Order Code RL32048
CRS Report for Congress
Received through the CRS Web
Iran: U.S. Concerns and
Policy Responses
Updated August 19, 2005
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Iran: U.S. Concerns and Policy Responses
Summary
The Bush Administration has pursued several avenues to attempt to contain or
end the potential threat posed by Iran, at times pursuing limited engagement directly
or through allies, and at other times leaning toward pursuing efforts to change Iran’s
regime. Some believe a potential international crisis is looming over Iran’s nuclear
program because a U.S.-supported effort by three European nations to prevent an
Iranian nuclear breakout is faltering. International concerns on nuclear issues have
been heightened by the victory of Mahmoud Ahmadinejad, an admitted hardliner, in
Iran’s presidential election on June 24, 2005. Some advocate military action against
Iran’s nuclear infrastructure, but others believe that continued diplomacy, combined
with offers of economic rewards or threats of punishment, is the only viable option.
Still others believe that only an outright replacement of Iran’s regime would diminish
the threat posed by Iran to U.S. interests. 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 or shaken the regime’s grip on power.
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 has largely occurred as a product of January
30, 2005 elections there.
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. Some fear that
new limits on personal freedoms will be imposed by Ahmadinejad, who has
consistently advocated a return to many of the original principles of the Islamic
revolution as set down by the late Ayatollah Ruhollah Khomeini. However, Iran
does hold elections for some positions, including that of president, and some believe
that changing Iran’s human rights practices is not necessarily central to U.S. interests
in 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.

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Contents
Threat Assessments and U.S. Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, June 2005 Presidential Elections,and Human Rights . . . . 2
Former President Mohammad Khatemi, Reformists, and
Reformist Candidates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Conservatives, Rafsanjani, and Conservative Candidates . . . . . . . 3
The June 2005 Elections/Mahmoud Ahmadinejad . . . . . . . . . . . . . . . . 4
Prominent Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Anti-Regime Groups: People’s Mojahedin Organization of Iran
(PMOI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Pro-Shah Activists/Exile Broadcasts . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Human Rights Record/Crackdowns on Dissent . . . . . . . . . . . . . . . . . . . 8
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . 10
Nuclear Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Recent Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Chemical and Biological Weapons . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Missiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Foreign Policy and Support for Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . 16
Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Supporting Anti-Peace Process Groups . . . . . . . . . . . . . . . . . . . . . . . . 20
Relations With Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . 21
Afghanistan/Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
U.S. Policy Responses and Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Bush Administration Policy and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Engagement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Military Action? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
International Sanctions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Bam Earthquake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Iran-Libya Sanctions Act (ILSA) and Regional Oil and
Gas Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 37
Multilateral Policies Toward Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
EU-Iran Trade Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Multilateral, World Bank, and IMF Lending to Iran . . . . . . . . . . . . . . 38
WTO Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

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List of Figures
Figure 1. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

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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, and pressuring regional U.S. allies.
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.
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

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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, June 2005 Presidential Elections,
and Human Rights
After about a decade as leader of the revolution, Ayatollah Khomeini died on
June 3, 1989. Upon Khomeini’s death, one of his disciples, Ayatollah Ali
Khamene’i, then serving as president, was selected Supreme Leader by an “Assembly
of Experts” (an elected body).1 Khamene’i had served two terms as elected president
(1981-1989), but he has lacked the unquestioned spiritual and political authority of
Khomeini. Recently, he has been gaining strength by using his formal powers to
appoint heads of key institutions, such as the armed forces and half of the twelve-
member Council of Guardians.2 This body reviews legislation to ensure it conforms
to Islamic law, and it screens election candidates. His position has been enhanced
by the election as president on June 24, 2005 (second round of voting) of Mahmoud
Ahmadinejad, a hardliner. Another unelected body dominated by conservatives is
the Expediency Council, set up in 1988 to resolve legislative disagreements between
the Majles (parliament) and the Council of Guardians.
Former President Mohammad Khatemi, Reformists, and Reformist
Candidates. Mohammad Khatemi, who has now been succeeded by Ahmadinejad,
was first elected in May 1997, with 69% of the vote. He was re-elected in June 2001,
with an even larger 77% of the vote, against nine conservative candidates. Khatemi
remained popular, but he was always subordinate to the Supreme Leader. Khatemi
served two consecutive terms and constitutionally could not run again in the June
2005 presidential election. He derived key political support from reformist-oriented
students, youths, and women. Journalists and other observers say these reformist
segments have been increasingly defiant of the hardliners in their dress and other
activities, although observers say there are not overt signs of political rebellion.
Khatemi’s supporters held about 70% of the 290 seats in the 2000-2004 Majles
after their victory in the February 18, 2000 elections. However, pro-reform elements
became disillusioned with Khatemi for his refusal to confront the hardliners.
Dissatisfaction with the lack of major reform erupted in major student
demonstrations in July 1999 in which four students were killed by regime security
forces. On June 8, 2003, a time period marking the fourth anniversary of those riots,
regime forces again suppressed pro-reform demonstrators; some protesters called for
Khatemi to resign for being ineffective. President Bush issued statements in support
of the demonstrators, although then Secretary of State Powell said the protests
represented a “family fight” within Iran. Institutionally, Khatemi has been supported
1 The Assembly also has the power to amend Iran’s constitution.
2 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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CRS-3
by reformist organizations (formal “parties” have not been approved) that tried but
failed to elect a reformist in the June 2005 elections. For the first round of the
presidential elections on June 17, many reformists had pinned their hopes on former
science minister Mostafa Moin. He was initially disqualified for the vote by the
Council of Guardians, but his candidacy was reinstated on review. He finished fifth,
disappointing reformists who thought he would at least make it into a runoff. Major
reformist organizations include the following:
! The Islamic Iran Participation Front (IIPF). The most prominent and
best organized pro-reform grouping, it is headed by Khatemi’s
brother, Mohammad Reza Khatemi, who was a deputy speaker in the
2000-2004 Majles.
! The student-led Office for Consolidation and Unity. Originally
enthusiastic about Khatemi, it became critical of him for failing to
challenge the hardliners. In mid-2002, partly in response to its
criticism, Khatemi proposed new legislation that would strengthen
the power of his office; it was passed by the Majles but blocked by
the Council of Guardians.
! The Mojahedin of the Islamic Revolution organization (MIR). It is
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.
! The Society of Combatant Clerics. A prominent member of this
grouping is Mehdi Karrubi, who was speaker of the 2000-2004
Majles. Karrubi finished third in the June 17, 2005 first round of the
elections.
! Vice President (and Minister of Sports) Mohsen Mehralizadeh was
another pro-reform candidate. He was also initially disqualified but
reinstated on review. He finished last.
The Conservatives, Rafsanjani, and Conservative Candidates. Iran’s
conservatives generally want only gradual reform, but, more importantly in the view
of most experts, they want to keep major governing and economic institutions under
the control of members of their faction. The conservatives have tried to unify under
a multi-organization umbrella called the Fundamentalists’ Coordination Council
(FCC). The conservatives, supported by Khamene’i, have been gaining strength
since the February 28, 2003, municipal elections, when reformists failed to turn out
in large numbers and hardliners won most of the seats from Tehran.

The conservatives gained substantial additional strength from the February 20,
2004 Majles elections. In that election, the Council of Guardians disqualified about
3,600 mostly reformist candidates, including 87 members of the current Majles.
Some were prominent, such as deputy speakers Mohammad Reza Khatemi and
Behzad Nabavi. Khatemi’s IIPF grouping boycotted the elections, but some
reformist factions participated. The conservatives won a majority, about 155 out of
the 290 Majles seats. Turnout was about 51%, according to the reformist-controlled

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CRS-4
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 this
election as unfair; on February 24, 2004, President Bush said in a White House
statement “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.” 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.
The June 2005 Elections/Mahmoud Ahmadinejad. On the tide of these
conservative victories, the chairman of the Expediency Council, former two-term
president (1989-1997) Akbar Hashemi-Rafsanjani, regained political prominence.
He is considered the patron of many Majles conservatives, although he ran for
president again in the June 2005 elections on a pro-business, pro-reform platform.
He was constitutionally permitted to run because a third term would not have been
consecutive with his previous two terms as president.

Rafsanjani had several more conservative opponents, four of whom had ties to
the Islamic Revolutionary Guard Corps (IRGC, see below). They included former
Revolutionary Guard commander Mohsen Rezai (now Secretary-General of the
Expediency Council); former state broadcasting head Ali Larijani; former
Revolutionary Guard Air Force commander and police chief, Mohammad Baqer
Qalibaf; and Tehran mayor Mahmood Ahmadinejad, who was formerly a commander
in the Guard and the Basij (a volunteer paramilitary organization that enforces
adherence to Islamic customs). In deference to Rafsanjani, some prominent
hardliners did not run: former foreign minister Ali Akbar Velayati; chief nuclear
negotiator Hassan Ruhani; former Labor Minister Ahmad Tavakkoli, leader of the
“Builders of Islamic Iran” faction, a key bloc in the new Majles; and Majles speaker,
Gholem Ali Haded-Adel.
On May 22, 2005, the Council of Guardians, as expected, significantly narrowed
the field of candidates to 6 out of the 1,014 persons who registered for the election.
(In the 2001 presidential election, the Council permitted to run only 10 out of the 814
registered candidates.) However, at Khamene’i’s request, two reformist candidates
were reinstated. One, Reza’i, dropped out voluntarily before the June 17 first round.
On the eve of the first round, President Bush criticized the elections as unfair because
of the denial of the candidacies of “popular reformers and women who have done so
much for the cause of freedom and democracy in Iran.”3

In the June 17, 2005 first round, turnout was about 63% (29.4 million votes out
of 46.7 million eligible voters). The results were as follows:
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

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CRS-5
Rafsanjani:
21% (moved on to run-off)
Ahmadinejad: 19.5%
(moved on to run-off)
Karrubi:
17%
Qalibaf:
13.8%
Moin: 13.77%
Larijani:
5.9%
Mehralizadeh: 4.38%
No candidate achieved a majority, forcing a second round. However, the first
round results proved surprising because virtually no experts foresaw the emergence
of Tehran Mayor Ahmadinejad. Ahmadinejad, who is about 49, campaigned as a
“man of the people,” the son of a blacksmith who continues to live in modest
circumstances, who would promote the interests of the poor and return government
to the principles of the Islamic revolution during the time of Ayatollah Khomeini.
Reformist candidate Karrubi and some others alleged fraud in the first round, and the
Council of Guardians ordered a spot-check of at least 50 ballot boxes, but a
consensus emerged that widespread fraud was unlikely and there was no full-scale
investigation.
The run-off was conducted on June 24, 2005. With his momentum from the
first round, Ahmadinejad won a landslide victory in the run-off, receiving 61.8% of
the vote to Rafsanjani’s 35.7%. Turnout was 47%, less than the first round,
suggesting that reformists did not turn out in large numbers to try to prevent
Ahmadinejad’s election. He becomes the first non-cleric to be president of the
Islamic republic since the assassination of then president Mohammad Ali Rajai in
August 1981. His victory was confirmed by the Supreme Leader on August 3, 2005,
and he took office on August 6.
After his election, Ahmadinejad appealed for unity and pledged to build a unity
government that includes officials on the reformist side of the spectrum. On August
14, 2005, he presented for Majles confirmation a 21-member cabinet composed
largely of little-known hardliners, over half of whom reputedly have been associated
with the Revolutionary Guard and associated security organizations. He also
appointed Ali Larijani, one of his first round rivals, as Secretary General of the
Supreme National Security Council, who will serve essentially the chief negotiator
on nuclear issues. That appointment of the hardline Larijani signals that
Ahmadinejad intends to implement his campaign pledge not to bargain the nuclear
program away in talks with the Europeans. In keeping with his skepticism of
relations with the United States, he has made no significant overtures to the United
States. At the same time, Ahmadinejad will face the same constraints from the
Supreme Leader and the unelected bodies discussed above that have been faced by
Khatemi.
Ahmadinejad has also sought to parry allegations that he was one of the holders
of the 52 American hostages during November 1979-January 1981; that allegation
was investigated by the Bush Administration but U.S. intelligence reportedly has

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CRS-6
determined he was not one of the hostage holders.4 The Administration reportedly
is likely to grant Ahmadinejad a visa to attend U.N. General Assembly meetings in
September 2005. Another allegation is that he took part in the 1989 assassination in
Vienna, Austria of Iranian Kurdish dissident leader Abd al-Rahman Qassemlou.
Prominent Dissidents. Several dissidents are outside the political structure,
seeking more sweeping change, particularly the withdrawal of Iran’s clerics from
direct participation in government. One such figure, 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 him for
allegedly protecting 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. Other prominent dissidents include exiled
theoretician Abd al-Karim Soroush, former Interior Minister Abdollah Nuri,
imprisoned journalist Akbar Ganji (see below), 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 such group, which is left-
leaning, is the People’s Mojahedin Organization of Iran (PMOI).5 Even though it 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 (and supported the November 1979 takeover of the U.S.
Embassy in Tehran) but was later excluded from power and forced into exile. The
State Department designated the PMOI as a foreign terrorist organization (FTO) in
October 19976 and the NCR was named as an alias of the PMOI in the October 1999
re-designation. 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. 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.7
4 Wright, Robin. “U.S. Likely to Let Iran’s President Visit U.N..” Washington Post, August
12, 2005.
5 Other names by which this group is known is the Mojahedin-e-Khalq Organization (MEK
or MKO) and the National Council of Resistance (NCR).
6 The designation was made under the authority of the Anti-Terrorism and Effective Death
Penalty Act of 1996 (P.L. 104-132).
7 “Removal of Iran Group From Terror List Sought.” Washington Post, November 23, 2002.

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CRS-7
The group’s alliance with Saddam Hussein’s regime in the 1980s and 1990s
contributed to the U.S. shunning of the organization. U.S. forces attacked PMOI
military installations in Iraq during Operation Iraqi Freedom and negotiated a
ceasefire with PMOI military elements in Iraq, requiring the approximately 4,000
PMOI fighters to remain confined to their Ashraf camp near the border with Iran.
The group’s weaponry is in storage, guarded by U.S. military personnel.
Press reports continue to say that some Administration officials want the group
removed from the FTO list and want a U.S. alliance with it against the Tehran
regime.8 Then National Security Adviser Condoleezza Rice stated in November
2003 that the United States is unambiguously treating the group as a terrorist
organization. However, the debate over the group was renewed with the U.S.
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
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.9 Iran said in July 2005 that about 700 members of the group had returned to
Iran in recent months, presumably after recanting their membership. Two group
members were abducted in Baghdad in early August 2005, allegedly by pro-Iranian
Iraqi militia members.
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.10 Numerous other Iranian exile broadcasts, some not linked to the Shah’s son,
emanate from California, where there is a large Iranian-American community, but no
U.S. assistance is provided to these stations. 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.
8 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal, May 12, 2003.
9 For further information, see CRS Report RL31119, Terrorism: Near Eastern Groups and
State Sponsors, 2002.
10 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, August 26, 2002.

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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. According to testimony on May 19, 2005, by
Undersecretary of State for Political Affairs Nicholas Burns, the Bush Administration
has established with European allies and Canada a “Human Rights Working Group”
that meets quarterly, by video-conference, to coordinate a response to Iran’s human
rights abuses. 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
human rights record. Iran is a party to the two international covenants on human
rights.
The State Department’s human rights report for 2004, released February 28,
2005, said Iran’s already poor human rights record “worsened” during the year.11 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. Among major specific themes
and cases are the following.
! There was an 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.
! On May 13, 2005, Iran freed a prominent dissident, Abbas Abdi,
who was jailed for the past two years for conducting an opinion poll
on Iranians’ attitudes toward relations with the United States.
! Imprisoned journalist Akbar Ganji conducted a hunger strike (June
10-August 17) to protest regime oppression. The Bush
11 For text of the 2004 report on Iran, see [http://www.state.gov/g/drl/rls/hrrpt/2004/
41721.htm].

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CRS-9
Administration issued a statement calling for his release on July 12,
2005. In 2001, he was sentenced to six years in prison for alleging
high-level involvement in a series of murders of Iranian dissident
intellectuals that the regime had blamed on “rogue agents” in the
security apparatus.
! On the issue of women’s rights, on June 13, 2005, about 250 women
staged the first women’s rights demonstration since the 1979 Islamic
revolution, protesting obligatory veiling, the denial of their
candidacies in the June 2005 presidential elections, and related
practices. On the other hand, women can vote and run in lower level
elections, including the Majles, they can drive, and many work
outside the home, including owning and running their own
businesses. Eleven out of the 290 Majles deputies are women.
! 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 no improvement in Iran’s
practices on this issue was noted in the International Religious
Freedom report for 2004, released September 15, 2004. 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, a proposed H.Con.Res.
319 contained a sense of Congress on the Baha’is similar to that in
previous years.
! On the treatment of Jews, 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.
However, during 1993-1998, Iran executed five Jews allegedly
spying for Israel. In June 1999, Iran arrested 13 Jews (mostly
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), receiving sentences ranging from 4 to 13 years. A
three-judge appeals panel reduced the sentences, and the releases
began in January 2001; the last five were freed in April 2003.

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CRS-10
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, which modernized with Russian
supplied combat aircraft and tanks and Chinese-supplied naval craft in the mid-
1990s, still is not considered a major conventional threat to the United States.
However, 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 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 avoided cause for conflict with its more
militarily capable neighbors such as Turkey and Pakistan. In early 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 had 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.12 Russia reportedly
is in talks to upgrade Iran’s three Kilo-class submarines with “Club-S” (120 mile
range) anti-ship missiles.13 However, Iran is largely lacking in logistical ability to
project power much 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 are
mostly professional.
Iran’s conventional capabilities have concerned successive U.S. Administrations
far less than have Iran’s attempts to acquire WMD. Partly because of recent
acceleration of some of Iran’s WMD programs, particularly its nuclear program,
President Bush, in his January 29, 2002 State of the Union message, labeled Iran part
of an “axis of evil” along with Iraq and North Korea.
Iran — and virtually all Iranian factions appear to agree on the utility of WMD
— appears to 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
12 Jacoby testimony before the Senate Intelligence Committee. February 16, 2005.
13 Pronina, Lyuba. “Paper: Iran In Talks to Refurbish Subs.” Moscow Times, July 5, 2005.

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CRS-11
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.14
Nuclear Program.15 Some observers believe a crisis between Iran and the
international community over Iran’s perceived nuclear ambitions has arrived. The
Bush Administration has publicly supported an effort by France, Britain, and
Germany (the “EU-3”) to negotiate curbs on Iran’s program, although the
Administration’s consistent uncertainty about the prospects for success appear to
have been affirmed by developments in early August 2005. The Bush Administration
and the U.S. intelligence community16 assert that Iran is determined to achieve a
nuclear weapons capability and that, despite insisting its nuclear program is for only
peaceful purposes, it has not upheld its obligations under the 1968 Nuclear Non-
Proliferation Treaty (NPT). On June 18, 2003, President Bush was quoted by press
reports as stating that the United States would “not tolerate construction” of a nuclear
weapon by Iran. Iranian leaders, including new president Ahmadinejad, say uranium
enrichment is allowed under the NPT and that Iran will not give up this “right.”
There is disagreement over the urgency of the issue. IAEA director Mohammad
El Baradei continues to assert that the IAEA has not concluded Iran is trying to
develop a nuclear weapon. In 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.” In August 2005, press
reports about an intelligence community estimate said the U.S. estimate of an Iranian
nuclear weapons ranges from 6-10 years from now.17
The international 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.) During most of 2003, Iran
refused to sign the “Additional Protocol” to the NPT, which would allow for
enhanced inspections, although it did modify its Safeguards agreement to provide
advanced notice of new nuclear facilities construction. It was also revealed in 2003
14 For further information, see CRS Report RL30551, Iran: Arms and Weapons of Mass
Destruction Suppliers.
15 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments.
16 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...”
17 Linzer, Dafna. “ Iran Is Judged 10 Years From Nuclear Bomb.” Washington Post, August
2, 2005; Weissman, Steven and Douglas Jehl. “Estimate Revised On When Iran Could
Make Nuclear Bomb.” New York Times, August 3, 2005.

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CRS-12
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.18 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, under
a January 1995 contract. Russia’s Federal Atomic Energy Agency said in October
2004 that the reactor was essentially complete, but Russia insisted that Iran sign an
agreement under which Russia would provide reprocess the plant’s spent nuclear
material; after many delays, that agreement was signed on February 28, 2005. Russia
is to begin delivering fuel to it by fall of 2005, and the power plant is expected to
become operational in late 2006. There are concerns that the plant could give Iran
additional technologies for a weapons program (plutonium, for example), but the
Russia-Iran reprocessing deal also adds safeguards that could slow an Iranian
weapons program. Iran wants to have 20 more nuclear power plants built, including
possibly six built by Russia.
European Diplomatic Efforts/Agreement One. Believing that
engagement might yield progress, beginning in 2003 Germany, France, and Britain
(the “EU-3”) undertook joint diplomacy with Iran. 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 all aspects of its past
nuclear activities, to sign and ratify the Additional Protocol, and to temporarily
suspend uranium enrichment activities. 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. However, the agreement deteriorated as
it became clear that the international community would maintain strict scrutiny of
Iran. Iran objected to November 10, 2003, and February 24, 2004, IAEA reports that
Iran had committed violations of its reporting obligations over an 18-year period;
that traces of both highly enriched and low-enriched uranium had been found at two
sites in Iran;19 and that the Iranian military had been involved in manufacturing
centrifuge equipment. In July 2004, Iran broke the IAEA’s seals on some of its
nuclear centrifuges, essentially scuttling the deal.
Subsequently, the IAEA said in September 2004 that Iran was preparing to
convert 37 tons of uranium (“yellowcake”) into uranium tetraflouride gas as a step
toward making enriched uranium.20 In May 2005, Iran confirmed that it had done
that conversion.
18 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, January 24, 2004.
19 Murphy, Francois. “U.N. Watchdog Accuses Iran of Unanswered Questions.” Reuters,
February 25, 2004.
20 Nuclear experts say that could, in theory, be sufficient to yield as many as five nuclear
bombs.

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CRS-13
Paris Agreement. In the face of the U.S. threat to push for a Security
Council referral, the EU-3 continued diplomacy. The three held out to Iran a possible
“grand bargain” in which Iran would forgo uranium enrichment in exchange for
broad diplomatic engagement (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).21 The EU-3 conditioned the talks on Iran’s suspension of all
uranium enrichment activity. 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.
An IAEA board resolution, adopted November 29, 2004, recognized this “Paris
Agreement” with the EU-3 and dropped threats to refer the issue to the Security
Council.
Since then, there have been some accusations that Iran was 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 did not allow subsequent visits. 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. IAEA deputy chief
Pierre Goldschmidt said on June 15, 2005, that Iran had recently admitted to
experimenting with producing plutonium in 1998, five years later than Iran had
previously acknowledged, constituting an additional breach of Iran’s NPT
obligations.
Deterioration of the Paris Agreement. EU-3 - Iran negotiations toward
a permanent nuclear agreement began on December 13, 2004, with related EU-Iran
talks on a trade and cooperation accord (begun in January 2005). The nuclear talks
also include “working groups” discussing “security” issues and economic
cooperation.) On March 11, 2005, the Administration announced it would support
the EU-3 talks (see below) by offering some economic incentives to Iran. 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. It did drop its opposition to
Iran’s WTO application in late May 2005, paving the way for Iran to begin accession
talks.
As Iran transcended its presidential election period, the talks began to break
down. In May 25, 2005, the EU-3 had promised to present Iran, by early August
2005, a roadmap to achieve the permanent agreement under discussion. After
Ahmadinejad’s election, Iranian negotiators said Iran would resume uranium
conversion at Esfahan if the EU-3 proposal did not allow Iran to retain a research
uranium enrichment capability (3,000 centrifuges). The United States and the EU-3
asserted that Iran could use even a small enrichment program to work toward a
nuclear weapons capability. Attempting to avoid a breakdown of the talks, the EU-3
21 Weisman, Steven. “U.S. In Talks With Europeans on a Nuclear Deal With Iran.” New
York Times, October 12, 2004.

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CRS-14
presented its plan to Iran on August 5; the plan reportedly offered to assist Iran with
peaceful uses of nuclear energy in medicine, agriculture, and other civilian uses, and
provided limited security guarantees (although without offering security guarantees
for Iran from the United States). The plan would have required Iran to end efforts to
produce nuclear fuel (including enrichment of uranium), dismantle its heavy water
reactor at Arak, agree to no-notice nuclear inspections, and agree not to leave the
NPT (which has a legal exit clause).
Iran immediately rejected the EU-3 offer on the grounds that it forbade uranium
enrichment. On August 8, Iran followed through on its threats to break IAEA seals
on its uranium conversion facility at Esfahan and began the conversion process. The
IAEA called a special meeting on August 9 but failed to achieve consensus to refer
the issue to the U.N. Security Council. On August 11, 2005, the IAEA adopted a
resolution expressing “serious concern” that Iran had resumed uranium conversion
and unsealed its facilities, a violation of the Paris Agreement that it suspend
enrichment-related activities until a final nuclear agreement is reached. The
resolution also urged Iran to re-establish full suspension of enrichment-related
activities and requested IAEA Director General Baradei to report back to the IAEA
board by September 3 on whether Iran had done so. There might be further
discussions on whether to refer the issue to the Security Council if Iran does not re-
suspend the conversion activities at Esfahan.
Recent Congressional Action. Congress has approved legislation
supporting international sanctions (and other measures) to prevent Iran from
becoming a nuclear state. 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 the international
community to use “all appropriate means to deter, dissuade, and prevent Iran from
acquiring nuclear weapons, including ending all nuclear and other cooperation with
Iran....” In the 109th Congress, a provision of a House-passed U.N. reform bill (H.R.
2745) calls on the United States to vote to ban the provision of peaceful nuclear
technology to Iran unless the President certifies Iran is not enriching uranium (or
committing other NPT violations). A similar provision is contained in the House-
passed State Department authorization bill FY2006 and 2007 (H.R. 2601), which
also would penalize countries that provide nuclear technology to Iran, unless Iran is
deemed in full compliance with all its NPT obligations.
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.22
22 “Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons
(continued...)

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CRS-15
Missiles.23 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.24
! 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
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. On May 31,
2005, Iran announced it had successfully tested a solid-fuel version
of the Shahab-3. The PMOI asserts Iran is secretly developing an
even longer range missile, 1,500 miles, with the help of North
Korean scientists.25
! 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 2015,26
22 (...continued)
of Mass Destruction and Advanced Conventional Munitions, 1 July Through 31 December
2003,” [http://www.cia.gov].
23 See CRS Report RS21548, Iran’s Ballistic Missile Capabilities.
24 Wright, Robin and Keith Richburg. “Powell Says Iran is Pursuing Bomb.” Washington
Post, November 18, 2004.
25 Jehl, Douglas. “Iran Reportedly Hides Work On a Longer-Range Missile,” New York
Times, December 2, 2004
26 “Greater U.S. Concern About Iran Missile Capability.” Reuters, March 11, 2002.

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CRS-16
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.27 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 foreign policy is a product of the ideology of Iran’s Islamic revolution,
blended with and sometimes tempered by long-standing 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-government factions.
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 2004,
released April 23, 2005, again stated, as it has for most of the past decade, that Iran
“remained the most active state sponsor of terrorism in 2004,” although the report
again attributes the terrorist activity to two hardline institutions: the Revolutionary
Guard and the Intelligence Ministry.28 Iran has been repeatedly accused of providing
funding, weapons, and training to Hamas, Palestinian Islamic Jihad, Hizbollah, and
the Popular Front for the Liberation of Palestine-General Command (PFLP-GC). In
addition to these terrorist groups, the new report adds a non-Islamist Palestinian
group: the Al Aqsa Martyr’s Brigades. (All are named as foreign terrorist
organizations (FTO) by the State Department.) Some other reports say that Iranian
hardline factions have launched new recruiting drives for terrorists, in Iran and
elsewhere, including in Africa.29

Persian Gulf States.30 During the 1980s and early 1990s, 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
27 “Iran: New Missile on the Assembly Line.” New York Times, September 26, 2002.
28 U.S. Department of State. Patterns of Global Terrorism:2002. Released April 2003,
29 “Militant Recruiters Out in Open in Tehran.” Washington Times, December 16, 2004.
30 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2004.

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CRS-17
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. Some
believe it possible that President Ahmadinejad, who is associated with the
Revolutionary Guard and other hardline institutions, might shift back to a more
confrontational stand toward the Gulf states.
! 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.31
! 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, although the UAE still insists the
islands dispute be kept on the agenda of the U.N. Security Council
(which it has been since December 1971). 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
31 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001. 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.

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CRS-18
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, but many observers believe Iran wanted Saddam Hussein (a Sunni Muslim who
launched war against Iran in September 1980) removed, and the way cleared for the
ascendancy of Iraq’s Shiites to power in Iraq.32 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 bore 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 of the 275 Assembly
seats, includes all of Iran’s Shiite Islamist proteges in Iraq, particularly the Supreme
Council for the Islamic Revolution in Iraq (SCIRI), the most pro-Iranian of these
groups, and the Da’wa (Islamic Call) party. SCIRI is led by Abd al-Aziz al-Hakim,
the younger brother of Ayatollah Mohammad Baqr al-Hakim, the late Ayatollah
Khomeini’s choice to head an Islamic republic in Iraq, who was killed in a car
bombing in Najaf on August 29, 2003. The new Prime Minister of Iraq is Da’wa’s
leader Ibrahim al-Jafari. Iranian leaders have also cultivated ties to Grand Ayatollah
Ali al-Sistani, the 75-year-old Iranian-born Shiite cleric who is de-facto leader of the
mainstream Shiite political bloc. However, Sistani has differed with Iran’s doctrine
of direct clerical involvement in government.
Iran showcased its growing influence in Iraq with a three-day visit (May 17-19,
2005) by Iranian Foreign Minister Kamal Kharrazi. During the visit, he met not only
with Prime Minister Jafari but also with Sistani and Abd al-Aziz al-Hakim. The two
countries issued a joint communique in which Iraq essentially took responsibility for
starting the 1980-1988 Iran-Iraq war and indirectly blamed Saddam Hussein for
ordering the use of chemical weapons against Iranian forces during that conflict. The
joint statement also condemned Israel and said Iran would open new consulates in
Basra and Karbala (two major cities in Iraq’s mostly Shiite south). Prime Minister
Jafari visited, along with ten of his ministers, in July 2005, following the signing of
a military cooperation agreement between the two countries. At the end of that visit,
Iran offered Iraq a $1 billion credit line and agreements were reached to increasing
32 “Iran’s Kharrazi Hopes for Shiite Role in Iraq.” Reuters, April 9, 2003.

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ties on transportation and energy, including oil swaps and possibly future oil pipeline
connections.
U.S. officials cite Iran for more ominous interference in Iraq. On several
occasions, most recently in August 2005, Secretary of Defense Rumsfeld has accused
Iran of sending money and fighters to proteges in Iraq,33 and in August 2005
Rumsfeld confirmed press reports that U.S. forces had found some Iranian-supplied
explosives (reportedly including highly lethal shaped explosives) in Iraq. It is not
known whether the weapons shipments had formal Iranian government approval, or
even which Iraqi faction(s) the bombs were intended for. Since 2003, there has been
frequent speculation that Iran is giving some backing to Shiite cleric Moqtada al-
Sadr, whose “Mahdi Army” militia staged two major uprisings against U.S. and Iraqi
forces (April and August 2004).34 Shiite factions, possibly including pro-Sadr
groups, are suspected of recent roadside bombings in and around Basra that have
killed several British soldiers. However, some speculate that Iran might be supplying
Sunni insurgents in an effort to bog the United States down in Iraq, even though the
Sunni factions are fighting against Iran’s proteges that dominate Iraq’s new
government. Iran reportedly might be using its influence in Iraq to develop sources
of information on U.S. operations in Iraq. Unconfirmed press reports say Iraqi
political figure Ahmad Chalabi gave his Iranian contacts information on U.S.
acquisition of Iranian intelligence codes.35
Some Iranian conventional military moves at the border could reflect Iranian
opposition to U.S.-led coalition operations in Iraq. 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.36
Some commentators say Iran will not exercise substantial influence in Iraq over
the long term. The leading Iraqi Shiite figures have said they will not seek to
establish an Iranian-style theocratic government, which most Iraqi Shiites apparently
do not want. Experts note that most Iraqi Shiites generally stayed loyal to the Iraqi
regime during the 1980-1988 Iran-Iraq war, which took nearly 1 million Iranian lives
and about half that many Iraqi battlefield deaths. Although exchanges of prisoners
and remains from the Iran-Iraq war are mostly completed, Iran has not returned the
125 military and civilian aircraft flown to Iran at the start of the 1991 Gulf war, even
though post-Saddam Iraqi politicians have said they want the aircraft returned.
33 Scarborough, Rowan. “Rumsfeld: Iran Aids Rebels.” Washington Times, September 8,
2004.
34 Wong, Edward. “Iran Is In Strong Position to Steer Iraq’s Political Future.” New York
Times, July 3, 2004.
35 Risen, James and David Johnston. “Chalabi Reportedly Told Iran That U.S. Had Code.”
New York Times, June 2, 2004.
36 CRS conversations with U.S. Fifth Fleet commander, Vice Admiral Nickels, in Bahrain,
February 2005.

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Territorial issues are mostly resolved as a result of 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.) 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, the
groups cited as receiving Iranian assistance by the April 2005 State Department
report on terrorism (see above). 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, sometimes tried to moderate Iran’s position somewhat. The position of the
Iranian Foreign Ministry, considered an institutional ally of reformists, 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 in 1982 by Lebanese Shiite clerics
sympathetic to Iran’s Islamic revolution and responsible for several acts of anti-U.S.
and anti-Israel terrorism in the 1980s and 1990s.37 Although it is emerging as a
major political force in Lebanon, Hizballah still maintains military forces along the
border that operate 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 (Shebaa Farms). Hizballah refuses to give
37 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.

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up its militia force, despite a requirement that it do so in U.N. Security Council
Resolution 1559 (September 2, 2004). 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.38 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.39 The State Department report on
terrorism for 2004 (released April 2005) says 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 on April 11, 2005). There have
been several press reports in 2004 and 2005 that Hizballah is assisting Hamas and PIJ
plan attacks in Israel.
Hizballah is evolving into more of a political movement in Lebanon. In March
2005, it organized a huge demonstration against U.S. and other international
pressure on Syria to completely withdraw from Lebanon, although Syria did
subsequently withdraw its military (and intelligence) forces. In the Lebanese
parliamentary elections of May - June 2005, Hizballah expanded its presence in the
Lebanese parliament; it and its ally, the Shiite movement Amal, now hold 35 total
seats in the 128-seat parliament. Of these, 14 seats are Hizballah members
themselves. As a result of this showing, one Hizballah member has been given a
cabinet seat (Mohammad Fneish, Minister of Energy and Water Resources) in the
new Lebanese government. This positions Hizballah to exert greater influence on
Lebanese government decisions and to resist disarmament. Despite Hizballah’s
record of attacks on U.S. forces and citizens in Lebanon during the 1980s, President
Bush indicated, in comments to journalists in March 2005, that the United States
might accept Hizballah as a legitimate political force in Lebanon if it disarms.
Suggesting that the Administration has not yet settled on a course of action toward
Hizballah, Assistant Secretary of State for the Near East David Welch testified before
the House International Relations Committee on July 28, 2005, that the United States
would continue to refuse to meet with Hizballah members, including the new
Hizballah cabinet member. Welch added that Iranian forces were continuing to train
Hizballah militiamen.
In the 109th Congress, two similar resolutions (H.Res. 101 and S.Res. 82) have
passed their respective chamber. The resolutions urge the EU to classify Hizballah
as a terrorist organization and call on Hizballah to disband its militia as called for in
U.N. Security Council Resolution 1559 (September 2, 2004). The House-passed
State Department authorization bill (H.R. 2601) contains provisions calling on the
Bush Administration to help the Lebanese government disarm Hizballah and
threatening the withholding of U.S. aid to Lebanon if it does not disarm Hizballah.
Relations With Central Asia and the Caspian. Iran’s policy in Central
Asia has thus far emphasized economic cooperation over Islamic ideology, although
38 Wright, Robin. “U.S. Blocks A Key Iran Arms Route to Mideast.” Los Angeles Times,
May 6, 2001.
39 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, February 4, 2002.

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CRS-22
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.40 Iran
reportedly hosts 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 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. Strains will likely increase now
that the Baku-Tblisi-Ceyhan oil pipeline, intended to reduce Western dependence on
Iranian oil, is set to begin operations (see below).
Afghanistan/Al Qaeda.41 Iran long opposed the puritanical Sunni Muslim
regime of the Taliban in Afghanistan on the grounds that it oppressed Shiite Muslim
and other Persian-speaking minorities. Iran nearly launched a military attack against
the Taliban in September 1998 after Taliban fighters captured and killed several
Iranian diplomats based in northern Afghanistan, and it provided military aid to the
anti-Taliban “Northern Alliance” coalition 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 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. 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.
Sensing opportunity in the fall of the Taliban, Iran has since moved to restore
Iran’s traditional sway in western, central, and northern Afghanistan where Persian-
speaking Afghans predominate. It has aided Northern Alliance figures in the post-
Taliban governing coalition, and Iranian companies have been extensively involved
in road building and other construction projects in western Afghanistan. Fearing the
presence of the 18,000 U.S. troops in Afghanistan, Iran has expressed major
objections to the U.S. use of Shindand air base in western Afghanistan, asserting
that 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 pro-Iranian Afghan
strongman Ismail Khan, who was Herat province governor and had controlled the
base.
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
40 The ECO was founded in 1985 by Iran, Pakistan, and Turkey, as a successor to an
organization founded by those states in 1964.
41 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy.

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January 2002 that it is unclear whether Iran has arrested senior Al Qaeda operatives
who are believed to be in Iran.42 These figures are purported to include Al Qaeda
spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad.43 On July 23, 2003, Iranian officials, for the first time, asserted
Iran had “in custody” senior Al Qaeda figures but did not name them publicly. Some
accounts say the operatives who are in Iran have been able to contact associates
outside Iran;44 assertions to this effect were made by U.S. officials after the May 12,
2003 bombings in Riyadh, Saudi Arabia against four expatriate housing complexes
and believed perpetrated by Al Qaeda. U.S. officials have 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. Possibly in response to the criticism, on July 16,
2005, Iran’s Intelligence Minister said that 200 (presumably lower ranking) Al Qaeda
members are in Iranian jails, and he said Iran had broken up an Al Qaeda cell
planning attacks on Iranian students.45 Hardliners in Iran might want to support or
protect Al Qaeda activists as leverage against the United States and its allies, and
some reports say Iran might want to exchange them for a U.S. hand-over of People’s
Mojahedin activists under U.S. control in Iraq.
The 9/11 Commission report said several of the September 11 hijackers and
other plotters, possibly with 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 and Legislation
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 official contact since.46 U.S. policy throughout the 1980s featured a marked
tilt toward Iraq in the 1980-88 Iran-Iraq war, including U.S. diplomatic attempts to
42 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires, May 19, 2003.
43 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
44 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.
45 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.
46 An exception was the abortive 1985-1986 clandestine arms supply relationship with Iran
in exchange for some American hostages held by Hizballah in Lebanon (the so-called
“Iran-Contra Affair”).

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CRS-24
block conventional arms sales to Iran, providing battlefield intelligence to Iraq,47 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 Hizballah in Lebanon. Iran reportedly did assist in obtaining the
release of all U.S. and other Western hostages in Lebanon by December 1991, but no
substantial thaw followed, possibly because Iran continued to back Hizballah and
other groups opposed to the U.S.-sponsored Middle East peace process. That
process was a top Administration priority following 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 details on U.S.
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 “Millenium Summit” meetings at the United Nations, 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 was no evidence Iran was involved in those attacks. To date, the Bush
Administration has continued the main thrust of Clinton Administration efforts to try
to limit Iran’s strategic capabilities through economic sanctions and diplomacy.
However, in President Bush’s second term, Iran’s stepped up nuclear activity has
stimulated a tilt within the Administration toward promoting a change of regime,
47 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis. New York: John Wiley and Sons, 1991. P. 168.

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CRS-25
although press reports indicate that there still has been no agreement within the
Administration on a presidential directive that would set a firm policy course on Iran.
A number of different options are said to be under consideration.
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. 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.48
The Bush Administration has shown increasing 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. On the other hand, as a sign of continued Administration hesitation on
this option, 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 second inaugural address (January 20, 2005) and his State of
the Union message of February 2, 2005, suggested that the Administration, in its
second term, would 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.” On May 19, 2005, Undersecretary of
State for Political Affairs Nicholas Burns testified before the Senate Foreign
Relations Committee that “The United States believes the future of Iran should be
democratic and pluralistic. We support those who wish to see Iran transformed from
a rigid, intolerant theocracy to a modern state ... We believe Iran is a country in the
process of change.” On July 1, 2005, Secretary of State Rice said “The Iranian
government should pay more attention to the democratic aspirations of the Iranian
people ... [Iran’s leaders] must know that the energy of reform that is building all
48 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.

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CRS-26
around them will one day inspire Iran’s citizens to demand their liberty and their
rights.”
Some new options to promote regime change said to be under consideration
include increasing public criticism of the regime’s human rights record, and
supporting Iranian dissidents.49 An issue is whether such democracy promotion
efforts would be interpreted within Iran as U.S. meddling — a sensitive issue in Iran,
because the 1981 “Algiers Accords” that settled the Iran hostage crisis provide for
non-interference in each others’ internal affairs — and whether these programs would
reach sufficient numbers of Iranians to be effective.
The State Department has begun U.S. democracy promotion efforts in Iran,
using funds provided in recent appropriations, as discussed in the State Department
report “Supporting Human Rights and Democracy: U.S. Record 2004-2005,” released
March 28, 2005). The following has been appropriated:
! The FY2004 foreign operations appropriation (P.L. 108-199)
earmarked “notwithstanding any other provision of law” up to $1.5
million for “making grants to educational, humanitarian and non-
governmental organizations and individuals inside Iran to support
the advancement of democracy and human rights in Iran.” The State
Department Bureau of Democracy and Labor (DRL)50 has given $1
million of those funds to a U.S.-based organization, the Iran Human
Rights Documentation Center, to document abuses in Iran, using
contacts with Iranians in Iran. The Documentation Center is run
mostly by persons of Iranian origin and affiliated with Yale
University’s “Griffin Center for Health and Human Rights.” The
remaining $500,000 is being distributed through the National
Endowment for Democracy (NED).
! 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 using FY2005 funds. The State
Department has put out a solicitation for proposals for similar
projects to be funded in 2005. The solicitation closed on May 18,
and DRL says that priority areas for grant awards are political party
development, media development, labor rights, civil society
promotion, and promotion of respect for human rights. DRL
officials say they might fund exile broadcasting, as long as such
broadcasting is not affiliated with an Iranian exile political faction.51
49 Strobel, Warren. “U.S. Planning to Put More Pressure on Iran.” Miami Herald,
December 9, 2004.
50 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.
51 Briefing by DRL representatives for congressional staff. May 9, 2005.

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CRS-27
! The Senate-passed FY2006 foreign aid appropriation (H.R. 3057),
would appropriate another $7 million in democracy promotion
funds (ESF) for use in Iran, and the House-passed version of that
bill would provide $1.5 million for such purposes in Iran (and Syria).
Some of the recent efforts build on earlier initiatives by the Clinton
Administration which, to some degree prompted by Congress, began a program of
promoting 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.52 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 $18 million per year. A U.S.-sponsored television broadcast service
to Iran, run by the Voice of America (VOA), began operations on July 3, 2003. In
early 2005, the VOA announced it is increasing the duration of the television
broadcasts to three hours a day from 30 minutes a day.
Congress and Regime Change: H.R. 282 and S. 333. Some in
Congress are articulating a clear preference for further democracy promotion/regime
change efforts toward Iran. In the 108th Congress, several bills (S. 1082, H.R. 2466,
H.R. 5193) called for regime change and proposed to authorize funds to assist pro-
democracy groups in Iran. In the 109th Congress, a provision of H.R. 2601, the State
Department authorization bill passed by the House, states that it is the policy of the
United States to support full democracy in Iran and the right of Iranian citizens to
choose their system of government.
Two major stand-alone bills in the 109th Congress represent this trend. H.R.
282, introduced by Representative Ros-Lehtinen, was marked up by the Middle
East/Central Asia Subcommittee of the House International Relations Committee on
April 13, 2005. It has 315 co-sponsors as of August 18, 2005, but the
Administration has viewed it as potentially complicating the EU nuclear talks with
Iran. A similar bill, S. 333, has been introduced by Senator Santorum. These bills
provide for the following.
! Both bills contain provisions increasing U.S. sanctions contained in
the Iran-Libya Sanctions Act (ILSA), as discussed below and in CRS
Report RS20871 on ILSA.
! Both recommend the appointment of an Administration policy
coordinator on Iran, serving as a special assistant to the President.
! 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 authorizes no specific dollar amount.
52 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.”

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CRS-28
! H.R. 282, as marked up by the House subcommittee, requires the
Administration to work to secure a Security Council resolution
requiring Iran to accept intrusive IAEA nuclear inspections.
! H.R. 282 calls for expanded U.S. contacts with groups attempting to
promote democracy in Iran.
! Both call for Iranian government representatives to be denied access
to all U.S. government buildings.
Engagement? The Bush Administration has pursued engagement with Iran
at times; although Administration interest in dialogue with Iran has waned during
2005, it has not been ruled out. 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,53 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. 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.54
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
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 Iran
(or Syria). All-out U.S. military action to remove Iran’s regime does not appear to
be under serious consideration by the Administration. Most experts believe U.S.
forces are spread too thin, including about 140,000 deployed in Iraq, to undertake
53 Wright, Robin. “ U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.
54 For text of the Council on Foreign Relations study, see [http://www.cfr.org/pdf/Iran
_TF.pdf].

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CRS-29
such action 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). A provision of the House-passed H.R.
1815, the FY2006 defense authorization bill, requires a Defense Department report
to Congress on how the United States might be affected strategically and how it
might respond to the acquisition by Iran of a nuclear weapon.
Some experts believe that limited military action, such as air or missile 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.”55 In the context of the apparent breakdown of EU-3 - Iran nuclear talks
in August 2005, President Bush again raised the possibility of military action by
saying “all options are on the table” with Iran and that the United States has “already
used force” to protect U.S. security, a reference to Iraq but with potential implications
for Iran.56
Those who argue against a strike believe Iran might retaliate through terrorism
or other means, and question whether the United States is aware of or militarily able
to reach all relevant sites. A January 2005 New Yorker article by Seymour Hersh
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
assertion. 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
as part of a broader U.S. review of its intelligence on Iran.57
Expressing particular fear that Iran might achieve a nuclear weapons capability,
some Israeli officials, including Defense Minister Shaul Mofaz (October 2004), have
refused to rule out the possibility that Israel might strike Iran’s nuclear infrastructure,
although some experts doubt that Israel has the capabilities 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. During an April 2005 visit to the United States,
Israeli Prime Minister Ariel Sharon publicly said that no such strike is being planned.
Nonetheless, a Defense Department decision to sell Israel $30 billion worth of GBU-
55 Fletcher, Michael and Keith Richburg. “Bush Tries to Allay E.U. Worry Over Iran.”
Washington Post, February 23, 2005.
56 “Bush Gives Iran Stern Warning,” Washington Post, August 14, 2005.
57 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.

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CRS-30
28 “bunker buster” munitions has led to speculation that Israel might be
contemplating such a strike, and with some degree of U.S. support.58
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,59 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.60
International Sanctions? Although the EU-3 are trying to return Iran to the
negotiating framework of the Paris Agreement, the apparent breakdown of the talks
in August 2005 increases the prospects for a referral of the nuclear issue to the
Security Council, presumably for the imposition of sanctions. Also jeopardized are
the incentives offered Iran by the Administration in March 2005 to support the talks
(the dropping of the U.S. opposition to Iran’s applying to join the WTO, and agreeing
to sales of aircraft parts to Iran).
If further international sanctions are considered, some options that have been
used or considered in similar cases could include the following.
! Imposing an international ban on purchases of Iranian oil or other
trade or a ban on international investment in Iran’s energy sector.
Such sanctions were imposed on Iraq after its 1990 invasion of
Kuwait. However, these sanctions are considered unlikely because
world oil prices have risen to over $60 per barrel.
! Imposing a worldwide ban on sales of arms to Iran. Such a sanction
could incur Security Council opposition from Russia and China,
which have been Iran’s key arms suppliers in recent years.
! Imposing an intrusive U.N.-led WMD inspections regime, similar to
that imposed on Iraq after its defeat in the 1991 Persian Gulf war.
The objective of such an inspections program, for example, could be
to enforce a Security Council decision to prevent Iran from enriching
uranium. Some might argue that the effectiveness of such a program
might depend on the degree of Iranian cooperation with it.
58 Stone, Andrea. “U.S. Plans to Sell 100 Bunker Busting Bombs to Israel.” USA Today,
April 18, 2005.
59 Kralev, Thomas. “U.S. Asks Aid Barring Arms From Rogue States.” Washington Times,
June 5, 2003.
60 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.

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CRS-31
! Mandating reductions in diplomatic exchanges with Iran. This
sanction was imposed on the Taliban government of Afghanistan in
1999 in response to its harboring of Al Qaeda leadership.
! Banning international flights to and from Iran. This sanction was
imposed on Libya in response to the finding that its agents were
responsible for the December 21, 1988, bombing of Pan Am 103.
! limiting further lending to Iran by international financial institutions.
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.61 To
date, few, if any, other countries have followed the U.S. lead by imposing sanctions
on Iran, and no U.N. sanctions have been imposed on Iran. 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 because the sanctions are not
multilateral, the U.S. sanctions have had only marginal effect, and that foreign
investment has flowed in nonetheless.62 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 (over $60 per barrel),
Iran’s economy is growing about 5% per year. Iran’s per capita income is estimated
to exceed $2,000 per year, up from about $1,700 in 2002.
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
61 On November 14, 1979, President Carter declared a national emergency with respect to
Iran, renewed every year since 1979.
62 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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CRS-32
(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
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.
63 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 its control had not transferred any WMD or missile
technology to Iran within the year prior. The provision contains certain exceptions
to ensure the safety of astronauts and for certain space station hardware. 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.64 A provision of the House-passed FY2006 defense authorization bill
(H.R. 1815) expresses the sense of Congress that the INA not be “weakened” by
creating exceptions to it that permit extraordinary payments to Russia.
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-
63 See CRS Report RS22072, The Iran Nonproliferation Act and the International Space
Station: Issues and Options. By Sharon Squassoni and Marcia Smith.
64 Gugliotta, Guy. “Long Arm of Foreign Policy.” Washington Post, August 25, 2004.

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CRS-33
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 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.

! 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.
On June 29, 2005, President Bush signed an executive order blocking the U.S.-
based assets and property of any individual or entity determined to have contributed
to Iran (or other countries’) WMD programs. The order also designated several
Iranian entities as responsible for WMD and missile programs; it froze their U.S.
assets (if any) and prohibited U.S. citizens or companies from engaging in
transactions with them. 65
The FY2005 foreign aid appropriation (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, and both the Senate- and
House-passed versions of the FY2006 foreign aid appropriation (H.R. 3057) contain
a similar provision.
65 [http://www.whitehouse.gov/news/releases/2005/06/print/20050629.html].

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CRS-34
Counter-Narcotics. 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. 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. The following conditions and modifications apply.
! 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 or to trade Iranian oil overseas.
! Following a 1998 application by a U.S. firm to sell Iran agricultural
products, and in the context of Clinton Administration and
congressional reviews of U.S. unilateral sanctions policies, the
Clinton Administration announced in April 1999 that it would
license, on a case-by-case basis, commercial sales of food and
medical products to certain countries on which unilateral U.S. trade
bans are in place (Iran, Libya, and Sudan). Under regulations issued
in July 1999, private letters of credit can be used to finance approved
sales, but no U.S. government credit guarantees are available and
U.S. exporters are not permitted to deal directly with Iranian banks.
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. Iran says
the lack of credit makes U.S. sales, particularly of wheat,
uncompetitive.

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CRS-35
! After 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 further modified to allow
Americans to freely engage in ordinary publishing activities with
entities in Iran (and Cuba and Sudan).
! Subsidiaries of U.S. firms are not barred from dealing with Iran, as
long as the subsidiary has no operational relationship to the parent
company. Some U.S. companies have come under scrutiny for
dealings by their subsidiaries with Iran. On January 11, 2005, Iran
said it had let a contract to the U.S. company Halliburton, and an
Iranian company, Oriental Kish, to drill for gas in Phases 9 and 10
of South Pars. Under the deal, Halliburton would reportedly provide
its services, valued at $30 million to $35 million worth of fees per
year, through Oriental Kish. This leaves unclear whether
Halliburton would be considered in violation of the U.S. trade and
investment ban, or ILSA.66 Because of criticism within the United
States, Halliburton announced on January 28, 2005, that it would
withdraw all employees from Iran and end its pursuit of future
business opportunities there, although it is not clear that Halliburton
has pulled out of the Oriental Kish deal.67 One week later, GE
announced it would seek no new business in Iran. According to
press reports, GE has been selling Iran equipment and services for
hydroelectric, oil and gas services, and medical diagnostic projects
through Italian, Canadian, and French subsidiaries. The trade ban
appears to bar any Iranian company from buying a foreign company
that has U.S. units.
The Iran-Libya Sanctions Act (ILSA) and Regional Oil and Gas
Projects.68 ILSA (P.L. 104-172, August 5, 1996), as amended, sanctions foreign
(or U.S.) 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
(P.L. 107-24, 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
66 “Iran Says Halliburton Won Drilling Contract.” Washington Times, January 11, 2005.
67 Boyd, Roderick. “Halliburton Agrees to Leave Iran, Thompson Says.” New York Sun,
March 25, 2005.
68 CRS Report RS20871, The Iran-Libya Sanctions Act, assesses ILSA. This report also
discusses major foreign investment projects in Iran’s energy sector.

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CRS-36
waived. A number of other investments have remained “under review” for ILSA
sanctions since 1999.
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, regional pipeline projects that include Iran. U.S. policy
promoted 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) formally
embraced the route in November 1999. Regional and corporate support for the
project subsequently gained momentum, construction began, and the pipeline began
preliminary operations in May 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. Iran is said to be importing
gasoline from these countries and the Persian Gulf states because of a lack of
adequate refining capacity in Iran.
A major emerging issue is that of a proposed gas pipeline from Iran to India,
through Pakistan, and with a possible extension to China. Leaders of Iran, Pakistan,
and India all say they want to pursue the project, despite U.S. opposition, and India
and Pakistan have formed a working group to accelerate the project. 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 directly stated that
it would be reviewed for ILSA sanctions.69 On June 7, 2005, U.S. Ambassador to
Pakistan Ryan Crocker denied that the United States is pressuring Pakistan not to
agree to the project.
As discussed above in the section on “regime change,” H.R. 282 and S. 333
have several provisions to amend ILSA. These provisions are as follows:

! increasing the requirements on the Administration to justify waiving
sanctions on companies determined to have violated its provisions;

! repealing the sunset (expiration) provision of ILSA;

! setting a 90-day time limit for the Administration to determine
whether an investment constitutes a violation of ILSA. (There is not
time limit in ILSA currently); and
69 Some of the Indian companies that reportedly might take part in the pipeline project are:
Oil and Natural Gas Corp.; GAIL (India) Ltd.; Indian Oil Corp.; and Bharat Petroleum Corp.
Some large European companies have also expressed interest. See, Solomon, Jay and Neil
King. “U.S. Tries to Balance Encouraging India-Pakistan Rapprochement With Isolating
Tehran.” Wall Street Journal, June 24, 2005. P. A4.

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! making exports to Iran of WMD-useful technology sanctionable
under ILSA.70
H.R 282, as marked up, also

! would cut U.S. assistance to countries whose companies have
invested in Iran’s energy sector;

! would apply ILSA’s provisions to foreign subsidiaries of U.S.
companies; and would require public disclosure of investment funds
that have investments in companies that have invested in Iran’s
energy sector. (Some of these disclosure provisions are contained
in separate bills, H.R. 1743 and S. 299).
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.
Status of Some 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 Anti-Terrorism and Effective Death Penalty Act of 1996.
Other disputes include the mistaken U.S. shoot-down on July 3, 1988, of an Iranian
Airbus passenger jet (Iran Air flight 655), for which the United States, in accordance
with an ICJ judgment, paid Iran $61.8 million in compensation ($300,000 per wage
earning victim, $150,000 per non wage earner) for the 248 Iranians killed. The
United States has not compensated Iran for the airplane itself, to date. (For more
information on these and related disputes, see CRS Report RL31258, Suits Against
Terrorism States by Victims of Terrorism.)
Multilateral Policies Toward Iran
Most U.S. allies see engagement, rather than punitive measures such as
sanctions, as a more useful means of changing Iran’s behavior. 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
70 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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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. He
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. In December 2002, Iran and the EU
(European Commission) first began negotiations on a “Trade and Cooperation
Agreement” (TCA) 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 TCA in
July 2003. As noted above, the EU - Iran TCA talks resumed in January 2005 in
concert with negotiations on a permanent nuclear agreement. The EU has said a
TCA 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. There are also discussions on counter-
narcotics, refugees, and migration issues — issues on which Iran’s record has
sometimes been positive. After the eighth round of negotiations on July 12-13, 2005,
European Commission negotiators say the talks are making progress, although it is
likely that these talks will be suspended if the Paris Agreement (see above) breaks
down entirely.
Multilateral, World Bank, and IMF 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 $12 billion
as of March 2005. 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.
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, but the loans were approved. To signal a harder line, the
FY1994 foreign aid appropriations (P.L. 103-87) cut the amount appropriated 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.

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CRS-39
104-107), would have significantly reduced U.S. payments to the Bank if it had
provided new loans to Iran, and the Bank then stopped approving new loans to Iran.
By 1999, Iran’s moderating image had led the World Bank to consider new
loans. U.S. policy, as explained on October 29, 2003, a Treasury Department
official, Bill Schuerch, in testimony before the House Financial Services Committee,
has been to try to block the World Bank loans to Iran. However, the United States
does not have a large enough voting share to guarantee that outcome. In May 2000,
the United States’ allies outvoted the United States and approved $232 million in
loans for health and sewage projects. In May 2001 the Bank approved a two-year
economic reform plan for Iran that envisioned $775 million in new Bank loans.
During April 2003 - May 2005, a total of $725 million in loans were approved for
environmental management, housing reform, water and sanitation projects, and land
management projects, in addition to a $400 million in loans for earthquake relief.
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 $360 million in loans to Iran that the Bank had approved
in May 2004. A provision of the House-passed State Department authorization bill
for FY2006 and FY2007 (H.R. 2601) calls on the Administration to lobby other
governments to vote against international loans to Iran.
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.
WTO Membership. Iran first attempted to apply to join the WTO in July
1996. On 22 occasions after that, representatives of the Clinton and then the Bush
Administration blocked Iran from applying (applications must be by consensus of the
148 members). 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. At a WTO meeting in May
2005, no opposition to Iran’s application was registered by any member state, and
Iran began accession talks. The talks could take many years, as Iran’s economy
contains some structural imbalances and restrictions, such as control of major
economic sectors or markets by the quasi-statal “foundations” (bonyads), that would
need to be reformed before Iran could obtain full membership.

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CRS-40
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. Others say that, despite
the victory of Mahmoud Ahmadinejad in the June 2005 presidential 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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CRS-41
Figure 1. Map of Iran

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