies, to help victims of two earthquakes in Iran
(February and May 1997), and another $350,000 worth of aid to the victims of a June
22, 2002 earthquake. (The World Bank is providing some earthquake related lending
as well, as discussed below.)
Bam Earthquake. The United States provided considerable assistance to the
victims of the December 2003 earthquake in Bam, Iran, which might have killed as
many as 50,000 people and destroyed 90% of Bam’s buildings. In response, the
United States flew in 68,000 kilograms of supplies to Bam, flown in by U.S. military
flights — the first U.S. military flights into Iran since the abortive “Iran-Contra
Affair” of 1985-1986. The United States also deployed to Iran an 81-member
Disaster Assistance Response Team (DART) composed of 7 USAID experts, 11
members of the Fairfax County (VA) urban search and rescue team, and 66 medical
experts from the Federal Emergency Management Agency (FEMA). Iranian-
American and other organizations are coordinating donations in the United States for
victims of the quake. On December 27, 2003, the Administration issued a 90-day
amendment to the Iranian Transaction Regulations to authorize U.S. persons to make
donations of funds for humanitarian relief for the earthquake victims. Under the
amendment, Iranian-owned banks can be used to effect the transfer of funds, although
no Iranian financing can be accessed.
Proliferation Sanctions. Several sanctions laws are unique to Iran. The
Iran-Iraq Arms Nonproliferation Act (P.L. 102-484) requires denial of license
applications for exports to Iran of dual use items, and imposes sanctions on foreign
countries that transfer to Iran “destabilizing numbers and types of conventional
weapons,” as well as WMD technology. The Iran Nonproliferation Act (P.L.
106-178) authorizes sanctions on foreign entities that assist Iran’s WMD programs.
It bans U.S. extraordinary payments to the Russian Aviation and Space Agency in
connection with the international space station unless the President can certify that
the agency or entities under the Agency’s control had not transferred any WMD or
missile-related technology to Iran within the year prior. The provision contains
certain exceptions to ensure the safety of astronauts who will use the space station
and for certain space station hardware.
During 2001-2003, a number of entities in North Korea, China, India, Armenia,
and Moldova were sanctioned under the Iran Non-Proliferation Act, the Iran-Iraq
Arms Non-Proliferation Act of 1992 (P.L. 102-484), and another law, the Chemical
and Biological Warfare Elimination Act of 1991, for sales to Iran. In late May 2003,
the Bush Administration sanctioned a major Chinese industrial entity, Norinco, for
allegedly selling missile technology to Iran. On July 4, 2003, an additional Chinese
entity, the Taiwan Foreign Trade General Corporation, was sanctioned under the Iran
Non-Proliferation Act. On September 17, 2003, the Administration imposed

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CRS-25
sanctions on a leading Russian arms manufacturer, the Tula Instrument Design
Bureau, for allegedly selling laser-guided artillery shells to Iran. On April 7, 2004,
the Administration announced sanctions on 13 entities under the Iran Non-
Proliferation Act: Baranov Engine Building Association Overhaul Facility (Russia);
Beijing Institute of Opto-Electronic Technology (China); Belvneshpromservice
(Belarus); Blagoja Smakoski (Macedonia); Changgwang Sinyong Corp. (North
Korea); Norinco (China); China Precision Machinery Import/Export Corporation
(China); Elmstone Service and Trading (UAE); Goodly Industrial Co. (Taiwan);
Mikrosam (Macedonia); Oriental Scientific Instruments Corp. (China); Vadim
Vorobey (Russia); and Zibo Chemical Equipment Plant (China).
Counternarcotics. In February 1987, Iran was first designated as a state that
failed to cooperate with U.S. anti-drug efforts or take adequate steps to control
narcotics production or trafficking. U.S. and U.N. Drug Control Program (UNDCP)
assessments of drug production in Iran prompted the Clinton Administration, on
December 7, 1998, to remove Iran from the U.S. list of major drug producing
countries. The decision exempts Iran from the annual certification process that kept
drug-related U.S. sanctions in place on Iran. According to several governments and
independent observers, over the past few years Iran has augmented security on its
border with Afghanistan in part to prevent the flow of narcotics from that country
into Iran.
Trade Ban. On May 6, 1995, President Clinton issued Executive Order 12959
banning U.S. trade and investment in Iran, including the trading of Iranian oil
overseas by U.S. companies. This followed an earlier March 1995 executive order
barring U.S. investment in Iran’s energy sector. The trade ban was partly intended
to blunt criticism that U.S. trade with Iran made U.S. appeals for multilateral
containment of Iran less credible. Each March since 1995, most recently on March
13, 2003, the U.S. Administration has renewed a declaration of a state of emergency
that triggered the March 1995 investment ban. An August 1997 amendment to the
trade ban (Executive Order 13059) prevented U.S. companies from knowingly
exporting goods to a third country for incorporation into products destined for Iran.
Some goods related to the safe operation of civilian aircraft can be licensed for export
to Iran, and in December 1999, the Clinton Administration allowed the repair of
engine mountings on seven Iran Air 747s (Boeing). Implementing regulations do not
permit U.S. firms to negotiate investment deals with Iran.
Following a 1998 application by a U.S. firm to sell Iran agricultural products,
and in the context of Clinton Administration and congressional reviews of U.S.
unilateral sanctions policies, the Clinton Administration announced in April 1999
that it would license, on a case-by-case basis, commercial sales of food and medical
products to certain countries on which unilateral U.S. trade bans are in place (Iran,
Libya, and Sudan). Under regulations issued in July 1999, private letters of credit
can be used to finance approved sales, but no U.S. government credit guarantees are
available and U.S. exporters are not permitted to deal directly with Iranian banks.
Iran says the lack of credit makes U.S. sales, particularly of wheat, uncompetitive.
The FY2001 agriculture appropriations (P.L. 106-387) contained a provision
banning the use of official credit guarantees for food and medical sales to Iran and
other countries on the U.S. terrorism list, except Cuba, although allowing for a

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presidential waiver to permit such credit guarantees. Neither the Clinton
Administration nor the Bush Administration has provided the credit guarantees.
In the March 2000 speech mentioned above, the trade ban was eased to allow
U.S. importation of Iranian nuts, dried fruits, carpets, and caviar; regulations
governing the imports were issued in April 2000. The United States was the largest
market for Iranian carpets before the 1979 revolution, but U.S. anti-dumping tariffs
imposed on Iranian pistachio nut imports in 1986 (over 300%) dampened imports of
that product. In January 2003, the tariff on roasted pistachios was lowered to 22%
and on raw pistachios to 163%.
The Iran-Libya Sanctions Act (ILSA). The Iran-Libya Sanctions Act
(ILSA, H.R. 3107, P.L. 104-172, signed August 5, 1996) sanctions foreign
investment of more than $20 million in one year in Iran or Libya’s energy sector. It
was to sunset on August 5, 2001, but it was renewed for another five years (H.R.
1954, P.L. 107-24, signed August 3, 2001). The renewal law requires an
Administration report on its effectiveness within 24-30 months (as early as August
2003). No sanctions have been imposed under ILSA, although three companies
involved in one project (South Pars) were deemed in violation in September 1998;
but sanctions were waived. Total and Petronas have formed a $2 billion joint venture
with an Iranian oil company to produce liquified natural gas from South Pars. This
investment is part of a wave of new French investment in and sales of consumer
products to Iran: French exports to Iran have doubled over the past five years to
about $2.5 billion per year.35
A number of other investments have remained “under review” for ILSA
sanctions since 1999. In October 2002, Norway’s Statoil agreed to invest $300
million to develop phases six, seven, and eight of the South Pars gas field. As noted
below, Japanese firms have reached agreement with Iran to develop the Azadegan
field, and the outcome of a competition between BP and Totalfina Elf to develop the
Bangestan field (about $2 billion) is expected. On March 18, 2004, a Chinese state
oil trading firm said it had signed a deal with Iran to import more than 110 million
tons of liquified natural gas from Iran over 25 years, a deal valued at $25 billion,
although this arrangement would not appear to constitute an “investment” in Iran’s
energy sector. Foreign firms have invested about $15 billion in Iran’s energy sector
since Iran opened it to investment. See CRS Report RS20871, The Iran-Libya
Sanctions Act (ILSA).
On October 20, 2003, Representative Ileana Ros-Lehtinen introduced the “ILSA
Enhancement and Compliance Act” (H.R. 3347) intended to make it more difficult
for the Administration to waive sanctions on companies determined to have violated
its provisions. The legislation would also repeal the sunset (expiration) provision of
ILSA. (ILSA sanctions with respect to Libya were terminated on April 23, 2004, on
the grounds that the President certified Libya had complied with U.N. Security
Council resolutions related to the December 21, 1988, bombing of Pan Am Flight
103.)
35 Daragahi, Borzou. “France Steps Up Its Investments in Iran.” New York Times, June 23,
2004.

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Caspian/Central Asian Energy Routes Through Iran. The U.S. trade
ban permits U.S. companies to apply for licenses to conduct “swaps” of Caspian Sea
oil with Iran, but, as part of a U.S. policy to route Central Asian energy around Iran
(and Russia), a Mobil Corporation application to do so was denied in April 1999.
The Bush Administration continues to oppose, and to threaten imposing ILSA
sanctions on, pipeline projects through Iran. U.S. policy has been to promote
construction of a pipeline that would cross the Caspian Sea and terminate in Ceyhan,
Turkey (Baku-Ceyhan pipeline); the policy appeared to bear fruit when four Caspian
nations (Turkey, Georgia, Azerbaijan, and Kazakhstan) signed an agreement
embracing Baku-Ceyhan on November 18, 1999. Regional and corporate support for
the project subsequently gained momentum and pipeline construction has begun. On
the other hand, despite U.S. pressure not to import Iranian gas, in December 2001
Turkey began doing so through a new cross-border pipeline, under an August 1996
agreement.
In late April 2004, Iran began a major oil swap project with its neighbors, which
Iran asserted was a response to U.S. efforts to promote alternate routes. Under the
project, Iran imports 170,000 barrels of crude oil from Russia, Kazakhstan, and
Turkmenistan. In return, Iran export an equivalent amount of Iranian oil from its
Gulf ports on behalf of those producers.
Allied Country Policies Toward Iran
A cornerstone of the policies of successive U.S. administrations has been to
persuade U.S. allies to cooperate with the United States to contain Iran. During
1992-1997, the European Union (EU) countries maintained a policy of “critical
dialogue” with Iran, asserting that dialogue and commerce with Iran could moderate
Iran’s behavior . The United States did not oppose those talks but maintained that
the EU’s dialogue would not change Iranian behavior. The dialogue was suspended
immediately following the April 1997 German terrorism trial (“Mykonos trial”) that
found high-level Iranian involvement in assassinating Iranian dissidents in Germany.
Alongside Khatemi’s accession and the associated U.S. shift toward engagement, the
EU-Iran dialogue formally resumed in May 1998, and U.S.-allied differences on Iran
narrowed. Khatemi undertook state visits to several Western countries, including
Italy (March 1999), France (October 1999), Germany (July 2000), and Japan
(November 2000); the United States publicly welcomed these visits.
On December 12, 2002, Iran and the EU began formal negotiations on a trade
pact that would lower the tariffs or increase quotas for Iranian exports to the EU
countries, with some linkage to Iran addressing EU concerns on Iran’s human rights
practices and terrorism sponsorship. However, revelations about Iran’s possible
nuclear weapons ambitions caused the EU to announce, in July 2003, suspension of
talks on a trade agreement. The EU says resumption of the trade talks is contingent
on Iran’s full cooperation with the IAEA on nuclear issues. The EU countries have
also said their policies toward Iran have been colored by the conservatives’ banning
of reformist candidates in the February 2004 elections, and by other Iranian human
rights abuses.
Britain/France. The resolution of the “Rushdie affair” to Britain’s satisfaction
sparked improvement in its relations with Iran. Iran maintains that Ayatollah

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Khomeini’s 1989 death sentence against author Salman Rushdie cannot be revoked
(his “Satanic Verses” novel was labeled blasphemous) because Khomeini is no
longer alive to revoke it. On September 24, 1998, Iran’s Foreign Minister pledged
to Britain that Iran would not seek to implement the sentence and opposed any
bounties offered for his death. Britain then upgraded relations with Iran to the
ambassadorial level, and their foreign ministers routinely exchange visits. In October
2000, Britain began extending longer term credit (two years or greater) for exports
to Iran. Some Iranian clerics (outside the formal government structure) have said the
death sentence stands, and the Iranian government has not required the Fifteen
Khordad foundation to withdraw its $2.8 million reward for Rushdie’s death.
Khatemi said on June 4, 2001 that he considers the issue closed.
As noted above (ILSA section), French-Iranian economic relations have
burgeoned in recent years. French investment in Iran now goes well beyond the
energy sector into car production in Iran and other initiatives. Some of the major
French companies investing in Iran (outside the energy sector) include Renault,
Societe-Generale (banking), Peugeot, and Alcatel.
Japan-Iran Relations. In August 1999, Japan continued a gradual
improvement in relations with Iran by announcing a resumption of Japan’s official
development lending program for Iran to construct a hydroelectric dam over the
Karun River. However, the $70 million increment announced was less than Iran had
wanted, and Japan said that this tranche would close out Japan’s involvement in the
project. (In 1993, Japan provided the first $400 million tranche of the overall $1.4
billion official development loan program, but the lending was subsequently placed
on hold as the United States sought to persuade its allies to pressure Iran.) In late
January 2000, Japan agreed to resume medium- and long-term export credit
insurance for exports to Iran, suspended since 1994. Economic relations improved
further during Khatemi’s November 2000 visit to Tokyo, which resulted in Iran
granting Japanese firms the first right to negotiate to develop the large Azadegan
field. A $2 billion deal to develop that field was expected by June 30, 2003 but
Japan’s firms did not reach an agreement by that deadline, partly in protest of Iran’s
nuclear program.36 However, possibly because of Iran’s pledges of cooperation with
nuclear inspections, the consortium of Japanese firms — Japan Petroleum
Exploration Company, Inpex Corp, and Tomen Corp — signed the Azadegan deal
on February 18, 2004. Partly at U.S. urging, Japan has refused to extend to Iran new
official loans.
Multilateral/International Lending to Iran. During 1994-1995, and over
U.S. objections at the time, Iran’s European and Japanese creditors rescheduled about
$16 billion in Iranian debt. These countries (governments and private creditors)
rescheduled the debt bilaterally, in spite of Paris Club rules that call for multilateral
rescheduling and International Monetary Fund (IMF) involvement. Iran has worked
its external debt down from $32 billion in 1997 to below $20 billion as of March
2004, according to Iran’s Central Bank. The improved debt picture has led most
European export credit agencies to restore insurance cover for exports to Iran. In July
2002, Iran tapped international capital markets for the first time since the Islamic
36 “Japan Still in Iran Oil Talks, Despite U.S.” Reuters, June 30, 2003.

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revolution, selling $500 million in bonds to European banks. At the urging of the
U.S. government, in May 2002 Moody’s stopped its credit ratings service for Iran’s
government bonds on the grounds that performing the credit ratings service might
violate the U.S. trade ban.
Section 1621 of the Anti-Terrorism and Effective Death Penalty Act of 1996
(P.L. 104-132) amended the Foreign Assistance Act to require the United States to
vote against international loans to countries on the U.S. terrorism list. Acting under
provisions of successive foreign aid laws, in 1993 the United States voted its 16.5%
share of the World Bank against loans to Iran of $460 million for electricity, health,
and irrigation projects. To signal opposition to international lending to Iran, the
FY1994 foreign aid appropriations (P.L. 103-87) cut the Administration’s request for
the U.S. contribution to the World Bank by the amount of those loans. That law, as
well as the foreign aid appropriations for FY1995 (P.L. 103-326) and FY1996 (P.L.
104-107), would have significantly reduced U.S. payments to the Bank if it had
provided new loans to Iran.
By 1999, Iran’s moderating image had led the World Bank to consider new
loans. In May 2000, the United States was unsuccessful in obtaining further delay
on a vote on new lending for Iran, and its allies outvoted the United States in
approving $232 million in loans for health and sewage projects. Twenty one of the
Bank’s twenty four governors voted in favor, and France and Canada abstained.
Despite the required U.S. opposition, on May 10, 2001, the World Bank’s executive
directors voted to approve a two-year economic reform plan for Iran that envisions
$775 million in new Bank loans. In April 2003, the Bank approved $20 million in
loans for environmental management, and in June 2003, it approved a loan for $180
million for earthquake assistance. On October 29, 2003, a Treasury Department
official, Bill Schuerch, testified before the House Financial Services Committee that
the United States would continue to try to block new World Bank loans to Iran, but
that the United States has not been successful in blocking recent loans and could not
guarantee that outcome. In 1999-2000, Iran had asked the International Monetary
Fund for about $400 million in loans (its quota is about $2 billion) to help it deal
with its trade financing shortfalls. However, Iran balked at accepting IMF
conditionality, and there was no agreement.
A section of a bill in the 108th Congress, H.R. 2466, contains a provision similar
to that of these earlier laws — mandating cuts in U.S. contributions to international
financial institutions that lend to Iran. However, on July 15, 2004, a proposed
amendment to the House version of the FY2005 foreign aid appropriations (H.R.
4818) was defeated. The amendment would cut U.S. funding to the World Bank by
the $390 million that the Bank had approved in May 2004 in new lending to Iran.
WTO Membership. The Bush Administration said in July 2001 that U.S.
opposition to Iran’s membership in the World Trade Organization (WTO) was
“under review.” On several occasions since then, the WTO, at U.S. urging, has
postponed discussion on whether to launch entry talks with Iran. On October 21,
2003, a U.S. delegate to the WTO again vetoed the start of entry talks between the
WTO and Iran, saying the United States was still “reviewing” whether Iran should
be admitted. The U.S. veto was the 15th time in the past three years that the United
States has blocked entry talks for Iran.

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Travel Sanctions. Use of U.S. passports for travel to Iran is permitted, but
a State Department travel warning, softened somewhat in April 1998, asks that
Americans “defer” travel to Iran. Iranians entering the United States are required to
be fingerprinted.
Assets Disputes/Victims of Terrorism. Iran views the issue of disputed
claims and blocked assets as an obstacle to improved relations. A U.S.-Iran Claims
Tribunal, at the Hague, is arbitrating cases resulting from the break in relations and
freezing of some of Iran’s assets following the Iranian revolution. The major cases
yet to be decided center on hundreds of Foreign Military Sales cases between the
United States and the Shah’s regime, which Iran claims it paid for but were
unfulfilled. About $400 million in proceeds from the resale of that equipment is in
a DOD account, and about $22 million in diplomatic property remains blocked. The
assets issue moved to the forefront following several U.S. court judgements against
Iran for past acts of terrorism against Americans, filed under the Anti-Terrorism and
Effective Death Penalty Act of 1996. For information on suits against Iran that have
been filed, their outcomes, and legislation regarding these suits, see CRS Report
RL31258, Suits Against Terrorism States by Victims of Terrorism.
Regarding the mistaken U.S. shootdown on July 3,1988 of an Iranian Airbus
passenger jet, on February 22, 1996, the United States, responding to an Iranian case
before the International Court of Justice (ICJ), agreed to pay Iran up to $61.8 million
in compensation ($300,000 per wage earning victim, $150,000 per non wage earner)
for the 248 Iranians killed. The funds for this settlement came from a general
appropriation for judgments against the United States. The United States previously
paid $3 million in death benefits for 47 non-Iranians killed in the attack, but has not
compensated Iran for the airplane itself. A different case, pending before the ICJ,
involves an Iranian claim for damages to Iranian oil platforms during U.S. naval
clashes with Iran in October 1987 and April 1988.
Conclusion
Mistrust between the United States and Iran’s Islamic regime has run deep for
over two decades. Many experts say that all factions in Iran are united on major
national security issues and that U.S.-Iran relations might not improve unless or until
the Islamic regime is removed or moderates substantially. Some believe relations are
likely to worsen if Iran does not fully and unambiguously abandon any efforts toward
achieving a nuclear weapons capability. Others believe that U.S.-Iran relations might
be determined by whether Iran extradites suspected Al Qaeda leaders believed to be
in Iran.
Others say that, despite the victory of conservatives in 2004 parliamentary
elections, the United States and Iran have a common interest in stability in the
Persian Gulf and South Asia regions in the aftermath of the defeat of the Taliban and
the regime of Saddam Hussein. Those who take this view say that Iran is far more
secure now that the United States has removed these two regimes, and it might be
more willing than previously to accommodate U.S. interests in the Gulf. Others say
that the opposite is more likely, that Iran now feels more encircled than ever by pro-

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U.S. regimes and U.S. forces guided by a policy of pre-emption, and Iran might
redouble its efforts to develop WMD and other capabilities to deter the United States.
Some believe that Iran has thus far refused to extradite Al Qaeda leaders in Iran
because Iran views these figures as leverage with the United States and perhaps as
a bargaining chip to persuade the United States to extradite to Iran oppositionists
based in Iraq.

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