Order Code RL32048
CRS Report for Congress
Received through the CRS Web
Iran: U.S. Concerns and
Policy Responses
Updated April 15, 2005
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

Iran: U.S. Concerns and Policy Responses
Summary
The Bush Administration has pursued several avenues to attempt to contain or
end the potential threat posed by Iran, at times pursuing limited engagement, and at
other times leaning toward pursuing efforts to change Iran’s regime. Some experts
believe a potential crisis is looming over Iran’s nuclear program because the Bush
Administration is skeptical that efforts by several European allies to prevent a nuclear
breakout by Iran will succeed, although the Administration announced steps in March
2005 to support those talks. Some advocate military action against Iran’s nuclear
infrastructure, but others believe that a combination of diplomatic and economic
rewards and punishment are the only viable options on the nuclear issue. 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, but unilateral U.S.
sanctions do not appear to have materially slowed Iran’s WMD programs to date.
Other major U.S. concerns include Iran’s policy in the Near East region,
particularly Iran’s material support to groups that use violence against the U.S.-led
Middle East peace process, including Hizballah in Lebanon and the Palestinian
groups Hamas and Palestinian Islamic Jihad. Some senior Al Qaeda activists are in
Iran as well, although Iran claims they are “in custody” and will be tried. Iran did not
obstruct the U.S. effort to oust Iraq’s Saddam Hussein, a longtime Tehran adversary,
at least partly in the expectation that pro-Iranian Shiite Islamic factions would come
to power in Iraq in the aftermath. That result occurred as a product of January 30,
2005 elections there. Iran is also assisting pro-Iranian local leaders in Afghanistan,
although that support does not appear to be materially hindering the stabilization and
development of Afghanistan.
Iran’s human rights practices and strict limits on democracy have been
consistently criticized by official U.S. and U.N. reports, particularly for Iran’s
suppression of political dissidents and religious and ethnic minorities. However, Iran
does hold elections for some positions, including that of president, suggesting to
some experts that there might be benefits to engaging Iranian officials. 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, CRS Report RS21548, Iran’s Ballistic Missile Capabilities;
and
CRS Report RS20871, The Iran-Libya Sanctions Act. This report will be
updated as warranted by developments.

Contents
Threat Assessments and U.S. Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, Internal Politics, and Human Rights . . . . . . . . . . . . . . . . . 2
Mohammad Khatemi, Reformists, and Reformist Candidates . . . . . . . 2
The Hardliners, Rafsanjani, and Hardline Candidates . . . . . . . . . . . . . . 3
Prominent Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Anti-Regime Groups: People’s Mojahedin Organization of Iran
(PMOI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Pro-Shah Activists/Exile Broadcasts . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Human Rights Record/Crackdowns on Dissent . . . . . . . . . . . . . . . . . . . 6
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . 8
Nuclear Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Chemical and Biological Weapons . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Missiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Foreign Policy and Support for Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . 14
Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Supporting Anti-Peace Process Groups . . . . . . . . . . . . . . . . . . . . . . . . 18
Relations With Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . 19
Afghanistan/Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
U.S. Policy Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Bush Administration Policy and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Engagement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Military Action? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
International Sanctions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Bam Earthquake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Counternarcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Iran-Libya Sanctions Act (ILSA)/Regional Oil and Gas Deals . . 31
Caspian/Central Asian Energy Routes Through Iran . . . . . . . . . . . . . . 33
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Multilateral Policies Toward Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
EU-Iran Trade Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Country-Specific Policies: Britain and France . . . . . . . . . . . . . . . . . . . 35
Japan/Azadegan Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Multilateral/International Lending to Iran . . . . . . . . . . . . . . . . . . . . . . 35
WTO Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Figure 1. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Iran: U.S. Concerns and
Policy Responses
Threat Assessments and U.S. Concerns
Much of the debate over U.S. policy toward Iran has centered 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 dominate and set a policy direction intended to
challenge U.S. influence and allies in the region. The elements of that challenge
include attempting to acquire weapons of mass destruction (WMD), supporting
terrorist groups, failing to extradite senior Al Qaeda leaders, repressing its own
population, and pressuring regional U.S. allies. Some 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.
Others believe that there is little the United States could do to alter internal political
outcomes in Iran and that common strategic interests in regional stability could drive
Iran to become an ally of the United States on many issues, whether or not moderates
prevail politically inside Iran.
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, Internal Politics, 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, one of those disciples, Ayatollah Ali Khamene’i, then serving as
president, was selected Supreme Leader by an “Assembly of Experts” (an elected
body). The Assembly chooses the person who will fill the position of Supreme
Leader and can amend Iran’s constitution. Khamene’i had served as elected president
since 1981 (re-elected in 1985); he lacks the unquestioned spiritual and political
authority of Khomeini, but appears to face no direct threats to his position. The
Supreme Leader controls appointments to key institutions such as the armed forces
and the twelve-member Council of Guardians,1 a body that reviews legislation to
ensure it conforms to Islamic law. Another unelected body dominated by
conservatives is the “Expediency Council,” set up in 1988 to resolve legislative
disagreements between the Majles and the Council of Guardians. Even before the
February 2004 victory in Majles elections by conservatives, Khamene’i and his allies
had largely constrained the influence of the reformers.
Mohammad Khatemi, Reformists, and Reformist Candidates. An
elected president, Mohammad Khatemi, 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, but he is politically subordinate to the Supreme
Leader. Khatemi’s re-election victory was larger than his 69% first win in May 1997.
Khatemi is a mid-ranking cleric, one rank below Ayatollah. He served as Minister
of Culture and Islamic Guidance in the early 1990s but 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. Iran’s next presidential elections are set for June
17, 2005; Khatemi has served two consecutive terms and cannot run again.
Khatemi has derived key political support from reformist-oriented students,
youths, women, and other segments of society, who have occasionally demonstrated
against the hardliners. Journalists and other observers say these reformist segments
are increasingly defiant of the hardliners in their dress and other activities, although
1 The Council of Guardians consists of six Islamic jurists and six secular lawyers. The six
Islamic jurists are appointed by the Supreme Leader. The six lawyers on the Council are
selected by the Majles (parliament).

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observers say there are not overt signs of political rebellion. Khatemi’s supporters
held about 70% of the seats in the 2000-2004 Majles (parliament) after their victory
in the February 18, 2000 elections. Institutionally, he has been supported by
reformist organizations (formal “parties” have not been approved):
! The most prominent is the Islamic Iran Participation Front (IIPF),
headed by his brother, Mohammad Reza Khatemi, who was a deputy
speaker in the 2000-2004 Majles.
! Another pro-reform group, the student-led Office for Consolidation
and Unity, has become critical of Khatemi for failing to challenge
the hardliners assertively. In mid-2002, partly in response to this
criticism, Khatemi proposed new legislation that would strengthen
the power of his office; it was passed by the elected 290-seat Majles
but blocked by the Council of Guardians.
! A third major pro-Khatemi grouping is the Mojahedin of the Islamic
Revolution organization (MIR), composed mainly of left-leaning
Iranian 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 reform is the Society of
Combatant Clerics. A prominent member of that grouping is Mehdi
Karrubi, who was speaker of the 2000-2004 Majles. Karrubi has
announced his candidacy for president in the June 17, 2005
elections.
! Another potential reformist candidate in the June elections, and one
who has attracted large sympathetic crowds in 2005 appearances, is
former science minister Mostafa Moin. Council of Guardian
interpretations of Iran’s laws are that women cannot run for
president, although one woman, Rafat Bayat, said on March 29,
2005 that she wants to run and will challenge that interpretation.
The depth of dissatisfaction with the pace of reform was exposed during major
student demonstrations in July 1999. Four students were killed by regime security
forces during those protests. On June 8, 2003, the fourth anniversary of those riots,
regime forces again suppressed pro-reform demonstrators. 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 then
Secretary of State Powell said the protests represented a “family fight” within Iran
in which the United States should not seek a role.
The Hardliners, Rafsanjani, and Hardline Candidates. Hardliners
(conservatives) are now aligned under a multi-organization umbrella called the
Fundamentalists’ Coordination Council.” The hardliners generally want only
gradual reform but, more importantly in the view of most experts, want to keep major
governing and economic institutions under the control of members of their faction.
Although unpopular with broad segments of the population, they have been gaining

CRS-4
momentum since February 28, 2003, local elections, when reformists failed to turn
out in large numbers and hardliners won most of the seats from Tehran. The power
struggle between Khatemi and the conservatives caused a crisis in the run-up to the
February 20, 2004, Majles elections. The Council of Guardians disqualified about
3,600 mostly reformist candidates, including 83 members of the current Majles.
Some were prominent, such as deputy speakers Mohammad Reza Khatemi and
Behzad Nabavi. Khatemi attempted to resolve the crisis through talks with
Khamene’i, but the Council of Guardians refused to follow Khamene’i’s urging to
reinstate most candidates and even 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, but Khatemi agreed
to obey Khamene’i’s directive to hold the elections on time.
Khatemi’s IIPF grouping boycotted the elections, but some reformist factions
participated. As was widely predicted before the election, conservatives fared well
and won a majority, about 155 out of the 290 Majles 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. (Conservative
controlled media put the turnout at about 60%, while some reformists said turnout
was only about 35%.) The United States, most European Union countries, and other
governments criticized the 2004 Majles 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 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 the hardliners.2
Exercising their greater influence, the Majles conservatives voted in October 2004
to oust Minister of Transportation Ahmad Khorram. That removal led to the
resignation of another Khatemi ally, Vice President for Legal and Parliamentary
Affairs Mohammad Ali Abtahi.
On the tide of the conservative victories, the chairman of the Expediency
Council, former two-term president (1989-1997) Ali Akbar Hashemi-Rafsanjani, has
regained the political prominence he held in the 1980s. He is considered the patron
of many Majles conservatives, although he is also considered acceptable to many
reformists. Rafsanjani is considered likely to run for president again in the June 17,
2005 elections, which would be constitutionally permitted. Several of his allies are
possible candidates for the hardline camp, although some might only run if
Rafsanjani opts not to. These likely candidates include former foreign minister Ali
Akbar Velayati; former Revolutionary Guard commander Mohsen Rezai (now
2 Jehl, Douglas. “CIA Says Election in Iran Dealt Blow to Reform.” New York Times,
February 26, 2004.

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Secretary-General of the Expediency Council); chief nuclear negotiator Hassan
Ruhani (a Rafsanjani protege); former state broadcasting head Ali Larijani; and a
former Revolutionary Guard Air Force figure, Mohammad Baqer Qalibaf, who has
more recently been head of the national police. (Qalibaf declared his candidacy on
April 11, 2005.) Other major figures in the conservative camp are former Labor
Minister Ahmad Tavakkoli, leader of the “Builders of Islamic Iran” faction, a key
bloc in the new Majles, as well as the new Majles speaker, Gholem Ali Haded-Adel.
Prominent Dissidents. In addition to the reformist camp that seeks to
moderate the Islamic system of government from within the political structure,
several major dissidents seek more sweeping change. One dissident cleric, Ayatollah
Hossein Ali Montazeri, was released in January 2003 from several years of house
arrest. 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 has since remained under scrutiny by the regime, but
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.
Other prominent dissidents include exiled theoretician Abd al-Karim Soroush, former
Interior Minister Abdollah Nuri, and political activist Hashem Aghajari (of the
Mojahedin of the Islamic Revolution), who was initially sentenced to death for
blasphemy but whose sentence was overturned; he has been released.
Anti-Regime Groups: People’s Mojahedin Organization of Iran
(PMOI). Some groups in exile seek the outright replacement of the current regime
with one that is nationalist, secular, or left-wing. One group, which is left-leaning,
is the People’s Mojahedin Organization of Iran (PMOI),3 which has been criticized
by the United States even though the PMOI is an opponent of Tehran. 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. 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 —
although the group does not appear to purposely target civilians — and by its alleged
killing of seven American defense advisers to the former Shah in 1975-1976. 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 accepted a ceasefire by PMOI military elements in Iraq. The U.S.
military subsequently confined the approximately 4,000 PMOI fighters and activists
to their Ashraf camp near the border with Iran, placing the group’s weaponry in
storage, guarded by U.S. military personnel. Press reports continue to say that some
3 Other names by which this group is known is the Mojahedin-e-Khalq Organization (MEK
or MKO) and the National Council of Resistance (NCR).

CRS-6
Administration officials want the group removed from the FTO list and want a U.S.
alliance with the group against the Tehran regime.4 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. Then National Security Adviser
Condoleezza Rice said in November 2003 that the United States is unambiguously
treating the group as a terrorist organization. That perception shifted again with the
decision in late July 2004 to grant the Ashraf detainees “protected persons” status
under the 4th Geneva Convention, meaning they will not be extradited to Tehran or
forcibly expelled as long as U.S. forces remain in Iraq. The PMOI has used this
status determination to argue that the group should no longer be designated as an
FTO.
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 and
remains in France.5
Pro-Shah Activists/Exile Broadcasts. Some Iranian exiles, as well as
some in Iran, want to replace the regime with a constitutional monarchy presumably
led by the U.S.-based son of the late former Shah. On January 24, 2001, the Shah’s
son, Reza Pahlavi, who is about 54 years old, ended a long period of inactivity by
giving a speech in Washington D.C. 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 large following
there.6 Numerous other Iranian exile broadcasts, some not linked to the Shah’s son,
emanate from California, where there is a large Iranian-American community. Then
deputy Secretary of State Armitage testified before the Senate Foreign Relations
Committee on October 28, 2003, 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/Crackdowns on Dissent. U.S. officials have not
generally considered Iran’s human rights record as a strategic threat to U.S. interests,
but the Administration has strongly criticized Iran’s human rights record as part of
its effort to pressure Iran. A special U.N. Human Rights Commission monitoring
mission for Iran, consisting of reports by a “Special Representative” on Iran’s human
rights record, was conducted during 1984-2002. Iran has since agreed to “thematic”
monitoring consisting of periodic U.N. investigations of specific aspects of Iran’s
4 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal
, May 12, 2003.
5 For further information, see CRS Report RL31119, Terrorism: Near Eastern Groups and
State Sponsors, 2002
.
6 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, August 26, 2002.

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human rights record. Iran is a party to the two international covenants on human
rights.
The United States continues to closely scrutinize Iran’s human rights record.
State Department’s human rights report for 2004, released February 28, 2005, said
Iran’s already poor human rights record “worsened” during the year.7 The U.S. and
U.N. human rights reports cite Iran for widespread human rights abuses (especially
of the Baha’i faith), including summary executions, disappearances, torture, and
arbitrary arrest and detention. Since 2000, hardliners in the judiciary have closed
hundreds of reformist newspapers, although many have tended to reopen under new
names, and authorities have imprisoned or questioned several editors and even some
members of the Majles. Press reports from November 2004 say Iran has also begun
blocking hundreds of pro-reform websites.
One specific human rights case that has attracted international attention was the
apparent beating death of a Canadian journalist of Iranian origin,Zahra Kazemi, while
she was in Iranian detention. 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 resulted in an acquittal on July 25, 2004, prompting
widespread accusations that the investigation and trial were not fair. In April 2005,
Iran rebuffed a Canadian attempt to conduct a formal autopsy of Kazemi. 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. In
January 2005, a revolutionary court ordered her to appear; she refused, and the court
then backed down and claimed its summons was an error.
Religious Persecution. U.S. reports and officials continue to cite Iran for
religious persecution. Since March 1999, the State Department has named Iran as a
“Country of Particular Concern,” each year 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.
Iran is repeatedly cited for repression of the Baha’i community, which Iran’s
Shiite Muslim clergy views as a heretical sect. Two Baha’is (Dhabihullah Mahrami
and Musa Talibi) were sentenced to death in 1996 for apostasy. On July 21, 1998,
Iran executed Ruhollah Ruhani, the first Bahai executed since 1992 (Bahman
Samandari). In February 2000, Iran’s Supreme Court set aside the death sentences
against three other Baha’is. Several congressional resolutions have condemned
Iran’s treatment of the Baha’is, including S.Con.Res. 57 (106th Congress), 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 contains sense of
Congress language on the Baha’is similar to that in previous years.
7 For text of the 2004 report on Iran, see [http://www.state.gov/g/drl/rls/hrrpt/2004/
41721.htm].

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Repression of 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 four years to 13 years. A three-judge appeals panel reduced the sentences
slightly, and the releases began in January 2001; the last five were freed in April
2003.
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 analysis, is becoming more assertive in political
decisions as government leaders have become more dependent on it to maintain
control. In mid-2004, Guard personnel closed part of a new airport in Tehran when
the government chose a foreign (Turkish) 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. In February
and March 2005, Commander of U.S. Central Command Gen. John Abizaid and
head of the Defense Intelligence Agency Vice Admiral Lowell Jacoby both said that
Iran has recently acquired some new capability (indigenously produced anti-ship
missiles, and North Korean-supplied torpedo and missile boats) to block the Strait
of Hormuz at the entrance to the Persian Gulf briefly, or to threaten the flow of oil
through that waterway.8 However, Iran is largely lacking in logistical ability to
project power far beyond its borders. No major 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 mostly 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.
8 Jacoby testimony before the Senate Intelligence Committee. February 16, 2005.

CRS-9
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 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. 9
Nuclear Program.10 Many observers believe that there is an emerging crisis
between Iran and the international community over Iran’s nuclear ambitions. As U.S.
and European concerns about the scope of Iran’s nuclear program have grown over
the past few years, U.S. and European policies have converged substantially on the
issue. After over one year in which the European states took the lead in trying to
negotiate curbs on Iran’s program, on March 11, 2005, the Administration announced
it would support the European talks with Iran (see below) by offering some
incentives to Iran if a final EU-Iran agreement could be reached. The incentives
included dropping U.S. objections to Iran’s application to the World Trade
Organization, WTO) and facilitating sales of U.S. civilian aircraft parts to Iran. The
Administration decided not to actually join the talks.
At the same time, the Administration expresses skepticism that the European
approach will succeed. The Bush Administration asserts that Iran is working toward
a nuclear weapons capability, that it has not upheld 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. During her trip to several
European countries during February 4-10, 2005 and since, Secretary of State
Condoleezza Rice highlighted the Iran nuclear issue, at times urging the Europeans
to back international sanctions should Iran fail to satisfy international concerns, and
generally downplaying, but not ruling out, the possibility of U.S. unilateral military
action. (In the 108th Congress, a resolution, H.Con.Res. 398, passed the House on
May 6, 2004, by a vote of 376-13; it called for all parties to the NPT, including the
United States, to use “all appropriate means to deter, dissuade, and prevent Iran from
acquiring nuclear weapons, including ending all nuclear and other cooperation with
Iran....”)
There is some disagreement over the urgency of the issue. IAEA director
Mohammad El Baradei continues to say that the IAEA has not uncovered firm
evidence that Iran is trying to develop a nuclear weapon, although the IAEA said in
November 2003 that Iran had failed to meet its reporting obligations under its
9 For further information, see CRS Report RL30551, Iran: Arms and Weapons of Mass
Destruction Suppliers
.
10 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments
.

CRS-10
Safeguards agreement with the IAEA. The Central Intelligence Agency, in an
unclassified report to Congress covering July 1, 2003 - December 31, 2003, says the
“United States remains convinced that Tehran has been pursuing a clandestine
nuclear weapons program...”11 In his testimony before the Senate Intelligence
Committee on February 16, 2005, DIA head Adm. Jacoby (see above) said that,
“Unless constrained by a nuclear non-proliferation agreement, Tehran probably will
have the ability to produce nuclear weapons early in the next decade.” However,
Israeli experts are said to believe that Iran might reach “the point of no return,” the
point at which Iran would have the technical capability to construct a nuclear
weapon, some time later in 2005.12 Iran denies it has a nuclear weapons program and
claims its nuclear activities are for peaceful purposes only. Iranian leaders say
uranium enrichment is allowed under the NPT and that Iran will not give up the
“right” to enrich uranium.
U.S. and European suspicions of Iran’s intentions gained urgency in December
2002 when Iran confirmed PMOI 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 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.) Iran aggravated
international concerns throughout most of 2003 by refusing 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. It was also revealed in 2003 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 March 2005, Pakistani officials
said that Khan had provided unauthorized assistance, including centrifuges that could
be used to enrich uranium, to Iran during the 1980s.13 In February 2004, Khan
publicly admitted selling nuclear technology to Iran, Libya, and North Korea.
At the same time, Russia, despite its own growing concerns about Iran’s
intentions, continued work on an $800 million nuclear power plant at Bushehr, a
project implemented under a January 1995 contract with Iran. Russia’s Federal
Atomic Energy Agency said in October 2004 that the reactor was completed. Russia
held up the start of operations of the plant until Iran signed an agreement under which
Russia would provide reprocess the plant’s spent nuclear material; that agreement
was signed on February 28, 2005. The nuclear power plant could give Iran additional
technologies for a weapons program (plutonium, for example), but the reprocessing
deal also adds new safeguards that could slow an Iranian weapons program.
11 This CIA report is entitled “Unclassified Report to Congress on the Acquisition of
Technology Relating to Weapons of Mass Destruction and Advanced Conventional
Munitions. It is updated every six months. The report cited here was posted in late
November 2004 [http://www.odci.gov].
12 Weisman, Steven. “Sharon, Ending U.S. Visit, Says Israel Has No Plan to Hit Iran.” New
York Times
, April 14, 2005.
13 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, January 24, 2004.

CRS-11
European Diplomatic Efforts/Agreement One. Believing that
engagement might yield progress, beginning in 2003, the foreign ministers of
Germany, France, and Britain (the “EU-3”) undertook diplomacy to limit Iran’s
nuclear program. On October 21, 2003, the EU-3 and Iran issued a joint statement
in which Iran pledged, in return for promises of future exports of peaceful nuclear
technology:
! 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.
Some outside experts maintain that the agreement did not ensure that Iran could
not use an alternate route to a nuclear weapon, such as plutonium production.14 Iran
signed the Additional Protocol on December 18, 2003, and the IAEA says Iran is
largely abiding by its provisions, although the Majles has not yet ratified it.
The agreement began to deteriorate rapidly as it became clear that the
international community would maintain strict scrutiny of Iran. In its November 10,
2003, and February 24, 2004 reports, the IAEA said that Iran had committed
violations of its obligations over an 18-year period; that traces of both highly
enriched and low-enriched uranium had been found at two sites in Iran;15 and that the
Iranian military had been involved in manufacturing centrifuge equipment. IAEA
board resolutions adopted after these reports, as well as a board resolution on June
18, 2004, condemned Iran’s previous violations. In a defiant response, in July 2004
Iran broke the IAEA’s seals on some of its nuclear centrifuges and announced it
would resume work on centrifuge equipment, essentially scuttling the deal.
Subsequent revelations in 2004 caused additional concern about the breakdown
of the agreement. Press reports said Iran was negotiating to buy Russian deuterium
gas, which could be used to boost nuclear explosions,16 and the IAEA said in
September 2004 that Iran had announcement that it was preparing to convert 37 tons
of uranium (“yellowcake”) as a step toward making enriched uranium.17 (As of April
2005, the IAEA has begun taking an inventory of that material, amid suspicions some
might have been diverted from areas in Iran under IAEA watch.) On the other hand,
the IAEA determined in August 2004 that traces of enriched uranium found in Iran
came on contaminated equipment, appearing to support Iran’s view that Iran was not
enriching uranium. The breakdown of the agreement caused the Bush
Administration to argue for referring the issue to the U.N. Security Council for the
possible imposition of international sanctions. The September 18, 2004, IAEA board
meeting called on Iran to adhere to the deal and to clarify outstanding issues by the
November 2004 IAEA meeting, implicitly threatening Security Council referral.
14 Milhollin, Gary. “The Mullahs and the Bomb.” New York Times, October 23, 2003.
15 Murphy, Francois. “U.N. Watchdog Accuses Iran of Unanswered Questions.” Reuters,
February 25, 2004.
16 “Agents Seek Russian Sale of Nuke-Boosting Gas.” Washington Times, July 29, 2004.
17 Nuclear experts say that could, in theory, be sufficient to yield as many as five nuclear
bombs.

CRS-12
European Diplomatic Efforts/Agreement Two. In the run-up to the
November 25, 2004, IAEA board meeting, the EU-3 sought Bush Administration
backing for another diplomatic overture to Iran. This overture was a reported “grand
bargain” in which Iran would forgo uranium enrichment in exchange for broad
diplomatic engagement with Iran (resumed talks on an Iran-EU trade agreement,
support for Iran’s entry into the World Trade Organization, and counter-narcotics
assistance) and assistance to the purely peaceful aspects of Iran’s nuclear program
(heavy water reactor, nuclear fuel).18 An October 15, 2004, U.S.-sponsored meeting
of the G-8 group of industrialized nations endorsed this approach.
The European countries presented this approach to Iran in October 2004, but
demanded that Iran suspend all uranium enrichment activity immediately, pending
the reaching of the broad, permanent agreement. On November 14, 2004, Iran
appeared to meet most European demands by agreeing to a rapid (as of November
22), verifiable suspension of uranium enrichment, to remain in place until a
permanent agreement is reached. The IAEA incorporated the Iranian pledge into its
report, prepared for the November 25, 2004, IAEA meeting, adding that all declared
nuclear material in Iran was accounted for. The Europeans and the Bush
Administration reacted cautiously to Iran’s pledge, but the IAEA board resolution of
November 28, 2004 dropped the threat to refer the issue to the Security Council.
Since then, there have been continued accusations that Iran is not complying
with its terms. According to the Administration and the IAEA, Iran has limited
IAEA access to two secret Iranian military sites, including the large Parchin complex,
where suspected nuclear access might be taking place. IAEA inspectors visited the
site in January 2005, but Iran has not allowed visits subsequently. Iran is also alleged
to have withheld information and conducted maintenance and other work on
centrifuge equipment and uranium conversion activities. It is also beginning
construction of a heavy water research reactor, which would be well suited to
plutonium production. Concluding its meeting on March 2, 2005, the IAEA issued
a statement that was less critical of Iran than previous IAEA statements or
resolutions, but called on Iran to provide pro-active cooperation. The U.S.
representative to the IAEA board said at the meeting that the IAEA board should
“convene immediately to consider appropriate action if there is any further
deterioration of Iran’s adherence of its [uranium enrichment] suspension pledge.”
EU-3 - Iran negotiations on a permanent nuclear agreement formally began on
December 13, 2004 and continued in Geneva in March 2005. (Related EU-Iran talks
on a free trade accord began in January 2005. The EU-3 nuclear talks also include
“working groups” discussing “security” issues and economic cooperation.) However,
the reported lack of progress of the talks thus far raises the possibility, threatened by
Iranian negotiators, that Iran might withdraw from the talks and begin enriching
uranium. Iran had said it would extend its enrichment suspension until June 2005
if the talks make progress, although even this time frame will likely be insufficient
to conclude a permanent agreement with the EU-3 that includes an Iran-EU free
trade agreement. The talks are scheduled to resume in Geneva on April 19, 2005,
18 Weisman, Steven. “U.S. In Talks With Europeans on a Nuclear Deal With Iran.” New
York Times
, October 12, 2004.

CRS-13
with consideration of an Iranian proposal that Iran be allowed, as part of any
permanent agreement, to retain a small research uranium enrichment capability. The
United States is said to believe that Iran could use even a small enrichment program
to work toward a nuclear weapons capability. On a visit to France in April 2005,
Khatemi expressed optimism that a deal would ultimately be reached.
Chemical and Biological Weapons. Official U.S. reports and testimony,
particularly the semi-annual CIA reports to Congress on WMD acquisitions
worldwide, continue to state that Iran is seeking a self-sufficient chemical weapons
(CW) infrastructure, and that it “may have already” stockpiled blister, blood,
choking, and nerve agents — and the bombs and shells to deliver them. 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 “probably maintain[s] an offensive
[biological weapons] BW program... and probably has the capability to produce at
least small quantities of BW agents.19
Missiles.20 Largely with foreign help, Iran is becoming self sufficient in the
production of ballistic missiles:
! Shahab-3. 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 tests in June 2003. Iran subsequently called the
Shahab-3, which would be capable of hitting Israel, operational and
in production, and Iran formally delivered several of them to the
Revolutionary Guard. Iran publicly displayed six Shahab-3 missiles
in a parade on September 22, 2003. Despite Iran’s claims, U.S.
experts say the missile is not completely reliable, and Iran tested a
“new” [purportedly more accurate] version of it on August 12, 2004.
Iran called the test successful, although some observers said Iran
detonated the missile in mid-flight, raising questions about the
success of the test. On November 17, 2004, then Secretary of State
Powell said there is some information that Iran might be working to
adapt that missile to carry a nuclear warhead.21
! Shahab-4. In October 2004, Iran announced it had succeeded in
extending the range of the Shahab-3 to 1,200 miles, and it added in
early November 2004 that it is capable of “mass producing” this
longer-range missile, which Iran calls the Shahab-4. If Iran has
made this missile operational with the capabilities Iran claims, large
19 “Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons
of Mass Destruction and Advanced Conventional Munitions, 1 July Through 31 December
2003” [http://www.cia.gov].
20 See CRS Report RS21548, Iran’s Ballistic Missile Capabilities.
21 Wright, Robin and Keith Richburg. Powell Says Iran is Pursuing Bomb. Washington
Post,
November 18, 2004.

CRS-14
portions of the Near East and Southeastern Europe would be in
range, including U.S. bases in Turkey. Iran’s new claims would
appear to represent an abrogation of its pledge in November 7, 2003,
to abandon development of a 1,200 mile range missile. The PMOI
asserts Iran is secretly developing an even longer range missile,
1,500 miles, with the help of North Korean scientists.22
! ICBM. Iran’s asserted progress on missiles would appear to
reinforce the concerns of the U.S. intelligence community. In
February 2005, DIA Director Jacoby testified that Iran might be
capable of developing an intercontinental ballistic missile by 2015,23
but that it was not yet clear whether Iran has decided to field such a
system.
! Other Missiles. On September 6, 2002, Iran said it successfully
tested a 200 mile range “Fateh 110” missile (solid propellent), and
Iran said in late September 2002 that it had begun production of the
missile.24 On March 18, 2005, the London Financial Times reported
that Ukraine has admitting 12 “X-55” cruise missiles to Iran in 2001;
the missiles are said to have a range of about 1,800 miles. Iran also
possesses a few hundred short-range ballistic missiles, including the
Shahab-1 (Scud-b), the Shahab-2 (Scud-C), and the Tondar-69
(CSS-8).
Foreign Policy and Support for Terrorism
Iran’s support for terrorist groups has long concerned U.S. Administrations,
particularly since doing so 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. 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.25 Some reports say that Iranian hardline factions have
launched new recruiting drives in Iran for potential suicide attackers in Iraq or
Israel.26
22 Jehl, Douglas. “Iran Reportedly Hides Work On a Longer-Range Missile,” New York
Times
, December 2, 2004
23 “Greater U.S. Concern About Iran Missile Capability.” Reuters, March 11, 2002.
24 “Iran: New Missile on the Assembly Line.” New York Times, September 26, 2002.
25 U.S. Department of State. Patterns of Global Terrorism:2002. Released April 2003,
26 Militant Recruiters Out in Open in Tehran. Washington Times, December 16, 2004.

CRS-15
Analysts see Iran’s support for terrorist groups as one element in a broader
foreign policy.27 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.28 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 by ending support for Shiite dissident movements there, a shift that
accelerated after the election of Khatemi:
! Saudi Arabia. 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 progressed to high-level contacts during
Khatemi’s presidency. 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 as well but has not done so.)
! The exchanges suggest that Saudi Arabia has tried to move beyond
the issue of the June 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.29 The June 21, 2001
federal grand jury indictments of 14 suspects (13 Saudis and a
Lebanese citizen) in the Khobar bombing indicate 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. The 9/11 Commission final
report asserts that Al Qaeda might have had some as yet
undetermined involvement in the Khobar Towers attacks.
27 Kemp, Geoffrey. Forever Enemies? American Policy and the Islamic Republic of Iran.
Carnegie Endowment for International Peace, 1994. Pp. 82-88.
28 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2004.
29 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001.

CRS-16
! The United Arab Emirates (UAE) has considered the Islamic regime
of Iran aggressive 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, the UAE has not pressed the
issue vigorously in several years. 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 is developing its side of the field as well.
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.
! In 1981 and again in 1996, Bahrain officially and publicly accused
Iran of supporting Bahraini Shiite dissidents (the Islamic Front for
the Liberation of Bahrain, Bahrain-Hizbollah, and other Bahraini
dissident groups) in efforts to overthrow the ruling Al Khalifa
family. Bahrain is about 60% Shiite, but its government is
dominated by the Al Khalifa and other Sunni associates. Tensions
have eased substantially during Khatemi’s presidency, but Bahraini
leaders remain wary that Tehran might again support Shiite unrest
that rocked Bahrain during 1994-1998.
Iraq. The U.S. military ousting of Saddam Hussein appears to have benefitted
Iran strategically. 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 wanted Saddam Hussein (a Sunni Muslim) removed, and the
way cleared for the ascendancy of Iraq’s Shiites to power in Iraq.30 The main thrust
of Iran’s strategy in Iraq has been to persuade all Shiite Islamist factions in Iraq to
work together to ensure Shiite Muslim dominance of post-Saddam Iraq. That
strategy appears to have borne fruit with victory a Shiite Islamist bloc (“United Iraqi
Alliance”) in the January 30, 2005 National Assembly elections in Iraq. That bloc,
which won 140 out the 275 Assembly seats, includes all of Iran’s proteges in Iraq
— the well-organized Shiite Islamist parties that Iran has supported since its 1979
Islamic revolution. The most pro-Iranian of these parties are the Supreme Council
for the Islamic Revolution in Iraq (SCIRI), and, to a lesser extent, the Da’wa (Islamic
Call) party. SCIRI was headed by Ayatollah Mohammad Baqr al-Hakim, the late
30 “Iran’s Kharrazi Hopes for Shiite Role in Iraq.” Reuters, April 9, 2003.

CRS-17
Ayatollah Khomeini’s choice to head an Islamic republic in Iraq, who returned to Iraq
on May 10, 2003. He was killed in a car bombing in Najaf on August 29, 2003, and
was succeeded by his younger brother, Abd al-Aziz al-Hakim.
Iranian leaders have expanded ties to Grand Ayatollah Ali al-Sistani, the 75-
year-old Shiite cleric who is emerging as the leading Shiite political figure in Iraq.
Sistani was born in Iran and moved to Najaf, Iraq at the age of 21. Sistani played a
major role in putting together the “United Iraqi Alliance” slate. However, Sistani
has, throughout his career, differed with Iran’s doctrine of direct clerical involvement
in government, and the leading figures on the slate have said they will not seek to
establish an Iranian-style theocratic regime, although some of them have said Islam
should be a major factor in post-Saddam Iraq.
U.S. officials cite Iran for interfering in Iraq in a number of ways. On
September 8, 2004, Secretary of Defense Rumsfeld accused Iran of sending money
and fighters to proteges in Iraq,31 an assertion reiterated by CIA Director Porter Goss
in March 17, 2005 testimony before the Senate Armed Services Committee. U.S.
officials have declined to contradict speculation that Iran is also giving some backing
(money and possibly arms and tactical military advice) to Shiite cleric Moqtada al-
Sadr, whose “Mahdi Army” militia staged two major uprisings against U.S. and Iraqi
forces (April and August 2004).32 Most Iranian officials have sought to persuade
Sadr to enter the legitimate political process in order to bolster collective Shiite
Islamist strength, but some Iranian hardliners are said to prefer Sadr as a more anti-
U.S. Shiite alternative in Iraq. Iran reportedly might be using 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.33 Chalabi has denied the allegations.
Some Iranian 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. 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. Other minor altercations
have occurred with Australian forces, and Iranian naval elements have sometimes
crossed into Iraqi waters, according to U.S. military officials in the Persian Gulf.34

Some commentators say Iran will not exercise substantial influence in Iraq.
They note that most Iraqi Shiites generally stayed loyal to the Iraqi regime during the
31 Scarborough, Rowan. Rumsfeld: Iran Aids Rebels. Washington Times, September 8,
2004.
32 Wong, Edward. “Iran Is In Strong Position to Steer Iraq’s Political Future.” New York
Times
, July 3, 2004.
33 Risen, James and David Johnston. “Chalabi Reportedly Told Iran That U.S. Had Code.”
New York Times, June 2, 2004.
34 CRS conversations with U.S. Fifth Fleet commander, Vice Admiral Nickels, in Bahrain,
February 2005.

CRS-18
1980-1988 Iran-Iraq war, which took nearly 1 million Iranian lives and about half
that many Iraqi battlefield deaths. Most Iraqi Shiites appear not to want a cleric-run
Islamic regime. In addition, Iran and Iraq were not able to erase their bitterness from
the Iran-Iraq war, despite completing exchanges of prisoners and remains from that
war and despite an October 2000 agreement to abide by the waterway-sharing and
other provisions of their 1975 Algiers Accords. (Iraq abrogated that agreement prior
to its September 1980 invasion of Iran.) Saddam Hussein and Iran had exchanged
almost all remaining prisoners from the Iran-Iraq war, but Iran did not return the
military and civilian aircraft flown to Iran at the start of the 1991 Gulf war. Some
post-Saddam Iraqi politicians have said they want Tehran to return the aircraft now
that Saddam is gone. The memories of past territorial disputes linger, During the
1990s, Iran’s naval forces did sometimes cooperate with Saddam Hussein’s illicit
export of oil through the Gulf, in exchange for substantial “protection fees.”
Supporting Anti-Peace Process Groups. Many of the U.S. concerns
about Iran’s support for terrorism center on its reported material assistance (funds,
advice, and some weaponry) 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. (All are named as foreign terrorist
organizations (FTO) by the State Department.) U.S. State Department terrorism
reports since 2002 have said that Iran has been encouraging coordination among
Palestinian terrorist groups, particularly Hamas and PIJ, since the September 2000
Palestinian uprising. 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 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.
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. The position of
the Iranian Foreign Ministry, considered an institutional ally of Khatemi, is that Iran
would not seek to block any final, two-state Israeli-Palestinian settlement.
Iran severed ties to Egypt after that country’s 1979 peace treaty with Israel. In
January 2004, Iran said it was close to agreement to restore full diplomatic ties with
Egypt, and that it was going to meet an Egyptian demand to rename a Tehran street
that is named after Khalid Islambouli, lead assassin of Anwar as-Sadat. However,
diplomatic relations have not been restored to date.
Lebanese Hizballah. Iran maintains a close relationship with Lebanese
Hizballah, a Shiite Islamist group, formed by in 1982 by Lebanese Shiite clerics
sympathetic to Iran’s Islamic revolution and responsible for several acts of anti-U.S.

CRS-19
and anti-Israel terrorism in the 1980s and 1990s.35 In March 2005, Hizballah came
out publicly against U.S. and other international pressure on Syria to completely
withdraw from Lebanon. There have been several press reports in 2004 and 2005
that Hizballah is assisting Hamas and PIJ plan attacks in Israel, even though
Hizballah’s main focus is on Lebanon. Hizballah maintains military forces along the
border and operates outside Lebanese government control, even though the United
Nations has certified that Israel had completed its withdrawal from southern Lebanon
(May 2000). Hizballah asserts the withdrawal was incomplete and that Israel still
occupies small tracts of Lebanese territory. A small number (less than 50, according
to a Washington Post report of April 13, 2005) of Iranian Revolutionary Guards
reportedly remain in Lebanon to coordinate Iranian arms deliveries to Hizballah; the
arms are offloaded in Damascus and trucked into Lebanon.36 The reported 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.37 One recent report said Iran supplied
Hizballah with the unmanned aerial vehicle (UAV), called the Mirsad, that Hizballah
briefly flew over the border with Israel on November 7, 2004, and April 11, 2005.38
Although Hizballah refuses to give up its militia force, a move required by U.N.
Security Council Resolution 1559, it apparently is evolving into more of a political
movement in Lebanon, hoping to expand its presence (currently about 13 seats) in
the Lebanese parliament and to exert greater influence on Lebanese government
decisions. Despite Hizballah’s record of attacks on U.S. forces and citizens in
Lebanon during the 1980s, President Bush said in March 2005 that the United States
might accept Hizballah as a legitimate political force in Lebanon.
Relations With Central Asia and the Caspian. Iran’s policy in Central
Asia has thus far emphasized economic cooperation over Islamic ideology, although
it has sometimes become assertive in the region, particularly against Azerbaijan.
That country’s population, like Iran’s, is mostly Shiite Muslim, but Azerbaijan has
been ruled by secular leaders. In early 1992, Iran led the drive to bring the Central
Asian states and Azerbaijan into the Economic Cooperation Organization.39 Iran
does host at least one anti-Azerbaijan guerrilla leader (Hasan Javadov). In July 2001,
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
35 Hizballah’s last known terrorist attacks outside Lebanon was the July 18, 1994 bombing
of a Jewish community center in Buenos Aires, which killed 85. 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 attack. Hizballah is also
believed to have committed the March 17, 1992 bombing of Israel’s embassy in that city.
36 Wright, Robin. “U.S. Blocks A Key Iran Arms Route to Mideast.” Los Angeles Times,
May 6, 2001.
37 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, February 4, 2002.
38 Kahwaji, Riad and Barbara Opall-Rome. “Hizbollah’s UAV.” Defense News. November
15, 2004.
39 The ECO was founded in 1985 by Iran, Pakistan, and Turkey, as a successor to an
organization founded by those states in 1964.

CRS-20
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 by
Azerbaijan’s then President Heydar Aliyev, but there was little evident progress on
a bilateral division of their portions of the Caspian.
Afghanistan/Al Qaeda.40 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, and is reportedly is seeking to exercise
influence over post-Taliban Afghanistan. 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. Iran has since moved to restore Iran’s traditional sway in western, central,
and northern Afghanistan where Persian-speaking Afghans predominate. Iran has
expressed major objections to the U.S. use of Shindand air base in western
Afghanistan, fearing it is being used to conduct surveillance on Iran. U.S. aircraft
began using the base in September 2004 in connection with the downfall of local
Afghan strongman Ismail Khan, who was Herat province governor and who
previously had controlled the base. Suggesting it wants good relations with
Afghanistan’s leadership, in March 2002, Iran expelled Gulbuddin Hikmatyar, a pro-
Taliban, pro-Al Qaeda Afghan faction leader. Iran froze Hikmatyar’s assets in Iran
in January 2005.
Although 18,000 U.S. troops are in Afghanistan and the regime there is pro-
U.S., Iran believes its strategic position in Afghanistan is a vast improvement to its
adversarial relationship with the Taliban. 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 is not a natural ally of Al Qaeda, largely on the grounds that Al Qaeda is
an orthodox Sunni Muslim organization. However, U.S. officials have said since
January 2002 that it is unclear whether Iran has arrested senior Al Qaeda operatives
who are believed to be in Iran.41 These figures are purported to include Al Qaeda
spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad.42 Some accounts say the operatives who are in Iran have been
able to contact associates outside Iran;43 assertions to this effect were made by U.S.
40 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy.
41 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires
, May 19, 2003.
42 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
43 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
(continued...)

CRS-21
officials after the May 12, 2003 bombings in Riyadh, Saudi Arabia against four
expatriate housing complexes and believed perpetrated by Al Qaeda. On July 23,
2003, Iranian officials, for the first time, asserted Iran had “in custody” senior Al
Qaeda figures. 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 might want to support or protect Al Qaeda activists
as leverage against the United States and its allies. Some reports say Iran might want
to exchange them for a U.S. hand-over of PMOI activists under U.S. control in Iraq.
The 9/11 Commission says several of the September 11 hijackers and other
plotters, possibly with some official help, might have transited Iran, but the report
does not assert that the Iranian government cooperated with or knew about the plot.
In response to reports of the 9/11 Commission’s findings, President Bush said the
United States would continue to investigate possible ties between Iran and Al Qaeda.
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,44 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
43 (...continued)
23, 2004.
44 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis
. New York: John Wiley and Sons, 1991. P. 168.

CRS-22
East peace process. The George H.W. Bush Administration devoted substantial
attention to that process, beginning with the October 1991 Madrid Conference
bringing together leaders from Israel, 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 U.S. shift toward engagement; the Clinton
Administration offered Iran official dialogue, with no substantive preconditions. In
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 and Options
Four months after the September 11, 2001 attacks, President Bush named Iran
as part of an “axis of evil” in his January 2002 State of the Union message, even
though there has been no evidence Iran was involved in those attacks. However, to
date, the Bush Administration has continued the main thrust of Clinton
Administration efforts to engage Iran while at the same time trying to limit Iran’s
strategic capabilities through economic sanctions. In President Bush’s second term,
Iran’s stepped up nuclear activity has stimulated consideration within the
Administration of new options: pressuring Iran economically and diplomatically,
acting against it directly including possibly militarily, promote a change of regime,
or undertaking diplomatic engagement.
Regime Change. Some U.S. officials believe that only an outright 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, short of all-out-U.S.
military invasion, because of the weakness of opposition groups committed to
overthrowing Iran’s regime. Providing overt or covert support to anti-regime
organizations, in the view of many experts, would not make them materially more
viable or attractive to Iranians.

CRS-23
There has been some support in the United States for regime change since the
1979 Islamic revolution. The United States provided some funding to anti-regime
groups, mainly pro-monarchists, during the 1980s.45
The United States has sought to promote U.S. values in Iran through
broadcasting. Radio Free Europe/Radio Liberty (RFE/RL) has operated a radio
service, in Farsi, to Iran since October 1998, broadcasting from Prague.46 As of
December 2002, it has been called Radio Farda (“Tomorrow” in Farsi), which now
broadcasts 24 hours per day, at a cost of approximately $15 million per year. A U.S.-
sponsored TV broadcast service to Iran, run by the Voice of America (VOA), began
operations on July 3, 2003. There reportedly is consideration of increasing the
broadcasts to three hours per day from the current 30 minutes.
The Bush Administration has shown substantial attraction to the regime change
option since the September 11, 2001 attacks. 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
Radio Farda. 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. Support within the Administration for a regime change policy appeared to
diminish somewhat in 2003, possibly because of the U.S. difficulty in stabilizing
Iraq. On October 28, 2003, then 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.”
President Bush’s inaugural address (January 20, 2005) and his State of the
Union message (February 2, 2005) suggested that the Administration, in its second
term, might take further steps toward this option, even as it backs European
diplomacy with Iran on nuclear issues. In the State of the Union message, he said
“And to the Iranian people, I say tonight: as you stand for your own liberty, America
stands with you.” On her visit to Europe in early February 2005, Secretary of State
Rice said “I don’t think that the unelected mullahs who run that regime are a good
thing for the Iranian people or for the region.” Some options to promote regime
change said to be under consideration include increasing public criticism of the
regime’s human rights record, increasing U.S. broadcasting into Iran, and supporting
45 CRS conversations with U.S. officials responsible for Iran policy. 1980-1990. After a
period of suspension of such assistance, in 1995, the Clinton Administration accepted a
House-Senate conference agreement to include $18-$20 million in funding authority for
covert operations against Iran in the FY1996 Intelligence Authorization Act (H.R. 1655, P.L.
104-93), 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.
46 The service began when Congress funded it ($4 million) in the conference report on H.R.
2267 (H.Rept. 105-405), the FY1998 Commerce/State/ Justice appropriation. It was to be
called “Radio Free Iran.”

CRS-24
Iranian dissidents.47 An 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.
The State Department report on U.S. democracy promotion efforts during 2004
(“Supporting Human Rights and Democracy: U.S. Record 2004-2005,” released
March 28, 2005) says that in 2004, the State Department awarded a grant to
document abuses in Iran. The State Department has put out a solicitation for
proposals for similar projects to be funded in 2005. These programs are being funded
by the State Department’s Bureau of Democracy and Labor (DRL), run through the
National Endowment for Democracy (NED). (The State Department has determined
that, because Iran is ineligible for U.S. aid, Iran democracy promotion funds cannot
be channeled through the Middle East Partnership Initiative, because those are
Economic Support Funds, ESF, and cannot be used in Iran.)
Democracy/Regime Change Legislation and Funding. Congress has
expressed a clear preference for a regime change policy; the funding for the
democracy promotion grants discussed above were contained in two appropriations
laws. The FY2004 foreign operations appropriation (P.L. 108-199) provided
“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.” A
provision of the conference report on H.R. 4818, (P.L. 108-447) the FY2005 foreign
aid appropriations, provided a further $3 million for similar democracy promotion
efforts in Iran.
In the 108th Congress, a Senate bill, S. 1082, introduced by Senator Sam
Brownback, called 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, contained similar provisions and added
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).
H.R. 282 and S. 333. Further democracy promotion initiatives and funding
have been proposed. in the 109th Congress. In July 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. Similar legislation (H.R. 5193) was
introduced by Representative Ros Lehtinen on September 30, 2004, although without
stipulating a specific level of U.S. assistance to pro-democracy groups. New versions
of these bills have been introduced in the 109th Congress (H.R. 282 and S. 333). H.R.
282 was marked up by the Middle East/Central Asia subcommittee of the House
International Relations Committee on April 13, 2005. These bills provide for the
following:
47 Strobel, Warren. “U.S. Planning to Put More Pressure on Iran.” Miami Herald,
December 9, 2004.

CRS-25
! Both bills contain provisions increasing U.S. sanctions contained in
the Iran-Libya Sanctions Act, including removing a sunset provision,
making exports to Iran of WMD-related technology sanctionable
activity; and raising the threshhold for the President to waive ILSA’s
provisions or terminate its application.
! Both recommend the appointment of an Administration policy
coordinator on Iran.
! Both specify criteria for designating pro-democracy groups eligible
to receive U.S. aid.
! S. 333 authorizes $10 million in U.S. funding for such groups; H.R.
282 specifies no dollar amount.
! The version of H.R. 282 marked up on April 13, 2005, includes
provisions cutting U.S. assistance to countries whose companies
have invested in Iran’s energy sector and mandating the publication
of a list of U.S. and foreign companies that have invested in Iran’s
energy sector.
Engagement? The Bush Administration has pursued engagement with Iran
at times; 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.
In May 2003, both countries publicly acknowledged that they were conducting direct
talks in Geneva on Afghanistan and Iraq,48 marking the first confirmed direct
dialogue between the two countries since the 1979 revolution. However, the United
States broke off the dialogue following the May 12, 2003, bombing in Riyadh that
U.S. officials say was planned by Al Qaeda activists in Iran. In December 2003, the
United States resumed some contacts with Iran to coordinate U.S. aid to victims of
the December 2003 earthquake in Bam, Iran, including a reported offer to send a
high-level delegation to Iran, headed by Senator Elizabeth Dole and a Bush family
member. (See further below.) However, Iran rebuffed the offer of the Dole mission.
Although talks are not being conducted now, and despite President Bush’s strong
criticisms, the Administration says it does not rule out future talks with Iran. Two
late 2004 research institute reports, one by the Council on Foreign Relations and one
by the Atlantic Council, recommended 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.49
The Administration appeared to support tentative moves by other governments
and other branches of the U.S. government toward renewed engagement in 2004.
In October-November 2004, Librarian of Congress James Billington visited Iran.
The Bush Administration was informed in advance by the Librarian of his visit and
said it viewed the visit as a cultural exchange consistent with U.S. policy. The main
48 Wright, Robin. “ U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.
49 For text of the Council on Foreign Relations study, see [http://www.cfr.org/pdf/Iran
_TF.pdf].

CRS-26
purpose of his visit was to begin an exchange of materials with Iran’s national library
and included cultural meetings with Iranian film experts, poets, and architects.
Military Action? As concerns over Iran’s nuclear program have grown, public
discussion of a military option (conducted either by the United States or another
country, such as Israel) against Iran’s nuclear facilities has increased. 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. However, all-out U.S. military action to
remove Iran’s regime appears to be unlikely and not under serious consideration by
the Administration, although journalist Seymour Hersh reported that there is planning
for such an attack, should the President order such action.50 Most experts believe
U.S. forces are likely spread too thin, including about 150,000 deployed in Iraq, to
undertake it at this time and that U.S. forces would be greeted with hostility by most
Iranians. At the same time, U.S. Central Command is updating its “war plan” for
Iran, according to the Washington Post (February 10, 2005), as part of what
CENTCOM says is normal updating.
Some experts believe that limited military action, such as air strikes against
suspected nuclear sites, could be a potentially useful option to set back Iran’s nuclear
program. On February 22, 2005, during his visit to Europe, President Bush attempted
to calm European concerns about a possible U.S. strike on Iran, saying that “This
notion that the United States is getting ready to attack Iran is simply ridiculous,” but
he counterbalanced that statement by saying that “all options are on the table.”
During her February 2005 visit to Europe, Secretary of State Rice said such action
“is not on the agenda at this time,” raising the potential for the option to be
considered later. On November 5, 2004, British Foreign Secretary Jack Straw said
the United Kingdom could not see a circumstance that would allow it to support such
an air strike by the United States, Israel, or any other force, on Iran at this time.
Some believe Iran might retaliate through terrorism or other means, and others
question whether the United States is aware of all relevant sites. Still others maintain
that Iran might have shielded some of its nuclear infrastructure from a strike. The
January 2005 New Yorker piece by Seymour Hersh, referenced above, asserts that
President Bush has authorized covert special forces missions into Iran to assess
potential nuclear-related targets for a U.S. air strike. The Department of Defense
criticized the credibility of the article, but it did not dispute this particular fact or
other specific facts in it. In February 2005, there were press reports that the United
States is flying unmanned aerial surveillance craft over Iran, in part to help survey
nuclear sites, and apparently as part of a broader U.S. review of its intelligence on
Iran.51
Expressing particular fear that Iran might achieve a nuclear weapons capability,
some Israeli officials, including Defense Minister Shaul Mofaz in October 2004,
have openly refused to rule out the possibility that Israel might strike Iran’s nuclear
50 Hersh, Seymour. “The Coming Wars.” The New Yorker, January 17, 2005.
51 Linzer, Dafna. U.S. Uses Drones to Probe Iran For Arms. Washington Post, February 13,
2005; Linzer, Dafna and Walter Pincus. U.S. Reviewing Its Intelligence on Iran.
Washington Post, February 12, 2005.

CRS-27
infrastructure, although Israel does not necessarily have the capabilities that the
United States possesses that could conceivably make such action effective. On
January 20, 2005, Vice President Cheney gave a radio interview suggesting that Israel
might decide to undertake such a strike if the United States did not do so first. Israeli
Prime Minister Ariel Sharon discussed the Iran nuclear issue with journalists and
reportedly stressed with President Bush that Israel views the issue as an urgent and
vital threat during his April 2005 visit to the United States. However, Sharon
publicly said that Israel is not planning a military strike on Iran’s facilities.
U.S. military analysts note that U.S. forces in the Gulf region could potentially
be used against Iran, if the President so decides. Related options, 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, or placing nuclear-armed
weapons aboard U.S. ships operating in the Gulf as a signal of strength to Iran. The
Administration has discussed with its allies some measures that could be used to
block North Korea’s technology exports and alleged drug smuggling,52 an initiative
that has won allied support. In contrast, some officials of allied governments,
including Britain, have called for greater cooperation with Iran to curb the movement
of smugglers and terrorists across the Persian Gulf.53
International Sanctions? Iran is not subject to U.N. sanctions. However,
during her visit to Europe in February 2005, Secretary of State Rice said that the
Bush Administration believes that the EU-3 should agree with the United States that
Iran should be reported to the Security Council — presumably for the imposition of
sanctions — if it fails to uphold any aspect of its new nuclear pledges. At the same
time, as noted above, in March 2005 the Administration decided to support the talks
by offering to drop some U.S. sanctions on Iran (ending U.S. opposition to Iran’s
applying to join the WTO, and agreeing to sales of aircraft parts to Iran) if a
permanent nuclear deal between the EU-3 and Iran is reached. During his February
2005 visit to Europe, several European leaders reportedly told the President that such
a U.S. offer might help the prospects for achieving a permanent agreement.
If further 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, or 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, particularly a ban on purchases of Iranian oil, given a
tight oil market.
52 Kralev, Thomas. “U.S. Asks Aid Barring Arms From Rogue States.” Washington Times,
June 5, 2003.
53 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.

CRS-28
U.S. Sanctions
Since the November 4, 1979 seizure of the U.S. hostages in Tehran, unilateral
U.S. economic sanctions have formed a major part of U.S. policy toward Iran.54 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.55 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 grew about 4% in 2003, and the economy is doing well in 2004
now that oil prices exceed $50 per barrel. Iran’s per capita income is estimated to
now exceed $2,000 per year, up from about $1,700 in 2002. 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).
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 provided some earthquake related lending
as well, as discussed below.)
Bam Earthquake. The United States provided $5.7 million in assistance (out
of total governmental pledges of about $32 million, of which $17 million have been
remitted) to the victims of the December 2003 earthquake in Bam, Iran, which killed
as many as 40,000 people and destroyed 90% of Bam’s buildings. The United States
54 On November 14, 1979, President Carter declared a national emergency with respect to
Iran, renewed every year since 1979.
55 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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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 coordinated 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 could be used to effect the transfer of funds, although no Iranian financing
could 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 (INA, P.L.
106-178) authorizes sanctions on foreign entities that assist Iran’s WMD programs.
56 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 international
space station and for certain space station hardware. Unless the Administration
determines that Russian entities are no longer violating the act, the provision could
complicate U.S. efforts to keep U.S. astronauts on the station beyond April 2006,
when Russia plans to start charging the United States for transporting them on its
Soyuz spacecraft. The Administration, and NASA in particular, says it is looking for
ways, consistent with the act, to continue to access the international space station.57
Reflecting a Bush Administration decision to proceed with rather than overlook
alleged violations or waive sanctions, the Bush Administration has sanctioned
numerous entities, including from North Korea, China, India, Armenia, Taiwan, and
Moldova. These entities were sanctioned under the INA, 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
INA. On September 17, 2003, the Administration imposed sanctions on a leading
Russian arms manufacturer, the Tula Instrument Design Bureau, for allegedly selling
laser-guided artillery shells to Iran.
56 See CRS Report RS22072, The Iran Nonproliferation Act and the International Space
Station: Issues and Options.
By Sharon Squassoni and Marcia Smith.
57 Gugliotta, Guy. “Long Arm of Foreign Policy.” Washington Post, August 25, 2004.

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On April 7, 2004, the Administration announced sanctions on 13 entities under
the INA: 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).
In December 2004 and January 2005, INA sanctions were imposed on fourteen
more entities, mostly from China, for alleged supplying of Iran’s missile program.
Many, such as North Korea’s Changgwang Sinyong and China’s Norinco and Great
Wall Industry Corp, have been sanctioned several times previously. Other entities
sanctioned included North Korea’s Paeksan Associated Corporation, and Taiwan’s
Ecoma Enterprise Co.
The FY2005 foreign aid appropriation (H.R. 4818, P.L. 108-447) would punish
the Russian Federation for assisting Iran. The law withholds 60% of any U.S.
assistance to the Russian Federation unless it terminates technical assistance to Iran’s
civilian nuclear and ballistic missiles programs. Similar sanctions against the
Russian government for assisting Iran have been enacted in previous years.
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 exempted Iran from the annual certification process that kept
drug-related U.S. sanctions in place on Iran. According to several governments, 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. Britain has sold Iran
night vision equipment and body armor for the counter-narcotics fight.
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
11, 2005, 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 may 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.

CRS-31
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 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%. In December 2004, U.S. sanctions were eased
slightly to allow Americans to freely engage in ordinary publishing activities with
entities in Iran (and Cuba and Sudan).
Some U.S. companies have come under scrutiny for indirect dealings with Iran.
On January 11, 2005, Iran said it had let a contract to the U.S. company Halliburton,
and an Iranian company, to drill for gas in Phases 9 and 10 of South Pars. Under the
deal, Halliburton would reportedly provide its services through the Iranian partner,
Oriental Kish, leaving unclear whether Halliburton would be considered in violation
of the U.S. trade and investment ban, or ILSA.58 Because of criticism within the
United States, Halliburton announced on January 28, 2005, that it would withdraw
all employees from Iran and end business activities there. One week later, GE
announced it would seek no new business in Iran. Through Italian, Canadian, and
French subsidiaries, GE has been selling Iran equipment and services for
hydroelectric, oil and gas services, and medical diagnostic projects.
The Iran-Libya Sanctions Act (ILSA)/Regional Oil and Gas Deals.
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
required an Administration report on its effectiveness within 24-30 months, which
did not recommend repeal. 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.
58 “Iran Says Halliburton Won Drilling Contract.” Washington Times, January 11, 2005.

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A number of other investments have remained “under review” for ILSA
sanctions since 1999: 59
! A long-delayed $2 billion deal to develop the large Azadegan field60
was signed on February 18, 2004. The consortium of Japanese firms
that will develop the field includes Japan Petroleum Exploration
Company, Inpex Corp, and Tomen Corp.
! Iran and China’s Sinopec signed an agreement in October 2004 for
Sinopec to develop Iran’s Yadavaran oil field in return for 150,000
barrels per day of Iranian oil and 10 million tons per year of liquified
natural gas (LNG).
! In May 2004 India’s Petronet reached agreement to buy LNG from
Iran.
! On November 2, 2004, the state-owned Indian Oil Company agreed
to develop part of Iran’s South Pars gas field and build an LNG
plant, a deal valued at about $3 billion.
! On January 7, 2005, three Indian firms, led by Oil and Natural Gas
Corporation, agreed to buy LNG from Iran over the next 25 years
and to invest in Iran’s gas fields. This latter deal is valued at about
$40 billion over the lifetime of the deal and is to include
construction of a gas pipeline from Iran to India, through Pakistan.
During her visit to Asia in March 2005, Secretary of State Rice
“expressed U.S. concern” about the pipeline deal, although neither
she nor any other U.S. official has said it would be reviewed for
ILSA sanctions. Indian officials have rebutted the U.S. opposition
and have also continued to cooperate with Iran on regional rail and
road links.

Iran has signed agreements to sell gas to new customers. These arrangements
would not appear to constitute an “investment” in Iran’s energy sector. 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. Iran said in December 2004 it expects to begin exporting LNG
from South Pars by 2009, with customers to include India and China. Other potential
customers include Bahrain, the UAE, and Kuwait. Iran, India, and Pakistan are also
discussing construction of a natural gas pipeline that would enable Iran to sell gas to
those markets.
As discussed above in the section on “regime change”, H.R. 282 and S. 333
have several provisions to amend ILSA: (1) to increase the requirements on the
Administration to justify waiving sanctions on companies determined to have
59 These investment agreements are discussed in CRS Report RS20871, The Iran-Libya
Sanctions Act
.
60 “Japan Still in Iran Oil Talks, Despite U.S.” Reuters, June 30, 2003.

CRS-33
violated its provisions; (2) to repeal the sunset (expiration) provision of ILSA; and
(3) to make exports to Iran of WMD-useful technology sanctionable under ILSA.61
Another bill, (S. 299), introduced February 7, 2005, by Senator Wyden, would make
U.S. government information on investments in Iran’s energy sector available to the
public. This provision was incorporated into the version of H.R. 282 that was
marked up on April 13, 2005.
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, pipeline construction began, and the
pipeline is expected to begin operations in early-mid 2005. 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. Iran is said to be importing gasoline
possibly from these or Persian Gulf state sources because of a lack of adequate
refining capacity in Iran.
Travel-Related Guidance. 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.
U.S.-Iran Assets Disputes. Iran views the issue of outstanding disputed
commercial claims and U.S.-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 Iranian diplomatic property remains
blocked. The assets issue moved to the forefront following several U.S. court
judgments against Iran for past acts of terrorism against Americans, filed under the
61 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.

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Anti-Terrorism and Effective Death Penalty Act of 1996. For information on 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.
Multilateral 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, including
imposing their own sanctions on that country. As noted, those U.S. efforts have
generally been unsuccessful, because most U.S. allies see engagement as useful
means of moderating 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, the
EU-Iran dialogue formally resumed in May 1998. 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.
EU-Iran Trade Negotiations. On December 12, 2002, Iran and the EU
(European Commission) began negotiations on a trade pact that would lower the
tariffs or increase quotas for Iranian exports to the EU countries, with linkage to
Iran’s 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 suspend talks on a trade agreement in July 2003. As noted above,
the EU - Iran trade talks resumed in January 2005 in concert with negotiations on a
permanent nuclear agreement. The EU has said a free trade agreement depends on
more than just nuclear issues, and the EU has insisted on working group discussions
on Iran’s human rights record, Iran’s alleged efforts to derail the Middle East peace
process, Iran’s record of supporting terrorism (Al Qaeda, Hezbollah, Hamas, and the
PMOI, which Iran considers a terrorist group, although the EU does not), and
proliferation issues. These working groups include discussions on counter-narcotics,
refugees, and migration issues — issues on which Iran’s record has sometimes been
positive.

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Country-Specific Policies: Britain and France. The 1998 resolution of
the “Rushdie affair” to Britain’s satisfaction sparked improvement in its relations
with Iran. Iran maintains that Ayatollah 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. 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. In October 2000, Britain began extending longer term
credit (two years or greater) for exports to Iran.
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/Azadegan Field. 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, as noted above. 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
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.

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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. 103-306) 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, contained 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; it would have 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 every occasion since then (sixteen occasions in total), most
recently in December 2004, the WTO has acquiesced to U.S. wishes by rejecting
Iran’s application to launch entry talks with the WTO. As noted above, the European
countries negotiating with Iran on nuclear issues have put on offer support for Iran’s
entry into the body as part of an agreement that might be reached. As discussed
above, as part of an effort to assist the EU-3 nuclear talks with Iran, the
Administration announced on March 11, 2005, that it would drop opposition to Iran’s
applying for WTO membership if a nuclear deal is reached.

CRS-37
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 that a crisis
is likely if Iran does not fully and unambiguously abandon any efforts toward
achieving a nuclear weapons capability.
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-
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.


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Figure 1. Map of Iran