Order Code RL32048
CRS Report for Congress
Received through the CRS Web
Iran: U.S. Concerns and
Policy Responses
Updated December 4, 2006
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Iran: U.S. Concerns and Policy Responses
Summary
According to 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, generated first and foremost by Iran’s
developing nuclear program, intensified following the military confrontation between
Iranian-armed and assisted Lebanese Hezbollah and Israel in July-August 2006. To
date, the Bush Administration has pursued several avenues to attempt to contain the
potential threat posed by Iran. However, the Administration’s focus on preventing
an Iranian nuclear weapons breakthrough has brought diplomatic strategy 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 if Iran suspends
uranium enrichment; in past years the Bush Administration had only limited dialogue
with Iran on specific regional issues. However, Iran did not comply with an August
31, 2006, deadline to cease uranium enrichment, contained in U.N. Security Council
Resolution 1696 (July 31, 2006), dividing the United States and partner countries
over whether to continue diplomacy with Iran and whether and how to move to
impose international sanctions on it.
If diplomacy and sanctions do not succeed, some advocate military action
against Iran’s nuclear infrastructure rather than acquiescence to a nuclear-armed Iran.
Others in the Administration believe that only a change of Iran’s regime would end
the threat posed by Iran.
Iran’s nuclear program is not the only major U.S. concern on Iran. Successive
administrations have pointed to the threat to the United States and its allies posed by
Iran’s policy in the Near East region, particularly material support to groups that use
violence to prevent Israeli-Arab peace or undermine pro-U.S. governments. Such
groups have long included Lebanese Hezbollah and the Palestinian groups Hamas
and Palestinian Islamic Jihad. 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 participating in escalating sectarian
violence against Iraq’s Sunnis there.
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.

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; and CRS Report RS22323, Iran’s
Influence in Iraq, by Kenneth Katzman. This report will be updated as warranted.

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Contents
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, Human Rights, and Recent Elections . . . . . . . . . . . . . . . . . . . . 2
Former President Mohammad Khatemi and the Reformists . . . . . . . . . 2
The Conservatives and Election of Ahmadinejad . . . . . . . . . . . . . . . . . 3
Groups Advocating Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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 . . . . . . . . . . . . . . . . . . . . 14
U.S. Offer to Join Talks and Future Steps . . . . . . . . . . . . . . . . . . . . . . 17
Resolution 1696 and Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Chemical Weapons, Biological Weapons, and Missiles . . . . . . . . . . . . . . . 19
Ballistic Missiles/Warheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Relations With The Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . 21
Iranian Policy in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Supporting Palestinian Militant Groups . . . . . . . . . . . . . . . . . . . . . . . 23
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
U.S. Policy Responses and Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Bush Administration Policy and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Congress and Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Engagement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Military Action? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Containment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
International Sanctions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
The Iran-Libya Sanctions Act (ILSA) . . . . . . . . . . . . . . . . . . . . . . . . . 41
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 42
U.S.-Allied Differences on Iran Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EU-Iran Trade Negotiations/WTO Membership . . . . . . . . . . . . . . . . . 42
Multilateral, World Bank, and IMF Lending to Iran . . . . . . . . . . . . . . 43
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

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List of Figures
Figure 1. Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Figure 2. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

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Iran: U.S. Concerns and
Policy Responses
Much of the debate over U.S. policy toward Iran has centered on the nature of
the current regime; some 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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CRS-2
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 (The next election for the Assembly of Experts will be held on December 15,
2006.) Khamene’i had served two terms as elected president (1981-1989), but he
has always lacked the unquestioned religio-political authority of Khomeini. He has
compensated in recent years 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. Pro-reform elements gradually became disillusioned
with Khatemi for his refusal to confront the hardliners. This dissatisfaction erupted
1 The Assembly also has the power to amend Iran’s constitution.
2 The Council of Guardians consists of six Islamic jurists and six secular lawyers. The six
Islamic jurists are appointed by the Supreme Leader. The six lawyers on the Council are
selected by the Majles (parliament).

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CRS-3
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 was led by Mohammad Khatemi following his departure
from the presidency. Khatemi, who now heads the International
Center for Dialogue Among Civilizations, continues to travel abroad
and remains a public figure in Iran. He visited the United States in
September 2006 to speak at Harvard University and the Washington
National Cathedral on his concept of “dialogue of civilizations,”
although he also expressed support for Ahmadinejad’s government
and criticized U.S. Middle East policy. Another member of the
Combatant Clerics grouping 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 only gradual reform. Supported by 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,

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CRS-4
adopted by unanimous consent on February 12, 2004) criticized the elections as
unfair, because of candidate screening.
On the tide of these conservative victories, Rafsanjani regained political
prominence and decided to run in the June 2005 presidential elections. He has been
the patron of many Majles conservatives, although he ran for president on a pro-free
market, pro-reform platform. He was constitutionally permitted to run because a
third term would not have been consecutive with his previous two terms. 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 significantly narrowed the field of
candidates to 6 out of the 1,014 persons who filed. (In the 2001 presidential
election, the Council permitted 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.
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
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. Since taking office, 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.” A U.N. Security Council statement and
Senate and House resolutions (H.Res. 523 and S.Res. 292), passed
in their respective chambers, condemned the statement.
! On December 9, 2005, and then again on December 14, 2005, and
May 28, 2006, he questioned the veracity of the Holocaust. In the
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

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CRS-5
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 led to speculation that he has tried 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 — a popular
development among Iranians not only in Iran but outside as well — in addition to
his ties to the Revolutionary Guard and other revolutionary institutions in the early
days after the Islamic revolution.
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. Press reports say
Mesbah-Yazdi, an assertive defender of the powers of the Supreme Leader and a
proponent of an “Islamic state” rather than the current “Islamic republic,” is
maneuvering against Rafsanjani for hardline supporters to win a majority in December
2006 elections for the Assembly of Experts, which formally oversees the work of the
Supreme Leader. Others believe Mesbah-Yazdi could be trying 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. In an October 2006 address, Ahmadinejad said, “I have a connection with God.”

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CRS-6
Economic Factors Assisting Stability. The regime has been helped in
recent years by high oil prices, which are nearly $60 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,
and increasing social welfare payments and subsidies. 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 other 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 (trade is severely restricted by
U.S. sanctions, as discussed later)
Foreign Exchange Reserves
$40 billion+
External Debt
$19 billion (2005 est.)
Income Per Capita
$8,100 per year
(purchasing power parity)
Unemployment Rate
11.2% (2004)
Source: CIA World Factbook, various press, IMF.

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Groups Advocating Change
The regime appears generally stable for now, but there are factions and
movements that are actively seeking 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.
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.
Another senior cleric who takes this position, Ayatollah Mohammad Kazemeni
Boroujerdi, was arrested on October 8, 2006. Other former regime dissidents still
closely watched or harassed include theoretician Abd al-Karim Soroush, former
Interior Minister Abdollah Nuri, and former hostage-holder Abbas Abdi.
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. In June 2003, France arrested
about 170 PMOI members, including its co-leader Maryam Rajavi (wife of PMOI
founder Masoud Rajavi, whereabouts unknown); she was released and remains
based in France, and is occasionally received by European parliamentarians and other
politicians.
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
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).

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CRS-8
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
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 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. At the same time, some Iraqi leaders from pro-
Iranian factions, including Prime Minister Nuri al-Maliki, have said that the group
might be expelled from Iraq by early 2007.

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.8 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:
6 “Removal of Iran Group From Terror List Sought.” Washington Post, Nov. 23, 2002.
7 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal, May 12, 2003.
8 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, Aug. 26, 2002.

---

CRS-9
! 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
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.
! Rang A Rang Television. Led by Davar Veiseh and based in
Vienna, Virginia, advocates regime change through peaceful means.
No U.S. assistance has been 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 2006 State Department “religious freedom” report (released September 15,
2006), 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.9 Specific trends include the following:
9 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
! 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.
! The State Department reports that in January 2006, the regime
forcibly repressed a strike by the 17,000-member Tehran bus drivers
union 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 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 was acquitted on July 25, 2004, prompting
accusations that the investigation and trial were unfair. The
prosecutor in her case, Saeed Mortazavi, allegedly responsible for
numerous human rights abuses, was Iran’s representative to the
inaugural meeting of the U.N. Human Rights Council.
! Imprisoned journalist Akbar Ganji, who conducted hunger strikes
to protest regime oppression, was released on schedule on March 18,
2006. 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. The Bush Administration issued a
statement calling for his release on July 12, 2005. 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

---

CRS-11
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 2006. (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
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,

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CRS-12
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
practices as a strategic threat to U.S. interests, but the Bush Administration has
stepped up criticism of Iran’s human rights record as part of an effort to build
international consensus to pressure Iran. 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 a 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,
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,” an assessment based largely on Iran’s growing weapons of
mass destruction (WMD) programs and its expanding ability to exert influence in
the region. 10
Conventional Military
Iran’s conventional armed forces are large but widely considered relatively
combat ineffective against a well-trained military such as that of the United States.
Iran’s forces are believed to be 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.
10 See [http://www.whitehouse.gov/nsc/nss/2006/].

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CRS-13
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 its conventional weakness. 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”
a crisis in the Strait of Hormuz. Perhaps to demonstrate its ability at a time of
tension over its nuclear program, Iran conducted major military exercises on August
20, 2006, and during November 2-12, 2006 (which included firing a Shahab-3
missile, discussed below). Such capabilities include ship-launched cruise missiles,
midget subs, and anti-aircraft missile systems.
! 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.11 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 up to 30 anti-aircraft missile
11 Jacoby testimony before the Senate Intelligence Committee. Feb. 16, 2005.

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CRS-14
systems (Tor M1), worth over $1 billion, and raising fears of a
possible new round of Russian sales to Iran. U.S. officials pressed
Russia not to proceed with the sale, but Russia said in November
2006 that the sale will proceed. A press report in late September
2006 said that Ukraine has agreed to sell Iran the Kolchuga radar
system that can improve Iran’s detection of combat aircraft.
Weapons of Mass Destruction: Nuclear Program12
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. On June 18,
2003, President Bush said that the United States would “not tolerate construction”
of a nuclear weapon by Iran, and, on September 5, 2006, he said “I am not going to
allow [a nuclear-armed Iran].”13 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, said documents found by the IAEA show a possible
“military nuclear dimension” to Iran’s program. Iranian leaders insist that Iran’s
nuclear program is for electricity generation because its oil resources are finite and
that enriching uranium to make nuclear fuel is allowed under the 1968 Nuclear Non-
Proliferation Treaty,14 to which Iran is a party.
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. The CIA reportedly has found no firm evidence that
Iran is trying to develop a nuclear weapon.15 In testimony before the Senate
Intelligence Committee on February 16, 2005, DIA head Adm. Jacoby (see above)
12 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments, by Sharon Squassoni.
13 Schweid, Barry. “Bush: Won’t Allow A Nuclear-Armed Iran.” Associated Press,
September 5, 2006.
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 “CIA Analysis Finds No Iranian Nuclear Weapons Drive: Report.” Available online at
[http://fullcoverage.yahoo.com/s/afp/20061119/ts_afp/usirannuclearweaponsmilitary_06
1119034024]. Nov. 19, 2006.

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CRS-15
said that, “Unless constrained by a nuclear non-proliferation agreement, Tehran
probably will have the ability to produce nuclear weapons early in the next decade.”
In August 2005, press reports about an intelligence community estimate said the U.S.
estimate of an Iranian nuclear weapons ranges from 6-10 years from then.16 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, although some press reports say that is in doubt and that Iran’s
program faces significant bottlenecks. 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. On August 23, 2006, the House Intelligence
Committee released a staff report saying that the U.S. intelligence community lacks
“the ability to acquire essential information necessary to make judgments” about
Iran’s program.
European Diplomatic Efforts/”Paris Agreement.” U.S., international,
and IAEA attention to Iran’s nuclear program heightened in 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. (In November
2006, the IAEA, at U.S. urging, declined to provide technical assistance to this
facility on the grounds that it was likely for proliferation purposes.) It was also
revealed in 2003 that the founder of Pakistan’s nuclear weapons program, Abdul
Qadeer (A.Q.) Khan, sold Iran and other countries (Libya, North Korea) nuclear
technology and designs.17 At the same time, concerns continued over Russia’s 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. 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.18 Russia reportedly is training about 700 Iranian nuclear engineers to
operate the plant.
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
16 Linzer, Dafna. “ Iran Is Judged 10 Years From Nuclear Bomb.” Washington Post, Aug.
2, 2005; Weissman, Steven and Douglas Jehl. “Estimate Revised On When Iran Could
Make Nuclear Bomb.” New York Times, Aug. 3, 2005.
17 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, Jan. 24, 2004.
18 Iran says it 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.

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CRS-16
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. Under the November 14, 2004, “Paris Agreement,” Iran
agreed to suspend uranium enrichment (as of November 22, 2004) in exchange for
renewed trade talks and other assistance.19 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 election of Ahmadinejad. Iran rejected as insufficient an 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 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
abide by the Paris Agreement.20 No time frame was set for the referral. 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). 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 did not accept the proposal.
On January 3, 2006, Iran announced that it would resume uranium enrichment
for “research” and subsequently broke IAEA seals at its uranium enrichment
19 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].
20 Voting in favor: United States, Australia, Britain, France, Germany, Canada, Argentina,
Belgium, Ghana, Ecuador, Hungary, Italy, Netherlands, Poland, Portugal, Sweden, Slovakia,
Japan, Peru, Singapore, South Korea, India. Against: Venezuela. Abstaining: Pakistan,
Algeria, Yemen, Brazil, China, Mexico, Nigeria, Russia, South Africa, Sri Lanka, Tunisia,
and Vietnam.

---

CRS-17
facilities. On February 4, 2006, the IAEA board voted 27-321 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. An IAEA report on February 27, 2006
confirmed that Iran had begun enrichment (10 centrifuges) and, on the basis of that
action, on March 29, 2006, the Council agreed on a Security Council presidential
statement (lacking the 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.22
An 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, where the United States sought a formal resolution, under Chapter 7
(“international peace and security”) of the U.N. Charter, to mandate Iran’s
compliance and authorize punitive measures, such as economic sanctions. However,
Russia and China’s reservations blocked agreement and, on May 8, 2006, the
Administration said it would support a renewed diplomatic overture by the EU-3. At
the same time, the Administration rebuffed a letter from Ahmadinejad to President
Bush23 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, 2006. U.S. officials say that this offer remains open, despite developments below.
The possible sanctions reportedly were not presented to Iran in detail. 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.
Reported Incentives24
! 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.
21 Voting no: Cuba, Syria, Venezuela. Abstaining: Algeria, Belarus, Indonesia, Libya, South
Africa.
22 See [http://daccessdds.un.org/doc/UNDOC/GEN/N06/290/88/PDF/N0629088.pdf?Open
Element].
23 See [http://www.president.ir/eng/ahmadinejad/cronicnews/1385/02/19/index-e.htm#b3].
24 One source purports to have obtained the contents of the package from ABC News:
[http://www.basicint.org/pubs/Notes/BN060609.htm]

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CRS-18
! 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.
! 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.
Resolution 1696 and Follow-Up. Iran said it would give a final response
by August 22, far beyond the deadline for response set by the six powers (July 12)
— a time frame set to coincide with the G-8 summit in St. Petersburg (July 15). On
July 31, 2006, the Security Council voted 14-1 (Qatar voting no) for U.N. Security
Council Resolution 1696, giving 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 40 of the U.N. Charter, which makes compliance mandatory, but not under
Article 41, which refers to economic sanctions, or Article 42, which would authorize
military action for non-compliance. No specific sanctions were threatened in the
resolution, but it calls on U.N. member states not to sell Iran certain technology that
could be useful for WMD.
On August 22, 2006, Iran did submit a 21-page formal response to the June 6
offer by the six powers, to the ambassadors of those countries in Tehran. The text

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CRS-19
of Iran’s response was not disclosed, but press reports said it offered serious
negotiations on a broader roadmap of engagement with the West — and sought
provision of guarantees that the United States would not seek to change Iran’s regime
— in exchange for possible acceptance of the international demands on the nuclear
program. But Iran did not offer to suspend uranium enrichment in advance of
negotiations. The response of the Bush Administration and of several EU countries,
including France and Germany, was that the Iranian response “falls short” of the
demands of Resolution 1696, although Russia and China said the response could
form the basis for further discussions. Iran did not comply with the demands of the
Resolution, according to a report by the IAEA on August 31, 2006 (GOV/2006/53).
Subsequently, and with the backing of the P5+1, including the United States,
chief EU negotiator Javier Solana negotiated with Iran to try arrange a temporary
uranium enrichment suspension and negotiations on permanent curbs to Iran’s
program. At the same time, the Administration and its partners agreed to a deadline
of early October 2006 for Iran to suspend uranium enrichment and pave the way for
permanent negotiations to begin. With that deadline approaching, some press reports
said that Solana was close to a deal under which Iran would suspend uranium
enrichment for 90 days to allow for progress in additional talks.25 However, a round
of talks, in Berlin, concluded on September 28, 2006, without agreement, and Iran
began operating a second 164-centrifuge cascade in late October. The P5+1 have
returned the issue to Security Council consideration of actual sanctions, but, despite
several months of negotiating, they remain divided: the European countries want to
limit sanctions to those on WMD-related transfers, related financing, and travel
restrictions on Iranian nuclear technicians. Russia and China are said to be
opposing any sanctions at all; they believe that Iran’s violations, to date, are less
serious than those of North Korea and that Iran should therefore not be punished by
measures similar to those imposed on North Korea after its October 9 nuclear test (by
Resolution 1718). In order to try to win agreement, in the latest reported P5+1 draft,
the United States has agreed to a Russian demand to exempt the Bushehr nuclear
plant from sanctions. On the other hand, Secretary Rice said on November 30 that
U.S. patience with the negotiations are running out and that the United States might
try to force a vote in the Council on a P5+1 draft, written under Chapter 7 of the U.N.
Charter.
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
25 EU, Iran Close to Deal For Nuclear Talks: Report. Reuters, Sept. 26, 2006.

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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 a site in Europe, possibly Britain, to counter Iranian ballistic missiles.
! Shahab-3. Two of its first three tests of the 800-mile range Shahab-
3 (July 1998, July 2000, and September 2000) reportedly were
inconclusive or unsuccessful, but Iran conducted an apparently
successful series of tests in June 2003. Iran subsequently called the
Shahab-3, which would be capable of hitting Israel, operational.
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.26 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
“Shahab-4.” An Agence France Presse report of February 6, 2006,
said an Iranian test of this missile in January 2006 was successful.
If Iran’s claims are accurate, large portions of the Near East and
Southeastern Europe would be in range, including U.S. bases in
Turkey. On March 31, 2006, Iran claimed to have tested a missile,
possibly a Shahab-4, that Iran says has multiple, separately targeted
warheads.
! BM-25. On April 27, 2006, Israel’s military intelligence chief said
that Iran had received a shipment of North Korean-supplied BM-25
missiles. The missile has a 1,550 mile range and is said to be
capable of carrying nuclear warheads. The Washington Times
26 Broad, William and David Sanger. Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims. New York Times, Nov. 13, 2005.

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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 2015,27 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.28 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 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, again attributing the terrorist activity to the Revolutionary Guard and the
Intelligence Ministry.29
Relations With The Persian Gulf States.30 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. 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 been evident, to date. The Gulf states nonetheless remain wary of Iran’s nuclear
program, as discussed further in the “options” section below.
27 “Greater U.S. Concern About Iran Missile Capability.” Reuters, Mar. 11, 2002.
28 “Iran: New Missile on the Assembly Line.” New York Times, Sept. 26, 2002.
29 U.S. Department of State. Country Reports on Terrorism 2005. Released Apr. 2006.
[http://www.state.gov/documents/organization/65462.pdf].
30 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2006, by
Kenneth Katzman.

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CRS-22
! 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. Khatemi visited Saudi Arabia in 1999 and
2002, suggesting 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
Hezbollah).31 However, Saudi officials are said to be highly
concerned about Iran’s nuclear program and the potential for fallout
against the Kingdom should the United States take military action to
stop Iran’s program.
! 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
Iranian retaliation might explain why Qatar voted “no” on
Resolution 1696.
31 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001. The June 21, 2001 federal grand jury indictments of 14 suspects (13 Saudis and a
Lebanese citizen) in the Khobar bombing indicate that Iranian agents may have been
involved, but no indictments of any Iranians were announced. In June 2002, Saudi Arabia
reportedly sentenced some of the eleven Saudi suspects held there. The 9/11 Commission
final report asserts that Al Qaeda might have had some as yet undetermined involvement
in the Khobar Towers attacks.

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! 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-Hezbollah, and other Bahraini
dissident groups) in efforts to overthrow the ruling Al Khalifa
family. Bahrain is about 65% Shiite, but its government is
dominated by the Sunni Muslim Al Khalifa family. Some Bahraini
leaders feared Iran might try to interfere in Bahrain’s November 25,
2006, parliamentary election campaign by providing money and
other support to Shiite candidates, but this did not appear to be an
issue in the elections or their aftermath, even though the main Shiite
coalition won almost half of the 40 seats up for the vote.
Iranian Policy in Iraq. The U.S. military ousting of Saddam Hussein appears
to have benefitted Iran strategically.32 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,
U.S. officials believe that, as part of its effort to build influence in Iraq, Iran is
providing arms and financing to Shiite militias fielded not only by its long-standing
Shiite allies but also by the radical cleric Moqtada Al Sadr — militias that are
believed involved in sectarian violence. 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, a theme reiterated by senior U.S. commanders since. In September 2006,
Prime Minister Maliki visited Iran and reiterated pledges of security and economic
cooperation; President Jalal Talabani visited in November 2006.
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. On March 17, 2006,
Iranian officials publicly accepted talks on Iraq, but Ahmadinejad said on April 25,
2006, that there was no need for U.S.-Iran talks because an Iraqi unity government
was formed. No such talks have been held, but the issue of talks has revived in the
context of reported recommendations by the “Iraq Study Group” that the United
States open talks with both Iran and Syria to help stabilize Iraq. An Iranian Foreign
Ministry spokesman said on November 6 that Iran might consider such talks with the
United States on Iraq.
Supporting Palestinian Militant Groups. Iran’s support for Palestinian
militant groups has long concerned U.S. Administrations, particularly since doing
so gives Tehran an opportunity to try to obstruct Israeli-Palestinian peace prospects.
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
32 This issue is covered in greater depth in CRS Report RS22323, Iran’s Influence in Iraq,
by Kenneth Katzman.

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Israel would have far less impact because Iran’s population is large. Iran has
sometimes openly incited anti-Israel violence, including hosting conferences of anti-
peace process organizations (April 24, 2001, and June 2-3, 2002).
On the other hand, 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 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.
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 Hezbollah, has been
encouraging coordination among Palestinian terrorist groups, particularly Hamas and
PIJ, since the September 2000 Palestinian uprising.
Some see Iran’s policy further strengthened by Hamas’ victory in the January
25, 2006, Palestinian legislative elections, although Hamas activists say they are not
politically close to Iran because Iran is mostly Shiite, while Hamas members are
Sunni Muslims.33 Hamas was reputed to receive about 10% of its budget in the early
1990s from Iran, although since then Hamas has cultivated 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 amenable to
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. Some pro-U.S. Arab states (Qatar, Saudi Arabia, UAE,
and Kuwait) have pledged it similar amounts since Hamas took over governance.
Lebanese Hezbollah. Iran has maintained a close relationship with
Hezbollah since Hezbollah’s inception in 1982. Hezbollah was formed 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.34 Hezbollah’s attacks
33 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, Jan. 29, 2006.
34 Hezbollah 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 October 31, 2006, Argentine prosecutors asked a federal judge to seek the arrest of
Rafsanjani, former Intelligence Minister Ali Fallahian, former Foreign Minister Ali Akbar
(continued...)

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on Israeli forces in southern Lebanon contributed to an Israeli withdrawal in May
2000, but, despite United Nations certification of Israel’s withdrawal, Hezbollah
maintained military forces along the border. Hezbollah continued to remain armed
and outside Lebanese government control, despite U.N. Security Council Resolution
1559 (September 2, 2004) that required its dismantlement. In refusing to disarm,
Hezbollah says it was resisting Israeli occupation of small tracts of Lebanese territory
(Shebaa Farms).
Neither Israel nor the United States has opposed Hezbollah’s growing
participation in peaceful Lebanese politics. In March 2005, President Bush indicated
that the United States might accept Hezbollah as a legitimate political force in
Lebanon if it disarms. In the Lebanese parliamentary elections of May - June 2005,
Hezbollah expanded its presence in the Lebanese parliament; it now holds 14 seats
in the 128-seat parliament. On the strength of this showing, two Hezbollah members
were given cabinet seats, positioning Hezbollah to exert greater influence on
Lebanese government decisions. As a matter of policy, the United States does not
meet with any Hezbollah members, even those in the parliament or cabinet.
Hezbollah is a designated FTO, but that designation bars financial transactions by the
group and does not specifically ban meeting with members of the group.
Whether or not Iran instigated Lebanese Hezbollah to provoke the July-August
2006 crisis with Israel, Iran has long been a major arms supplier of Hezbollah.
Iranian-supplied rockets were fired by Hezbollah on Israel’s northern towns during
the fighting. As part of a package of aid to Hezbollah said to exceed $100 million
per year, reported Iranian shipments to Hezbollah over the past five years have
included the “Fajr” (dawn) and Khaybar series of rockets that were fired at the Israeli
city of Haifa (30 miles from the border), and over 10,000 Katyusha rockets that were
fired at cities within 20 miles of the Lebanese border.35 Iran also supplied Hezbollah
with an unmanned aerial vehicle (UAV), the Mirsad, that Hezbollah briefly flew over
the Israel-Lebanon border on November 7, 2004, and April 11, 2005; at least three
were shot down by Israel during the conflict. On July 14, 2006, Hezbollah 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.) Iran
also purportedly provided advice during the conflict; about 50 Revolutionary Guards
were in Lebanon (down from about 2,000 when Hezbollah was formed), according
to a Washington Post report of April 13, 2005) when the conflict began; that number
might have increased during the conflict to help Hezbollah operate the Iranian-
supplied weaponry.
Iran has moved to support Hezbollah after the conflict. One press report said
Iran is making $150 million available for Hezbollah to distribute to Lebanese citizens
(mostly Shiite supporters of Hezbollah) whose homes were damaged in the Israeli
34 (...continued)
Velayati, and four other Iranian officials for this attack. Hezbollah is also believed to have
committed the March 17, 1992, bombing of Israel’s embassy in that city, which killed 29
people.
35 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, Feb. 4, 2002.

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military campaign.36 A State Department counter-terrorism official testified before
the House International Relations Committee on September 28, 2006, that Iranian
military support to Hezbollah continued after the August 14 ceasefire, which took
place in accordance with U.N. Security Council Resolution 1701 (July 31, 2006).37
Iran’s strategy appears to be to assist Hezbollah’s efforts to overturn the dominance
of the Lebanese government by anti-Syrian factions. Hezbollah is demanding at least
nine cabinet seats to be positioned to veto government decisions; in November and
December 2006, Hezbollah and its allies (six total ministers) resigned from the
cabinet and began anti-government demonstrations in an effort to topple it.
Prior to the conflict, in the 109th Congress, two resolutions (H.Res. 101 and
S.Res. 82) have passed their respective chambers. They urge the EU to classify
Hezbollah as a terrorist organization; S.Res. 82 calls on Hezbollah to disband its
militia as called for in U.N. Security Council Resolution 1559 (September 2, 2004).
For legislation related to the confrontation, see CRS Report RL33566, Lebanon: The
Israel-Hamas-Hezbollah Conflict, by Jeremy M. Sharp et al.
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, which has demonstrated some unrest in 2006. 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 that 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.38 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
36 Shadid, Anthony. “Armed With Iran’s Millions, Fighters Turn to Rebuilding.”
Washington Post, Aug. 16, 2006.
37 See CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict. Jeremy
Sharp, coordinator.
38 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.

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CRS-27
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. Iran is said to fear the continuing presence of the
about 21,000 U.S. troops in Afghanistan, and Iran has objected to the U.S. use of
Shindand air base in western Afghanistan, asserting that it is being used to conduct
surveillance on Iran. U.S. aircraft began using the base in September 2004 after the
downfall of the pro-Iranian governor of Herat Province, Ismail Khan.
Iran long opposed the regime of the Taliban in Afghanistan on the grounds that
it oppressed Shiite Muslim and other Persian-speaking minorities. Iran nearly
launched a military attack against the Taliban in September 1998 after Taliban
fighters captured and killed nine Iranian diplomats based in northern Afghanistan,
and Iran provided military aid to the Northern Alliance factions. Iran, along with the
United States, Russia, and the countries bordering Afghanistan, attended U.N.-
sponsored meetings in New York (the Six Plus Two group) to try to end the conflict
in Afghanistan. During the major combat phase of the post-September 11 U.S.-led
war in Afghanistan, Iran offered search and rescue of any downed service-persons
and the trans-shipment to Afghanistan of humanitarian assistance. In March 2002,
Iran expelled Gulbuddin Hikmatyar, a pro-Taliban Afghan faction leader. Iran froze
Hikmatyar’s assets in Iran (January 2005).
Al Qaeda. Iran is not a natural ally of Al Qaeda, largely because Al Qaeda is
an orthodox Sunni Muslim organization. However, U.S. officials have said since
January 2002 that it is unclear whether Iran has arrested senior Al Qaeda operatives
who are believed to be in Iran.39 These figures are purported to include Al Qaeda
spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad.40 A German monthly magazine, Cicero, reported in late October
2005 that Iran is allowing 25 high-ranking Al Qaeda activists, including three sons
of bin Laden, to stay in homes belonging to the Revolutionary Guard.41 This report,
if true, would contradict Iran’s assertion on July 23, 2003 that it had “in custody”
senior Al Qaeda figures. U.S. officials blamed the May 12, 2003 bombings in
Riyadh, Saudi Arabia against four expatriate housing complexes on these operatives,
saying they have been able to contact associates outside Iran.42 Possibly in response
to the criticism, on July 16, 2005 Iran’s Intelligence Minister said that 200 Al Qaeda
members are in Iranian jails and that Iran had broken up an Al Qaeda cell planning
attacks on Iranian students.43 Hardliners in Iran might want to 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
39 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires, May 19, 2003.
40 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
41 “Bin Laden Sons Said to Roam Free.” Washington Times, Oct. 27, 2005.
42 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.
43 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.

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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.
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.44 The United States tilted markedly toward Iraq in the 1980-1988 Iran-Iraq
war, including U.S. diplomatic attempts to block conventional arms sales to Iran,
providing battlefield intelligence to Iraq45 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 Hezbollah in Lebanon. Iran reportedly did assist in obtaining their releases,
which was completed in December 1991, but no 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
as part of his push for “dialogue of civilizations, but he ruled out direct talks. In a
44 An exception was the abortive 1985-1986 clandestine arms supply relationship with Iran
in exchange for some American hostages held by Hezbollah in Lebanon (the so-called
“Iran-Contra Affair”).
45 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis. New York: John Wiley and Sons, 1991. p. 168.

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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, in a March 17, 2000,
speech, acknowledged past U.S. meddling in Iran, announcing some minor easing of
the U.S. trade ban with Iran, and promised to try to resolve outstanding claims
disputes. In September 2000 U.N. “Millennium Summit” meetings, Albright and
President Clinton sent a positive signal to Iran by attending Khatemi’s speeches.
Bush Administration Policy and Options
The Bush Administration has continued the thrust of Clinton Administration
efforts to try to limit Iran’s strategic capabilities through international diplomacy and
sanctions, although some Bush Administration officials prefer and have sought to
place regime change at the center of U.S. Iran policy. 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. The FY2007 defense authorization law (P.L. 109-364) calls for
a report by the Administration on all aspects of U.S. policy and objectives on Iran
(and requires the DNI to prepare a national intelligence estimate on Iran).
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.46 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. 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, 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
46 CRS conversations with U.S. officials responsible for Iran policy. 1980-1990. After a
period of suspension of such assistance, in 1995, the Clinton Administration accepted a
House-Senate conference agreement to include $18-$20 million in funding authority for
covert operations against Iran in the FY1996 Intelligence Authorization Act (H.R. 1655, P.L.
104-93), according to a Washington Post report of Dec. 22, 1995. The Clinton
Administration reportedly focused the covert aid on changing the regime’s behavior, rather
than its overthrow.

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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 has been expanded, and new “Iran-watcher” positions are being
added to U.S. diplomatic facilities in Baku, Azerbaijan; Istanbul, Turkey; Frankfurt,
Germany; London; and Ashkabad, Turkemenistan, all of which have large expatriate
Iranian populations and/or proximity to Iran.47 An enlarged (six-person) “Office of
Iran Affairs” has been formed at State Department, headed by Barbara Leaf, and it
is reportedly engaging in contacts with U.S.-based exile groups such as those
discussed earlier.48
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)49 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
47 Stockman, Farah. “Long Struggle” With Iran Seen Ahead.” Boston Globe, Mar. 9, 2006.
48 Weisman, Steven. U.S. Program Is Directed At Altering Iran’s Politics. New York
Times, April 15, 2006.
49 The State Department has determined that, because Iran is ineligible for U.S. aid, Iran
democracy promotion funds cannot be channeled through the Middle East Partnership
Initiative, because those are Economic Support Funds, ESF, and cannot be used in Iran.

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CRS-31
projects to be funded in 2005. The winning grantees were not
announced by DRL to protect the identities of the grantees,
according to U.S. diplomats. DRL had said that priority areas were
political party development, media development, labor rights, civil
society promotion, and promotion of respect for human rights.50
! 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
conference report (H.Rept. 109-265). The funds are to be drawn
from a “Democracy Fund” as well as from the Middle East
Partnership Initiative (MEPI).
! On February 16, 2006, the Administration requested $75 million for
democracy promotion in Iran as part of a supplemental FY2006
appropriation. 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 cultural exchanges (the amount requested); and $36.1
million for Voice of America-TV and “Radio Farda” broadcasting
($13.9 million less than requested). Of these funds, Radio Farda
will receive $14.7 million. In early September 2006, the
Administration said it wanted to use the $5 million in cultural
exchange funds to invite about 200 young Iranian professionals and
foreign language teachers.
! The broadcasting funds 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 partnership with the VOA,
in October 1998.51 It was renamed Radio Farda (“Tomorrow” in
Farsi) in December 2002. It now broadcasts 24 hours per day, up
from 8 previously, and costs about $7 million per year. VOA
Persian language services (radio and TV) also operate to Iran at a
combined cost of about $10 million per year. VOA-TV began on
July 3, 2003, and now is broadcasting to Iran 12 hours a day, up
from four hours previously.
! No funds for this purpose were requested for FY2007, and FY2007
foreign aid appropriations legislation (H.R. 5522) contains no new
funds for it.
50 Briefing by DRL representatives for congressional staff, May 9, 2005.
51 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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CRS-32
H.R. 282, S. 333, and H.R. 6198. Legislation in the 109th Congress
exemplifies the preference of some Members for regime change in Iran by
authorizing funding for democracy promotion, among other provisions. 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 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 supported the democracy-
promotion sections of these bills, which were included in H.R. 6198, which was
introduced on September 27, 2006, passed by both chambers, and signed September
30, 2006 (P.L. 109-293). The bill does not authorize a specific dollar amount for Iran
democracy promotion.
Engagement? The Bush Administration has pursued some direct engagement
with Iran, and, with the U.S. offer to conditionally join multilateral nuclear talks with
Iran, the option is being exercised to an extent. As part of the U.S. shift on direct
talks with Iran, the Administration is indicating that it considers Iran a great nation
and respects its history; such themes were prominent in speeches by President Bush
at the Merchant Marine Academy on June 19, 2006, and his September 18, 2006,
speech to the U.N. General Assembly. For now, the Administration has ruled out
U.S.-Iran bilateral talks on all issues of U.S. concern although, as noted above, the
Administration had attempted in early 2006 to conduct new direct talks with Iran on
the Iraq issue. President Bush did not respond to a direct letter by Ahmadinejad in
May 2006, and there was no official U.S. response to a November 29, 2006,
Ahmadinejad open letter to the American people.
The May 2006 U.S. offer to join the nuclear talks 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 said 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 (adopted
June 2006) to the FY2007 defense authorization bill (P.L. 109-364) supports the
Administration’s May 2006 decision to join nuclear talks with Iran.
No direct 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,52 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
bombing to negotiate all outstanding U.S.-Iran issues. The United States briefly
52 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.

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CRS-33
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.”53 A U.S. ground
invasion 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 142,000 deployed in Iraq, to undertake such action, and that U.S.
forces would be greeted with hostility by most Iranians.
Some experts believe that limited military action, such as air or missile strikes
against suspected nuclear sites should be considered. Proponents of the option argue
that military action could set back Iran’s nuclear program because there are only a
limited number of key targets, and these targets are known to U.S. planners and could
be struck, even those that are hardened or buried.54 It could also be argued that 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. Others maintain that the Administration is preparing to
exercise a military option; 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.
U.S. allies in Europe, not to mention Russia, China, and some U.S. experts,
have expressed strong opposition to any military action. Arguments against the
military option appear to have caused reduced Administration attraction to this
option, according to observers. Opponents of a strike believe any benefits would be
minor, or only temporary, and that the costs of a strike are too high. Some question
whether the United States is aware of or militarily able to reach all relevant sites; 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. Others argue that Iran
might retaliate through terrorism or other means, such as shutting down its own oil
exports. Some believe that a U.S. strike would cause the Iranian public to rally
around Iran’s regime, setting back U.S. efforts to promote change within Iran.
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
53 Fletcher, Michael and Keith Richburg. “Bush Tries to Allay E.U. Worry Over Iran.”
Washington Post, Feb. 23, 2005.
54 Sanger, David. “Why Not A Strike On Iran?” New York Times, Jan. 22, 2006.

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CRS-34
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, such as authors of a National Defense University study,
believe that an Iranian nuclear weapons capability could be contained, for example
by U.S. conventional capabilities and regional alliances.55 Since mid-2006, the
Administration has taken steps to design a containment strategy for Iran. Visits to
the Gulf states (Saudi Arabia, Kuwait, Bahrain, UAE, Qatar, and Oman) by senior
U.S. State Department officials responsible for non-proliferation and political-
military affairs have focused on renewing long-discussed joint efforts to develop
missile defense and anti-WMD capabilities. In late October 2006, the United States,
four Gulf states, and twenty other nations held naval exercises designed to counter
proliferation to Iran. Related air exercises are expected to be held soon. 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. 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.56

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 by the international community for
non-compliance with Resolution 1696. As noted above, the Administration and its
negotiating partners have indicated they would avoid imposing sanctions that would
hurt Iran’s people. Iran, for its part, has sometimes 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,
beyond those currently being debated in the Security Council. 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. 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.
55 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.
56 “British Commander Calls for More Cooperation With Iran in Persian Gulf.” BBC, May
3, 2004.

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CRS-35
! Mandating Reductions in Diplomatic Exchanges with Iran or
Limiting Travel by Iranian Officials. Similar 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.
! 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 imposed because world oil prices remain
near $60 per barrel.

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CRS-36
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.57 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.58
Terrorism/Foreign Aid Sanctions. In January 1984, following the October
1983 bombing of the U.S. Marine barracks in Lebanon (believed perpetrated by
Hezbollah) 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.
! 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
57 On Nov. 14, 1979, President Carter declared a national emergency with respect to Iran,
renewed every year since 1979.
58 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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CRS-37
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. Iran is prevented from receiving technology from
the United States under relevant anti-proliferation laws,59 but several proliferation
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 (P.L. 106-178) authorizes sanctions on foreign entities that
assist Iran’s WMD programs. 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).60 A bill to sanction any U.S. dealings with companies identified as violating
the ISNA (S. 2279) was introduced February 14, 2006. A law enacted in the 109th
Congress to extend the Iran-Libya Sanctions Act (ILSA), H.R. 6198 (P.L. 109-293),
makes WMD and advanced conventional weapons exports to Iran sanctionable (see
further below).
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:
! 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.
59 Such laws include the Atomic Energy Act of 1954 and the Energy Policy Act of 2005
(P.L. 109-58).
60 Provisions were made applicable also to North Korea under legislation in the 109th
Congress.

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! 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),61 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 August 4, 2006, seven entities were sanctioned under ISNA: two
Indian chemical companies (Balaji Amines and Prachi Poly
Products); two Russian firms (Rosobornexport and aircraft
manufacturer Sukhoi); two North Korean entities (Korean Mining
and Industrial Development, and Korea Pugang Trading); and one
Cuban entity (Center for Genetic Engineering and Biotechnology).
The decision to sanction these entities 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.
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.

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

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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.62 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 the incentives promised in the six power package offered to Iran. The
following conditions and modifications, as administered by the Office of Foreign
Assets Control (OFAC) of the Treasury Department, apply:
! Some goods related to the safe operation of civilian aircraft may be
licensed for export to Iran, and in December 1999, the Clinton
Administration allowed the repair of engine mountings on seven Iran
Air 747s (Boeing). In late September 2006, the Bush Administration
informed Congress that, in the interests of safe operations of civilian
aircraft, it intended to permit a sale by General Electric of Airbus
engine spare parts to be installed on several Iran Air passenger
aircraft (by European airline contractors).
! 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
62 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.

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CRS-40
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)63 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.64 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.
63 “Iran Says Halliburton Won Drilling Contract.” Washington Times, Jan. 11, 2005.
64 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. On
September 8, 2006, the Treasury Department said it would bar U.S.
banks from handling any indirect transactions with Iran’s state-
owned Bank Saderat, which the Administration accuses of providing
funds to Hezbollah.65
The Iran-Libya Sanctions Act (ILSA). 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). However, in
order to prevent ILSA expiration and allow time for broader ILSA-related legislation
to be considered, a bill that extended ILSA until September 29, 2006 (H.R. 5877),
was passed, and it was signed August 4, 2006 (P.L. 109-267). The broader ILSA-
related bills are H.R. 282, which was passed by the House on April 26, 2006; a
Senate companion measure, S. 333; and H.R. 6198, the latter of which was passed
and then signed on September 30, 2006 (P.L. 109-293). It extends ILSA until
December 31, 2011, and drops Libya from the law. Like H.R. 282 and S. 333, it
codifies existing Iran sanctions, makes exports to Iran of WMD or advanced
conventional weapons technology sanctionable, and authorizes additional funding for
promoting democracy in Iran. It recommends a 180-day time limit for the
Administration to determine whether a project violates ILSA.
However, no projects have actually been sanctioned under ILSA, and numerous
investment agreements with Iran since its enactment have helped Iran continue to
develop its energy sector. One major project is a proposed gas pipeline from Iran
through Pakistan, to India. Some of the delay in implementing that project has been
pricing of Iranian gas supplies to India, and in November 2006 Iran offered a new
price in an effort to entice India to move forward with it. (See CRS Report RS20871,
The Iran-Libya Sanctions Act (ILSA), by Kenneth Katzman.)
Travel-Related Guidance. Use of U.S. passports for travel to Iran is
permitted. 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. On November 1, 2006, it was
65 Kessler, Glenn. “U.S. Moves to Isolate Iranian Banks.” Washington Post, Sept. 9, 2006.

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reported that Iran would offer cash incentives to Iranian tour companies that invite
Americans to Iran as part of an outreach to the American public.
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,
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. 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.66
U.S.-Allied Differences on Iran Policy
Most U.S. allies have favored engagement as a means to change Iran’s behavior,
a philosophy that might explain European efforts to negotiate a solution on the
nuclear issue. However, new agreements between Iran and the European countries
and Japan appear to be linked to progress 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
European countries and Japan refused to join the 1995 U.S. trade and investment ban
on Iran. The European dialogue with Iran 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, the talks were suspended after the August 2005
66 See CRS Report RL31258, Suits Against Terrorism States by Victims of Terrorism, by
Jennifer K. Elsea.

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breakdown of the Paris Agreement. A further indicator that trade and investment
agreements with Iran are on hold pending a nuclear solution is the apparent impasse
in September 2006 of negotiations for Japan’s Inpex to invest $2 billion to develop
Iran’s large (26 billion barrels) onshore Azadegan oil field, although negotiations
reportedly are ongoing.
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.
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.

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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 is redoubling 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

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