Order Code RL32048
CRS Report for Congress
Received through the CRS Web
Iran: U.S. Concerns and
Policy Responses
Updated March 31, 2006
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

Iran: U.S. Concerns and Policy Responses
Summary
According to an Administration national security strategy document released on
March 16, 2006, the United States “may face no greater challenge from a single
country than Iran.” Over the past five years, the Bush Administration has pursued
several avenues to attempt to contain or end what it views as the potential threat
posed by Iran, including pursuing limited engagement directly or through allies.
However, support for a policy of changing Iran’s regime has apparently gained favor
within the Administration as Iran has resisted permanent curbs on its nuclear
program. In the nearer term, the Administration is intent on slowing or blunting
Iran’s nuclear program through concerted action by the United Nations Security
Council. Because Iran continues to advance its nuclear program despite international
criticism, some advocate military action against Iran’s nuclear infrastructure.
International concerns on nuclear issues and other strategic issues have been
heightened by the accession of Mahmoud Ahmadinejad, a hardliner, as president.
Iran’s nuclear program is not the only major U.S. concern on Iran. Successive
administrations have pointed to the threat posed by Iran’s policy in the Near East
region, particularly 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. Hamas is forming a new Palestinian
government following its victory in January 25, 2006, elections, a development that
might cause Hamas to distance itself from terrorism. Alternately, Hamas might hold
fast to its rejection of Israel and look to Iran or other hardline Middle Eastern states
to circumvent any U.S. or Israeli efforts to pressure the new Hamas-led government.
Some senior Al Qaeda activists are in Iran as well, although Iran claims they are “in
custody.”
U.S. officials also accuse Iran of attempting to exert its influence in Iraq by
providing arms and other material assistance to armed factions, possibly including
anti-U.S. Shiite Islamist factions. However, most Iranian-supported factions in Iraq
are supportive of the U.S.-led political transition roadmap, and the two announced
in March 2006 that they would hold bilateral talks on the issue of stabilizing Iraq.
Iran’s human rights practices and strict limits on democracy have been
consistently criticized by official U.S. and U.N. reports, particularly for Iran’s
suppression of political dissidents and religious and ethnic minorities. However, Iran
holds elections for many senior positions, including that of president. U.S. officials
generally see the human rights issue in Iran in a broader context, and not necessarily
as a direct threat, in and of itself, to U.S. interests in the region.
For further information, see CRS Report RS20871, The Iran-Libya Sanctions
Act (ILSA), by Kenneth Katzman; CRS Report RS21592, Iran’s Nuclear Program:
Recent Developments
, by Sharon Squassoni; CRS Report RS21548, Iran’s Ballistic
Missile Capabilities
, by Andrew Feickert; and CRS Report RS22323, Iran’s
Influence in Iraq
, by Kenneth Katzman. This report will be updated as warranted.

Contents
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, Human Rights, and Recent Elections . . . . . . . . . . . . . . . . . . . . 2
Former President Mohammad Khatemi and the Reformists . . . . . . . . . 2
The Conservative Ascendancy and Election of Ahmadinejad . . . . . . . . 3
Groups Advocating Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Prominent Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Anti-Regime Groups: People’s Mojahedin Organization of Iran
(PMOI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pro-Shah Activists/Exile Broadcasts . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Human Rights and Religious Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . . . . 10
Conventional Military . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Weapons of Mass Destruction: Nuclear Program . . . . . . . . . . . . . . . . . . . . 12
Chemical Weapons, Biological Weapons, and Missiles . . . . . . . . . . . . . . . 15
Missiles/Warheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Supporting Anti-Peace Process Groups . . . . . . . . . . . . . . . . . . . . . . . . 20
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Iran-Libya Sanctions Act (ILSA) and Regional Oil and Gas
Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 36
Multilateral Policies Toward Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
EU-Iran Trade Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Multilateral, World Bank, and IMF Lending to Iran . . . . . . . . . . . . . . 37
WTO Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Appendix: Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . 40

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

Iran: U.S. Concerns and
Policy Responses
Much of the debate over U.S. policy toward Iran has centered on the nature of
the current regime. Some experts believe that Iran, a country of almost 70 million
people, 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.
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. He was proclaimed Shah in 1925, founding the Pahlavi
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 fled to and taught in Najaf, Iraq before going to France in 1978, from
which he stoked the Islamic revolution. Mass demonstrations and guerrilla activity
by pro-Khomeini forces, allied with a broad array of anti-Shah activists, caused the
Shah’s government to collapse in February 1979. Khomeini returned from France
and, on February 11, 1979, declared an Islamic Republic of Iran. The Islamic
republic is characterized by direct participation in government by Shiite Islamic
theologians, a principle known as velayat-e-faqih (rule by a supreme Islamic
jurisprudent). Khomeini was strongly anti-West and particularly anti-U.S., and

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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, Human Rights,
and Recent Elections
About a decade after founding the Islamic republic, Ayatollah Ruhollah
Khomeini died on June 3, 1989. The regime he left behind remains reasonably
stable, despite internal schisms and substantial unpopularity among intellectuals,
educated elites, and many urban women. Upon his 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 religio-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 conservative-controlled body reviews
legislation to ensure it conforms to Islamic law, and it screens election candidates.
Khamene’i has been strengthened by the election as president on June 24, 2005
(second round of voting) of Mahmoud Ahmadinejad, a hardliner. Another
unelected body is the Expediency Council, set up in 1988 to resolve legislative
disagreements between the Majles (parliament) and the Council of Guardians. The
Expediency Council is headed by former President (1989-1997) Akbar Hashemi-
Rafsanjani; its executive officer is former Revolutionary Guard leader Mohsen
Reza’i.
Former President Mohammad Khatemi and the Reformists.
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 rode a
wave of sentiment for easing social and political restrictions among students,
intellectuals, youths, and women. These segments wanted reform, although not an
outright replacement of the Islamic republican regime. Khatemi’s supporters held
about 70% of the 290 seats in the 2000-2004 Majles after their victory in the
February 18, 2000, elections.
Pro-reform elements gradually became disillusioned with Khatemi for his
refusal to confront the hardliners. This dissatisfaction erupted in major student
demonstrations in July 1999 in which four students were killed by regime security
forces, and Khatemi reluctantly backed the crackdown. On June 8, 2003, a time
period marking the fourth anniversary of those riots, regime forces again suppressed
pro-reform demonstrators. President Bush issued statements in support of the 2003
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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demonstrators, although then Secretary of State Powell said the protests represented
a “family fight” within Iran.
Khatemi was supported by several political organizations (not parties, which
have not formally been allowed to register):
! 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. This group
became critical of Khatemi for failing to challenge the hardliners.
! The Mojahedin of the Islamic Revolution organization (MIR).
Composed mainly of left-leaning Iranian figures who support state
control of the economy.
! The Society of Combatant Clerics. A long-time moderate clerical
grouping, it is now headed by Khatemi following his departure from
the presidency. Khatemi continues to travel abroad and remains a
public figure in Iran. A senior member is Mehdi Karrubi, who was
speaker of the 2000-2004 Majles. Karrubi finished third in the June
17, 2005 first round of the presidential elections.
With Khatemi constitutionally ineligible to run again in the June 2005
presidential election, reformist organizations (formal “parties” have not been
approved) tried to elect another of their own. For the first round of the voting on
June 17, many reformists had pinned their hopes on former science minister Mostafa
Moin, but he finished fifth, disappointing reformists.
The Conservative Ascendancy and Election of Ahmadinejad. Iran’s
conservatives generally want only gradual reform but, more importantly in the view
of experts, they want to keep major institutions under the control of their faction.
The conservatives, supported by Supreme Leader Khamene’i, have been gaining
strength since the February 28, 2003, municipal elections, when reformists largely
boycotted and hardliners won most of the seats. They gained additional strength
from the February 20, 2004, Majles elections, in which the Council of Guardians
disqualified about 3,600 mostly reformist candidates, including 87 members of the
current Majles, enabling the conservatives to win a majority (about 155 out of the
290 seats) on turnout of about 51%. The Majles speaker chosen was Gholem Ali
Haded-Adel, a relative by marriage of Khamene’i. The United States, most European
Union countries, and the U.S. Senate (S.Res. 304, adopted by unanimous consent on
February 12, 2004), criticized the elections as unfair, because of candidate screening.
On the tide of these conservative victories, Rafsanjani, regained political
prominence and decided to run in the June 2005 presidential elections. He has been
the patron of many Majles conservatives, although he ran for president on a pro-free
market, 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.

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Rafsanjani had several more conservative opponents, three of whom had ties to
the Revolutionary Guard. They included 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).
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 filed. (In the 2001
presidential election, the Council permitted to run 10 out of the 814 registered
candidates.) At Khamene’i’s request, two reformist candidates were reinstated (Moin
and Mohsen Mehralizadeh). 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:
Rafsanjani:
21% (moved on to run-off)
Ahmadinejad: 19.5% (moved on to run-off)
Karrubi:
17%
Qalibaf:
13.8%
Moin:
13.77%
Larijani:
05.9%
Mehralizadeh: 04.38%
No candidate achieved a majority, forcing a second round. The first round
results proved surprising because few 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 lives 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. His official biography
says he served with the “special forces” of the Revolutionary Guard, and he served
subsequently (late 1980s) as a deputy provincial governor. With his momentum
from the first round, Ahmadinejad won a landslide victory in the June 24 runoff,
receiving 61.8% 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 became the first non-cleric to be president of the
Islamic republic since the assassination of then president Mohammad Ali Rajai in
August 1981. He took office on August 6, 2005.
On August 14, 2005, he presented for Majles confirmation a 21-member cabinet
composed largely of little-known hardliners, over half of whom were his associates
in the Revolutionary Guard, the Basij, or the Tehran mayoralty. However, in possible
signs of divisions within the conservative camp, the Majles rejected four of his
appointments, mostly because of insufficient experience. The first three of his oil-
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

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minister nominees were rejected by the Majles, although his fourth nominee was
approved. He has appointed the hardline Ali Larijani, one of his first round rivals,
as Secretary General of the Supreme National Security Council; he serves as chief
negotiator on nuclear and most other security issues. He also has named a woman
as one of his vice presidents, in keeping with a practice begun by Khatemi. His
former first round rival, Qalibaf, has now taken Ahmadinejad’s former job as Tehran
mayor. Ahmadinejad has made no positive overtures to the United States, and he
inflamed world opinion with several statements against Israel:
! On October 26, 2005, he stated at a Tehran conference entitled “A
World Without Zionism” that “Israel should be wiped off the map”
and that “anybody who recognizes Israel will burn in the fire of the
Islamic nations’ fury.” The statement was widely condemned,
including in a U.N. Security Council statement and Senate and
House resolutions (H.Res. 523 and S.Res. 292) passed in their
respective chambers. The statement caused U.N. Secretary General
Kofi Annan to delete Iran from his Middle East trip itinerary in
November.
! On December 9, while in Mecca, Saudi Arabia, and then in southern
Iran on December 14, he questioned the veracity of the Holocaust.
In the latter case, he called it a “myth” — and stated that Europe
should create a Jewish state in Europe, not in the Middle East.
(Purportedly at Ahmadinejad’s behest, in January 2006, Iran’s
Foreign Ministry said it would soon hold a conference on the
Holocaust.)
! On January 1, 2006, picking up that same theme, Ahmadinejad said
that the European countries created Israel after World War II to
continue the process of ridding the European continent of Jews.
Ahmadinejad’s statements are emblematic of a perceived lack of foreign policy
experience that contributed to the Supreme Leader’s October 2005 decision to grant
new governmental supervisory powers to Rafsanjani’s Expediency Council. This
move did not stop Ahmadinejad from removing about 40 senior diplomats, mostly
reformist oriented, from their positions overseas, prompting direct criticism of
Ahmadinejad by Rafsanjani. However, press reports say Ahmadinejad still is
popular among the lower classes who support his defiance of the West and appreciate
his directives, soon after taking office, to raise some wages and increase social
welfare payments. 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 determined he was not one of the hostage holders.4
Economic Factors Assisting Stability. The regime has been helped in
recent years by high oil prices, which are over $60 per barrel. These same factors
4 Wright, Robin. “U.S. Likely to Let Iran’s President Visit U.N.” Washington Post, Aug.
12, 2005.

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could help Iran minimize the effects of international sanctions that might be
imposed in response to its nuclear activities. However, oil revenues account for about
20% of Iran’s gross domestic product (GDP). In addition, Iran’s leaders have not
corrected economic structural imbalances, such as control of major economic sectors
or markets by the quasi-statal “foundations” (bonyads) and special trading privileges
for Iran’s powerful bazaar merchants who form the main constituency for the
Supreme Leader and other senior conservatives.
Some Economic Indicators
Economic Growth (2005)
4.8%
Proven Oil Reserves
100 billion barrels (fifth in world)
Refined Gasoline Imports
$3 billion - $4 billion value per year (60%
from European oil trader Vitol)
Oil Production
4 million barrels per day (mbd)
Oil Exports
2.4 mbd
Major Oil Customers
China - 450,00 barrels per day (bpd)
Japan - 800,000 bpd
South Korea, Italy
Some Major Trading
Japan ($7.5 billion exports to Japan); China
Partners (2004)
($3.9 billion exports, $2.7 billion imports);
Italy ($5.3 billion equally divided
import/export); Germany ($4.9 billion
imports from); France ($3.2 billion imports)
Trade With U.S. (2004)
$142 million exports to U.S.; $94 million
imports
Foreign Exchange Reserves
$25 billion (2005)
External Debt
$12 billion (March 2005)
Income Per Capita
$8,100 per year
(purchasing power parity)
Unemployment Rate
11.2% (2004)
Source: CIA World Factbook, various press, IMF
Groups Advocating Change
The groups analyzed below seek modifications of the regime and its policies or
its outright replacement. Those seeking more modest changes have some popularity
inside Iran, but their ascendancy, were it to occur, might not fundamentally alter
Iran’s relations with the United States. Those groups seeking to replace the regime,
by accounts of observers, have little popularity or ability to destabilize the regime.
Prominent Dissidents. Several dissidents have been part of the current
regime but now seek substantial 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, but he
remains under scrutiny. He had been Khomeini’s designated successor until 1989,
when Khomeini dismissed him for allegedly protecting intellectuals and other

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opponents of clerical rule. 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). Among those groups seeking to replace the current regime, one of the best
known is the People’s Mojahedin Organization of Iran (PMOI).5 It is secular and
generally left-leaning; it was formed in the 1960s to try to overthrow the Shah of Iran
and advocated a form of 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 it was later purged and went into exile.
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 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. 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. On
August 14, 2003, the State Department designated the NCR offices in the United
States an alias of the PMOI, and NCR and Justice Department authorities closed
down those offices. 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
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. (U.S.
personnel guarding Ashraf are being replaced in April 2006 by Bulgarian troops.)
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 unambiguously considers the group as a terrorist
organization. However, the debate over the group was renewed with the U.S.
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, Nov. 23, 2002.
8 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal
, May 12, 2003.

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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. In June 2003, France arrested
about 170 PMOI members, including its co-leader Maryam Rajavi (wife of PMOI
founder Masoud Rajavi, whose whereabouts are unknown); she was released and
remains in France.9
Pro-Shah Activists/Exile Broadcasts. Some Iranian exiles, as well as
some, particularly older, elites still in Iran, want to replace the regime with a
constitutional monarchy presumably led by the U.S.-based son of the late former
Shah. However, he does not appear to have large-scale support inside Iran. In
January 2001, the Shah’s son, Reza Pahlavi, who is about 55 years old, ended a long
period of inactivity by giving a speech in Washington D.C. calling for unity in the
opposition and the institution of a constitutional monarchy and democracy in Iran.
He has since broadcast messages into Iran from Iranian exile-run stations in
California.10 Numerous other Iranian exile broadcasts, some not linked to him,
emanate from California, where there is a large Iranian-American community, but no
U.S. assistance is provided to these stations. (The conference report on the FY2006
foreign aid appropriations, P.L. 109-102, states the sense of Congress that such
financial support be considered by the Administration, and this recommendation was
apparently factored into a FY2006 supplemental funding request discussed below.)
Human Rights and Religious Freedom
The State Department’s human rights report for 2005, released March 8, 2006,
said Iran’s already poor human rights record “worsened” during the year.11 That
report, and the 2005 State Department “religious freedom” report (released
November 8, 2005), cite Iran for widespread human rights abuses (especially of the
Baha’i faith), including summary executions, disappearances, torture, arbitrary arrest
and detention, and discrimination against women. Each year since 1999, the State
Department religious freedom report has named Iran as a “Country of Particular
Concern” under the International Religious Freedom Act. No significant
improvement in Iran’s practices on this issue was noted in the International Religious
Freedom report for 2005. No sanctions have been added because of this designation,
on the grounds that Iran is already subject to extensive U.S. sanctions. Specific
issues include the following.
! 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. Iran also has blocked
9 For further information, see CRS Report RL31119, Terrorism: Near Eastern Groups and
State Sponsors, 2002
, by Kenneth Katzman.
10 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, Aug. 26, 2002.
11 For text of the 2004 report on Iran, see [http://www.state.gov/g/drl/rls/hrrpt/2004/
41721.htm].

CRS-9
hundreds of pro-reform websites. On December 19, 2005,
Ahmadinejad banned Western music from Iran’s state media,
reviving a cultural decree from Ayatollah Khomeini’s rule.
! 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.
! Imprisoned journalist Akbar Ganji, who conducted hunger strikes
to protest regime oppression, was released on schedule on March 18,
2006. The Bush Administration had issued a statement calling for
his release on July 12, 2005; he was sentenced in 2001 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. (In the 109th Congress,
H.Res. 414 expressed the sense of Congress that the United States
and United Nations should condemn Iran for Ganji’s
imprisonment.)
! On the issue of women’s rights, the most widely reported issue is the
requirement that women fully cover themselves in public, generally
with a garment called a chador. However, there has been a
progressive relaxation of enforcement of this rule, a relaxation that
accelerated during Khatemi’s presidency and has not, to date, been
reversed by Ahmadinejad. Women can vote and run in
parliamentary elections, but their candidacies for president have
routinely been barred by the Council of Guardians. Iranian women
can drive, and many work outside the home, including owning and
running their own businesses. Eleven out of the 290 Majles deputies
are women.
! Iran is repeatedly cited for repression of the Baha’i community,
which Iran’s Shiite Muslim clergy views as a heretical sect. In the
1990s, several Baha’is were executed for apostasy (Bahman
Samandari in 1992; Musa Talibi in 1996; and Ruhollah Ruhani in
1998). Another, Dhabihullah Mahrami, was in custody since 1995
and died of unknown causes in prison in December 2005. In
February 2000, Iran’s Supreme Court set aside the death sentences
against three other Baha’is. Several congressional resolutions have
condemned Iran’s treatment of the Baha’is, including S.Con.Res. 57
(106th Congress), which passed the Senate July 19, 2000, and
H.Con.Res. 257, which passed the House on September 19, 2000.
In the 108th Congress, H.Con.Res. 319 contained a sense of Congress
on the Baha’is similar to that in previous years.

CRS-10
! 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,
although in practice its freedom to practice its religion is limited, and
Iranian Jews remain reluctant to speak out for fear of reprisals.
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.
! The State Department report notes other discrimination against Sufis
and Sunni Muslims. A State Department official testified on March
8, 2006, that the regime had beaten Tehran bus drivers who were
demonstrating for the release of eight labor leaders who were
incarcerated after a strike for higher wages. The leaders were
released in mid-March 2006.
Successive administrations have not generally considered Iran’s human rights
record as a strategic threat to U.S. interests, but the Bush Administration has recently
stepped up criticism of Iran’s human rights record as part of its effort to pressure Iran.
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. In his November 30, 2005, speech, Under
Secretary of State Nicholas Burns said the United States is working with other
countries for the release of all political prisoners, including Reza Alijani, Hoda
Saber, Manouchehr Mohammadi, Taghi Rahmani, and Nasser Zarafshan. 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 human rights covenants.
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. An Administration national security strategy document released
March 16, 2006, says the United States “may face no greater challenge from a single
country than from Iran,” based on Iran’s growing weapons of mass destruction
programs (WMD) and its expanding ability to project power in its immediate region,
and its support for radical Islamist movements, discussed later.

CRS-11
Conventional Military
Iran’s armed forces total about 550,000 personnel, including both the regular
military and the Revolutionary Guard. The latter, which also controls the Basij
volunteer militia that enforces adherence to Islamic customs, is generally loyal to the
hardliners and, according to some recent analysis, is becoming more assertive. That
trend will likely continue now that a former Guard has become president. Iran’s
conventional 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 but are largely lacking in logistical ability to project power much
beyond Iran’s borders. Lacking such combat capability, Iran has avoided cause for
conflict with its more militarily capable neighbors such as Turkey and Pakistan.
Iran, which has completed a force modernization with Russian-supplied combat
aircraft and tanks and Chinese-supplied naval craft in the mid-1990s, is not
considered by U.S. commanders in the Gulf to be a significant conventional threat
to the United States. However, Iran has developed a structure for unconventional
warfare that gives Iran the capability to partly compensate for its conventional
weakness. The weaponry Iran might field for such operations includes
! Indigenously produced anti-ship missiles, and North Korean-
supplied torpedo and missile boats. 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 Iran
could use these newly acquired capabilities 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
! Coastal and ship-borne cruise missiles (Chinese-supplied HY-2
Seerseekers, and C-802s) that could be used to threaten Gulf state oil
export terminals across the Gulf or U.S. ships.
! Three Russian-supplied Kilo-class submarines with “Club-S” (120
mile range) anti-ship missiles.13 Russia reportedly might upgrade
the submarines, which would presumably enhance Iran’s
conventional naval capabilities.
! The Revolutionary Guard-controlled fleet of about 40 small
(Swedish-made Boghammer) boats that could be used in small-boat
suicide or other attacks, or to lay mines in the Strait.
! On December 3, 2005, Russia announced an agreement to sell Iran
$1 billion in arms, mostly for 29 anti-aircraft missile systems (SA-15
“Gauntlet”), raising fears of a possible new round of Russian sales
to Iran of major combat equipment.
12 Jacoby testimony before the Senate Intelligence Committee. Feb. 16, 2005.
13 Pronina, Lyuba. “Paper: Iran In Talks to Refurbish Subs.” Moscow Times, July 5, 2005.

CRS-12
Weapons of Mass Destruction: Nuclear Program14
Some observers believe that a long-anticipated crisis between Iran and the
international community over Iran’s perceived nuclear ambitions has arrived. Partly
because of 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. Despite
professions that WMD is inconsistent with Iran’s ideology, virtually all Iranian
factions appear to agree on the utility of WMD, particularly the acquisition of a
nuclear weapons capability, as a means of ending its perceived historic vulnerability
to U.S. domination and a symbol of Iran as a major nation. Some see Iran’s WMD
programs as an instrument for Iran to dominate the Persian Gulf. There are also fears
Iran might transfer WMD to some of the extremist groups it supports, such as
Lebanese Hizbollah, although there is no evidence that Iran has taken any such steps.
The Administration and the U.S. intelligence community15 assert that Iran is
determined to achieve a nuclear weapons capability, that it does not need a civilian
nuclear program because it has vast oil and gas reserves, and that it has not upheld
its obligations under the 1968 Nuclear Non-Proliferation Treaty (NPT). Many
outside experts appear to agree that Iran’s goal is to achieve a nuclear weapons
capability eventually. 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, and he has since reiterated that, most recently on January 30, 2006.
Iranian leaders insist that Iran’s nuclear program is for peaceful purposes only
because it cannot count on energy exports indefinitely. Iran asserts it will not give
up the “right” to enrich uranium to make nuclear fuel, which Iran says is allowed
under the NPT, 16 because it does not want other nations or organizations to control
its nuclear fuel supply. The IAEA has, to date, been unable to affirm that Iran’s
program is purely peaceful, and its reports on January 31, 2006, and February 27,
2006 say documents found by the IAEA show a possible “military nuclear
dimension” to Iran’s program, including plans for high explosives and warheads.
Although suspicions of Iran’s intentions are widely shared, there is disagreement
over the urgency of the issue. 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
14 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments
, by Sharon Squassoni.
15 The Central Intelligence Agency, in an unclassified report to Congress covering July 1,
2003 - Dec. 31, 2003, says the “United States remains convinced that Tehran has been
pursuing a clandestine nuclear weapons program...”
16 For Iran’s arguments about its program, see Iranian paid advertisement “An Unnecessary
Crisis — Setting the Record Straight About Iran’s Nuclear Program,” in the New York
Times, Nov. 18, 2005. P. A11.

CRS-13
nuclear weapons ranges from 6-10 years from then.17 In his February 2, 2006, threat
briefing to the Senate Intelligence Committee, Director of National Intelligence John
Negroponte said that Iran probably does not have a nuclear weapon or “produced or
acquired the necessary fissile material” for one. Other experts focus on a so-called
“point of no return,” a point at which Iran has the expertise needed for a nuclear
weapon, a point that could be reached within a year by some estimates.
European Diplomatic Efforts/Agreement One. The heightened U.S.,
international, and IAEA attention to Iran’s nuclear program began in late 2002 after
Iran confirmed PMOI allegations that it was building two additional facilities that
could be used to produce fissile material useful for a nuclear weapon. The Natanz
facility could produce enriched uranium, and the Arak facility reportedly is a heavy
water production plant considered ideal for the production of plutonium. It was also
revealed in 2003 that the founder of Pakistan’s nuclear weapons program, Abdul
Qadeer (A.Q.) Khan, sold Iran and other countries (Libya, North Korea) nuclear
technology and designs.18
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. The
plant is expected to become operational in late 2006. This agreement somewhat
eased U.S. and other concerns that the plant could give Iran additional technologies
for a nuclear weapons program (plutonium, for example). Iran wants to build 20
more nuclear power plants, including possibly six by Russia. On December 5, 2005,
Iran announced it is putting out for bid two 1,000 megawatt reactors and said an
Iranian company would build a 300 megawatt reactor in Khuzestan Province.
Although skeptical of prospects for success, the Bush Administration in March
2005 publicly declared its support for a separate diplomatic effort since 2003 by
France, Britain, and Germany (the “EU-3”) to negotiate curbs on Iran’s program.
These and other countries believe it preferable to keep Iran in the NPT. On October
21, 2003, the EU-3 and Iran issued a joint statement in which Iran pledged, in return
for peaceful nuclear technology, to (1) fully disclose its past nuclear activities; (2) to
sign and ratify the “Additional Protocol,” to the NPT (which would allow for
enhanced inspections); and (3) 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. The
agreement deteriorated after the IAEA reports of November 10, 2003, and February
24, 2004, that stated that Iran had violated its NPT reporting obligations over an 18-
17 Linzer, Dafna. “ Iran Is Judged 10 Years From Nuclear Bomb.” Washington Post, Aug.
2, 2005; Weissman, Steven and Douglas Jehl. “Estimate Revised On When Iran Could
Make Nuclear Bomb.” New York Times, Aug. 3, 2005.
18 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, Jan. 24, 2004.

CRS-14
year period.19 In July 2004, Iran broke the IAEA’s seals on some of its nuclear
centrifuges, scuttling the deal.
November 14, 2004, Paris Agreement.20 In the face of the U.S. threat
to push for Security Council action, the EU-3 and Iran resumed negotiations to reach
an interim agreement on Iran’s nuclear program and then work toward a more
permanent agreement. Under this more specific November 14, 2004 “Paris
Agreement,” Iran agreed to suspend uranium enrichment (as of November 22, 2004)
in exchange for a resumption of talks on an Iran-EU trade agreement, support for
Iran’s entry into the World Trade Organization, and other assistance.21 An IAEA
board resolution (November 29, 2004) recognized the agreement.
After this interim agreement was reached, EU-3 - Iran negotiations on a more
permanent nuclear pact began on December 13, 2004, and related EU-Iran talks on
a trade and cooperation accord began in January 2005. The nuclear talks also
included “working groups” discussing “security” issues and economic cooperation.
On March 11, 2005, the Bush Administration announced it would support the EU-3
talks by offering some economic incentives to Iran. The incentives included
dropping U.S. objections to Iran’s application to the World Trade Organization
(WTO), which it did in May 2005, and to consider sales of U.S. civilian aircraft parts
to Iran, a step not yet taken. The Administration decided not to directly join the talks.
Reference to the Security Council. The Paris Agreement broke down
just after the June 2005 Iranian presidential election. The EU-3 presented its “final
settlement” plan to Iran on August 5, 2005, reportedly offering to assist Iran with
peaceful uses of nuclear energy (medicine, agriculture, and other civilian uses) and
limited security guarantees in exchange for Iran’s ending uranium enrichment,
dismantlement of its heavy water reactor at Arak, its agreement to no-notice nuclear
inspections, and pledge not to leave the NPT (which has a legal exit clause). Iran
immediately rejected the offer because it forbade uranium enrichment. On August
8, 2005, Iran broke the IAEA seals on its uranium “conversion” (one step before
enrichment) facility at Esfahan and began conversion.

On September 24, 2005, a majority vote of the IAEA board voted to declare Iran
in non-compliance with the NPT and to refer the issue to the Security Council if Iran
did not come back into compliance with the Paris Agreement.22 However, the IAEA
19 Murphy, Francois. “U.N. Watchdog Accuses Iran of Unanswered Questions.” Reuters,
Feb. 25, 2004.
20 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].
21 Weisman, Steven. “U.S. In Talks With Europeans on a Nuclear Deal With Iran.” New
York Times
, Oct. 12, 2004.
22 Voting in favor: United States, Australia, Britain, France, Germany, Canada, Argentina,
Belgium, Ghana, Ecuador, Hungary, Italy, Netherlands, Poland, Portugal, Sweden, Slovakia,
Japan, Peru, Singapore, South Korea, India. Against: Venezuela. Abstaining: Pakistan,
Algeria, Yemen, Brazil, China, Mexico, Nigeria, Russia, South Africa, Sri Lanka, Tunisia,
and Vietnam.

CRS-15
resolution did not set a time frame for the referral. Iran headed off immediate action
by allowing new IAEA inspections of the military-related Parchin plant and by
providing new information on a 1987 offer by the A.Q. Khan network of advanced
centrifuge designs that could be used for uranium enrichment. It did not cease its
uranium conversion, although the conversion facility remained under IAEA
inspection. Continuing to back diplomacy, the Administration supported a mid-
November 2005 Russian proposal to Iran, supported by the EU-3, to establish a
facility in Russia at which Iranian uranium would be enriched, thereby enabling Iran
to claim it had retained its right to enrich. Iran did not accept the proposal, instead
asserting its right to perform enrichment inside Iran, although it did not reject, and
still has not completely rejected, the idea outright. The United States opposes any
Russian-brokered compromise that would allow Iran to retain in Iran even a small
research enrichment capability. The Iranian Majles voted to block any further IAEA
inspections if Iran were referred to the Security Council.
With an IAEA board meeting set for March 6, 2006, Iran on January 3, 2006
announced that it would resume uranium enrichment for “research” (not commercial
quantity); it subsequently broke IAEA seals at its uranium enrichment facility at
Natanz and at related locations (Pars Trash and Farayand Technique). On February
4, 2006, the IAEA board voted 27-323 for a resolution to “report” to the U.N. Security
Council, after the IAEA reports steps required of Iran to come back into compliance.
After the vote, Iran ceased allowing the voluntary IAEA inspections permitted under
the Paris Agreement and had the IAEA remove some monitoring equipment. The
requested IAEA report of February 27, 2006 confirmed that Iran had begun some
enrichment activities (10 centrifuges) and therefore the March 6-8, 2006 IAEA board
meeting did not withhold referral of the case to the U.N. Security Council.
The Council deliberated during March 13 - 29, finally agreeing on a Security
Council presidential statement (not a Council resolution) that was somewhat weaker
than the United States and its close allies had wanted. The statement set a 30-day
time limit for Iran to cease uranium enrichment and meet other IAEA requirement,
after which time the Council will undertake further deliberations if Iran does not
comply.24 However, opposition from Russia and China led to the exclusion from the
statement of references to possible U.N. sanctions, which both oppose as providing
a pretext or prelude to what they consider disproportionate U.S./international action
against Iran. Should the Security Council subsequently consider sanctions, possible
measures, their impact, and Iranian reactions are discussed later in this paper.
Chemical Weapons, Biological Weapons, and Missiles
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
23 Voting no: Cuba, Syria, Venezuela. Abstaining: Algeria, Belarus, Indonesia, Libya, South
Africa.
24 See:[http://daccessdds.un.org/doc/UNDOC/GEN/N06/290/88/PDF/N0629088.pdf?Ope
nElement]

CRS-16
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.25 U.S.
official reports have not asserted that Iran has transferred WMD to third countries or
groups, but a Jane’s Defence Weekly report of October 26, 2005, said that Iran agreed
in July 2005 to provide Syria with CW technical assistance — including advanced
equipment and facilities construction — to enable Syria to independently produce
CW agent precursors.
Missiles/Warheads.26 Largely with foreign help, Iran is becoming self
sufficient in the production of ballistic missiles. DNI Negroponte testified on
February 2, 2006 (discussed above) that Iran “already has the largest inventory of
ballistic missiles in the Middle East, and Tehran views its ballistic missiles as an
integral part of its strategy to deter, and if necessary retaliate against, forces in the
region, including U.S. forces.”
! 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 May 31, 2005, Iran announced it had
successfully tested a solid-fuel version of the Shahab-3.
! Warheads. A Wall Street Journal report of September 14, 2005,
said that U.S. intelligence believes Iran is working to adapt the
Shahab-3 to deliver a nuclear warhead. Subsequent press reports say
that U.S. intelligence captured an Iranian computer in mid-2004
showing plans to construct a nuclear warhead for the Shahab.27 Iran
denied work on such a warhead, but the IAEA is seeking additional
information from Iran on the material.
25 “Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons
of Mass Destruction and Advanced Conventional Munitions, 1 July Through 31 December
2003,” [http://www.cia.gov].
26 See CRS Report RS21548, Iran’s Ballistic Missile Capabilities, by Andrew Feickert.
27 Broad, William and David Sanger. Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims. New York Times, Nov. 13, 2005.

CRS-17
! 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. An Agence
France Presse
report of February 6, 2006, said an Iranian test of
this missile in January 2006 was successful. 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. The PMOI asserts Iran is secretly
developing an even longer range missile, 1,500 miles, with the help
of North Korean scientists.28 On March 31, 2006, Iran claimed to
have tested a missile, possibly a Shahab-4, that Iran says has
multiple, separately targeted warheads.
! 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 (3,000
mile range) by 2015,29 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.30 On March 18, 2005, the London Financial Times reported
that Ukraine has admitting selling 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 Terrorist Groups
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. In the
decade prior to Ahmadinejad’s election, Iran tried to normalize relations with most
of its neighbors, although it did not end all efforts to actively influence internal
events in neighboring and nearby states. 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
28 Jehl, Douglas. “Iran Reportedly Hides Work On a Longer-Range Missile.” New York
Times
, Dec. 2, 2004.
29 “Greater U.S. Concern About Iran Missile Capability.” Reuters, Mar. 11, 2002.
30 “Iran: New Missile on the Assembly Line.” New York Times, Sept. 26, 2002.

CRS-18
terrorism in 2004,” although the report again attributes the terrorist activity to two
hardline institutions: the Revolutionary Guard and the Intelligence Ministry.31
Persian Gulf States.32 During the 1980s and early 1990s, Iran sponsored
Shiite Muslim extremist groups opposed to the Sunni Muslim-led monarchy states
of the 6-member Gulf Cooperation Council (GCC; Saudi Arabia, Kuwait, Bahrain,
Qatar, Oman, and the United Arab Emirates). These activities appeared to represent
an effort by Iran to structure the Gulf region to its advantage by “exporting” its
Islamic revolution. However, Iran’s efforts were unsuccessful, and led the Gulf
states to ally closely with the United States. By the mid-1990s, and particularly
during Khatemi’s presidency, Iran shifted away from confrontation and reduced
support for Gulf Shiite dissident movements there. Some believe that Ahmadinejad,
who is associated with the Revolutionary Guard and other hardline institutions, might
shift back to a more confrontational stand toward the Gulf states, although his
government has not undertaken such a policy shift, to date. Ahmadinejad visited
Kuwait in March 2006, the highest-ranking Iranian visit to that state in 25 years; the
two countries signed a memorandum on March 20 to coordinate against smuggling
and drug trafficking. The Gulf states nonetheless remain wary as discussed below.
! 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. The exchanges
suggested that Saudi Arabia had moved 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.33
! In April 1992, Iran expelled UAE security forces from 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
31 U.S. Department of State. Patterns of Global Terrorism: 2002. Released Apr. 2003.
32 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2004, by
Kenneth Katzman.
33 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.

CRS-19
Tunb, from the emirate of Ras al-Khaymah, as well as part of Abu
Musa from the emirate of Sharjah.) The UAE has sought to refer the
dispute to the International Court of Justice (ICJ), but Iran insists on
resolving the issue bilaterally. 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 (called South Pars on
Iran’s side) and through which Qatar earns large revenues for natural
gas exports. 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 Sunni Muslim Al Khalifa family. Tensions eased
substantially during Khatemi’s presidency, but Bahraini leaders fear
that Ahmadinejad might again stoke Shiite unrest similar to that
which rocked Bahrain during 1994-1998.
Iraq. The U.S. military ousting of Saddam Hussein appears to have benefitted
Iran strategically. This issue is covered in depth in CRS Report RS22323, Iran’s
Influence in Iraq,
by Kenneth Katzman. The main thrust of Iran’s strategy in post-
Saddam Iraq has been to persuade all Shiite Islamist factions in Iraq to work together
to ensure political and electoral Shiite dominance of post-Saddam Iraq. However,
Iran is increasingly close to anti-U.S. Shiite cleric Moqtada Al Sadr, who is
influential in Iraq’s politics, but whose militia has been clashing with British
peacekeeping forces in Basra since mid-2005 and conducted two major uprisings
against U.S. forces in 2004. Secretary of Defense Rumsfeld said on March 7, 2006,
that Iran had sent members of its Revolutionary Guard “Qods Force” (its export-of-
the-revolution unit) into Iraq to assist militant forces, presumably those of Sadr.
In an effort to limit opportunities for Iran to act against U.S. interests in Iraq, in
November 2005 U.S. Ambassador to Iraq Zalmay Khalilzad said he had received
approval from President Bush to begin a diplomatic dialogue with Iranian officials
on the issue of Iraq stability. On March 17, 2006, Iranian officials publicly accepted
talks on Iraq, although they indicated the hope that the talks might expand to bilateral
issues such as Iran’s nuclear program — a possible attempt by Iran to head off U.S.
pressure for U.N. sanctions on Iran over that issue. The United States says the talks
will remain limited to Iraq and will provide the United States an opportunity to make
known to Iran its concerns about Iranian supplies of weaponry to Shiite militias there.
No talks have actually taken place, to date.

CRS-20
Supporting Anti-Peace Process Groups. 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.
Successive State Department reports have repeatedly accused Iran 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), all
of which are named as foreign terrorist organizations (FTO) by the State Department
for their use of violence against Israelis and efforts to undermine the Arab-Israeli
peace process. Of these groups, Hizballah and PIJ are closest politically to Iran.
The State Department report for 2004 added the Al Aqsa Martyr’s Brigades, a non-
Islamist Palestinian group, to those groups Iran assists. State Department terrorism
reports since 2002 have said that Iran, possibly via Hizballah, has been encouraging
coordination among Palestinian terrorist groups, particularly Hamas and PIJ, since
the September 2000 Palestinian uprising.
Some see Iran’s policy further strengthened by Hamas’ victory in the January
25, 2006, Palestinian legislative elections, although Hamas activists say they are not
politically close to Iran because Iran is mostly Shiite, while Hamas members are
Sunni Muslims.34 Hamas was reputed to receive about 10% of its budget in the early
1990s from Iran, although since then Hamas has developed many other sources of
funding from wealthy Persian Gulf donors and supporters in Europe and elsewhere.
Others believe that Hamas now has a stake in running the Palestinian Authority and
is less likely to accept advice or influence from Iran if such advice conflicts with
Palestinian interests. On February 22, 2006, Iran (Ali Larijani) pledged unspecified
amounts of financial aid to Hamas to help it cope with a possible reduction in
international aid following its assumption of governmental power.
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). Ahmadinejad’s various statements on Israel, discussed above, have raised
Israeli fears of potential Iranian aggression, particularly if it acquires a nuclear
weapon and related warhead. However, other Iranian leaders have made similar
statements in the past. Khamene’i has called Israel a “cancerous tumor” and made
other statements suggesting that he seeks Israel’s destruction. In December 2001,
Rafsanjani said that it would take only one Iranian nuclear bomb to destroy Israel,
whereas a similar strike against Iran by Israel would have far less impact because
Iran’s population is so much larger than Israel’s.
On the other hand, there have been differences within Iran’s leadership on this
issue. During his presidency, Khatemi generally refrained from inflammatory
statements against Israel and even conversed with Israel’s president at the funeral of
Pope John Paul II. The Iranian Foreign Ministry, considered an institutional ally of
reformists, has tried to soften or explain Ahmadinejad’s statements as “emotional.”
Ministry spokespersons have repeatedly stated that Iran’s official position is that it
would not seek to block any final Israeli-Palestinian settlement, but that the peace
process is weighted toward Israel and will not likely result in a fair deal for the
Palestinians.
34 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, Jan. 29, 2006.

CRS-21
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.35 Hizballah 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) and despite U.N. Security Council Resolution 1559
(September 2, 2004) that requires the militia’s dismantlement. Hizballah asserts that
Israel still occupies small tracts of Lebanese territory (Shebaa Farms). 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.36 Past reported shipments have included Stingers
obtained by Iran in Afghanistan, mortars that can reach the Israeli city of Haifa and,
in 2002, over 8,000 Katyusha rockets.37 The State Department report on terrorism
for 2004 (released April 2005) says Iran supplied Hizballah with an unmanned aerial
vehicle (UAV), the Mirsad, that Hizballah briefly flew over the Israel-Lebanon
border on November 7, 2004 and April 11, 2005.
Although it retains its militia, 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. The
Syrian withdrawal has, by some accounts, left a vaccuum for Iran to expand its
influence in Lebanon. In the Lebanese parliamentary elections of May - June 2005,
Hizballah expanded its presence in the Lebanese parliament; it now holds 14 seats
in the 128-seat parliament. On the strength of this showing, one Hizballah member
was given a cabinet seat (Mohammad Fneish, Minister of Energy and Water
Resources), positioning Hizballah to exert greater influence on Lebanese government
decisions. Despite Hizballah’s record of attacks on U.S. forces and citizens in
Lebanon during the 1980s, President Bush 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. However, because Hizballah has not yet disarmed,
the United States continues to refuse to meet with any Hizballah members.
In the 109th Congress, two similar resolutions (H.Res. 101 and S.Res. 82) have
passed their respective chambers. They urge the EU to classify Hizballah as a
terrorist organization; S.Res. 82 calls 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
35 Hizballah’s last known terrorist attacks outside Lebanon was the July 18, 1994 bombing
of a Jewish community center in Buenos Aires, which killed 85. On Mar. 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 Mar. 17, 1992, bombing of Israel’s embassy in that city.
36 Wright, Robin. “U.S. Blocks A Key Iran Arms Route to Mideast.” Los Angeles Times,
May 6, 2001.
37 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, Feb. 4, 2002.

CRS-22
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.
Central Asia and the Caspian. Iran’s policy in Central Asia has thus far
emphasized Iran’s rights to Caspian Sea resources, particularly against Azerbaijan.
That country’s population, like Iran’s, is mostly Shiite Muslim, but Azerbaijan is
ruled by secular leaders. In addition, Azerbaijan is ethnically Turkic, and Iran fears
that Azerbaijan nationalists might stoke separatism among Iran’s large population of
Turkic ethnicity. 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. There was little evident progress on a bilateral division of their
portions of the Caspian. Strains might increase now that the Baku-Tblisi-Ceyhan oil
pipeline, intended to provide alternatives to Iranian oil, is beginning operations.
Afghanistan.38 Since the fall of the Taliban, an adversary of Tehran, Iran has
moved to restore some of its Iran’s traditional sway in western, central, and northern
Afghanistan where Persian-speaking Afghans predominate. It aided Northern
Alliance figures that were prominent in the post-Taliban governing coalition, and
Iranian companies have been extensively involved in road building and other
construction projects in western Afghanistan. Since 2004, Iran’s influence has waned
somewhat as its allies, mostly Persian-speaking Afghan minority factions still
referred to as the “Northern Alliance,” have been marginalized in Afghan politics.
However, a CRS visit to Afghanistan in March 2006 noted Iranian-funded Shiite
theological seminaries being built in Kabul, perhaps an indication of Iran’s efforts to
support Afghanistan’s Shiite minority. Fearing the continuing presence of the
18,000 U.S. troops in Afghanistan, Iran has objected 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 after the downfall of
the pro-Iranian governor of Herat Province, Ismail Khan.
Iran long opposed the 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 nine Iranian diplomats based in northern Afghanistan,
and Iran provided military aid to the Northern Alliance factions. 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. During the major combat phase of the post-September 11
U.S.-led war in Afghanistan, Iran offered search and rescue of any downed service-
persons and the trans-shipment to Afghanistan of humanitarian assistance. In March
2002, Iran expelled Gulbuddin Hikmatyar, a pro-Taliban Afghan faction leader. Iran
froze Hikmatyar’s assets in Iran (January 2005).
38 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.

CRS-23
Al Qaeda. Iran is not a natural ally of Al Qaeda, largely because Al Qaeda is
an orthodox Sunni Muslim organization. However, U.S. officials have said since
January 2002 that it is unclear whether Iran has arrested senior Al Qaeda operatives
who are believed to be in Iran.39 These figures are purported to include Al Qaeda
spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad.40 A German monthly magazine, Cicero, reported in late October
2005 that Iran is allowing 25 high-ranking Al Qaeda activists, including three sons
of bin Laden, to stay in homes belonging to the Revolutionary Guard.41 This report,
if true, would contradict Iran’s assertion on July 23, 2003 that it had “in custody”
senior Al Qaeda figures. U.S. officials blamed the May 12, 2003 bombings in
Riyadh, Saudi Arabia against four expatriate housing complexes on these operatives,
saying they have been able to contact associates outside Iran.42 Possibly in response
to the criticism, on July 16, 2005, Iran’s Intelligence Minister said that 200 Al Qaeda
members are in Iranian jails and that Iran had broken up an Al Qaeda cell planning
attacks on Iranian students.43 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. U.S. officials have called on Iran to turn them
over to their countries of origin or to third countries for trial.
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.
Another bin Laden ally, Abu Musab al-Zarqawi, reportedly transited Iran after the
September 11 attacks and took root in Iraq, where he is a major insurgent leader.
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 thaw 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 have had only limited
official contact since.44 The United States tilted markedly toward Iraq in the 1980-88
39 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires
, May 19, 2003.
40 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
41 “Bin Laden Sons Said to Roam Free.” Washington Times, Oct. 27, 2005.
42 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.
43 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.
44 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
(continued...)

CRS-24
Iran-Iraq war, including U.S. diplomatic attempts to block conventional arms sales
to Iran, providing battlefield intelligence to Iraq,45 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.
In his January 1989 inaugural speech, President George H.W. Bush laid the
groundwork for a rapprochement, saying that, in relations with Iran, “goodwill begets
goodwill,” implying better relations if Iran helped obtain the release of U.S. hostages
held by Hizballah in Lebanon. Iran reportedly did assist in obtaining their releases,
which was completed in December 1991, but no substantial thaw followed, possibly
because Iran continued to back groups opposed to the U.S.-sponsored Middle East
peace process. That process was a priority of the George H.W. Bush Administration.
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 “people-to-people” U.S.-Iran exchanges 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
some easing of U.S. sanctions, and promising to work to resolve outstanding claims
disputes. In September 2000 U.N. “Millennium Summit” meetings, Albright and
President Clinton sent a positive signal to Iran by attending Khatemi’s speeches.
Bush Administration Policy and Options
Until 2005, the Bush Administration continued the main thrust of Clinton
Administration efforts to try to limit Iran’s strategic capabilities through international
diplomacy and possible international sanctions, but there appears to be a growing
U.S. preference for a longer term strategy of regime change. Under Secretary of State
Burns characterized current U.S. policy on November 30, 2005, stating that U.S.
policy is to “isolate Iran, promote a diplomatic solution to Iran’s nuclear ambitions,
expose and oppose the regime’s support for terrorism, and advance the cause of
democracy and human rights within Iran itself.”
44 (...continued)
“Iran-Contra Affair”).
45 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis
. New York: John Wiley and Sons, 1991. p. 168.

CRS-25
Regime Change. Some U.S. officials believe that, whether or not Iran’s
nuclear program can be curbed through diplomacy or economic sanctions, only an
outright change of regime would reduce the threat posed by Iran. Those who
advocate this policy believe that the regime — no matter which faction of it is in
control — harbors ambitions fundamentally at odds with the United States and its
values. 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.46
The Administration shift began to take shape after the September 11, 2001,
attacks and President Bush’s description of Iran as part of an “axis of evil” in his
January 2002 State of the Union message. On July 12, 2002, President Bush stated
his support for Iranians demonstrating for reform and democracy, a message he
reiterated on December 20, 2002, when he inaugurated Radio Farda. President
Bush’s second inaugural address (January 20, 2005) and his State of the Union
messages of February 2, 2005, and January 31, 2006, suggested a clear preference for
a change of regime by stating, for example in the latter speech, that “...our nation
hopes one day to be the closest of friends with a free and democratic Iran.”
Other indications of a shift toward this option include increased public criticism
of the regime’s human rights record and the funding of pro-democracy activists in
Iran. The lead agency on democracy promotion, the State Department, has used
funds provided in recent appropriations to support pro-democracy activists. Those
appropriations represent congressional sentiment for efforts to change Iran’s regime.
The policy is discussed in the State Department report “Supporting Human Rights
and Democracy: U.S. Record 2004-2005,” released March 28, 2005. Iran asserts that
such steps represent a violation of the 1981 “Algiers Accords” that settled the Iran
hostage crisis and provide for non-interference in each others’ internal affairs. 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)47 gave $1
million of those funds to a U.S.-based organization, the Iran Human
Rights Documentation Center, to document abuses in Iran, using
46 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 Dec. 22, 1995. The Clinton
Administration reportedly focused the covert aid on changing the regime’s behavior, rather
than its overthrow.
47 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.

CRS-26
contacts with Iranians in Iran. The Center is run by persons mostly
of Iranian origin and affiliated with Yale University’s “Griffin
Center for Health and Human Rights.” The remaining $500,000 was
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
efforts. The State Department put out a solicitation for proposals for
similar projects to be funded in 2005. The winning grantees were
not announced by DRL to protect the identities of the grantees,
according to U.S. diplomats. DRL had said that priority areas were
political party development, media development, labor rights, civil
society promotion, and promotion of respect for human rights. DRL
officials said they might fund exile broadcasting, as long as such
broadcasting is not affiliated with an Iranian exile political faction.48
! The conference report on the FY2006 foreign aid appropriation (P.L.
109-102) appropriates up to $10 million in democracy promotion
funds for use in Iran, according to the explanation of the conference
managers (H.Rept. 109-265). The funds would be drawn from a
“Democracy Fund” as well as from the Middle East Partnership
Initiative (MEPI). The conference report also encourages the State
Department to consider funding media initiatives in Iran, presumably
broadcasting by Iranian exile groups.
! On February 16, 2006, the Administration requested supplemental
FY2006 funds, including $75 million for democracy promotion in
Iran. This planned major funding increase appears to reflect a U.S.
belief that nuclear negotiations have not succeeded and that U.S.-led
pressure on Iran’s regime needs to be increased. According to the
request, $15 million is to be used to support “civic education” in Iran
and help organize Iranian labor unions and political organizations
(through such U.S. organizations as the International Republican
Institute, National Democratic Institute, and National Endowment
for Democracy. Another $5 million would be for sponsoring Iranian
student visits to the United States, and an additional $5 million
would be for public diplomacy directed at the Iranian population.
! The major portion of the FY2006 supplemental request ($50 million)
is to be for increased U.S. broadcasting to Iran. The funds would
likely be used to enhance the Radio Free Europe/Radio Liberty
(RFE/RL)-operated broadcasting services into Iran that began in
October 1998.49 As of December 2002, the radio service has been
called Radio Farda (“Tomorrow” in Farsi), which now broadcasts 24
48 Briefing by DRL representatives for congressional staff. May 9, 2005.
49 The service began when Congress funded it ($4 million) in the conference report on
H.R. 2267 (H.Rept. 105-405), the FY1998 Commerce/State/ Justice appropriation. It was
to be called “Radio Free Iran.”

CRS-27
hours per day and costs about $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. However,
the Administration request states that some of the funding could be
for U.S.-based exile-controlled media broadcasting.
! In action on the FY2006 supplemental request, the House-passed
appropriations bill (H.R. 4939, passed March 16, 2006) cuts the
request by appropriating $10 million for democracy programs (not
$15 million). The $5 million each for public diplomacy and student
exchanges is provided. The bill also provides $36.1 million for
VOA-TV and Radio Farda broadcasting, including infrastructure for
that purpose, through the Broadcasting Board of Governors, an
apparent rebuff to the idea of funding Iranian exile broadcasts.
In March 8, 2006, testimony to the House International Relations Committee,
Undersecretary of State Nicholas Burns confirmed press reports that the United
States would be augmented by the presence of Persian-speaking U.S. diplomats
around Iran, in part to help identify and facilitate Iranian participate in U.S.
democracy-promotion programs. An enlarged “Office of Iran Affairs” has been
formed at State Department, and the Iran unit at the U.S. consulate in Dubai is being
expanded, according to Burns. Other press reports say new Persian-speaking Iran
positions will be added at U.S. diplomatic facilities in Baku, Azerbaijan; Istanbul,
Turkey; Frankfurt, Germany; and London, all of which have large expatriate Iranian
populations.50
Many question the prospects of U.S.-led Iran regime change, short of all-out-
U.S. military invasion, because of the weakness of opposition groups committed to
outright regime overthrow. 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.
Congress and Regime Change: H.R. 282 and S. 333. Some recent
and pending legislation exemplify the preference of some Members for regime
change in Iran. In the 109th Congress, 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, and was passed by the
full House International Relations Committee on March 15, 2006, by a vote of 37-3.
The companion, S. 333, was introduced by Senator Santorum. H.R. 282 has 355 co-
sponsors and S. 333 has 50 co-sponsors, as of March 31, 2006. The bill passed the
full Committee with only minor amendments even though Undersecretary of State
Burns testified on March 8 (see above) that the Administration opposes the economic
sanctions-related sections of it (Iran-Libya Sanctions Act-related provisions,
discussed in CRS Report RS20871, The Iran-Libya Sanctions Act, by Kenneth
50 Stockman, Farah. “Long Struggle” With Iran Seen Ahead.” Boston Globe, Mar. 9, 2006.

CRS-28
Katzman) as likely to cause tensions with U.S. allies. The Administration supports
the democracy-promotion sections of the bills; those sections, which are similar to
steps the Administration is taking as demonstrated by the FY2006 supplemental
request, contain the following provisions:
! 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, and H.R. 282 calls for expanded U.S. contacts
with groups attempting to promote democracy in Iran. S. 333
authorizes $10 million in U.S. funding for such groups; H.R. 282
authorizes no specific dollar amount.
! Both call for Iranian government representatives to be denied access
to all U.S. government buildings.
Engagement? Before the nuclear issue came to the fore, the Bush
Administration pursued direct engagement with Iran; this approach has lost favor,
although not receded entirely, as Iran’s nuclear stances have hardened. The
Administration asserts it tried diplomacy and engagement by backing the European
nuclear negotiations with Iran, even if it did not join those talks itself. In May 2003,
both countries publicly acknowledged that they were conducting direct talks in
Geneva on Afghanistan and Iraq,51 marking the first confirmed direct dialogue
between the two countries since the 1979 revolution. The United States broke off the
dialogue following the May 12, 2003 bombing in Riyadh, as discussed above. In
December 2003, the United States briefly 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. However, Iran
rebuffed that offer.
Even though it is no longer pursuing a broad dialogue with Iran, the
Administration continues to consider limited dialogue with Iran useful in some
circumstances. As noted above, both Iran and the United States have agreed to talks
on stabilizing Iraq.
Military Action? As concerns over Iran’s nuclear program have grown,
public discussion of a military option against Iran’s nuclear facilities has increased.
All-out U.S. military action to remove Iran’s regime does not appear to be under
serious consideration within the Administration. Most experts believe U.S. forces
are spread too thin, including about 133,000 deployed in Iraq, to undertake such
action, and that U.S. forces would be greeted with hostility by most Iranians.
Some experts believe that limited military action, such as air or missile strikes
against suspected nuclear sites should be considered. However, U.S. allies in
Europe, not to mention Russia, China, and others, have expressed strong opposition
to military action, at least while diplomatic options remain active. In recent months,
51 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.

CRS-29
President Bush has on several occasions said that “all options are on the table,”52
although most U.S. officials have said that diplomacy and sanctions would be
pursued before military action would be considered. At a conference in Germany in
early February 2006, Senator McCain said that military action would be preferable
to a nuclear Iran. 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 assertion.
Experts differ on the effectiveness of striking Iran’s nuclear actions. Some
argue that doing so could set back Iran’s nuclear program because many of the
relevant targets are known and could be struck, even those that are hardened or
buried.53 Some advocates say that there are only a limited number of key nuclear
sites and that striking them would cripple Iran’s program.
Opponents of a strike question whether the United States is aware of or
militarily able to reach all relevant sites and argue that Iran might retaliate through
terrorism or other means, such as shutting down its own oil exports. Some believe
that a U.S. strike would cause the Iranian public to rally around Iran’s regime, setting
back U.S. efforts to promote change within Iran. Still others, such as authors of a
recent National Defense University study, believe that a nuclear weapons capability
would not embolden Iran’s foreign policy because U.S. conventional capabilities and
regional alliances could blunt any Iranian aggressiveness.54
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.
However, several experts doubt that Israel has the capabilities, such as sufficient
aerial refueling capacity, that could make such action effective. Israeli leaders have
said that no such strike is being planned, but a Defense Department decision to sell
Israel GBU-28 “bunker buster” munitions has led to speculation that Israel might be
contemplating such a strike, and with some degree of U.S. support.55
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
52 Fletcher, Michael and Keith Richburg. “Bush Tries to Allay E.U. Worry Over Iran.”
Washington Post, Feb. 23, 2005.
53 Sanger, David. “Why Not A Strike On Iran?” New York Times, Jan. 22, 2006.
54 Yaphe, Judith and Charles Lutes. Reassessing the Implications of a Nuclear Armed Iran.
Institute for National Strategic Studies, National Defense University. McNair Paper 69.
Aug. 2005.
55 Stone, Andrea. “U.S. Plans to Sell 100 Bunker Busting Bombs to Israel.” USA Today,
Apr. 18, 2005.

CRS-30
alleged drug smuggling,56 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.57
International Sanctions? Regime change and military action appear to be
longer term options, but the referral of Iran’s nuclear activities to the U.N. Security
Council raises the immediate question of whether, and if so what, international
sanctions might be imposed on Iran. In order to gain international support to
pressure Iran on its nuclear program, the Administration has indicated a willingness
to move slowly in asking for imposition of international sanctions. In order to avoid
rallying the Iranian people around the regime, the Administration (Secretary of State
Rice) has stated, as recently as on March 30, 2006, that it does not support new
sanctions that would hurt Iran’s people. Iran, for its part, has indirectly threatened
to reduce its oil exportation if any international sanctions are imposed on it, although
some Iranian officials now downplay that possibility, possibly because Iran’s might
collapse if it took such a step. A House resolution (H.Con.Res. 341) calling on the
international community to impose U.N. economic sanctions on Iran because of its
nuclear activity passed the House on February 16, 2006. A Senate version
(S.Con.Res. 78) calling for referral of Iran to the U.N. Security Council passed the
Senate (unanimous consent) on January 27, 2006. The following represent options
that press reports say might be considered by the Security Council; some of them are
proposed in a Senate resolution (S.Res. 351) introduced by Senator Evan Bayh on
January 20, 2006.
! Mandating Reductions in Diplomatic Exchanges with Iran or
Limiting Travel by Some Iranian Officials. These restrictions were
imposed on the Taliban government of Afghanistan in 1999 in
response to its harboring of Al Qaeda leadership. Another
possibility is limitations on sports or cultural exchanges with Iran,
such as Iran’s participation in the World Cup soccer tournament or
the Olympics. However, many experts oppose using sporting events
to accomplish political goals.
! 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.
! A Ban on Exports to Iran of Refined Oil Products or of Other
Products. However, such sanctions might be opposed by countries
that supply such goods and services to Iran. The gas exports ban, a
major feature of the Bayh resolution (S.Res. 351), would almost
certainly hurt Iran’s economy because Iran lacks refinery capacity to
meet demand and must import gasoline. However, some believe
56 Kralev, Thomas. “U.S. Asks Aid Barring Arms From Rogue States.” Washington Times,
June 5, 2003.
57 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.

CRS-31
Iran might respond by raising domestic gasoline prices (now heavily
subsidized) to dampen demand.
! Financial Sanctions, Such as a Freeze on Iran’s Financial Assets
Abroad or on the Assets of Designated Iranian Officials, or Limiting
Lending to Iran by International Financial Institutions.
Anticipating an asset freeze, Iran announced on January 20, 2006,
that it had already begun moving some assets in Europe back to Iran,
although Iran later backtracked on that announcement.
! 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 could be to enforce a
Security Council decision to halt uranium enrichment, although Iran
is likely to resist such a program and reduce its effectiveness.
! Imposing an International Ban on Purchases of Iranian Oil or Other
Trade or a Ban on International Investment in Iran’s Energy Sector.
This is widely considered the most sweeping of sanctions likely to
be considered in the Security Council. However, the sanction is
unlikely to be proposed or adopted because world oil prices have
already risen to nearly $60 per barrel.
U.S. Sanctions
Any international sanctions would add to the wide range of U.S. sanctions in
place since the November 4, 1979, seizure of the U.S. hostages in Tehran.58 Some
experts believe that U.S. sanctions have slowed Iran’s economy, forcing it to curb
spending on weapons purchases, but others believe that because the sanctions are not
multilateral, the U.S. sanctions have had only marginal effect.59 Some 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.
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 “terrorism list.” The 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.
58 On Nov. 14, 1979, President Carter declared a national emergency with respect to Iran,
renewed every year since 1979.
59 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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! The terrorism list designation bans direct U.S. financial assistance
(Foreign Assistance Act, FAA) and arms sales (Arms Export Control
Act), restricts sales of U.S. dual use items (Export Administration
Act), and requires the United States to vote to oppose multilateral
lending to the designated countries (Anti-Terrorism and Effective
Death Penalty Act of 1996, P.L. 104-132). Waivers are provided
under these laws, but successive foreign aid appropriations laws
since the late 1980s ban direct assistance to Iran (loans, credits,
insurance, Eximbank credits) without providing for a waiver.
! Section 307 of the FAA (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. No
waiver is provided for.
! Under the Anti-Terrorism and Effective Death Penalty Act, the
President is required to withhold U.S. foreign assistance to any
country that provides to a terrorism list country foreign assistance
(Section 325) or sells arms to one (Section 326). Waivers are
provided for.
! U.S. regulations do not bar disaster relief and the United States
donated $125,000, through relief agencies, to help victims of two
earthquakes in Iran (February and May 1997), and another $350,000
worth of aid to the victims of a June 22, 2002 earthquake. (The
World Bank provided some earthquake related lending as well.) 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 “Iran-Contra Affair” of
1985-1986.
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.60
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
60 See CRS Report RS22072, The Iran Nonproliferation Act and the International Space
Station: Issues and Options
, by Sharon Squassoni and Marcia S. Smith.

CRS-33
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. In February 2005, the Bush Administration proposed
an amendment to the INA that would allow continued U.S. access to the station.
Legislation, S. 1713, took that step; the House version of S. 1713, which extended
INA sanctions provisions to Syria, was accepted by the Senate and became P.L. 109-
112 on November 22, 2005. A bill to sanction any U.S. dealings with companies
identified as violating the INA (S. 2279) was introduced February 14, 2006.
Reflecting a Bush Administration decision to impose sanctions rather than
overlook alleged violations or waive sanctions, the Bush Administration has
sanctioned numerous entities as discussed below. These entities were sanctioned
under the INA, the Iran-Iraq Arms Non-Proliferation Act of 1992 (P.L. 102-484),
and another law, the Chemical and Biological Warfare Elimination Act of 1991, for
sales to Iran:
! In May 2003, the Administration sanctioned a Chinese industrial
entity, Norinco, for allegedly Iran selling missile technology.
! 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, including companies from Russia, China,
Belarus, Macedonia, North Korea, UAE, and Taiwan.
! On September 29, 2004 fourteen entities were sanctioned under the
INA from China, North Korea, Belarus, India (two persons, Dr.
Surendar and Dr. Y.S.R. Prasad), Russia, Spain, and Ukraine.
! 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 December 26, 2005, the Administration sanctioned another nine
entities, including those from China (Norinco included yet again),
India (two chemical companies), and Austria. At the same time,
sanctions against Dr. Surendar of India (see September 29, 2004)
were ended, presumably because of information exonerating him of
helping Iran.

CRS-34
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.61 As do previous years’ appropriations, the FY2006 foreign
aid appropriation (P.L. 109-102) punishes the Russian Federation for assisting Iran
by withholding 60% of any U.S. assistance to the Russian Federation unless it
terminates technical assistance to Iran’s nuclear and ballistic missiles programs.
On the nuclear issue, Congress has passed legislation supporting strong U.S.
steps against countries that help Iran with nuclear technology. 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 would penalize countries that provide
nuclear technology to Iran, unless Iran is deemed fully compliant with the NPT.

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
some 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. However, some modifications to the trade ban since 1999 account
for the small trade that does exist between the United States and Iran. The following
conditions and modifications, as administered by the Office of Foreign Assets
Control (OFAC) of the Treasury Department, apply:
! Some goods related to the safe operation of civilian aircraft may be
licensed for export to Iran, and in December 1999, the Clinton
61 [http://www.whitehouse.gov/news/releases/2005/06/print/20050629.html].

CRS-35
Administration allowed the repair of engine mountings on seven Iran
Air 747s (Boeing).
! OFAC regulations do not permit U.S. firms to negotiate investment
deals with Iran or to trade Iranian oil overseas.
! Since April 1999, commercial sales of food and medical products to
Iran have been allowed, on a case-by-case basis and subject to
OFAC licensing. 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 provided the
credit guarantees. Iran says the lack of credit makes U.S. sales,
particularly of wheat, uncompetitive.
! In April 2000, the trade ban was further eased to allow U.S.
importation of Iranian nuts, dried fruits, carpets, and caviar. 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 reportedly is to provide
$30 million to $35 million worth of services per year through
Oriental Kish. This leaves unclear whether Halliburton would be
considered in violation of the U.S. trade and investment ban or the
Iran-Libya Sanctions Act (ILSA)62 because the dealings apparently
involved a subsidiary of Halliburton. Because of criticism,
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
62 “Iran Says Halliburton Won Drilling Contract.” Washington Times, Jan. 11, 2005.

CRS-36
pulled out of the Oriental Kish deal.63 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 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.
! On December 20, 2005, it was announced that the Treasury
Department had fined Dutch bank ABN Amro $80 million for
failing to fully report the processing of financial transactions
involving Iran’s Bank Melli (and another bank partially owned by
Libya).
The Iran-Libya Sanctions Act (ILSA) and Regional Oil and Gas
Projects. 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). It is now scheduled to expire on August 5, 2006,
unless renewed. H.R. 282, passed by the House International Relations Committee
on March 15, 2006, and S. 333 have several ILSA-related provisions, including
extending it indefinitely; making exports to Iran of WMD or advanced conventional
weapons technology sanctionable; and setting a 90-day time limit for the
Administration to determine whether a project violates ILSA H.R. 282 also
mandates cuts in U.S. foreign aid to countries whose companies violate ILSA. (See
CRS Report RS20871, The Iran-Libya Sanctions Act (ILSA), by Kenneth Katzman.)
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, and Iran has imposed reciprocal requirements. In
January 2006, Iran requested direct flights between the United States and Iran to
accommodate a growing number of Iranian-Americans visiting Iran, but little
movement on this is expected because of deep U.S.-Iran strains on nuclear and other
issues. Ahmadinejad denied that the request signaled a desire on his part to improve
relations with the United States more broadly.
Status of Some U.S.-Iran Assets Disputes. A U.S.-Iran Claims Tribunal
at the Hague continues to arbitrate cases resulting from the break in relations and
freezing of some of Iran’s assets following the Iranian revolution. Major cases yet
to be decided center on hundreds of Foreign Military Sales cases between the United
63 Boyd, Roderick. “Halliburton Agrees to Leave Iran, Thompson Says.” New York Sun,
Mar. 25, 2005.

CRS-37
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 was placed in a
DOD account, and about $22 million in Iranian diplomatic property remains blocked.
The DOD funds were drawn down to pay 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. As it has in past similar cases, the Administration has opposed a terrorism
lawsuit against Iran by victims of the U.S. Embassy Tehran seizure on the grounds
of diplomatic obligation. (See CRS Report RL31258, Suits Against Terrorism States
by Victims of Terrorism
, by Jennifer K. Elsea.)
Multilateral Policies Toward Iran
Most U.S. allies see engagement, not sanctions, as the means to change Iran’s
behavior, although several European governments now appear willing to move
toward international sanctions as a response to Iran’s nuclear activities. During
1992-1997, the European Union (EU) countries maintained a policy of “critical
dialogue” with Iran, asserting that dialogue and commerce with Iran could moderate
Iran’s behavior. The United States did not oppose those talks but maintained that the
EU’s dialogue would not change Iranian behavior. The dialogue was suspended
following the April 1997 German terrorism trial (“Mykonos trial”) that found high-
level Iranian involvement in assassinating Iranian dissidents in Germany. After
Khatemi became president, the EU-Iran dialogue resumed (May 1998), and he made
state visits to most major European countries as well as Japan.
EU-Iran Trade Negotiations. In December 2002, as part of its engagement
strategy, the EU (European Commission) first began negotiations with Iran on a
“Trade and Cooperation Agreement” (TCA) that would lower the tariffs or increase
quotas for Iranian exports to the EU countries. However, revelations about Iran’s
undeclared nuclear activity caused a suspension of the talks in July 2003. The TCA
talks resumed in January 2005 in concert with the “Paris Agreement” (above).
Working group discussions focused not only on the TCA terms and proliferation
issues but also on Iran’s human rights record; Iran’s efforts to derail the Middle East
peace process; and Iranian-sponsored terrorism. There were also discussions on
counter-narcotics, refugees, and migration issues — issues on which Iran’s record has
sometimes been positive, as well as on the Iranian opposition PMOI. After the
eighth round of negotiations on July 12-13, 2005, European Commission negotiators
said the talks were making progress, although these talks have been suspended since
the August 2005 breakdown of the Paris Agreement.
Multilateral, World Bank, and IMF Lending to Iran. U.S.-allied
differences on Iran included European and Japanese creditors’ rescheduling of about
$16 billion in Iranian debt during 1994-1995. These countries (governments and
private creditors) rescheduled the debt bilaterally, in spite of Paris Club rules that call
for multilateral rescheduling. Iran’s improved external debt led most European
export credit agencies to restore insurance cover for exports to Iran. In July 2002,

CRS-38
Iran tapped international capital markets for the first time since the Islamic
revolution, selling $500 million in bonds to European banks. In May 2002 Moody’s
stopped its credit ratings service for Iran’s government bonds on the grounds that
performing this service might violate the U.S. trade ban.
The European countries and Japan outvoted the United States to provide
international loans to Iran. 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 block that lending, the FY1994-FY1996 foreign aid appropriations
(P.L. 103-87, P.L. 103-306, and P.L. 104-107) cut the amount appropriated for the
U.S. contribution to the Bank by the amount of those loans. The legislation
contributed to a temporary halt in new Bank lending to Iran, but 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, beyond the statutory requirement for the United States
to vote “no” on such loans to Iran (and other terrorism list states). However, in May
2000, the United States’ allies outvoted the United States to approve $232 million
in loans for health and sewage projects. 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. 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.
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 state, and Iran began
accession talks. However, movement on the issue is not expected soon because Iran
is at odds with the international community on its nuclear program.
Conclusion
Mistrust between the United States and Iran’s Islamic regime has run deep for
over two decades, even before the emergence of a dispute over Iran’s nuclear
program. 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, even if a nuclear deal is
reached and implemented. Others say that, despite Ahmadinejad’s presidency, 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

CRS-39
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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Appendix: Structure of the Iranian Government
SUPREME NATIONAL
SUPREME LEADER
SECURITY COUNCIL
ASSEMBLY OF EXPERTS Selects,
Advises
Ali Khamene’i
(Ali Larijani)
(86 Seats, Elected)
can remove,
choose successor
Commander-in-Chief
Oversees , can dismiss
PRESIDENT
Screens candidates
COUNCIL OF
JOINT
Mahmoud
GUARDIANS
HEADQUARTERS

Ahmadinejad (Directly
(12 members
Elected)
6 appointed by Supreme
Leader
6 by the Judiciary )
Regular
Revolutionary
Appoints
Military
Guard
Reviews Laws,
Screens candidates
Cabinet
Basij
Confirms
Proposes Legislation
cabinet

Arbitrates

Legislative
Dispute

Majles (Parliament)
Arbitrates
( 290 seats, elected)
Legislative
Speaker: Gholam Ali Haddad-Adel
Disputes
Expediency Council
Akbar Hashemi
Rafsanjani
(Appointed)
Arbitrates Legislative Disputes between
Majles & Council of Guardians


CRS-41
Figure 1. Map of Iran

crsphpgw