Order Code RL32048
CRS Report for Congress
Received through the CRS Web
Iran: U.S. Concerns and
Policy Responses
Updated May 12, 2006
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Iran: U.S. Concerns and Policy Responses
Summary
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.” To date, the Bush Administration has pursued several avenues
to attempt to contain the potential threat posed by Iran, but support for a longer term
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 diplomatic and economic pressure by the United Nations Security
Council or a coalition of like-minded major countries. Because Iran continues to
advance its nuclear program, some advocate military action against Iran’s nuclear
infrastructure. Others believe the United States should undertake direct talks with
Iran; in past years the Bush Administration had some limited dialogue with Iran on
specific regional issues.
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 has formed a Palestinian
government following its victory in January 25, 2006, elections, but it is thus far
holding fast to its rejection of Israel. Iran and other Middle Eastern states are
providing Hamas assistance to help circumvent U.S. and European aid cuts intended
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 influence in Iraq by
providing arms and other material assistance to Shiite Islamist militias, some of
which have fought U.S. and partner forces there. However, most Iranian-supported
factions in Iraq are supportive of the U.S.-led political transition roadmap, and the
United States and Iraq announced in March 2006 that they would hold bilateral talks
on the issue of stabilizing Iraq. Talks have not been held, to date.
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
have tended to see the human rights issue in Iran as exemplifying the negative
character of the Iranian regime, but not necessarily as a direct threat to U.S. interests.

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.

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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
The Son of the Former Shah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other U.S.-Based Exiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Human Rights and Religious Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . . . . 11
Conventional Military . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Weapons of Mass Destruction: Nuclear Program . . . . . . . . . . . . . . . . . . . . 12
Chemical Weapons, Biological Weapons, and Missiles . . . . . . . . . . . . . . . 16
Missiles/Warheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Relations With The Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . 18
Iranian Policy in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Supporting Palestinian Militant Groups . . . . . . . . . . . . . . . . . . . . . . . 20
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
U.S. Policy Responses and Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Bush Administration Policy and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Congress and Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Engagement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Military Action? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
International Sanctions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
The Iran-Libya Sanctions Act (ILSA) and Regional Oil and Gas
Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 37
Multilateral Policies Toward Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
EU-Iran Trade Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Multilateral, World Bank, and IMF Lending to Iran . . . . . . . . . . . . . . 38
WTO Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

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List of Figures
Figure 1. Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Figure 2. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

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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.
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.
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,
under pressure from nationalists in the Majles (parliament) who gained strength in
the 1949 Majles elections, 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

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CRS-2
theologians, a principle known as velayat-e-faqih (rule by a supreme Islamic
jurisprudent). Khomeini was strongly anti-West and particularly anti-U.S., and
relations between the United States and the Islamic Republic turned hostile even
before the November 4, 1979, seizure of the U.S. Embassy by pro-Khomeini radicals.
Regime Stability, 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 stable, despite
internal schisms and substantial unpopularity among intellectuals, educated elites,
and many 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 appointed body is the Expediency
Council, set up in 1988 to resolve legislative disagreements between the Majles
(parliament) and the Council of Guardians. It 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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CRS-3
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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CRS-4
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 Mahmud 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 so many candidacies.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. About 49, he 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, and
backing from his “Isargaran” faction composed of former Guard and Basij (volunteer
popular forces) leaders and other hardliners, 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 prevent Ahmadinejad’s election. He is 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-
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,
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

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CRS-5
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 inflamed world opinion with several anti-Israel statements:
! 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.
! On April 14, 2006, he said Israel is “heading toward annihilation.”
Some Iranian leaders might have been concerned that Ahmadinejad’s statements
would isolate Iran. The concern might have 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. 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 $70 per barrel. These same factors
could help Iran minimize the effects of international sanctions that might be imposed
in response to its nuclear activities. Ahmadinejad might have increased regime
popularity since taking office by directing the raising of some wages, cancelling some
4 Wright, Robin. “U.S. Likely to Let Iran’s President Visit U.N.” Washington Post, Aug.
12, 2005.

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CRS-6
debts of farmers, and increasing social welfare payments. However, oil revenues
account for about 20% of Iran’s gross domestic product (GDP), and he has not
moved to correct economic structural imbalances. Major economic sectors or
markets are controlled by the quasi-statal “foundations” (bonyads), run by powerful
former officials, and there are 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); about
4% of China’s oil imports; Japan - 800,000
bpd, about 10% of oil imports; South Korea
- about 9% of its oil imports are from Iran;
Italy - 11% from Iran; France - 7%; Belgium
- 14%; Turkey - 22%; Greece - 24%.
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 supportive or even part
of the 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

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he remains under scrutiny. He had been Khomeini’s designated successor until 1989,
when Khomeini dismissed him for allegedly protecting intellectuals and other
opponents of clerical rule. Other former regime dissidents still closely watched or
harassed include theoretician Abd al-Karim Soroush, former Interior Minister
Abdollah Nuri, former hostage-holder Abbas Abdi, and political activist Hashem
Aghajari (of the generally pro-regime Mojahedin of the Islamic Revolution).
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
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 was later purged and driven 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
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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CRS-8
organization. However, the debate over the group was renewed with the U.S.
decision in late July 2004 to grant the Ashraf detainees “protected persons” status
under the 4th Geneva Convention, meaning they will not be extradited to Tehran or
forcibly expelled as long as U.S. forces remain in Iraq. 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
The Son of the Former Shah. Some Iranian exiles, as well as some elites
still in Iran, want to replace the regime with a constitutional monarchy presumably
led by Reza Pahlavi, 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,
who is about 58 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
Other U.S.-Based Exiles. Numerous other Iranian exiles, not necessarily
linked to the Shah’s son or the PMOI, want to see a change of regime in Tehran.
Many of them are based in California, where there is a large Iranian-American
community, and there are about 25 small-scale radio or television stations that
broadcast into Iran. Some of them are the following.
! The Abdorrahman Boroumand Foundation. This foundation is
trying to document human rights abuses in Iran.
! The Iran Human Rights Documentation Center (IHDC). The center
is run by persons mostly of Iranian origin and affiliated with Yale
University’s Griffin Center for Health and Human Rights. It is
documenting abuses in Iran, using contacts with Iranians in Iran.
! The National Iranian American Council (NIAC). The organization’s
objective is to build and expand networks of Iranian-American
organizations.
! Iran of Tomorrow Movement. This group claims to have “resistance
cells” inside Iran. It operates a 24-hour satellite TV station and a
radio broadcast. A related movement, “XTV,” advocates the non-
violent overthrow of the regime and is believed close to the Shah’s
son.
! “Channel One TV/Radio Pedar.” Run by Mr. Shahram Homayoun,
a Los Angeles-based exile, this station broadcasts to Iran one hour
each day.
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.

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CRS-9
! Movement for Freedom and Democracy in Iran. Led by Dr. Ahura
Khalegi Yazdi, a Zorastrian, it advocates regime change through
peaceful means. Operates Virginia-based “Rangaran TV.”
To date, no U.S. assistance is provided to exile-run stations. However, the
conference report on the FY2006 regular foreign aid appropriations, P.L. 109-102,
states the sense of Congress that such financial support be considered by the
Administration.
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. 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.11 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, and 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 cases include:
! 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
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.
! In May 2006, the regime arrested a prominent academic, Ramin
Jahanbegloo, for alleged contacts with foreign governments.
! 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. An intelligence agent who allegedly
conducted the beating resulted was acquitted on July 25, 2004,
prompting accusations that the investigation and trial were unfair.
! 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 had been sentenced in 2001 to six
11 For text of both, see [http://www.state.gov/g/drl/rls/hrrpt/2005/61688.htm]; and
[http://www.state.gov/g/drl/rls/irf/2005/51599.htm]

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CRS-10
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’s imprisonment of him.)
! 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. There has been a progressive
relaxation of enforcement of this rule, particularly during Khatemi’s
presidency. To date, Ahmadinejad has not reversed that relaxation.
In April 2006, he directed that women be allowed to attend soccer
matches, but the Supreme Leader reversed that move. 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.
! On the treatment of Jews, the 30,000-member Jewish community
(the largest in the Middle East aside from Israel) enjoys somewhat
more freedoms than Jewish communities in several other Muslim
states. However, in practice the freedom of Iranian Jews to practice
their 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. An appeals panel reduced the sentences, and all were
released by 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

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CRS-11
demonstrating for the release of eight labor leaders who were
incarcerated after a strike for higher wages. The leaders were
released in 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 Iran’s weapons
programs. 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 (WMD)
programs and its expanding ability to project power in its immediate region, as well
as its support for radical Islamist movements, discussed later.
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. CENTCOM commander Gen. John Abizaid said in March 2006 that the

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CRS-12
Revolutionary Guard Navy, through its basing and force structure, is designed to give
Iran a capability to “internationalize” a crisis in the Strait of Hormuz in the event of
confrontation with Iran. The weaponry Iran might field for such operations includes
the following.
! Small missile boats and cruise missiles. Over the past decade, Iran
has built a fleet of about 400 small boats of various types and
acquired several dozen Chinese-supplied C-802 ship-launched cruise
missiles and Chinese-supplied HY-2 Seerseekers emplaced along
Iran’s coast. 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
capabilities to block the Strait of Hormuz at the entrance to the
Persian Gulf, to attack Persian Gulf state oil export terminals, or to
threaten shipping through that waterway.12 One possible tactic is to
use suicide boat attacks or to lay mines in the Strait. In April 2006,
Iran conducted naval maneuvers including test firings of what Iran
claims are underwater torpedos that can avoid detection, presumably
for use against U.S. ships in the Gulf, and a surface-to-sea radar-
evading missile launched from helicopters or combat aircraft. U.S.
military officials said the claims might be an exaggeration.
! Russian-supplied Kilo-class submarines with “Club-S” (120 mile
range) anti-ship missiles and older model British-made frigates.13
Iran is said to also possess several midget submarines. Iran could try
to use these vessels in any conflict, although some experts believe
that U.S. naval forces could detect and counter this equipment,
particularly the larger vessels, without substantial difficulty.
! Anti-aircraft missile systems. On December 3, 2005, Russia
announced an agreement to sell Iran 29 anti-aircraft missile systems
(Tor M1), worth about $700 million, and raising fears of a possible
new round of Russian sales to Iran of major combat equipment.
U.S. officials are pressing Russia not to proceed with the sale.
Weapons of Mass Destruction: Nuclear Program14
Some observers believe that Iran and the international community have reached
a crisis over Iran’s nuclear program. Many outside experts and governments now
appear to agree that Iran’s goal is to achieve a nuclear weapons capability. The
International Atomic Energy Agency (IAEA) has, through inspections and other
means of investigation, been unable to verify that Iran’s program is purely peaceful,
and its reports on January 31, 2006, and February 27, 2006, say documents found by
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.
14 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments, by Sharon Squassoni.

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CRS-13
the IAEA show a possible “military nuclear dimension” to Iran’s program, including
plans for high explosives and warheads. Iranian leaders insist that Iran’s nuclear
program is for peaceful purposes only because it its hydrocarbon resources are finite.
Iran asserts it will not give up the “right” to enrich uranium to make nuclear fuel,
saying doing so is allowed under the 1968 Nuclear Non-Proliferation Treaty,15 to
which Iran is a party, and it will not allow other nations to control its nuclear fuel
supply. On June 18, 2003, President Bush said that the United States would “not
tolerate construction” of a nuclear weapon by Iran, and he has reiterated that position
several times since.
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 U.S.
experts see Iran’s WMD programs as an instrument for Iran to dominate the Persian
Gulf and believe an Iranian nuclear weapon would dramatically shift the balance of
power in the Gulf/Middle East in Iran’s favor. There are also fears Iran might
transfer WMD to extremist groups or countries, and Supreme Leader Khamene’i
heightened those concerns in April 2006 by saying that Iran might transfer nuclear
technology to Sudan or other countries.
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
nuclear weapons ranges from 6-10 years from then.16 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. Negroponte
and other intelligence officials indicated that Iran’s April 11, 2006, announcement
that it had enriched uranium (low enrichment, 3.5%) did not materially change their
estimates of how close Iran might be to a nuclear weapons capability. Iran
subsequently claimed it had mastered a 164-centrifuge cascade, although press
reports say that is in doubt, and Ahmadinejad revealed that Iran has been conducting
“research” with advanced (P-2) centrifuges.
European Diplomatic Efforts/”Paris Agreement.” U.S., international,
and IAEA attention to Iran’s nuclear program began in late 2002 after Iran confirmed
15 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.
16 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.

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CRS-14
PMOI allegations that it was building two 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.17
At the same time, Russia was continuing work on an $800 million nuclear
power plant at Bushehr, under a January 1995 contract. 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. 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).
The plant is expected to become operational in late 2006. 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.
In 2003, France, Britain, and Germany (the “EU-3”) opened a separate
diplomatic track to curb Iran’s program. 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 (allowing for enhanced inspections), and (3) to
suspend uranium enrichment activities. Iran signed the Additional Protocol on
December 18, 2003, although the Majles has not yet ratified it. Iran abrogated the
agreement after the IAEA reports of November 10, 2003, and February 24, 2004,
stated that Iran had violated its NPT reporting obligations over an 18-year period.
In the face of the U.S. threat to push for Security Council action, the EU-3 and
Iran resumed negotiations in an attempt to reach a more permanent agreement.
Under the November 14, 2004, “Paris Agreement,” Iran agreed to suspend uranium
enrichment (as of November 22, 2004), pending a permanent agreement, 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.18 An IAEA board
resolution (November 29, 2004) recognized the agreement. EU-3 - Iran negotiations
on a 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 (dropping U.S. objections to
Iran’s application to the World Trade Organization, which it did in May 2005, and
to consider sales of U.S. civilian aircraft parts to Iran). The Administration decided
not to directly join the talks.
17 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, Jan. 24, 2004.
18 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].

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CRS-15
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
providing 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 a pledge not to leave the NPT (which has a legal exit
clause). Iran 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 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.19 No time frame was
set 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 for advanced centrifuge designs. Iran did
not cease uranium conversion (and the IAEA said on April 28, 2006, that Iran has
about 110 tons of converted uranium, enough for 10 nuclear weapons if enriched)
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 still has not rejected the idea outright.
With an IAEA board meeting set for March 6, 2006, Iran on January 3, 2006
announced that it would resume uranium enrichment for “research;” 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
27-320 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.
On March 29, 2006, the Council agreed 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 (April
19 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.
20 Voting no: Cuba, Syria, Venezuela. Abstaining: Algeria, Belarus, Indonesia, Libya, South
Africa.

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CRS-16
28) for Iran to cease uranium enrichment and meet other IAEA requirements, after
which time the Council will undertake further deliberations if Iran does not comply.21
As expected, because of Iran’s April 11 enrichment announcement, the April 28
IAEA report (Gov/2006/27) said Iran had not complied with the March 29 Council
presidential statement. The issue returned to the Security Council for further
consideration, where the United States seeks passage of a formal resolution, under
Chapter 7 (“international peace and security”) of the U.N. Charter. A resolution
under Chapter 7 would mandate Iran’s compliance and authorize punitive measures,
such as economic sanctions, to compel compliance. Despite high-level U.S.
diplomacy, including President Bush’s meeting with China’s visiting President Hu
Jintao April 20-21, opposition from Russia and China blocked agreement on a
Chapter 7 resolution. After reaching the impasse, on May 8, 2006, the
Administration said it would support a renewed diplomatic overture by the EU-3 —
presenting to Iran both incentives as well as possible sanctions. At the same time,
the Administration rebuffed a letter from Ahmadinejad to President Bush22 as
offering no proposals on the nuclear issue. Administration officials say that if this
new overture does not result in an agreement with Iran, it will renew its push for
action at the Security Council. Should that fail, U.S. officials now say they will try
to assemble a coalition of major countries to take their own steps against Iran
separate from the Security Council. Possible options against Iran — unilateral,
multi-lateral, or international — and their impact and Iranian reactions are discussed
later.
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
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.23 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 equipment to enable Syria to independently
produce CW agent precursors.
21 See:[http://daccessdds.un.org/doc/UNDOC/GEN/N06/290/88/PDF/N0629088.pdf?Ope
nElement]
22 [http://www.president.ir/eng/ahmadinejad/cronicnews/1385/02/19/index-e.htm#b3]
23 “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].

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CRS-17
Missiles/Warheads.24 Largely with foreign help, Iran is becoming self
sufficient in the production of ballistic missiles. DNI Negroponte testified on
February 2, 2006, 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 or 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. Despite Iran’s claims, U.S. experts say the missile is
not completely reliable, and Iran tested a purportedly more accurate
version on August 12, 2004. Iran called the test successful, although
some observers said Iran detonated the missile in mid-flight. 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.25 Iran
denied work on such a warhead, but the IAEA is seeking additional
information from Iran on the material.
! 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’s claims are
accurate, large portions of the Near East and Southeastern Europe
would be in range, including U.S. bases in Turkey. On March 31,
2006, Iran claimed to have tested a missile, possibly a Shahab-4, that
Iran says has multiple, separately targeted warheads.
! BM-25. On April 27, 2006, Israel’s military intelligence chief said
that Iran had received a shipment of North Korean-supplied BM-25
missiles. The missile has a 1,550 mile range and is said to be
capable of carrying nuclear 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
24 See CRS Report RS21548, Iran’s Ballistic Missile Capabilities, by Andrew Feickert.
25 Broad, William and David Sanger. Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims. New York Times, Nov. 13, 2005.

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CRS-18
capable of developing an intercontinental ballistic missile (3,000
mile range) by 2015,26 but that it was not yet clear whether Iran has
decided to field such a system.
! Other Missiles. On September 6, 2002, Iran said it successfully
tested a 200 mile range “Fateh 110” missile (solid propellent), and
Iran said in late September 2002 that it had begun production of the
missile.27 On March 18, 2005, the London Financial Times reported
that Ukraine has admitting 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 2005, released April 28, 2006, again stated (as it has for
more than a decade) that Iran “remained the most active state sponsor of terrorism”
in 2005, and the report again attributes the terrorist activity to the Revolutionary
Guard and the Intelligence Ministry.28
Relations With The Persian Gulf States.29 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 “export” its Islamic revolution.
However, Iran’s efforts were unsuccessful and caused the Gulf states to ally closely
with the United States. By the mid-1990s, and particularly during Khatemi’s
presidency, Iran 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 such a policy shift has not occurred, to date. Ahmadinejad and
several of his cabinet officials have visited the Gulf states since he took office.
Kuwait and Iran signed a memorandum on March 20 to coordinate against smuggling
and drug trafficking. The Gulf states nonetheless remain wary as discussed below.
26 “Greater U.S. Concern About Iran Missile Capability.” Reuters, Mar. 11, 2002.
27 “Iran: New Missile on the Assembly Line.” New York Times, Sept. 26, 2002.
28 U.S. Department of State. Country Reports on Terrorism 2005. Released Apr. 2006.
[http://www.state.gov/documents/organization/65462.pdf].
29 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2004, by
Kenneth Katzman.

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CRS-19
! 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.30
! 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
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
30 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001. The June 21, 2001 federal grand jury indictments of 14 suspects (13 Saudis and a
Lebanese citizen) in the Khobar bombing indicate that Iranian agents may have been
involved, but no indictments of any Iranians were announced. In June 2002, Saudi Arabia
reportedly sentenced some of the eleven Saudi suspects held there. The 9/11 Commission
final report asserts that Al Qaeda might have had some as yet undetermined involvement
in the Khobar Towers attacks.

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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.
Iranian Policy in Iraq. The U.S. military ousting of Saddam Hussein
appears to have benefitted Iran strategically. This issue is covered 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 powerful anti-U.S. Shiite cleric Moqtada
Al Sadr, 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, and Ahmadinejad said on April 25, 2006,
that there was no need for U.S.-Iran talks now that an Iraqi government was forming.
Supporting Palestinian Militant Groups. Iran’s support for Palestinian
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. The State Department reports on terrorism for 2005 (released on April 28,
2006) accuses Iran of providing “extensive” funding, weapons, and training to
Hamas, Palestinian Islamic Jihad (PIJ), the Al Aqsa Martyr’s Brigades, and the
Popular Front for the Liberation of Palestine-General Command (PFLP-GC). All
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, PIJ is closest politically to Iran. State Department
terrorism reports since 2002 have said that Iran, possibly via Lebanese 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

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CRS-21
Sunni Muslims.31 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 April 16, 2006, at a conference in Tehran of Palestinian
militant leaders, Iran pledged $50 million to the Hamas-led government to help it
weather aid reductions from the United States and Europe. However, some pro-U.S.
Arab states (Qatar, Saudi Arabia, UAE, and Kuwait) have pledged it similar amounts
since Hamas took over governance.
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 were discussed above. However,
other Iranian leaders have made similar statements in the past. In the 1990s,
Khamene’i 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 large.
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 2005
funeral of Pope John Paul II. The Iranian Foreign Ministry, considered a bastion of
moderates, 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 too weighted toward Israel to result in a fair settlement for Palestinians.
Lebanese Hizballah. Iran maintains a close relationship with Lebanese
Hizballah, a Shiite Islamist group and designated FTO, 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.32 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
31 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, Jan. 29, 2006.
32 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.

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Iranian arms deliveries to Hizballah.33 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.34 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 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 vacuum 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. 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
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 Azeri Turkic
population. 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. The United
States successfully backed construction of the Baku-Tblisi-Ceyhan oil pipeline,
intended in part to provide alternatives to Iranian oil. Iran was purportedly a main
topic of discussion during a White House meeting between Azerbaijan President
Ilham Aliyev and President Bush on April 28, 2006.
33 Wright, Robin. “U.S. Blocks A Key Iran Arms Route to Mideast.” Los Angeles Times,
May 6, 2001.
34 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, Feb. 4, 2002.

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CRS-23
Afghanistan.35 Since the fall of the Taliban, 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 reconstruction 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 continuing efforts to support
Afghanistan’s Shiite minority. Fearing the continuing presence of the about 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 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).
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.36 These figures are purported to include Al Qaeda
spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad.37 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.38 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,
35 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.
36 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires, May 19, 2003.
37 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
38 “Bin Laden Sons Said to Roam Free.” Washington Times, Oct. 27, 2005.

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CRS-24
saying they have been able to contact associates outside Iran.39 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.40 Hardliners in Iran might want to protect Al Qaeda
activists as leverage against the United States and its allies, and some 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. 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.41 The United States tilted markedly toward Iraq in the 1980-88 Iran-Iraq war,
including U.S. diplomatic attempts to block conventional arms sales to Iran,
providing battlefield intelligence to Iraq42 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 one battle on April 18, 1988, Iran lost
about a quarter of its larger naval ships in a one-day engagement with the U.S. Navy,
including one frigate sunk and another badly damaged.
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.
39 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.
40 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.
41 An exception was the abortive 1985-1986 clandestine arms supply relationship with Iran
in exchange for some American hostages held by Hizballah in Lebanon (the so-called
“Iran-Contra Affair”).
42 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis. New York: John Wiley and Sons, 1991. p. 168.

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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. 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 sanctions. Since then, there has been an apparent
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.”
Regime Change. Some U.S. officials believe that, whether or not Iran’s
nuclear program can be curbed peacefully, 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.43
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
43 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.

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CRS-26
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.”
Recent indications of a shift toward this option include increased public
criticism of the regime’s human rights record — for example supporting General
Assembly resolutions condemning Iran’s human rights record — as well as the
funding of Iranian pro-democracy activists in Iran and the expansion of U.S. Iran-
related diplomatic activity. In March 8, 2006, testimony to the House International
Relations Committee, Undersecretary of State Nicholas Burns confirmed press
reports that the United States would increased the presence of Persian-speaking U.S.
diplomats in U.S. diplomatic missions around Iran, in part to help identify and
facilitate Iranian participate in U.S. democracy-promotion programs. The Iran unit
at the U.S. consulate in Dubai is being expanded, according to Burns. 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.44 An enlarged “Office of Iran Affairs” has been
formed at State Department, and it is reportedly engaging in contacts with U.S.-based
exile groups such as those discussed earlier.45
Congress and Regime Change.
The State Department has used funds
provided in recent appropriations to support pro-democracy activists. The funds
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 2005-2006,” released April 6, 2006. 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 have
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)46 gave $1
million of those funds to the IHDC organization, mentioned earlier.
The remaining $500,000 was distributed through the National
Endowment for Democracy (NED).
44 Stockman, Farah. “Long Struggle” With Iran Seen Ahead.” Boston Globe, Mar. 9, 2006.
45 Weisman, Steven. U.S. Program Is Directed At Altering Iran’s Politics. New York
Times, April 15, 2006.
46 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.

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CRS-27
! 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.47
! 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 1998.48 As of December 2002, the radio service has been
called Radio Farda (“Tomorrow” in Farsi), which now broadcasts 24
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,
47 Briefing by DRL representatives for congressional staff. May 9, 2005.
48 The service began when Congress funded it ($4 million) in the conference report on
H.R. 2267 (H.Rept. 105-405), the FY1998 Commerce/State/ Justice appropriation. It was
to be called “Radio Free Iran.”

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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. The
Senate version, passed on May 4, 2006, fully funds the request, but
allocates it differently by providing $34.75 million for democracy
promotion (more than requested and far more than the House
version) and $30.25 million for broadcasting (less than requested
and less than in the House version).
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. Those groups are discussed in the above section on
regime stability. 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. Others argue that reformist groups such as students, women,
intellectuals, and others might be able to galvanize regime change unexpectedly.
H.R. 282 and S. 333. Some recent and pending legislation exemplified the
preference of some Members for regime change in Iran. In the 109th Congress, H.R.
282, introduced by Representative Ros-Lehtinen, passed the House on April 26,
2006, by a vote of 397-21. A companion, S. 333, was introduced by Senator
Santorum. H.R. 282 passed the House even though Undersecretary of State Burns
testified on March 8, 2006, that the Administration opposed the economic sanctions-
related sections of it as likely to cause tensions with U.S. allies. (See CRS Report
RS20871, The Iran-Libya Sanctions Act, by Kenneth Katzman) 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.

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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,49 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.
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. Some, including former Clinton Administration foreign
policy officials Samuel Berger and Madeleine Albright, believe that, in order to
exhaust all possible options to curb Iran’s nuclear program, the Administration
should undertake broad, direct dialogue with Iran on that issue. Some believe the
Administration was presented with an opening for such talks by the direct letter to
President Bush from Ahmadinejad (May 8). However, the Administration largely
dismissed the letter for not proposing a resolution of the nuclear dispute. Others
viewed the letter as primarily confrontational, claiming that President Bush’s foreign
policy is at odds with his religious values.
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. Most experts believe the
United States could carry out such strikes with cruise missiles and combat aircraft
and bombers from bases in or within range of the Gulf and from aircraft carriers.
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, President Bush has on several occasions said that
“all options are on the table,”50 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
49 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.
50 Fletcher, Michael and Keith Richburg. “Bush Tries to Allay E.U. Worry Over Iran.”
Washington Post, Feb. 23, 2005.

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missions into Iran to assess potential nuclear-related targets for a U.S. air strike. A
subsequent New Yorker piece by Hersh, published April 17, 2006, repeated many of
the same assertions of military planning but added that the military might be
contemplating using small nuclear weapons to penetrate hardened, underground
targets.
Experts differ on the effectiveness of striking Iran’s nuclear facilities. 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.51 Some advocates say that there are only a limited number of key nuclear
sites and that striking them would cripple Iran’s program. One former Air Force
planner estimates that up to 400 targets would need to be struck, including at least 75
that would require penetrating munitions.
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. Supreme Leader
Khamene’i threatened military retaliation in a speech on April 26, 2006. 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.52 Others
believe the United States could reduce Iran’s potential for military or unconventional
retaliation by striking not only nuclear facilities but also Iran’s conventional military
infrastructure, particularly the small ships and coastal missiles Iran has in and around
the Strait of Hormuz.
Expressing particular fear that Iran might achieve a nuclear weapons capability,
some Israeli officials, including former 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.
Related options, which might involve U.S. naval forces in the Gulf, would be
to institute searches of Iran-bound vessels suspected of containing WMD-related
technology, or placing nuclear-armed weapons aboard U.S. ships operating in the
Gulf as a signal of strength to Iran. The Administration has discussed with its allies
some measures that could be used to block North Korea’s technology exports and
alleged drug smuggling,53 an initiative that has won allied support. In contrast, some
51 Sanger, David. “Why Not A Strike On Iran?” New York Times, Jan. 22, 2006.
52 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.
53 Kralev, Thomas. “U.S. Asks Aid Barring Arms From Rogue States.” Washington Times,
June 5, 2003.

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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.54
A decision to take military action might raise the question of presidential
authorities and congressional consultation. H.Con.Res. 391, introduced by
Representative Peter DeFazio on April 26, 2006, calls on the President to not initiate
military action against Iran without first obtaining authorization from Congress.

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, and to avoid
imposing 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. Some experts
believe Iran’s might collapse if it took such a step. Iran has also threatened to
withdraw from the NPT entirely if it is sanctioned.
The following represent options that the Council might consider if Iran does
not comply with U.N. demands. Some are proposed in a Senate resolution (S.Res.
351) introduced by Senator Evan Bayh on January 20, 2006. 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.
! 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
54 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.

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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. 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 over $70 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.55 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.56 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.
! The terrorism list designation bans direct U.S. financial assistance
(Foreign Assistance Act, FAA) and arms sales (Arms Export Control
55 On Nov. 14, 1979, President Carter declared a national emergency with respect to Iran,
renewed every year since 1979.
56 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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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.57
It bans U.S. extraordinary payments to the Russian Aviation and Space Agency in
connection with the international space station unless the President can certify that
the agency or entities under its control had not transferred any WMD or missile
technology to Iran within the year prior. The provision contains certain exceptions
to ensure the safety of astronauts and for certain space station hardware. The
provision could complicate U.S. efforts to keep U.S. astronauts on the station beyond
April 2006, when Russia plans to start charging the United States for transporting
57 See CRS Report RS22072, The Iran Nonproliferation Act and the International Space
Station: Issues and Options, by Sharon Squassoni and Marcia S. Smith.

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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.
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

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CRS-35
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.58 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.

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
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
58 [http://www.whitehouse.gov/news/releases/2005/06/print/20050629.html].

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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)59 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
pulled out of the Oriental Kish deal.60 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.
59 “Iran Says Halliburton Won Drilling Contract.” Washington Times, Jan. 11, 2005.
60 Boyd, Roderick. “Halliburton Agrees to Leave Iran, Thompson Says.” New York Sun,
Mar. 25, 2005.

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! 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.
! 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 on April 26, 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
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

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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 have seen engagement, not sanctions, as the means to change
Iran’s behavior, although several European governments now appear willing to move
toward sanctions in 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 during the 1990s 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, Iran tapped international capital markets for the first time since the
Islamic revolution, selling $500 million in bonds to European banks.
The European countries and Japan also differed with the United States on
providing 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.

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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
previously to accommodate U.S. interests in the Gulf. Others say that the opposite
is more likely, that Iran now feels more encircled than ever by pro-U.S. regimes and
U.S. forces guided by a policy of pre-emption, and Iran might redouble its efforts to
develop WMD and other capabilities to deter the United States.

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CRS-40
Figure 1. Structure of the Iranian Government

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CRS-41
Figure 2. Map of Iran

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