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

Iran: U.S. Concerns and Policy Responses
Summary
According to the Administration’s “National Security Strategy” document
released on March 16, 2006, the United States “may face no greater challenge from
a single country than Iran.” That perception might have intensified in the context of
Iran ally Lebanese Hizballah’s military challenge to Israel in July 2006. To date, the
Bush Administration has pursued several avenues to attempt to contain the potential
threat posed by Iran, including supporting a long-term policy of changing Iran’s
regime. However, the near-term Administration drive to prevent any Iranian nuclear
weapons breakthrough has brought diplomatic and economic strategies to the
forefront of U.S. policy. As part of that effort, the Bush Administration announced
May 31 it would negotiate with Iran in concert with U.S. allies; in past years the Bush
Administration had only limited dialogue with Iran on specific regional issues. If
diplomacy and sanctions do not succeed, some advocate military action against Iran’s
nuclear infrastructure rather than acquiescence to a nuclear-armed Iran.
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 to prevent or
complicate Israeli-Arab peace. Such groups have long included Lebanese Hizballah
and the Palestinian groups Hamas and Palestinian Islamic Jihad. Hamas formed a
Palestinian government following its victory in January 25, 2006, elections, but it is
thus far holding fast to its rejection of Israel. Although there is no evidence of an
operational relationship with Al Qaeda, some senior Al Qaeda activists are believed
to be in Iran, 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 are fighting U.S. and partner forces there. However, most Iranian-supported
factions in Iraq are supportive of the U.S.-led political transition roadmap. The
United States and Iraq announced in March 2006 that they would hold bilateral talks
on the issue of stabilizing Iraq, but talks were not held because of broader
differences on Iran’s nuclear program.
Iran’s human rights practices and strict limits on free expression have been
consistently criticized by official U.S. and U.N. reports. Iran’s purported repression
of ethnic and religious minorities, particularly the Bahai’is, is said to be harsh.
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.

Contents
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, Human Rights, and Recent Elections . . . . . . . . . . . . . . . . . . . . 2
Former President Mohammad Khatemi and the Reformists . . . . . . . . . 2
The Conservatives and Election of Ahmadinejad . . . . . . . . . . . . . . . . . 3
Groups Advocating Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regime Members-Turned Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Anti-Regime Groups: People’s Mojahedin Organization of Iran
(PMOI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Son of the Former Shah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other U.S.-Based Activists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Human Rights and Religious Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . . . . 12
Conventional Military . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Weapons of Mass Destruction: Nuclear Program . . . . . . . . . . . . . . . . . . . . 13
U.S. Offer to Join Talks and Future Steps . . . . . . . . . . . . . . . . . . . . . . 17
Chemical Weapons, Biological Weapons, and Missiles . . . . . . . . . . . . . . . 18
Ballistic Missiles/Warheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Relations With The Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . 20
Iranian Policy in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Supporting Palestinian Militant Groups . . . . . . . . . . . . . . . . . . . . . . . 22
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
U.S. Policy Responses and Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Bush Administration Policy and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Congress and Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Engagement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Military Action? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Containment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
International Sanctions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
The Iran-Libya Sanctions Act (ILSA) and Regional Oil and Gas
Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 40
Multilateral Policies Toward Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EU-Iran Trade Negotiations/WTO Membership . . . . . . . . . . . . . . . . . 41
Multilateral, World Bank, and IMF Lending to Iran . . . . . . . . . . . . . . 42
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

List of Figures
Figure 1. Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Figure 2. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

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 Qajar had been in decline for many years before Reza Shah’s takeover. Its
perceived manipulation by Britain and Russia had been one of the causes of the 1906
constitutionalist movement, which forced the Qajars to form Iran’s first Majles
(parliament) in August 1906 and to promulgate a constitution (December 1906).

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 successful CIA-supported uprising against Mossadeq.
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

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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, as enshrined in the constitution that was adopted in a public referendum in
December 1979 (and amended in 1989), is characterized by direct participation in
government by Shiite Islamic theologians, a principle known as velayat-e-faqih (rule
by a supreme Islamic jurisprudent). Khomeini was strongly anti-West and
particularly anti-U.S., and relations between the United States and the Islamic
Republic turned hostile even before the November 4, 1979, seizure of the U.S.
Embassy by pro-Khomeini radicals.
Regime Stability, 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 relatively stable,
despite internal schisms, occasional unrest in areas occupied by minority populations,
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. Another appointed body is the 37-member
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.
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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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
demonstrators, although then Secretary of State Powell said the protests represented
a “family fight” within Iran.
Khatemi was supported by several political organizations:
! 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 and finished third in the June 17,
2005 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 Conservatives and Election of Ahmadinejad. Iran’s conservatives
generally want to slow reform. Supported by Supreme Leader Khamene’i,
conservatives 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.

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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.
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. Former Guard
commander-in-chief Mohsen Reza’i dropped out before the election was held.
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). With 21% and 19.5%, respectively, Rafsanjani and Ahmadinejad
moved to a run-off. 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 took office on August 6, 2005.
Mahmud Ahmadinejad
First non-cleric to be president of the Islamic republic since the assassination of then
president Mohammad Ali Rajai in August 1981. 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. Thought by some to have been one of the
holders of the 52 American hostages during November 1979-January 1981; U.S.
intelligence reportedly determined he was not. His mentor is Ayatollah Mohammed Taqi
Mesbah-Yazdi, the founder of the hardline Haqqani religious school who some believe
might be maneuvering to try to replace Khamene’i as Supreme Leader. Other accounts
say Ahmadinejad believes his mission is to prepare for the return of the 12th “Hidden”
Imam, whose return from occultation would, according to Twelver Shiite doctrine, be
accompanied by the establishment of Islam as the global religion.
On August 14, 2005, Ahmadinejad 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, the Majles rejected the first three of his oil-minister nominees. He
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

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appointed the hardline Ali Larijani, one of his first round rivals, as Secretary General
of the Supreme National Security Council; Larijani serves as chief negotiator on
nuclear and most other security issues. In keeping with a practice begun by Khatemi,
he also named a woman as one of his vice presidents. Qalibaf assumed
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, 2005, and then again on December 14, 2005, and
May 28, 2006, he questioned the veracity of the Holocaust. In the
December 14 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 hold a conference on the Holocaust,
and an Iranian team visited Germany to investigate the history of the
Holocaust.)
! On January 1, 2006, 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 have been concerned that Ahmadinejad’s statements might
isolate Iran. The concern might have contributed to two decisions by Supreme
Leader Khamene’i that have led to speculation that he is trying to curb
Ahmadinejad’s authority. The first decision was the October 2005 grant of new
governmental supervisory powers to Rafsanjani’s Expediency Council. The second
was the July 2006 creation of a ten-person advisory “Foreign Policy Committee”
consisting of former defense and foreign ministers. However, Ahmadinejad
continues to appear politically secure because of progress on nuclear technology as
well as his ties to others who served in the Revolutionary Guard and other
revolutionary institutions in the early days after the Islamic revolution. Among other
moves, he has removed about 40 senior diplomats, mostly reformist oriented, from
their positions overseas.
Economic Factors Assisting Stability. The regime has been helped in
recent years by high oil prices, which are about $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 appears to have increased regime
popularity by directing the raising of some wages, cancelling some debts of farmers,

CRS-6
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 12% of oil imports;;
South Korea - about 9% of its oil
imports; Italy - 9% from Iran; France -
7%; Belgium - 14%; Turkey - 22%;
Greece - 24%; India - 150,000 bpd (10%
of its oil imports)
Refined Gasoline Suppliers
India, Kuwait, Turkey, Venezuela
Some Major Trading
Japan ($7.5 billion exports to Japan);
Partners
China ($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 regime appears generally stable, but there are factions that actively seek to
modify its human rights and other policies or to replace it outright. The groups that
seek outright replacement of the regime, by accounts of observers, have little
popularity inside Iran.

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Regime Members-Turned Dissidents. Several dissidents were part of
the regime but now seek change, including the withdrawal of Iran’s clerics from
direct participation in government. These dissidents reputedly are popular inside
Iran, but their ascendancy, were it to occur, might not fundamentally alter Iran’s
relations with the United States. One such figure, Ayatollah Hossein Ali Montazeri,
was released in January 2003 from several years of house arrest, but he remains under
scrutiny. He had been Khomeini’s designated successor until 1989, when Khomeini
dismissed him for allegedly protecting intellectuals and other 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 activist Hashem Aghajari of the MIR grouping.
Anti-Regime Groups: People’s Mojahedin Organization of Iran
(PMOI). Of the groups seeking to replace the regime, one of the best known is the
People’s Mojahedin Organization of Iran (PMOI).4 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 19975 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. The State
Department report on international terrorism for 2005 (p. 212), for the first time,
incorporates an assertion by the group that it was a radical element of the
organization — rather than the leadership of the organization itself — that was
responsible for the alleged killing of seven American defense advisers to the former
Shah in 1975-1976. The State Department report also notes the group’s promotion
of women in its ranks. 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.6

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
4 Other names by which this group is known is the Mojahedin-e-Khalq Organization (MEK
or MKO) and the National Council of Resistance (NCR).
5 The designation was made under the authority of the Anti-Terrorism and Effective Death
Penalty Act of 1996 (P.L. 104-132).
6 “Removal of Iran Group From Terror List Sought.” Washington Post, Nov. 23, 2002.

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PMOI fighters to remain confined to their Ashraf camp near the border with Iran. Its
weaponry is in storage, guarded by U.S. and now Bulgarian military personnel.
Press reports 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.7 Then
National Security Adviser Condoleezza Rice stated in November 2003 that the
United States unambiguously considers the group as a terrorist organization.
However, the debate over the group was renewed with the U.S. 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.8
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 led by Reza
Pahlavi, the U.S.-based son of the late former Shah and a U.S.-trained combat pilot.
However, he does not appear to have large-scale support inside Iran. In January
2001, the Shah’s son, who is about 45 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.9 His
political adviser is MIT-educated Shariar Ahy.
Other U.S.-Based Activists. Numerous other Iranians, 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 U.S.-based activists are the following:
! The Abdorrahman Boroumand Foundation. This foundation, led by
two Boroumand sisters, 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
7 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal
, May 12, 2003.
8 For further information, see CRS Report RL31119, Terrorism: Near Eastern Groups and
State Sponsors, 2002
, by Kenneth Katzman.
9 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, Aug. 26, 2002.

CRS-9
organizations, but it is generally considered an advocate of U.S.
engagement with Tehran.
! Amir Abbas Fakravar. A leader of the student dissidents who
emerged in the July 1999 anti-regime student riots. A former
medical student, he served time in Iranian prisons.
! 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 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.
! 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 the Administration consider such financial support.
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.10 Specific trends include the following:
! Since 2000, hardliners in the judiciary have closed hundreds of
reformist newspapers, although many have tended to reopen under
new names, and authorities have imprisoned or questioned several
editors and even some members of the Majles. Iran also has blocked
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.
! A State Department official testified on March 8, 2006, that the
regime had beaten Tehran bus drivers who were demonstrating for
the release of eight labor leaders who were incarcerated after a strike
for higher wages. The leaders were released in March 2006. In May
10 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].

CRS-10
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
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.
However, in May 2006, the Majles passed a bill calling for increased
public awareness of Islamic dress, an apparent attempt to persuade
women not to violate the dress code or wear Western fashion. The
bill did not, as some outside Iran intimated, contain any requirement
or suggestion that members of Iran’s minority groups wear badges
or distinctive clothing. In April 2006, Ahmadinejad 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.
! 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.)
! Iran is repeatedly cited for repression of the Baha’i community,
which Iran’s Shiite Muslim clergy views as a heretical sect. In
March 2006, U.N. Special Rapporteur on Freedom of Religion or
Belief revealed the existence of an Iranian letter directing greater

CRS-11
domestic surveillance of the Baha’is. 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 109th
Congress, partly in response to a May 2006 wave of arrests of
Baha’is in Shiraz, H.Con.Res. 415, requests the Administration
emphasize that it regards Iran’s treatment of the Baha’is as a
significant factor in U.S. Iran policy.
! On the treatment of Jews (along with Christians, a “recognized
minority,” with one seat in the Majles), 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, although abuses against Sunnis could reflect
that minority ethnicities, including Kurds, are Sunnis. In addition,
the regime has repressed recent unrest among the minority Azeri
population, as well as Arabs in the southern province of Khuzestan.
! The June 6, 2006 (latest annual), State Department “Trafficking in
Persons” report places Iran in Tier 3 (worst level) for failing to take
action to prevent trafficking in persons. Girls purportedly are
trafficked for sexual exploitation within Iran and from Iran to
Turkey, Pakistan, and the Persian Gulf states.
Successive administrations have not generally considered Iran’s human rights
record as a strategic threat to U.S. interests, but the Bush Administration has stepped
up criticism of Iran’s human rights record. The Administration has established with
European allies and Canada a “Human Rights Working Group” that coordinates 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, and he named several specific
cases. A special U.N. Human Rights Commission monitoring mission for Iran,

CRS-12
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. The Administration’s “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 exert influence in the region. 11
Conventional Military
Iran’s conventional armed forces are large and politically powerful but widely
considered relatively combat ineffective against a well-trained military such as that
of the United States. Iran’s forces are believed sufficiently effective 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’s Revolutionary Guard Corps, which
also controls the Basij volunteer militia that enforces adherence to Islamic customs,
is generally loyal to the hardliners politically.
Iran’s Conventional Forces
Defense
Military
Surface-Air
Combat
Budget
Tanks
Ships
Personnel
Missiles
Aircraft
(billions
U.S. $)
540,600
1,693
76 batteries
280
260
4.4
(incl. 75 T-72)
(incl. I-Hawk) (incl. 25 MiG-29 (incl. 10 Hudong, 40
plus some
and 30 Su-24)
Boghammer, 3
Stinger
frigates) Also has 3
Kilo subs
On the other hand, Iran has acquired a structure for unconventional warfare that
partly compensates for Iran’s conventional weaknesses. CENTCOM commander
Gen. John Abizaid said in March 2006 that the Revolutionary Guard Navy, through
its basing and force structure, is designed to give Iran a capability to
“internationalize” any crisis in the Strait of Hormuz. Such capabilities include:
11 [http://www.whitehouse.gov/nsc/nss/2006/]

CRS-13
! Ship-launched cruise missiles. Iran is able to arm its patrol boats
with Chinese-made C-802 cruise missiles. Iran also has 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.
! Midget Subs. In addition to its Russian-made Kilo submarines, Iran
is said to possess several midget submarines, possibly purchased
assembled or in kit form from North Korea. 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 Program13
Some observers believe that Iran and the international community have reached
a crisis over Iran’s nuclear program; many outside experts and governments appear
to agree that Iran is attempting to achieve a nuclear weapons capability. The
International Atomic Energy Agency (IAEA), despite intensified inspections and
other means of investigation since late 2002, says it cannot verify that Iran’s program
is purely peaceful. Its reports on January 31, 2006, and February 27, 2006, say
documents found by the IAEA show a possible “military nuclear dimension” to
Iran’s program, including plans for high explosives and warheads. Iranian leaders
insist that Iran’s nuclear program is for electricity generation because its oil 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
12 Jacoby testimony before the Senate Intelligence Committee. Feb. 16, 2005.
13 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments
, by Sharon Squassoni.

CRS-14
Treaty,14 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, with varying formulations, several times since.
Despite Iran’s professions that WMD is inconsistent with its ideology, Iran’s
factions appear to agree on the utility 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. Others believe Iran sees nuclear weapons as instruments to
dominate the Persian Gulf, and these experts 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 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.15 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 that Iran might have slowed its
program in May 2006. However, some were alarmed at Ahmadinejad’s related
revelation 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 heightened in late 2002 after Iran
confirmed 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
14 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.
15 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.

CRS-15
Qadeer (A.Q.) Khan, sold Iran and other countries (Libya, North Korea) nuclear
technology and designs.16
At the same time, Russia has continued work, under a January 1995 contract,
on an $800 million nuclear power plant at Bushehr. Russia insisted that Iran sign
an agreement under which Russia would provide reprocess the plant’s spent nuclear
material; that agreement was signed on February 28, 2005, somewhat easing
proliferation concerns about the plant. The plant is expected to become operational
in late 2006, but that might depend on whether Iran reaches an overall nuclear
agreement with the international community. Iran wants to build up to 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) 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.17 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 — but not join — the EU-3 talks by
offering to drop 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.
Reference to the Security Council. The Paris Agreement broke down
just after the June 2005 Iranian presidential election. Iran rejected as insufficient
the EU-3 “final settlement” plan (August 5, 2005) that offered to assist Iran with
peaceful uses of nuclear energy (medicine, agriculture, and other uses) and provide
limited security guarantees in exchange for Iran’s (1) permanently ending uranium
16 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, Jan. 24, 2004.
17 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].

CRS-16
enrichment; (2) dismantling its heavy water reactor at Arak; (3) agreement to no-
notice nuclear inspections; and (4) pledge not to leave the NPT (which has a legal
exit clause). 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, 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.18 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. The Administration supported
a November 2005 Russian proposal to Iran 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 has not accepted the proposal.
On January 3, 2006, Iran announced that it would resume uranium enrichment
for “research;” it subsequently broke IAEA seals at its uranium enrichment facilities.
On February 4, 2006, the IAEA board voted 27-319 for a resolution to “report” to the
U.N. Security Council, after the IAEA reports steps required of Iran. After the vote,
Iran ceased allowing voluntary IAEA inspections and it had the IAEA remove some
monitoring equipment. The IAEA report of February 27, 2006 confirmed that Iran
had begun enrichment activities (10 centrifuges) and the March 6-8, 2006, IAEA
board meeting did not withhold referral of the case to the U.N. Security Council.
With the issue now at the Council, on March 29, 2006, the Council agreed on
a Security Council presidential statement (lacking the mandatory force of a Council
resolution) that was somewhat weaker than the United States had wanted. The
statement set a 30-day time limit (April 28, 2006) 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.20 The April 28 IAEA report
(Gov/2006/27) said Iran had not complied with the March 29 Council presidential
statement, and the issue returned to the Security Council for further consideration,
where the United States sought a formal resolution, under Chapter 7 (“international
peace and security”) of the U.N. Charter. Such a resolution would mandate Iran’s
compliance and authorize punitive measures, such as economic sanctions, to compel
compliance. However, Russia and China’s reservations blocked agreement on a
18 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.
19 Voting no: Cuba, Syria, Venezuela. Abstaining: Algeria, Belarus, Indonesia, Libya, South
Africa.
20 See [http://daccessdds.un.org/doc/UNDOC/GEN/N06/290/88/PDF/N0629088.pdf?Open
Element].

CRS-17
resolution and, on May 8, 2006, the Administration said it would support a renewed
diplomatic overture by the EU-3 entailing presenting to Iran both incentives, as well
as possible sanctions for a final nuclear agreement that would halt Iran’s enrichment
of uranium. At the same time, the Administration rebuffed a letter from
Ahmadinejad to President Bush21 as offering no new nuclear proposals.
U.S. Offer to Join Talks and Future Steps. In an effort to strengthen the
EU-3 diplomacy, as well as to build support for international or multilateral
sanctions should that be required, the Administration proposed on May 31, 2006,
that the United States would join talks with Iran if Iran first suspends its uranium
enrichment. Such talks would center on a package of incentives and possible
sanctions that the United States, EU-3, Russia, and China agreed to in Vienna on
June 1 and which EU representative Javier Solana formally presented to Iran on June
6. The possible sanctions reportedly were not presented to Iran in detail.
Reported Incentives22
! Negotiations on an EU-Iran trade agreements and acceptance of Iran
into the World Trade Organization.
! Easing of U.S. sanctions to permit sales to Iran of commercial
aircraft or aircraft parts.
! Sale to Iran of a light-water nuclear reactor and guarantees of
nuclear fuel.
! Possible light-water research reactors for medicine and agriculture
applications.

! An “energy partnership” between Iran and the EU, including help for
Iran to modernize its oil and gas sector and to build export pipelines.
! Support for a regional security forum for the Persian Gulf, and
support for the objective of a WMD free zone for the Middle East.
! The possibility of eventually allowing Iran to resume uranium
enrichment if it complies with all outstanding IAEA requirements
and can prove that its nuclear program is purely for peaceful
purposes.
Reported Sanctions
! Denial of visas for Iranians involved in Iran’s nuclear program and
for high-ranking Iranian officials.
21 See [http://www.president.ir/eng/ahmadinejad/cronicnews/1385/02/19/index-e.htm#b3].
22 One source purports to have obtained the contents of the package from ABC News:
[http://www.basicint.org/pubs/Notes/BN060609.htm]

CRS-18
! Freeze on assets of Iranian officials or institutions.
! Freezing of Iran’s assets abroad and a ban on some financial
transactions with Iran.
! Ban on sales of advanced technology to Iran.
! Ban on arms sales to Iran.
! Ban on sales to Iran of gasoline and other refined oil products.
! An end to support for Iran’s application to the WTO.
Other sanctions and options are available on Iran, as discussed below. The
impact of these and other sanctions and possible Iranian reactions are discussed later.
Iranian reaction to the package ranged from criticizing the United States and the
allied “condition” that Iran first suspend enrichment before talks could begin in
earnest, to praising it (Ahmadinejad) as a “positive step forward,” but Iran says there
are “ambiguities” in the package and it would give a final response by August 22.
The six powers gave Iran until July 12 to respond, so that Iran’s response could be
discussed at the G-8 summit in St. Petersburg that begins July 15. The July 12
deadline expired, causing the six powers to issue a statement that they would return
the issue to the U.N. Security Council.
On July 31, 2006, the Security Council voted 14-1 (Qatar voting no) to give Iran
until August 31, 2006, to fulfill the longstanding IAEA nuclear demands (enrichment
suspension, etc). The resolution is mandatory and, purportedly in deference to Russia
and China, it was passed under Article 41 of the U.N. Charter, which refers to
economic measures, but not Article 42, which would authorize military action for
non-compliance. No specific sanctions were threatened in the resolution, but would
instead presumably be considered if Iran does not accept the six powers (Permanent
Five of the Security Council plus Germany) incentive/disincentive package in Iran’s
August 22 formal response. Russia and China are said to remain skeptical about
actually imposing any sanctions. The resolution calls on U.N. member states not to
sell Iran certain technology that could be useful for WMD. However, Iran’s leaders
stated before the Council vote that they would likely reject such a Resolution.
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. Unclassified CIA reports to Congress in 2004
said Iran “probably maintain[s] an offensive [biological weapons] BW program ...
and probably has the capability to produce at least small quantities of BW agents.”
A Jane’s Defence Weekly report of October 26, 2005, said that Iran agreed in July

CRS-19
2005 to provide Syria with CW equipment to enable Syria to independently produce
CW agent precursors.
Ballistic Missiles/Warheads. 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.” A
New York Times report of May 22, 2006, said that the Bush Administration is seeking
to establish an anti-missile site in Poland or the Czech Republic to counter Iranian
ballistic missiles, at an initial cost of $56 million. 23
! 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.
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.24 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
23 See CRS Report RS21548, Iran’s Ballistic Missile Capabilities, by Andrew Feickert.
24 Broad, William and David Sanger. Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims. New York Times, Nov. 13, 2005.

CRS-20
missiles. The missile has a 1,550 mile range and is said to be
capable of carrying nuclear warheads. The Washington Times
appeared to corroborate this reporting in a July 6, 2006, story, which
asserted that the North Korean-supplied missile is based on a Soviet-
era “SS-N-6” missile.
! ICBM. Iran’s asserted progress on missiles would appear to
reinforce the concerns of the U.S. intelligence community. In
February 2005, DIA Director Jacoby testified that Iran might be
capable of developing an intercontinental ballistic missile (3,000
mile range) by 2015,25 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.26 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. 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.27
Relations With The Persian Gulf States.28 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. 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
25 “Greater U.S. Concern About Iran Missile Capability.” Reuters, Mar. 11, 2002.
26 “Iran: New Missile on the Assembly Line.” New York Times, Sept. 26, 2002.
27 U.S. Department of State. Country Reports on Terrorism 2005. Released Apr. 2006.
[http://www.state.gov/documents/organization/65462.pdf].
28 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2004, by
Kenneth Katzman.

CRS-21
officials have visited the Gulf states since he took office. Kuwait and Iran signed a
memorandum on March 20, 2006, to coordinate against smuggling and drug
trafficking. The Gulf states nonetheless remain wary of Iran’s nuclear program, as
discussed further in the “options” section below.
! Saudi Arabia. Many observers closely watch the relationship
between Iran and Saudi Arabia as an indicator of Iran’s overall
posture in the Gulf. During the 1980s, Iran sponsored disruptive
demonstrations at annual Hajj pilgrimages in Mecca, some of which
were violent, and Iran sponsored Saudi Shiite dissident movements.
Iran and Saudi Arabia restored relations in December 1991 (after a
four-year break), and progressed to high-level contacts during
Khatemi’s presidency. In May 1999, Khatemi became the first
senior Iranian leader to visit Saudi Arabia since the Islamic
revolution; he visited again on September 11, 2002. The exchanges
suggested that Saudi Arabia had moved beyond the issue of the June
25, 1996, Khobar Towers housing complex bombing, which killed
19 U.S. airmen, and was believed orchestrated by Iranian agents
working with a Saudi Shiite faction (Saudi Hizballah).29
! 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 recent years, although it 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 formal 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. Qatar’s purported fear of
29 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001. The June 21, 2001 federal grand jury indictments of 14 suspects (13 Saudis and a
Lebanese citizen) in the Khobar bombing indicate that Iranian agents may have been
involved, but no indictments of any Iranians were announced. In June 2002, Saudi Arabia
reportedly sentenced some of the eleven Saudi suspects held there. The 9/11 Commission
final report asserts that Al Qaeda might have had some as yet undetermined involvement
in the Khobar Towers attacks.

CRS-22
Iranian retaliation might explain why Qatar voted “no” on the July
31, 2006, Security Council resolution on Iran’s nuclear program.
! In 1981 and again in 1996, Bahrain officially and publicly accused
Iran of supporting Bahraini Shiite dissidents (the Islamic Front for
the Liberation of Bahrain, Bahrain-Hizbollah, and other Bahraini
dissident groups) in efforts to overthrow the ruling Al Khalifa
family. Bahrain is about 60% Shiite, but its government is
dominated by the Sunni Muslim Al Khalifa family.
Iranian Policy in Iraq. The U.S. military ousting of Saddam Hussein appears
to have benefitted Iran strategically.30 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
militiamen have again been clashing with U.S. and British forces since late 2005.
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 May 2006, Iranian Foreign
Minister Manuchehr Mottaki visited Iraq, and the two countries pledged cooperation
on securing their joint border.
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 Iraqi stability and Iran’s aid to Shiite militias. Even though, on March
17, 2006, Iranian officials publicly accepted talks on Iraq, no talks have actually
taken place, to date. Ahmadinejad said on April 25, 2006, that there was no need for
U.S.-Iran talks now that an Iraqi government has formed.

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 Israeli-Palestinian peace prospects.
The State Department reports on terrorism for 2005 (released on April 28, 2006)
accuse 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
30 This issue is covered in greater depth in CRS Report RS22323, Iran’s Influence in Iraq,
by Kenneth Katzman.

CRS-23
politically close to Iran because Iran is mostly Shiite, while Hamas members are
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 officials 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. In refusing to
31 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, Jan. 29, 2006.
32 Hizballah is believed responsible for the October 1983 bombing of the U.S. Marine
barracks in Beirut, as well as attacks on U.S. Embassy Beirut facilities in April 1983 and
September 1984, and for the hijacking of TWA Flight 847 in June 1985 in which Navy
diver Robert Stetham was killed. Its last known terrorist attack 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.

CRS-24
disarm, Hizballah says it is still resisting Israeli occupation of small tracts of
Lebanese territory (Shebaa Farms). On July 11, 2006, Hizballah captured two Israeli
soldiers in a cross-border raid, prompting Israeli military entry into southern Lebanon
to attack Hizballah targets, as well as Israeli attacks on Lebanese targets (Beirut
airport), with the expressed intention of achieving the return of the captured Israeli
soldiers. Fighting continues, and the Bush Administration is reportedly supporting
a U.N. Security Council resolution that would form an international peacekeeping
force to ensure that Hizballah no longer occupies positions along the border with
Israel. 33
Whether or not Iran instigated Hizballah to provoke the July 2006 crisis, Iran
is a major benefactor of Hizballah, including transferring some of its more prized
weaponry. Even after Israel’s 2000 withdrawal, a small number (less than 50,
according to a Washington Post report of April 13, 2005) of Iranian Revolutionary
Guards reportedly remained in Lebanon to coordinate Iranian arms deliveries to
Hizballah.34 That number might have increased to assist Hizballah in the current
fighting against Israel. Past reported Iranian shipments have included Stingers
obtained by Iran in Afghanistan, the “Fajr” (dawn) series rocket that can reach the
Israeli city of Haifa 30 miles from the border, and over 10,000 Katyusha rockets that
can hit cities within 20 miles of the Lebanese border.35 Rockets have been fired at
Haifa in the current fighting. 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. On July 14, Hizballah apparently hit an
Israeli warship with a C-802 sea-skimming missile probably provided by Iran. See
above for information on Iran’s acquisition of that weapon from China.
Neither Israel nor the United States have opposed Hizballah’s participation in
peaceful Lebanese politics. In March 2005, Hizballah organized a huge
demonstration against U.S. and other international pressure on Syria to completely
withdraw from Lebanon, although Syria did subsequently withdraw its military (and
intelligence) forces. In the Lebanese parliamentary elections of May - June 2005,
Hizballah expanded its presence in the Lebanese parliament; it 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. The Foreign Minister (Fawzi Salloukh) is also said to be close to
Hizballah. In March 2005, 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 disarmed, the United
States refuses to meet with any Hizballah members, and the U.S. assessment of
33 See CRS Report RL33566: Israel-Hamas-Hezbollah: The Current Conflict. Jeremy Sharp,
coordinator.
34 Wright, Robin. “U.S. Blocks A Key Iran Arms Route to Mideast.” Los Angeles Times,
May 6, 2001.
35 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, Feb. 4, 2002.

CRS-25
Hizballah likely has shifted back to a more negative view in light of Hizballah’s
provocation of Israel.
In the 109th Congress, two 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. In the
current crisis, H.Res. 921 passed the House on July 20, 2006, condemning Hizballah
for provoking the current crisis.
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. Along with India and Pakistan,
Iran has been given observer status at the Central Asian security grouping called the
Shanghai Cooperation Organization (SCO), which contains Russia, China,
Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan.
Afghanistan.36 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.
36 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.

CRS-26
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.37 These figures are purported to include Al Qaeda
spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad.38 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.39 This report,
if true, would contradict Iran’s assertion on July 23, 2003 that it had “in custody”
senior Al Qaeda figures. U.S. officials blamed the May 12, 2003 bombings in
Riyadh, Saudi Arabia against four expatriate housing complexes on these operatives,
saying they have been able to contact associates outside Iran.40 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.41 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, killed by U.S. forces in Iraq on June
7, 2006, reportedly transited Iran after the September 11 attacks and took root in Iraq,
becoming a major insurgent leader there.
37 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires
, May 19, 2003.
38 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
39 “Bin Laden Sons Said to Roam Free.” Washington Times, Oct. 27, 2005.
40 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.
41 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.

CRS-27
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.42 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 Iraq43 and, during 1987-1988, 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, a major U.S. priority.
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.
42 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”).
43 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis
. New York: John Wiley and Sons, 1991. p. 168.

CRS-28
Bush Administration Policy and Options
The Bush Administration generally continued the main thrust of Clinton
Administration efforts to try to limit Iran’s strategic capabilities through international
diplomacy and sanctions. However, based on statements from U.S. officials, there
was a growing U.S. preference for a longer term strategy of regime change. As of
mid-2006, the pressing U.S. interest in curbing Iran’s nuclear program has led to a
de-emphasis of regime change in favor of international diplomacy and a revival of
the option of direct engagement with Iran. These differing policy trends and options
are discussed in greater detail below.
Regime Change. This option appears to have receded in favor of
multilateral diplomacy on the nuclear issue, but it remains an active component of
U.S. policy. Some high-ranking U.S. officials appear to believe that only an outright
change of regime would permanently reduce the threat posed by Iran. 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.44
The Administration’s attraction to this option became apparent after the
September 11, 2001, attacks, when President Bush’s described Iran as part of an
“axis of evil” in his January 2002 State of the Union message. On July 12, 2002,
President Bush stated his support for Iranians demonstrating for reform and
democracy, a message he reiterated on December 20, 2002, when he inaugurated
Radio Farda. President Bush’s second inaugural address (January 20, 2005) and his
State of the Union messages of February 2, 2005, and January 31, 2006, suggested
a clear preference for a change of regime by stating, for example in the latter speech,
that “...our nation hopes one day to be the closest of friends with a free and
democratic Iran.”
Recent indications of affinity for 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;
44 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.

CRS-29
Istanbul, Turkey; Frankfurt, Germany; London; and Ashkabad, Turkemenistan, all
of which have large expatriate Iranian populations and/or proximity to Iran.45 An
enlarged (six-person) “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.46
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.
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)47 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).
! The conference report on the FY2005 foreign aid appropriations
(P.L. 108-447) provided a further $3 million for these 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
45 Stockman, Farah. “Long Struggle” With Iran Seen Ahead.” Boston Globe, Mar. 9, 2006.
46 Weisman, Steven. U.S. Program Is Directed At Altering Iran’s Politics. New York
Times, April 15, 2006.
47 The State Department has determined that, because Iran is ineligible for U.S. aid, Iran
democracy promotion funds cannot be channeled through the Middle East Partnership
Initiative, because those are Economic Support Funds, ESF, and cannot be used in Iran.

CRS-30
political party development, media development, labor rights, civil
society promotion, and promotion of respect for human rights.48
! The conference report on the regular FY2006 foreign aid
appropriation (P.L. 109-102) appropriated 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 are to 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. In congressional action, the FY2006 supplemental
appropriation (H.R. 4939, P.L. 109-234) provided a total of $66.1
million, broken down as follows: $20 million for democracy
programs ($5 million more than requested); $5 million for public
diplomacy directed at the Iranian population (the amount requested);
$5 million for Iranian student visits to the United States (the amount
requested); and $36.1 million for Voice of America-TV and Radio
Farda broadcasting. The broadcasting funds ($13.9 million less than
requested) are to be provided through the Broadcasting Board of
Governors, an apparent rebuff to the idea of funding Iranian exile
broadcasts. Broadcasting to Iran began under Radio Free
Europe/Radio Liberty (RFE/RL) in October 199849 and was renamed
Radio Farda (“Tomorrow” in Farsi) in December 2002. It now
broadcasts 24 hours per day and costs about $18 million per year.
VOA-TV began operations on July 3, 2003. In early 2005, the
VOA announced it is increasing the duration of the television
broadcasts to three hours a day from 30 minutes a day. However,
the Administration request states that some of the funding could be
for U.S.-based exile-controlled media broadcasting.
! No funds for this purpose were requested for FY2007, and FY2007
foreign aid appropriations legislation (H.R. 5522) contain no new
funds for it.
H.R. 282 and S. 333. Some pending legislation exemplifies 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,
although a version of that bill, introduced as an amendment to the FY2007 defense
authorization bill, was defeated on June 14, 2006. H.R. 282 passed the House even
48 Briefing by DRL representatives for congressional staff, May 9, 2005.
49 The service began when Congress funded it at $4 million in the FY1998
Commerce/State/Justice appropriation (P.L. 105-119). It was to be called Radio Free Iran
but was never formally given that name by RFE/RL.

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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. The Administration supports the democracy-
promotion sections of the bills; those sections, which are similar to steps the
Administration is taking, contain the following provisions:
! Both recommend the appointment of an Administration policy
coordinator on Iran, serving as a special assistant to the President.
! Both specify criteria for designating pro-democracy groups eligible
to receive U.S. aid, and H.R. 282 calls for expanded U.S. contacts
with groups attempting to promote democracy in Iran. S. 333
authorizes $10 million in U.S. funding for such groups; H.R. 282
authorizes no specific dollar amount.
! Both call for Iranian government representatives to be denied access
to all U.S. government buildings.
Engagement? Before the nuclear issue came to the fore, the Bush
Administration pursued direct engagement with Iran. This approach lost favor as
Iran’s nuclear stances hardened. The option has come to the forefront of U.S. policy,
although in the context of multilateral nuclear talks with Iran. As part of the nuclear-
related U.S. shift, the Administration is attempting to demonstrate that it considers
Iran a great nation and respects its history; such themes were prominent in a speech
by President Bush at the Merchant Marine Academy on June 19, 2006. For now, the
Administration has ruled out U.S.-Iran bilateral talks on all issues of U.S. concern,
and no U.S. official has raised the issue of U.S.-Iran talks to resolve the July 2006
Hizballah-Lebanon crisis.
The May 2006 U.S. offer of talks in the nuclear context came after some,
including former Clinton Administration foreign policy officials Samuel Berger and
Madeleine Albright, and former Secretary of State Henry Kissinger, said that the
United States should exhaust all possible options to curb Iran’s nuclear program,
including dialogue with Iran. Others say that the decision to offer to enter the nuclear
talks came after Administration advocates of regime change and other harder line
approaches were persuaded that the United States needed to garner international
support on Iran by demonstrating it is willing to fully exhaust all options for a
peaceful resolution of the nuclear issue. An amendment by Senator Biden to the
FY2007 defense authorization bill (S. 2766), adopted June 14, 2006, supports the
Administration’s May 2006 overture to Iran.
No substantive U.S.-Iran talks have taken place since May 2003, when the
United States broke off a dialogue with Iran following the May 12, 2003, terrorist
bombing in Riyadh. At that time, the United States and Iran publicly acknowledged
that they were conducting direct talks in Geneva on Afghanistan and Iraq,50 the first
confirmed direct dialogue between the two countries since the 1979 revolution.
However, U.S. officials rebuffed a reported overture from Iran just before the Riyadh
50 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.

CRS-32
bombing to negotiate all outstanding U.S.-Iran issues. The United States briefly
resumed some contacts with Iran in December 2003 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.
Military Action? As concerns over Iran’s nuclear program have grown, public
discussion of a military option against Iran’s nuclear facilities has increased.
President Bush has maintained that “all options are on the table.”51 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. 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.
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. A
January 2005 New Yorker article by Seymour Hersh asserts that President Bush has
authorized covert special forces missions into Iran to assess potential nuclear-related
targets for a U.S. air strike. 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.52 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 National Defense University study, believe that a nuclear weapons capability
would not embolden Iran’s foreign policy because U.S. conventional capabilities and
51 Fletcher, Michael and Keith Richburg. “Bush Tries to Allay E.U. Worry Over Iran.”
Washington Post, Feb. 23, 2005.
52 Sanger, David. “Why Not A Strike On Iran?” New York Times, Jan. 22, 2006.

CRS-33
regional alliances could blunt any Iranian aggressiveness.53 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.
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.
Containment? Some options might be employed to contain a nuclear Iran.
Some experts have called for U.S. naval forces in the Gulf to institute searches of
Iran-bound vessels suspected of containing WMD-related technology, or to place
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,54 an initiative that has won allied support. In contrast, some officials of
allied governments, including Britain, have called for greater cooperation with Iran
to curb the movement of smugglers and terrorists across the Persian Gulf.55
In mid-2006, the Administration has taken steps to shore up nervous U.S. allies
in the Persian Gulf region. Visits to the Gulf states (Saudi Arabia, Kuwait, Bahrain,
UAE, Qatar, and Oman) by U.S. officials have focused on renewing long-discussed
joint efforts to develop missile defense and anti-WMD capabilities. These efforts
might be intended, at least in part, to prevent the Gulf states from accommodating
Iran and to convince them that the United States can protect them from Iran. On the
other hand, some Gulf states appear to want to avoid joining a U.S.-led front against
Iran at this point, possibly explaining why Qatar voted “no” on the July 31, 2006,
U.N. Security Council resolution on Iran’s nuclear program.

International Sanctions? Regime change and military action appear to be
longer term options, but the more immediate question is whether, and if so what,
international sanctions might be imposed on Iran if the international community
determines Iran will not accept its demands on uranium enrichment. In order to gain
53 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.
54 Kralev, Thomas. “U.S. Asks Aid Barring Arms From Rogue States.” Washington Times,
June 5, 2003.
55 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.

CRS-34
international support to pressure Iran on its nuclear program, the Administration has
indicated it would 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 economy 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 sanctions that the Security Council might impose (and
some of them have already been threatened) if Iran does not comply with U.N.
demands. Administration officials say these sanctions might also be considered by
a “coalition” of countries, outside Security Council authorization, if the Security
Council does not act on Iran. 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 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. Some countries that supply such goods and services to
Iran might oppose this sanction. 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.
! 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. Some U.S.
allies that conduct extensive trade with Iran, including Japan, are
said to oppose this sanction, although recent reports say Japan is
likely to go along if the United States insists.
! 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.

CRS-35
! 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/Ban on International Investment in Iran’s Energy Sector.
These are widely considered the most sweeping of sanctions that
might be imposed, and would likely be considered in the Security
Council only if other sanctions are imposed but fail. 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 or multilateral 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.56 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.57
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, sanctioning 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
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.
56 On Nov. 14, 1979, President Carter declared a national emergency with respect to Iran,
renewed every year since 1979.
57 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

CRS-36
! 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.
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.58
It bans U.S. extraordinary payments to the Russian Aviation and Space Agency in
connection with the international space station unless the President can certify that
the agency or entities under its control had not transferred any WMD or missile
technology to Iran within the year prior. The provision contains certain exceptions
to ensure the safety of astronauts and for certain space station hardware. The
provision could complicate U.S. efforts to keep U.S. astronauts on the station beyond
April 2006, when Russia plans to start charging the United States for transporting
them on its Soyuz spacecraft. In February 2005, the Bush Administration proposed
an amendment to the INA that would allow continued U.S. access to the station. The
House version of S. 1713 took that step and extended INA sanctions provisions to
Syria; it was accepted by the Senate (P.L. 109-112, November 22, 2005). The law
is now called the Iran-Syria Non-Proliferation Act (ISNA). A bill to sanction any
U.S. dealings with companies identified as violating the ISNA (S. 2279) was
introduced February 14, 2006.
Reflecting a Bush Administration decision to impose sanctions for violations,
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:
58 See CRS Report RS22072, The Iran Nonproliferation Act and the International Space
Station: Issues and Options
, by Sharon Squassoni and Marcia S. Smith.

CRS-37
! 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 nuclear scientists,
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 13, 2006, the Treasury Department designated four Chinese
companies, under Executive order 13382 (June 29, 2005),59 as
proliferators of WMD to Iran. The four companies are Beijing Alite
Technologies, LIMMT Economic and Trading Company, China
Great Wall Industry Corp, and China National Precision Machinery
Import/Export Corp.
! On July 27, 2006, press reports indicated the Administration had
decided to sanction two unnamed Indian firms for alleged missile
technology sales to Iran under the Iran-Iraq Arms Non-Proliferation
Act. The decision was reported a day after the House voted down
a proposal to condition a U.S.-India civilian nuclear deal (H.R. 5682,
passed by the House on July 26, 2006) on India’s cooperation with
U.S. policy against Iran.
59 [http://www.whitehouse.gov/news/releases/2005/06/print/20050629.html].

CRS-38
As with 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. House- and Senate -
passed FY2007 foreign aid legislation (H.R. 5522) contain similar provisions.

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. Iran
also reportedly is supporting the international counter-narcotics effort in Afghanistan
by providing aid to Afghan farmers to grow crops other than poppy.
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 trade ban
would likely have to be eased further to provide Iran the incentives promised in the
U.S.-European-Russia and China nuclear package, if Iran accepts that offer. 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 law (P.L.
106-387) contained a provision banning the use of official credit

CRS-39
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)60 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.61 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.
60 “Iran Says Halliburton Won Drilling Contract.” Washington Times, Jan. 11, 2005.
61 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.
! The U.S. Treasury and State Departments have begun using U.S.
trade regulations on Iran to pressure European banks not to do
business with Iran. On December 20, 2005, 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). In 2004, the Treasury Department fined UBS $100 million
for the unauthorized movement of U.S. dollars to Iran and other
sanctioned countries.
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. One bill, S. 2657, would extend ILSA for another five years (August
5, 2011) without modification. Another bill that would extend ILSA until September
29, 2006 (H.R. 5877), passed the House (suspension) on July 26, 2006. This bill was
apparently intended to allow for consideration of a broader ILSA-related bill, H.R.
282. This bill was passed by the House on April 26. Both it and a Senate
companion measure (S. 333, 61 co-sponsors as of July 31, 2006) 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.62
Travel-Related Guidance. Use of U.S. passports for travel to Iran is
permitted. 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.
Status of Some U.S.-Iran Assets Disputes. A U.S.-Iran Claims Tribunal
at the Hague continues to arbitrate cases resulting from the 1980 break in relations
and freezing of some of Iran’s assets. Major cases yet to be decided center on
hundreds of Foreign Military Sales (FMS) 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 FMS
account, and about $22 million in Iranian diplomatic property remains blocked,
62 See CRS Report RS20871, The Iran-Libya Sanctions Act (ILSA), by Kenneth Katzman.

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although U.S. funds have been disbursed — credited against the DOD FMS account
— to pay judgments against Iran for past acts of terrorism against Americans. Other
disputes include the mistaken U.S. shoot-down on July 3, 1988, of an Iranian Airbus
passenger jet (Iran Air flight 655), for which the United States, in accordance with
an ICJ judgment, paid Iran $61.8 million in compensation ($300,000 per wage
earning victim, $150,000 per non-wage earner) for the 248 Iranians killed. The
United States has not compensated Iran for the airplane itself, to date. As it has in
past similar cases, the Administration has opposed a terrorism lawsuit against Iran
by victims of the U.S. Embassy Tehran seizure on the grounds of diplomatic
obligation.63
Multilateral Policies Toward Iran
Most U.S. allies have favored engagement as a means to change Iran’s behavior,
a philosophy consistent with European efforts to negotiate a solution on the nuclear
issue. During 1992-1997, the European Union (EU) countries maintained a policy
of “critical dialogue” with Iran, asserting that dialogue and commerce could
moderate Iran’s behavior. The United States did not oppose those talks but
maintained that the EU’s dialogue would not change Iran’s policies. 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/WTO Membership. 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, Iranian-sponsored terrorism, counter-
narcotics, refugees, migration issues, and 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 the talks were suspended after the
August 2005 breakdown of the Paris Agreement.
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.
63 See CRS Report RL31258, Suits Against Terrorism States by Victims of Terrorism, by
Jennifer K. Elsea.

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Movement on the issue is believed contingent on the nuclear negotiations as
discussed above.
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 have also differed with the United States on
providing international loans to Iran, although new lending appears to be contingent
on Iran’s response to international nuclear demands. Acting under provisions of
successive foreign aid laws, in 1993 the United States voted its 16.5% share of the
World Bank against loans to Iran of $460 million for electricity, health, and irrigation
projects, but the loans were approved. To block that lending, the FY1994-FY1996
foreign aid appropriations (P.L. 103-87, P.L. 103-306, and P.L. 104-107) cut the
amount appropriated for the U.S. contribution to the Bank by the amount of those
loans. The legislation contributed to a temporary halt in new Bank lending to Iran,
but by 1999, Iran’s moderating image had led the World Bank to consider new loans.
U.S. policy, as explained on October 29, 2003, a Treasury Department official, Bill
Schuerch, in testimony before the House Financial Services Committee, has been to
try to persuade other nations not to approve World Bank loans. 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.
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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Figure 1. Structure of the Iranian Government


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Figure 2. Map of Iran