Order Code RL32048
Iran: U.S. Concerns and
Policy Responses
Updated April 25, 2007
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division

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 primarily by Iran’s
developing nuclear program, has been intensified by Iran’s assistance to Shiite armed
groups in Iraq and to Lebanese Hezbollah. The Bush Administration is pursuing
several avenues to attempt to contain the potential threat posed by Iran, but the
Administration’s focus on preventing an Iranian nuclear weapons breakthrough —
as well as on stabilizing Iraq — has brought multilateral diplomatic strategy to the
forefront. Since August 2006, Iran has not complied with repeated U.N. Security
Council deadlines to cease uranium enrichment, resulting in two U.N. resolutions
(1737 and 1747) to date that ban trade with and freeze the assets of Iran’s nuclear
and related entities and personalities, prevent Iran from transferring arms outside
Iran, and require reporting on international travel by named Iranians.
Other Iranian policies, particularly its material support to groups that use
violence to prevent Israeli-Arab peace or undermine pro-U.S. governments, are
attracting growing U.S. concern. These groups include Lebanese Hezbollah and the
Palestinian groups Hamas and Palestinian Islamic Jihad. Some U.S. officials also
believe that Iran is purposefully harboring several senior Al Qaeda activists, although
Iran claims they are “in custody.” U.S. officials accuse Iran of attempting to exert
influence in Iraq and causing the deaths of U.S. troops by providing arms and other
material assistance to Shiite Islamist militias participating in escalating sectarian
violence against Iraq’s Sunnis. In part to direct regional attention to that view but
also to engage Iran on an Iraq solution, the Administration supported and attended
an Iraqi regional conference on March 10, 2007, attended by Iran (and Syria).
To strengthen its diplomacy, the Administration has added components to
efforts to contain Iran, including a naval buildup in the Persian Gulf; arrests of
Iranian agents in Iraq; efforts to persuade European governments to curb trade,
investment, and credits to Iran; and pressure on foreign banks not to do business with
Iran. Some legislation introduced in the 110th Congress, including H.R. 1400, S.
970, H.R. 957, and H.R. 1357, would tighten some U.S. sanctions on Iran. Amid
signs that the pressure is causing increased strains among leaders in Iran, the
Administration strongly denies it is planning on military action against Iran. Some
in the Administration believe that only a change of Iran’s regime would end the threat
posed by Iran, although without a clear means of achieving such a result.
For further information, see CRS Report RS20871, The Iran Sanctions Act
(ISA), 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.

Contents
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, Human Rights, and Recent Elections . . . . . . . . . . . . . . . . . . . . 2
The Rebound of the Conservatives and the 2005 Election of
Mahmoud Ahmadinejad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ahmadinejad Election, Government, and Popularity . . . . . . . . . . . . . . 5
Groups Advocating Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Regime Members-Turned Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Anti-Regime Groups: People’s Mojahedin Organization of
Iran (PMOI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Son of the Former Shah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other U.S.-Based Activists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Human Rights and Religious Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . . . . 13
Conventional Military . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Weapons of Mass Destruction: Nuclear Program . . . . . . . . . . . . . . . . . . . . 16
U.S. Offer to Join Talks and Future Steps . . . . . . . . . . . . . . . . . . . . . . 19
Resolution 1696 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Resolution 1737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Resolution 1747 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chemical Weapons, Biological Weapons, and Missiles . . . . . . . . . . . . . . . 21
Ballistic Missiles/Warheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Foreign Policy and Support for Terrorist Groups . . . . . . . . . . . . . . . . . . . . . . . . 23
Relations With The Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . 23
Iranian Policy in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Supporting Palestinian Militant Groups . . . . . . . . . . . . . . . . . . . . . . . 26
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
U.S. Policy Responses and Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Containment and Possible Military Action . . . . . . . . . . . . . . . . . . . . . . . . . 31
Pre-Emptive Military Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Congress and Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
International and Multilateral Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
European/Japanese Policy on Sanctions, Lending, and Trade
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Banking and Financing Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
U.S. Trade Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
The Iran Sanctions Act (ISA)/H.R. 1400/S. 970 . . . . . . . . . . . . . . . . . 48

Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 49
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
List of Figures
Figure 1. Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Figure 2. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
List of Tables
Table 1. Major Factions and Personalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 3. Iran’s Military Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 4. Entities Sanctioned by U.N. Resolutions and
Executive Order 13382 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

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 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 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 his patron, the United States. Khomeini
fled to and taught in Najaf, Iraq, a major Shiite theological center that contains the
Shrine of Imam Ali, Shiism’s foremost figure. There, he was a peer of senior Iraqi

CRS-2
Shiite clerics and, with them, advocated direct clerical rule or velayat-e-faqih (rule
by a supreme Islamic jurisprudent). In 1978, three years after the March 6, 1975,
Algiers Accords between the Shah and Iraq’s Baathist leaders, which settled
territorial disputes and required each party to stop assisting each others’
oppositionists, Iraq expelled Khomeini to France, from which he stoked the Islamic
revolution. Mass demonstrations and guerrilla activity by pro-Khomeini forces,
allied with a broad array of anti-Shah activists, caused the Shah’s government to
collapse in February 1979. Khomeini returned from France and, on February 11,
1979, declared an Islamic Republic of Iran, as enshrined in the constitution that was
adopted in a public referendum in December 1979 (and amended in 1989).
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 established appears relatively
stable, despite internal schisms, occasional unrest in areas inhabited by minorities,
and substantial unpopularity among intellectuals, students, 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 fourth election for the Assembly of Experts was 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 body is the 42-
member Expediency Council, set up in 1988 to resolve legislative disagreements
between the Majles (parliament) and the Council of Guardians. Its members are
appointed by the Supreme Leader for five-year terms. The Council, appointed most
recently in February 2007, is still headed by former President (1989-1997) Akbar
Hashemi-Rafsanjani; its executive officer is former Revolutionary Guard leader
Mohsen Reza’i.
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 judiciary but confirmed by the Majles (parliament).

CRS-3
Table 1. Major Factions and Personalities
Reformists
Mohammad
Reformist president during 1997-2005. Elected May 1997, with 69%
Khatemi/
of the vote; re-elected June 2001with 77%. Rode wave of sentiment
Reformists
for easing social and political restrictions among students,
intellectuals, youths, and women that seeks reform but not outright
replacement of the Islamic republican regime. Khatemi supporters
held about 70% of the 290 seats in the 2000-2004 Majles. Now
heads International Center for Dialogue Among Civilizations and
remains a public figure in Iran. Visited U.S. in September 2006 to
speak at Harvard and the Washington National Cathedral on
“dialogue of civilizations.”
Office of
Hardline reformists. Original strong Khatemi supporters, but turned
Consolidation
against him for failing to challenge hardliners, particularly after July
Unity (Daftar
1999 violent crackdown on student riots, in which four students were
Tahkim-e-
killed.
Vahdat
The Islamic
The most prominent and best organized pro-reform grouping, it is
Iran
headed by Khatemi’s brother, Mohammad Reza Khatemi. He was a
Participation
deputy speaker in the 2000-2004 Majles. Reformist Mostafa Moin
Front (IIPF).
finished fifth in the first round of presidential elections on June 17,
2005.
Mojahedin of
Composed mainly of left-leaning Iranian figures who support state
the Islamic
control of the economy, but want greater political pluralism and
Revolution
relaxation of rules on social behavior.
Organization
(MIR).
Conservatives
Supreme
Considered moderate conservative, seek to challenge U.S. hegemony
Leader Ali
but not isolate Iran completely or provoke military confrontation.
Khamene’i
Generally supportive of the business community (bazaaris), and
and Akbar
oppose major state intervention in the economy. Rafsanjani, key
Hashemi-
strategist of the regime, advocates “grand bargain” to resolve all
Rafsanjani
outstanding issues with United States. At Rafsanjani’s urging,
Khamene’i recently has taken more active role constraining
Ahmadinejad’s authority; has constitutional authority to dismiss
Ahmadinejad, but no indication he plans such action.
President
Leads faction of younger, harder line conservatives associated with
Mahmoud
Revolutionary Guard, revolutionary institutions, and provincial
Ahmadinejad
governments. Generally support state control of the economy, social
welfare programs for lower classes.
Majles
Relative by marriage of Khamene’i, controls largest conservative
Speaker
faction in the Majles. Possibly at Khamene’i’s behest, has
Gholem Ali
sometimes challenged Ahmadinejad’s nominees and budget
Haded-Adel
proposals.

CRS-4
Ali Larijani
Former state broadcasting head, now heads Supreme National
Security Council and is chief nuclear negotiator. Considered very
hardline and supports Ahmadinejad goal of nuclear advancement, but
recently has sought to appear conciliatory to U.N. Security Council.
Mohammad
Former Revolutionary Guard Air Force commander and police chief,
Baqer Qalibaf
but perceived as a moderate conservative and rival of Ahmadinejad.
Supporters won nine out of 15 seats on Tehran city council in
December 2006 elections, defeating Ahmadinejad supporters. Is
now mayor of Tehran.
Mahmud
An Ayatollah, has headed the judiciary since 1999. Ally of
Hashemi
Khamene’i and Rafsanjani, has supported repeated crackdowns on
Shahrudi
independent media critical of the regime. But, has cracked down on
judicial corruption and on mistreatment of prisoners. Politically
close to Shiite Islamist parties in Iraq.
Ayatollah
Founder of the hardline Haqqani school, and spiritual mentor of
Mohammad
Ahmadinejad. Fared poorly in December 2006 elections for 83-seat
Taqi Mesbah-
“Assembly of Experts” that can amend the constitution, oversee
Yazdi
Khamene’i’s performance, and determine his successor, but did win
a seat. An assertive defender of the powers of the Supreme Leader
and a proponent of an “Islamic state” rather than the current “Islamic
republic,” and advocates isolation from the West. Some believe
Mesbah-Yazdi wants to replace Khamene’i as Supreme Leader.
The Rebound of the Conservatives and the 2005 Election of
Mahmoud Ahmadinejad. After suffering several major election defeats at the
hands of Mohammad Khatemi and the reformists during 1997-2000 — and losing the
grip on power they held while Khomeini was alive — the broad conservative camp
has 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 Administration and
the Senate (S.Res. 304, adopted by unanimous consent on February 12, 2004)
criticized the elections as unfair, because of candidate screening.
On the tide of these victories, Rafsanjani regained much of his former political
prominence and ran in the June 2005 presidential elections. (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: Ali Larijani (see Table 1); Mohammad
Baqer Qalibaf (see Table 1); and Tehran mayor Mahmoud Ahmadinejad. Former
Guard commander-in-chief Mohsen Reza’i dropped out before the election was held.
In the election, the Council of Guardians narrowed the field of candidates to 8
out of the 1,014 persons who filed. (In the 2001 presidential election, the Council
permitted 10 out of the 814 registered candidates.) On the eve of the first round,
President Bush criticized the elections as unfair because of the denial of so many

CRS-5
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.
Ahmadinejad Election, Government, and Popularity. 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. In keeping with a practice begun
by Khatemi, he also named a woman as one of his nine vice presidents. Since taking
office, Ahmadinejad has inflamed world opinion with several anti-Israel statements,
the first of which was stated at an October 26, 2005, 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 similar point of contention was his insistence on the holding of a December 2006
conference in Tehran on the Holocaust. 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.
Some Iranian leaders and portions of the population appear to be concerned that
Ahmadinejad’s statements on Israel and open defiance of the international
community on the nuclear issue — for example, referring to the Security Council
resolutions discussed below as “torn pieces of paper” — are isolating Iran. The
results of the December 15, 2006, municipal council and Assembly of Experts
elections showed setbacks for Ahmadinejad supporters. His supporters won only 3
out of the 15 seats on the Tehran city council, with similar results in other major
cities. Ahmadinejad’s sister lost her bid for a Tehran council seat. Supporters of
rival conservative Qalibaf won a majority, and the reformists regrouped and fared
unexpectedly well, winning four of the seats. Just before the elections, students
protested Ahmadinejad during a speech at Tehran’s Amir Kabir University, a
possible preview of his waning popularity.
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

CRS-6
Mahmoud Ahmadinejad
First non-cleric to be president of the Islamic republic since the assassination of then
president Mohammad Ali Rajai in August 1981. About 50, 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. U.S. intelligence reportedly determined he
was not, as was thought by some, one of the holders of the 52 American hostages during
November 1979-January 1981. 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.” For more information, see CRS Report RS22569, Iran: Profile and
Statements of President Mahmoud Ahmadinejad
, by Hussein Hassan.
Several experts believe that Supreme Leader Khamene’i is trying to curb
Ahmadinejad’s authority in order to limit confrontation with the international
community. The first decision that strengthened the view that Khamene’i seeks to
constrain Ahmadinejad was the October 2005 grant of new governmental supervisory
powers to the Expediency Council. The second was the July 2006 creation of a ten-
person advisory “Foreign Policy Committee” consisting of former defense and
foreign ministers. In January 2007, an Iranian newspaper owned by Khamene’i
admonished Ahmadinejad to remove himself from the nuclear issue. However,
Ahmadinejad’s ties to the Revolutionary Guard and other revolutionary institutions,
likely positions him to weather criticism from senior leaders and others.
Ahmadinejad also has tried to protect his position by appealing to the lower
classes. He has directed the raising of some wages, cancelled some debts of farmers,
and increased social welfare payments and subsidies, although perhaps not to the
degree he had promised in his campaign. His distributive policies have been
supported, in part, by relatively high oil prices, which are nearly $60 per barrel, and
the budget he submitted in January 2007 assumes an oil price of only $33 per barrel.
The relative health of Iran’s budget could help Iran minimize the effects of
international sanctions resulting from Iran’s nuclear defiance. Still, Ahmadinejad
has not moved to correct economic structural imbalances, such as the dependence on
oil revenues, which account for about 20% of Iran’s gross domestic product (GDP),
and its extensive imports of refined gasoline. 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 them and the bazaar merchants,
a key constituency for some conservatives. In a January 2007 letter, 150
parliamentarians in the 290-seat Majles criticized his economic results, including
rising inflation.

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Table 2. Selected Economic Indicators
Economic Growth
4.8%
(2005)
Proven Oil Reserves
100 billion barrels (fifth in world)
Refined Gasoline
$4 billion value per year (60% from European oil trader
Imports
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
India, Kuwait, Turkey, Venezuela
Suppliers
Some Major Trading
Japan ($7.5 billion exports to Japan); China ($3.9 billion
Partners
exports, $2.7 billion imports); Italy ($5.3 billion equally
divided import/export); Germany ($4.9 billion imports
from); France ($3.2 billion imports)
Export Credit Guarantee
Italy - $6.2 billion; Germany $5.4 billion; France - $1.4
Exposure Limit
billion; Spain - $1 billion, and Austria - $1 billion
Major Non-Oil
Renault (France) and Mercedes (Germany)- automobile
Investments
production in Iran; Renault (France), Peugeot (France)
and Volkswagen (Germany) - auto parts production;
Turkey - Tehran airport improvement, hotels; China -
shipbuilding on Qeshm Island, aluminum factory in
Shirvan, cement plant in Hamadan; United Arab Emirates
financing of Esfahan Steel Company; India - steel plant;
S. Korea - steel plant in Kerman Province.
Trade With U.S. (2006)
$242 million (trade is severely restricted by U.S.
sanctions, as discussed later). Of which: exports to U.S. -
$157 million. Imports from U.S. - $85 million.
Foreign Exchange
$40 billion+
Reserves
External Debt
$19 billion (2005 est.)
Income Per Capita
(purchasing power
$8,100 per year
parity)
Unemployment Rate
11.2% (2004)
Source: CIA World Factbook, various press, IMF.

CRS-8
Groups Advocating Change
The regime appears generally stable for now, but there are factions and
movements that are actively seeking to substantially modify its policies or to replace
it outright. The groups that seek to replace 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. They 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, who had
been arrested for publishing an opinion poll purporting to show that the Iranian
public favors restoring relations with the United States.
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. In December 2006, a European Union (EU) court struck down EU’s
freezing of the PMOI’s assets in Europe.
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
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).

CRS-9
organization — rather than the leadership of the organization itself — that was
responsible for the alleged killing of seven American defense advisers to the
former Shah in 1975-1976. The State Department report also notes the group’s
promotion of women in its ranks. On August 14, 2003, the State Department
designated the NCR offices in the United States an alias of the PMOI, and NCR and
Justice Department authorities closed down those offices. In November 2002, a
letter signed by about 150 House Members was released, asking the President to
remove the PMOI from the FTO list.6

The group’s alliance with Saddam Hussein’s regime in the 1980s and 1990s
contributed to the U.S. shunning of the organization. U.S. forces attacked PMOI
military installations in Iraq during Operation Iraqi Freedom and negotiated a
ceasefire with PMOI military elements in Iraq, requiring the approximately 3,350
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.
Another 350 PMOI fighters have taken advantage of an arrangement between Iran
and the ICRC for them to return home if they disavow further PMOI activities.
Another 200 are in the process of leaving Ashraf if a host country could be found.
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 Those
advocating that policy took heart from 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 would be expelled
from Iraq some time in 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 50 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
6 “Removal of Iran Group From Terror List Sought.” Washington Post, November 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, August 26, 2002.

CRS-10
community, and there are about 25 small-scale radio or television stations that
broadcast into Iran. Some U.S.-based activists are the following:
! The Abdorrahman Boroumand Foundation. This foundation, led
by two Boroumand sisters, is trying to document human rights
abuses in Iran.
! The Iran Human Rights Documentation Center (IHDC). The center
is run by persons mostly of Iranian origin and affiliated with Yale
University’s Griffin Center for Health and Human Rights. It is
documenting abuses in Iran, using contacts with Iranians in Iran.
! The National Iranian American Council (NIAC). The organization’s
objective is to build and expand networks of Iranian-American
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 2006, released March 6, 2007,
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 or major cases
include the following:
9 For text of both, see [http://www.state.gov/g/drl/rls/hrrpt/2006/78852.htm]; see also
[http://www.state.gov/g/drl/rls/irf/2005/51599.htm].

CRS-11
! 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 state media, reviving a
cultural decree from Ayatollah Khomeini’s rule.
! The State Department reports that the regime has forcibly repressed
strikes by the 17,000-member Tehran bus drivers union, including
arresting its leaders.
! 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, on March 4, 2007, the regime arrested 31 women activists
who were protesting the arrest in 2006 of several other women’s
rights activists; all but 3 of the 31 were released by March 9. In
May 2006, the Majles passed a bill calling for increased public
awareness of Islamic dress, an apparent attempt to persuade women
not to violate the dress code or wear Western fashion. The bill did
not, as some outside Iran intimated, contain any requirement or
suggestion that members of Iran’s minority groups wear badges or
distinctive clothing. In April 2006, Ahmadinejad directed that
women be allowed to attend soccer matches, but the Supreme Leader
reversed that move. Women can vote and run in parliamentary
elections, but their candidacies for president have routinely been

CRS-12
barred by the Council of Guardians. Iranian women can drive, and
many work outside the home, including owning and running their
own businesses. There are thirteen women in the 290-seat Majles.
! The State Department report adds that, during 2006, the government
increased controls over use of the internet because citizens have
increasingly turned to that medium as a source for news and political
debate. In one specific major development during 2006, in
September the government closed a major reformist daily
newspaper, Shargh, citing its publishing of a satirical cartoon with
political overtones.
! 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

CRS-13
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 reports note other discrimination against Sufis
and Sunni Muslims, although abuses against Sunnis could reflect
that minority ethnicities, including Kurds, are mostly Sunnis. In
addition, the regime repressed 2006 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
highlighted 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. 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
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 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
10 See [http://www.whitehouse.gov/nsc/nss/2006/].

CRS-14
volunteer militia that enforces adherence to Islamic customs, is generally loyal to the
hardliners politically. (In the 110th Congress, a provision of H.R. 1400 and of S. 970
calls for the Revolutionary Guard to be designated a foreign terrorist organization,
or FTO.)
Iran has acquired a structure and doctrine for unconventional warfare that partly
compensates for its conventional weakness. Outgoing 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. In his confirmation hearings on January 30, 2007,
Abizaid’s replacement, Admiral William Fallon, said that “Based on my read of their
military hardware acquisitions and development of tactics ... [the Iranians] are
posturing themselves with the capability to attempt to deny us the ability to operate
in [the Strait of Hormuz].” Although many experts believe that U.S. forces could
quickly reopen the Strait if Iran closed it, Iran has tried to demonstrate that it is a
capable force in the Gulf. It has conducted five major military exercises since
August 2006, including exercises simultaneous with U.S. exercises in the Gulf in
late March 2007. CNN reported on February 21, 2007, that Iranian ships were
widening their patrols, coming ever closer to key Iraqi oil platforms in the Gulf.
Such capabilities include ship-launched cruise missiles, midget subs, and anti-
aircraft missile systems. Several weeks after that report, Iran seized 15 British sailors
that Iran said were patrolling in Iran’s waters, although Britain says they were in Iraqi
waters performing coalition-related searches. The 15 were held until April 5, 2007.
If there were a conflict in the Gulf, some fear that Iran might try 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.

CRS-15
Table 3. Iran’s Military Capabilities
Defense
Surface-
Military
Combat
Budget
Tanks
Air
Ships
Personnel
Aircraft
(billions
Missiles
U.S $)
545,000
1,693
150
280
200
6.6
(regular
(incl. 480 I-Hawk
(incl. 25 MiG-29
(incl. 10 Chinese-
military and
T-72)
plus some
and 30 Su-24)
made Hudong, 40
Revolutionary
Stinger
Boghammer, 3
Guard Corps
frigates) Also has
(IRGC).
3 Kilo subs
IRGC is about
one-third of
total force.
Number of “Qods Forces” of IRGC
Approximately 3,000 total in the Qods Force, which
promotes Iran’s regional and global objectives
through advisory support to pro-Iranian factions in
Lebanon, Iraq, Persian Gulf states, Afghanistan, and
Central Asia. Also operates worldwide intelligence
network to give Iran possible terrorist option and to
assist in procurement of WMD-related technology.
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. Both systems could be used to try to block
the Strait of Hormuz, to attack Persian Gulf state oil
export terminals, or to threaten shipping through
that waterway.a
Midget Subs
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
Russia has sold and now delivered to Iran (January
2007) 30 anti-aircraft missile systems (Tor M1),
worth over $1 billion. 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.
a. Jacoby testimony before the Senate Intelligence Committee. Feb. 16, 2005.

CRS-16
Weapons of Mass Destruction: Nuclear Program11
Some observers believe that Iran and the international community have reached
a crisis over Iran’s nuclear program. Many outside experts and governments believe
that Iran is attempting to achieve a nuclear weapons capability, and stated U.S. policy
is to prevent that outcome. On September 5, 2006, President Bush said explicitly “I
am not going to allow [a nuclear-armed Iran].”12 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, and
several of its reports (January 31, 2006 and February 27, 2006) say it found
documents that 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,13 to which Iran is a
party. An analysis was published by the National Academy of Sciences challenging
the U.S. view that Iran is petroleum rich and therefore has no need for a nuclear
power program. According to the analysis, the relative lack of investment is causing
a rapid decline in Iranian oil exports to the point where Iran might have negligible
exports of oil by 2015.14 U.S. officials say that Iran’s vast gas resources make a
nuclear energy program unnecessary.
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.
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 August 2005, press reports about an
intelligence community estimate said the U.S. estimate of an Iranian nuclear weapons
11 For further information, see CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments
, by Sharon Squassoni.
12 Schweid, Barry. “Bush: Won’t Allow A Nuclear-Armed Iran.” Associated Press,
September 5, 2006.
13 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
, November 18, 2005. P. A11.
14 Stern, Roger. “The Iranian Petroleum Crisis and United States National Security,”
Proceedings of the National Academy of Sciences of the United States of America.
December 26, 2006.
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]. November 19, 2006.

CRS-17
ranges from 6-10 years from then,16 and former Director of National Intelligence
John Negroponte did not alter that estimate in global threat assessment testimony in
January 2007. Other experts focus on a so-called “point of no return,” a point at
which Iran has the expertise needed for a nuclear weapon, that they say could be
reached within a year by some estimates. On the other hand, some recent press
reports and comments by proliferation experts say that Iran’s program faces
significant bottlenecks and that it might not yet have mastered centrifuge cascade
technology. (An IAEA communication of April 18, 2007 (GOV/INF/2007/10) says
Iran is running eight centrifuge cascades of 164 centrifuges each, but not a 3,000
centrifuge cascade as Iran had predicted it would be operating by now.)
European Diplomatic Efforts/Paris Agreement. U.S., international, and
IAEA attention to Iran’s nuclear program increased 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: a uranium enrichment facility at Natanz
and a heavy water production plant at Arak, considered ideal for the production of
plutonium. (In November 2006, the IAEA, at U.S. urging, declined to provide
technical assistance to the Arak 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 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 was expected to become operational in 2007, but, in March 2007, Russia
told Iran it would not fuel the reactor until Iran is in compliance with the U.N.
resolutions discussed below. Russia has also pulled many of its technicians out of
the site. As part of the contract, Russia has trained about 700 Iranian nuclear
engineers.
In 2003, France, Britain, and Germany (the “EU-3”) opened a separate
diplomatic track to curb Iran’s program. On October 21, 2003, Iran pledged, in
return for peaceful nuclear technology, to (1) fully disclose its past nuclear
activities, (2) to sign and ratify the “Additional Protocol” to the NPT (allowing for
enhanced inspections), and (3) to suspend uranium enrichment activities. Iran signed
the Additional Protocol on December 18, 2003, although the Majles has not yet
ratified it. Iran abrogated the agreement after the IAEA reports of November 10,
2003, and February 24, 2004, stated that Iran had violated its NPT reporting
obligations over an 18-year period.
In the face of the U.S. threat to push for Security Council action, the EU-3 and
Iran reached a more specific November 14, 2004, “Paris Agreement,” committing
Iran to suspend uranium enrichment (as of November 22, 2004) in exchange for
16 Linzer, Dafna. “Iran Is Judged 10 Years From Nuclear Bomb.” Washington Post, August
2, 2005; Weissman, Steven and Douglas Jehl. “Estimate Revised On When Iran Could
Make Nuclear Bomb.” New York Times, August 3, 2005.
17 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, January 24, 2004.

CRS-18
renewed trade talks and other aid.18 EU-3 - Iran negotiations on a permanent nuclear
pact began on December 13, 2004, and related talks on a trade and cooperation
accord (TCA) began in January 2005. 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 Ahmadinejad’s election. In August 2005, Iran rejected as insufficient an EU-3
“final settlement” plan 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, 19 but no time frame was set for the referral. Iran did not cease
uranium conversion (and now has about 200 tons of converted uranium, enough for
20 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.
In January 2006, Iran resumed enrichment activities, and on February 4, 2006,
the IAEA board voted 27-320 for a resolution to report Iran to the U.N. Security
Council. On the basis of that action, on March 29, 2006, the Council agreed on a
Council presidency “statement” setting a 30-day time limit (April 28, 2006) for Iran
to cease enrichment.21 After further non-compliance, the United States sought a
formal Security Council resolution to mandate Iran’s compliance and authorize
punitive measures. 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 Bush22 as offering no new nuclear proposals.
18 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].
19 Voting in favor: United States, Australia, Britain, France, Germany, Canada, Argentina,
Belgium, Ghana, Ecuador, Hungary, Italy, Netherlands, Poland, Portugal, Sweden, Slovakia,
Japan, Peru, Singapore, South Korea, India. Against: Venezuela. Abstaining: Pakistan,
Algeria, Yemen, Brazil, China, Mexico, Nigeria, Russia, South Africa, Sri Lanka, Tunisia,
and Vietnam.
20 Voting no: Cuba, Syria, Venezuela. Abstaining: Algeria, Belarus, Indonesia, Libya, South
Africa.
21 See [http://daccessdds.un.org/doc/UNDOC/GEN/N06/290/88/PDF/N0629088.pdf?Open
Element].
22 See [http://www.president.ir/eng/ahmadinejad/cronicnews/1385/02/19/index-e.htm#b3].

CRS-19
U.S. Offer to Join Talks and Future Steps. In an effort to strengthen
diplomacy, as well as to build support for possible international or multilateral
sanctions, the Administration offered on May 31, 2006, to join the nuclear talks with
Iran if Iran first suspends its uranium enrichment. Such talks would center on a
package of incentives and possible sanctions that were agreed to on June 1, 2006, by
a newly-formed group of negotiating nations, the so-called “Permanent Five Plus 1”
(P5+1: United States, Russia, China, France, Britain, and Germany). EU
representative Javier Solana formally presented the offer to Iran on June 6; U.S. and
EU officials say that this offer remains open:
Reported Incentives23
! Negotiations on an EU-Iran trade agreements and acceptance of Iran
into the World Trade Organization.
! Easing of U.S. sanctions to permit sales to Iran of commercial
aircraft or aircraft parts.
! Sale to Iran of a light-water nuclear reactor and guarantees of
nuclear fuel, and possible sales of 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.
! A freeze of assets of Iranian officials or institutions and freeze of
Iran’s assets abroad and a ban on some financial transactions with
Iran.
! A ban on sales of advanced technology and of arms to Iran; and a
ban on sales to Iran of gasoline and other refined oil products.
! An end to support for Iran’s application to the WTO.
23 One source purports to have obtained the contents of the package from ABC News:
[http://www.basicint.org/pubs/Notes/BN060609.htm]

CRS-20
Resolution 1696. Iran said it would give a final response to the offer by
August 22, 2006, 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). 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. It called
on U.N. member states not to sell Iran WMD-useful technology.
On August 22, 2006, Iran submitted a 21-page formal response to the June 6
offer by the six powers, to the ambassadors of those countries in Tehran. The text
of Iran’s response was not disclosed, but it reportedly offered 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
acceptance of the international demands on the nuclear program. Iran did not offer
to suspend uranium enrichment in advance of negotiations.
Resolution 1737. With the backing of the P5+1, chief EU negotiator Javier
Solana negotiated with Iran to try arrange a temporary enrichment suspension. A
round of talks, in Berlin, concluded on September 28, 2006, without agreement.
After almost four months of negotiations during which Russia and, to a lesser extent,
China, argued that diplomacy with Iran would yield greater results than would
sanctions, the Security Council agreed to U.N. Security Council Resolution 1737.
It was passed unanimously on December 23, 2006, under Chapter 7, Article 41 of the
U.N. Charter. It prohibits sale to Iran — or financing of such sale — of technology
that could contribute to Iran’s uranium enrichment or heavy-water reprocessing
activities. It also requires U.N. member states to freeze the financial assets of ten
named Iranian nuclear and missile firms, including those in Table 4, at the end of
this paper.
The Resolution did not mandate the banning of travel by these personalities, but
called on member states not to admit them. The Resolution also provides an
exemption for the Bushehr reactor, which Russia had sought. The EU foreign
ministers agreed on February 12, 2007, to freeze the assets of the named entities and
to impose broader restrictions on entities that might later be identified as assisting
Iran’s WMD program and to prevent the training of Iranians in Europe that might
contribute to Iran’s programs. In reaction, the Majles called for the government to
adjust its cooperation with IAEA inspections. In late January 2007, Iran barred 38
out of about 200 IAEA inspectors from upcoming visits.
Resolution 1747. Resolution 1737 demanded enrichment suspension by
February 21, 2007. An IAEA report sent to Board member countries that day
reportedly corroborated Iran’s statements of defiance, saying it is continuing its
enrichment activities. In London on March 8, 2007, the P5+1 began formal
discussions on a new Chapter 7 Security Council resolution that would presumably
impose additional sanctions on Iran, quickly reaching agreement. On March 24,
2007, Resolution 1747 was adopted unanimously, with the following major
provisions:

CRS-21
! It added 10 military/WMD-related entities; 3 Revolutionary Guard
entities; 8 persons, and 7 Revolutionary Guard commanders listed
in Table 4, at the end of this paper.
! It bans arms transfers by Iran, a provision targeted at Iran’s alleged
arms supplies to Lebanese Hezbollah and to Shiite militias in Iraq.
! It requires all countries to report to the United Nations when the
sanctioned Iranian persons travel to their territories.
! It calls for (but does not require) countries to refrain from selling
arms to Iran and to avoid any new lending or grants to Iran.
Resolution 1747 demands Iran suspend enrichment and comply with other
previous provisions by May 24, 2007. U.S. officials say they and the other P5+1
nations will consider further measures if Iran does not comply. Ahmadinejad said
on April 24, 2007, that Iran would not halt its program, but negotiations between
Solana and Larijani are continuing, and some reports say that there might be a
compromise under which Iran could be allowed to keep some enrichment capability
running. The Administration says it would not back such a compromise.
Chemical Weapons, Biological Weapons, and Missiles
Official U.S. reports and testimony 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. These officials and reports also say that Iran
“probably maintain[s] an offensive [biological weapons] BW program ... and
probably has the capability to produce at least small quantities of BW agents.”
Ballistic Missiles/Warheads. Largely with foreign help, Iran is becoming
self sufficient in the production of ballistic missiles and, by U.S. accounts, already
has the largest inventory of ballistic missiles in the Middle East. Tehran appears to
view its ballistic missiles as an integral part of its strategy to deter or retaliate against
forces in the region, including U.S. forces. The Bush Administration is seeking to
establish sites in Europe, including Poland and the Czech Republic, 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 operational, meaning that it would be capable of hitting
Israel Despite Iran’s claims, some 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

CRS-22
May 31, 2005, Iran announced it had successfully tested a solid-fuel
version of the Shahab-3.
! Warheads. A Wall Street Journal report of September 14, 2005,
said that U.S. intelligence believes Iran is working to adapt the
Shahab-3 to deliver a nuclear warhead. Subsequent press reports
say that U.S. intelligence captured an Iranian computer in mid-2004
showing plans to construct a nuclear warhead for the Shahab.24 Iran
denied work on such a warhead, but the IAEA is seeking additional
information from Iran on the material.
! Shahab-4. In October 2004, Iran announced it had succeeded in
extending the range of the Shahab-3 to 1,200 miles, and it added in
early November 2004 that it is capable of “mass producing” this
“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 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
appeared to corroborate this reporting in a July 6, 2006, story, which
asserted that the North Korean-supplied missile is based on a Soviet-
era “SS-N-6” missile.
! ICBM. Iran’s asserted progress on missiles would appear to
reinforce the concerns of the U.S. intelligence community. In
February 2005, DIA Director Jacoby testified that Iran might be
capable of developing an intercontinental ballistic missile (3,000
mile range) by 2015,25 but that it was not yet clear whether Iran has
decided to field such a system.
! Other Missiles. On September 6, 2002, Iran said it successfully
tested a 200 mile range “Fateh 110” missile (solid propellent), and
Iran said in late September 2002 that it had begun production of the
missile.26 Iran also possesses a few hundred short-range ballistic
missiles, including the Shahab-1 (Scud-b), the Shahab-2 (Scud-C),
and the Tondar-69 (CSS-8).
24 Broad, William and David Sanger. “Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims.” New York Times, November 13, 2005.
25 “Greater U.S. Concern About Iran Missile Capability.” Reuters, March 11, 2002.
26 “Iran: New Missile on the Assembly Line.” New York Times, September 26, 2002.

CRS-23
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, and it again attributed the terrorist activity to the Revolutionary Guard
[presumably the Qods Force] and the Intelligence Ministry (Ministry of Information
and Security, MOIS).27
Relations With The Persian Gulf States.28 During the 1980s and early
1990s, Iran, through the Qods Force and the MOIS, 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). However, Iran’s efforts to “export” its Islamic revolution
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. In part to counter Iran’s perceived growing influence in the Gulf,
in December 2006 the summit of the GCC leaders announced that the GCC states
might jointly study their own development of “peaceful nuclear technology.”
! Saudi Arabia. Many observers closely watch the relationship
between Iran and Saudi Arabia, particularly in recent years, when
Saudi Arabia has become alarmed at the emergence of a pro-Iranian
government in Iraq and at Iran’s ascendancy in Lebanon and among
Shiite movements in the region. Saudi Arabia sees itself as leader
of the Sunni Muslim world and views Shiite Muslims as heretical
and threatening internally. Currently, Saudi leaders are highly
concerned about Iran’s nuclear program and the potential for Iranian
reaction against the Kingdom should the United States take military
action to stop Iran’s program. Still, they are receptive to easing
tensions with Iran, particularly over Lebanon, and they hosted
Ahmadinejad in the Kingdom in early March 2007. Saudi officials
do not want a repeat of the 1980s and 1990s, when Iran sponsored
disruptive demonstrations at annual Hajj pilgrimages in Mecca,
some of which were violent, and it funded Saudi Shiite dissident
movements. The Saudis also blame a pro-Iranian movement in the
Kingdom, Saudi Hezbollah, for the June 25, 1996, Khobar Towers
housing complex bombing, which killed 19 U.S. airmen.29 After
27 U.S. Department of State. Country Reports on Terrorism 2005. Released April 2006.
[http://www.state.gov/documents/organization/65462.pdf].
28 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2006, by
Kenneth Katzman.
29 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001. The June 21, 2001, federal grand jury indictments of 14 suspects (13 Saudis and a
(continued...)

CRS-24
restoring relations in December 1991 (after a four-year break),
Saudi-Iran ties progressed to high-level contacts during Khatemi’s
presidency, including Khatemi visits there in 1999 and 2002.
! United Arab Emirates (UAE) concerns about Iran’s intentions have
not completely recovered from the April 1992 Iranian expulsion of
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 (particularly the federation capital, Abu Dhabi,
which takes a harder line than Dubai, which has a large Persian-
speaking community and business ties to Iran) 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.
! 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 60% 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
opposition coalition won almost half of the 40 seats up for the vote.
29 (...continued)
Lebanese citizen) in the Khobar bombing indicate that Iranian agents may have been
involved, but no indictments of any Iranians were announced. In June 2002, Saudi Arabia
reportedly sentenced some of the eleven Saudi suspects held there. The 9/11 Commission
final report asserts that Al Qaeda might have had some as yet undetermined involvement
in the Khobar Towers attacks.

CRS-25
Iranian Policy in Iraq. The U.S. military ousting of Saddam Hussein appears
to have benefitted Iran strategically,30 but U.S.-Iran differences in Iraq have
widened since the fall of Saddam. 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. Iran has signed
a number of agreements with Iraq on transportation, energy cooperation, free flow
of Shiite pilgrims, border security, intelligence sharing, and other cooperation.
However, U.S. officials assert that, as part of its effort to build influence in Iraq, Iran
is providing arms (including highly lethal “explosively forced projectiles,” EFPs,
that have killed about 170 U.S. soldiers in Iraq) and financing to Shiite militias. The
militias are fielded not only by Iran’s long-standing Shiite allies but also by the
radical cleric Moqtada Al Sadr, and these militias are believed to be involved in
sectarian violence. A February 11, 2007, U.S. briefing in Baghdad provided evidence
that the EFP’s were supplied by Iran. On April 11, 2007, U.S. military officials in
Baghdad said that some Iranian-origin weapons had been found in the hands of Sunni
insurgents as well, although the military did not offer an explanation on why Iran
would want to arm opponents of its proteges in Iraq.
In an effort to limit opportunities for Iran to act against U.S. interests in Iraq, in
November 2005 the Administration approved a limited diplomatic dialogue with
Iranian officials on the issue of Iraqi stability and Iran’s aid to Shiite militias. In
March 2006, Iranian officials publicly accepted talks on Iraq, but no talks were held,
in part because the United States believed Iran was planning to try to expand such
talks to include U.S.-Iran bilateral issues. The issue of talks was revived in the
context of recommendations by the “Iraq Study Group” (Recommendations 9, 10,
and 11) that the United States open talks with both Iran and Syria to help stabilize
Iraq. President Bush’s January 10, 2007, speech on Iraq policy stated instead that the
United States “... will interrupt the flow of support [to armed groups] from Iran and
Syria.” As part of the new stance, U.S. forces in Iraq arrested a total of seven Iranian
Qods Force members involved in weapons transfers to Iraqi factions in December
2006 and January 2007 (two were arrested in a SCIRI compound and five in an
Iranian liaison facility in Kurdish-controlled Irbil). The Iraqi government insisted on,
and obtained, the release by U.S. forces of the first two arrested; the case of the other
five is still pending. He announced additional military deployments directed mostly
at Iran, as discussed later under “containment options.”
The Administration might have judged that the military moves strengthened the
U.S. position, and the Administration agreed to support a March 10, 2007, regional
conference in Iraq attended by Iran and Syria. Both Iranian and U.S. officials called
the conference constructive, but both denied that substantive bilateral talks took place
at the margins of the conference. Further regional talks on Iraq are planned for May
4, 2007, in Egypt, and Secretary of State Rice has said she would be willing to talk
directly with her Iranian counterpart on the Iraq issue, if Iran attends. Iran has not
said it would attend, demanding as a precondition that its five seized agents be
returned. The Administration has said it would review the possibility of releasing
them in July 2007, turning down an April 2007 recommendation by the State
30 This issue is covered in greater depth in CRS Report RS22323, Iran’s Influence in Iraq,
by Kenneth Katzman.

CRS-26
Department that they be released now. (For more information, see CRS Report
RS22323, Iran’s Influence in Iraq, by Kenneth Katzman.)
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, although other
Iranian leaders have made similar statements in the past. In the 1990s, Khamene’i
called Israel a “cancerous tumor” and made other statements suggesting that he
seeks Israel’s destruction. In December 2001, Rafsanjani said that it would take only
one Iranian nuclear bomb to destroy Israel, whereas a similar strike against Iran by
Israel would have far less impact because Iran’s population is large. Iran has
sometimes openly incited anti-Israel violence, including hosting conferences of anti-
peace process organizations (April 24, 2001, and June 2-3, 2002). During his
presidency, Khatemi generally refrained from inflammatory statements against
Israel, and he 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 saw Iran’s policy further strengthened by Hamas’ victory in the January
25, 2006, Palestinian legislative elections. The victory, and the Saudi-brokered
Hamas-Fatah “unity government,” positions Hamas to block any moves toward
peace, and Hamas continues to oppose a two-state solution with Israel. However,
Hamas activists say they are not politically close to Iran because Iran is mostly Shiite,
while Hamas members are Sunni Muslims.31 In one manifestation of that identity,
Hamas protested the execution of Saddam Hussein in December 2006, in part
blaming pro-Iranian Shiite factions that dominate Iraq for “victors’ justice.” 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
31 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, January 29,
2006.

CRS-27
Hamas-led government to help it weather aid reductions from the United States and
Europe. In December 2006, Iran reportedly pledged an additional $250 million for
2007. Some pro-U.S. Arab states (Qatar, Saudi Arabia, UAE, and Kuwait) have
pledged comparable amounts since Hamas took over governance.
Lebanese Hezbollah. Iran has maintained a close relationship with
Hezbollah since the group was formed in 1982 by Lebanese Shiite clerics who were
sympathetic to Iran’s Islamic revolution and belonged to the Lebanese Da’wa Party.
Hezbollah was responsible for several acts of anti-U.S. and anti-Israel terrorism in
the 1980s and 1990s.32 Hezbollah’s attacks 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 (Shib’a Farms).
Neither Israel nor the United States opposed Hezbollah’s progressively
increased 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 parliament to 14 out of the 128-
seat body. On the strength of this showing, two Hezbollah members were given
cabinet seats. 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, Iran has long been its major arms supplier. Hezbollah fired Iranian-
supplied rockets 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.33 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
32 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. Hezbollah is also believed to have committed the March
17, 1992, bombing of Israel’s embassy in that city, which killed 29 people. 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 Velayati, and four other Iranian officials for this attack.
33 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, February 4, 2002.

CRS-28
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 as the movement
increasingly (but thus far peacefully) challenges the pro-U.S., pro-Saudi government
in Beirut. 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 military campaign.34 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).35 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) passed their respective chambers. They urged the EU to classify
Hezbollah as a terrorist organization; S.Res. 82 called on Hezbollah to disband its
militia as called for in U.N. Security Council Resolution 1559 (September 2, 2004).
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 its leadership
is secular. In addition, Azerbaijan is ethnically Turkic, and Iran fears that Azerbaijan
nationalists might stoke separatism among Iran’s large Azeri Turkic population,
which 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 is engaged in border security and defense cooperation with
Azerbaijan directed against Iran (and Russia). The United States successfully backed
construction of the Baku-Tblisi-Ceyhan oil pipeline, intended in part to provide
alternatives to Iranian oil. 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.
34 Shadid, Anthony. “Armed With Iran’s Millions, Fighters Turn to Rebuilding.”
Washington Post
, August 16, 2006.
35 See CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict. Jeremy
Sharp, coordinator.

CRS-29
Afghanistan.36 Since the fall of the Taliban, Iran, through aid and
reconstruction projects with Afghanistan that total at least $200 million since 2001
(out of a pledged $500 million), is trying to restore some of its Iran’s traditional
sway in eastern, central, and northern Afghanistan where Persian-speaking Afghans
predominate. It aided Northern Alliance figures that were prominent in the post-
Taliban governing coalition, although, since 2004, Iran’s influence has waned
somewhat as its allies, mostly Persian-speaking Afghan minority factions still
referred to as the “Northern Alliance,” have been marginalized in Afghan politics.
However, Iranian-funded Shiite theological seminaries are being built in Kabul and
elsewhere, 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 27,000 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.
On April 17, 2007, U.S. military personnel in Afghanistan captured a shipment
of Iranian weapons that purportedly was bound for Taliban fighters. But, because
such a shipment would appear to conflict with Iran’s policy in Atghanistan, U.S.
military officers did not attribute the shipment to a deliberate Iranian government
decision to arm the Taliban. 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 Iran37 or whether they are at relative liberty within Iran.
These figures are purported to include Al Qaeda spokesman Sulayman Abu Ghaith,
top operative Sayf Al Adl, and Osama bin Laden’s son, Saad.38 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
36 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.
37 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires
, May 19, 2003.
38 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.

CRS-30
outside Iran.39 Iran asserted on July 23, 2003, that it had “in custody” senior Al
Qaeda figures, but it has refused to extradite them to their countries of origin or to
share information about their status.
In testimony before the Senate Foreign Relations Committee on March 29,
2007, Undersecretary of State Nicholas Burns accused Iran of violating U.N. Security
Council Resolutions 1267 and 1373, which require sharing information on Al Qaeda,
as part of the emerging broader U.S. strategy of pressuring Iran militarily, politically,
and economically. Hardliners in Iran might want to protect Al Qaeda activists as
leverage against the United States and its allies, and some say Iran might want to
exchange them for a U.S. hand-over of People’s Mojahedin activists under U.S.
control in Iraq. Possibly attempting to show that it is an adversary and not an ally of
Al Qaeda, on July 16, 2005, Iran’s Intelligence Minister said that 200 Al Qaeda
members are in Iranian jails and that Iran had broken up an Al Qaeda cell planning
attacks on Iranian students.40
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.41 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 Iraq42 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. Iran strongly disputed the
39 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.
40 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.
41 An exception was the abortive 1985-1986 clandestine arms supply relationship with Iran
in exchange for some American hostages held by Hezbollah in Lebanon (the so-called
“Iran-Contra Affair”).
42 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis
. New York: John Wiley and Sons, 1991. p. 168.

CRS-31
U.S. assertion that the July 3, 1988, U.S. shoot-down of Iran Air Flight 655 by the
U.S.S. Vincennes over the Persian Gulf (bound for Dubai, UAE) was an accident.
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
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.
The Bush Administration continued the thrust of Clinton Administration efforts
to try to limit Iran’s strategic capabilities through international diplomacy and
sanctions, while welcoming selected bilateral diplomacy with Iran on specific priority
issues, such as stabilizing Afghanistan and Iraq. Some Bush Administration officials
have sought to place regime change at the center of U.S. Iran policy. In early 2007,
the Administration approach shifted somewhat toward strategic and military
containment, but the concept of selected bilateral diplomacy was revived in the case
of Iraq stabilization. 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).
Containment and Possible Military Action
The Administration appears to believe that Iran’s strategic position can be
contained or even reversed by U.S. conventional capabilities and regional and
international alliances. Some in the Administration are said to believe that pressuring
Iran on multiple fronts could even cause cracks within Iran’s regime that could
precipitate severe unrest or even collapse. Since mid-2006, the Administration has
taken steps to design a containment or pressure strategy for Iran consisting of U.N.
sanctions on the nuclear issue, efforts to persuade U.S. allies and their firms not to
conduct business with Iran, and military deployments. The military elements are

CRS-32
discussed in this section, and additional components of the policy, such as
international and U.S. or U.S.-inspired sanctions, are discussed in the sections below.
The more assertive military containment was signaled in the January 10, 2007,
statement by President Bush on Iraq. He confirmed in that speech that the United
States was sending a second U.S. aircraft carrier group into the Gulf,43 and he
announced the extended deployment of Patriot anti-missile batteries in the Gulf,
reportedly in Kuwait and Qatar, as well as increased intelligence sharing with the
Gulf states. Other reports say that U.S. aircraft have increased overflights of the Iran-
Iraq border. The arrests of Iranian agents in Iraq were discussed in the section on
Iraq, above. Secretary of Defense, Robert Gates, has said that he sees the U.S.
buildup as a means of building leverage against Iran that could be useful in bolstering
U.S. diplomacy, and he has repeatedly denied that the military moves are a prelude
or part of planning for any U.S. military attack on Iran. Additional U.S. exercises
were held in late March 2007, and coincident with Iranian exercises, during a crisis
between Iran and Britain over the seizure of the 15 British sailors.
As part of the Iran containment strategy, in mid-2006, the State Department,
primarily the Bureau of Political-Military Affairs (“Pol-Mil”), inaugurated an effort
to revive some of the U.S.-Gulf state defense cooperation that had begun during the
Clinton Administration but had since languished as the United States focused on the
post-September 11 wars in Afghanistan and Iraq. In a November 27, 2006, press
interview with defense publications, then Assistant Secretary of State for Political
Military Affairs John Hillen discussed the “Gulf Security Initiative,” as, according
to the publication:44
... not part of any big picture re-examination of the Middle East strategy that may
be undertaken by the White House. The new Persian Gulf security architecture
would take into account the overthrow of Saddam Hussein and the establishment
of the new Iraqi government.... Further, the plan would recognize that dynamics
within states, as opposed to dynamics between states, are more likely to cause
conflict in the region.... The new approach must take into account transnational,
regional, and internal-state threats, as opposed to traditional conflicts between
states.... We want our friends in the region to have more robust maritime
security assets and capabilities. Maritime security is ... an enabler of those other
areas [including missile defense and air defense].... The initiative is about
boosting the capabilities of U.S. allies, rather than the presence of U.S. forces....
Missile defense is important because in this region threats are more likely to take
the form of missiles, perhaps launched by terrorists, as opposed to big battles
involving lots of tanks, aircraft, and flotillas of ships.
The emphasis of the initiative, now termed the Gulf Security Dialogue (GSD),
on boosting Gulf state capabilities fueled speculation about major new weapons sales
to the GCC states. In October 2006, the Defense Department official responsible for
managing official sales to foreign states, director of the Defense Security Cooperation
43 Shanker, Thom. “U.S. and Britain to Add Ships to Persian Gulf in Signal to Iran,” New
York Times
, December 21, 2006.
44 “State Department Promotes New Persian Gulf Security Architecture.” Inside the Navy,
November 27, 2006.

CRS-33
Agency Lt. Gen. Jeffrey Kohler, confirmed that speculation by saying that the Gulf
initiative would likely drive up weapons sales to the Gulf countries in 2007.
According to Kohler, improving their missile defense capabilities, for example by
sales of the upgraded Patriot Advanced Capability-3 (PAC-3) is “high on the
agenda.”45 Among other potential weapons sales Kohler discussed were border and
maritime security equipment, including radar systems and communications gear.
Other reports say that planned weapons sales to Saudi Arabia under the initiative
include U.S.-made Littoral Combat Ships equipped with Aegis radar and precision-
guided air force munitions, the latter of which has reportedly run into opposition
from Israel and its supporters as a potential threat to Israel.
Pre-Emptive Military Action. As concerns over Iran’s nuclear program have
grown, many fear that containment might not succeed and that Iran’s nuclear program
should be stopped before Iran possesses a working nuclear weapon. In discussing
possible military options against Iran’s nuclear facilities, President Bush has
repeatedly maintained that “all options are on the table,”46 although Administration
officials, including new CENTCOM Commander Admiral William Fallon, maintain
that current policy is to pursue international diplomacy to compel Iran to change its
behavior. A U.S. ground invasion to remove Iran’s regime does not appear to be
under serious consideration; most experts believe U.S. forces are spread too thin to
undertake such action, including about 145,000 deployed in Iraq, and that U.S. forces
would be greeted with hostility.
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.47 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 its small ships and coastal missiles.
U.S. allies in Europe, not to mention Russia, China, and some U.S. experts,
have expressed strong opposition to any military action. 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, while other say such action would cause
Iran to withdraw from the NPT and refuse any IAEA inspections. Some believe that
45 “New Persian Gulf Security Effort Expected to Fuel Arms Sales in FY-07.” Inside the
Pentagon
, November 9, 2006.
46 Fletcher, Michael and Keith Richburg. “Bush Tries to Allay E.U. Worry Over Iran.”
Washington Post, February 23, 2005.
47 For an extended discussion of U.S. air strike options on Iran, see Rogers, Paul. Iran:
Consequences Of a War
. Oxford Research Group, February 2006.

CRS-34
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,
Israeli officials have repeatedly 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. Most experts believe that Israel’s strategy is to persuade the United
States to undertake such a strike, and Israeli leaders sought to engage visiting
Secretary of Defense Gates in such a discussion in April 2007, although he reportedly
declined to discuss with the Israelis any strike planning during the visit.
A decision to take military action might raise the question of presidential
authorities and congressional consultation, and some in Congress have begun to
express concern that the Administration might be preparing for military action
against Iran, despite Administration denials to that effect. In the 109th Congress,
H.Con.Res. 391, introduced by Representative Peter DeFazio on April 26, 2006,
called on the President to not initiate military action against Iran without first
obtaining authorization from Congress. He has introduced a similar bill, H.Con.Res.
33, in the 110th Congress. Other bills requiring specific congressional authorization
for use of force against Iran (or prohibiting U.S. funds for that purpose) include
H.J.Res. 14, S.Con.Res. 13, S. 759, and H.R. 770. A provision that sought to bar the
Administration from taking military action against Iran without congressional
authorization was taken out of an early draft of an FY2007 supplemental
appropriation (H.R. 1591) to fund additional costs for Iraq and Afghanistan combat.
Regime Change
A major feature of policy in early-mid 2006, the “regime change” aspect of
policy has appeared to since recede. Still, several high-ranking U.S. officials,
purportedly including Vice President Cheney, 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.48 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.”
48 CRS conversations with U.S. officials responsible for Iran policy. 1980-1990. After a
period of suspension of such assistance, in 1995, the Clinton Administration accepted a
House-Senate conference agreement to include $18-$20 million in funding authority for
covert operations against Iran in the FY1996 Intelligence Authorization Act (H.R. 1655, P.L.
104-93), according to a Washington Post report of December 22, 1995. The Clinton
Administration reportedly focused the covert aid on changing the regime’s behavior, rather
than its overthrow.

CRS-35
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 2006, the Administration began increasing 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 enlarged
significantly, and new “Iran-watcher” positions have been added to U.S. diplomatic
facilities in Baku, Azerbaijan; Istanbul, Turkey; Frankfurt, Germany; London; and
Ashkabad, Turkmenistan, all of which have large expatriate Iranian populations
and/or proximity to Iran.49 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.50
Many question the prospects of U.S.-led Iran regime change, short of all-out-
U.S. military invasion, because of the weakness of opposition groups, as discussed
above, and because of extensive regime surveillance of democracy activists or other
internal dissidents. 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, although there are press reports that a so-called “Iran-Syria
Policy and Operations Group” within the Administration might be considering
recommending covert aid to opposition groups.51 Others argue that reformist groups
such as students, women, labor leaders, intellectuals, and others might be able to
galvanize regime change unexpectedly; all of these groups have conducted various
small protests during the past few years.
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
49 Stockman, Farah. “‘Long Struggle’ With Iran Seen Ahead.” Boston Globe, March 9,
2006.
50 Weisman, Steven. “U.S. Program Is Directed At Altering Iran’s Politics.” New York
Times
, April 15, 2006.
51 Stockman, Farah. “US Unit Works Quietly to Counter Iran’s Sway,” Boston Globe,
January 2, 2007.

CRS-36
Department Bureau of Democracy and Labor (DRL)52 gave $1
million of those funds to the IHDC organization, mentioned earlier.
The remaining $500,000 was distributed through the National
Endowment for Democracy (NED).
! The conference report on the FY2005 foreign aid appropriations
(P.L. 108-447) provided a further $3 million for these efforts. The
State Department put out a solicitation for proposals for similar
projects to be funded in 2005. The winning grantees were not
announced by DRL to protect the identities of the grantees,
according to U.S. diplomats. DRL had said that priority areas were
political party development, media development, labor rights, civil
society promotion, and promotion of respect for human rights.53
! The conference report (H.Rept. 109-265) on the regular FY2006
foreign aid appropriation (P.L. 109-102) appropriated up to $10
million in democracy promotion funds for use in Iran. The funds
were 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 1998.54 It was renamed Radio Farda (“Tomorrow” in
Farsi) in December 2002. It now broadcasts 24 hours per day, up
52 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.
53 Briefing by DRL representatives for congressional staff, May 9, 2005.
54 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.

CRS-37
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 contained no new funds for it.
Another $75 million in democracy promotion funds was requested
by the Administration for FY2008, plus $33.6 million for
broadcasting activities ($20 million for VOA Persian service; $8.1
million for Radio Farda; and $5.5 million for consular affairs related
to exchanges with Iran).
Iran Freedom Support Act (P.L. 109-293). Legislation in the 109th
Congress exemplified 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. The Administration supported the democracy-promotion sections
of these bills, while opposing provisions on economic sanctions, as discussed below.
Major provisions of the bills 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). Entitled the Iran Freedom Support Act, it authorizes funds (no specific
dollar amount) for Iran democracy promotion.
Engagement
To a degree greater than in previous Administrations, the Bush Administration
has directly engaged Iran on specific issues (Afghanistan and Iraq), viewing such
dialogue as helpful to the stabilization missions in those countries. The United States
had a dialogue with Iran on Iraq and Afghanistan from late 2001 until May 2003,
when the United States broke off the talks 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 those two countries, 55 the first
confirmed direct dialogue between the two countries since the 1979 revolution. The
United States briefly resumed some contacts with Iran in December 2003 to
coordinate U.S. aid to victims of the December 2003 earthquake in Bam, Iran,
including a reported offer to send a high-level delegation to Iran. However, Iran
rebuffed that offer. The United States and Iran did participate in regional meetings
in 2004 on the issue of stabilizing Iraq, including a meeting in Egypt. In late 2006,
the Administration appeared to reject the recommendation of the Iraq Study Group
to undertake new multilateral diplomacy with Iran (and Syria) to stabilize Iraq, but
then decided that participating in such a multilateral process might benefit the U.S.
mission in Iraq.
55 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.

CRS-38
Regarding a multilateral dialogue with Iran on the nuclear issue, the
Administration maintains that Iran must first suspend uranium enrichment. Some
believe the Administration position is based on a view that the United States should
exhaust all possible options to curb Iran’s nuclear program, including dialogue, and
that welcoming dialogue can later increase international support for sanctions and
other measures. An amendment by Senator Biden (adopted June 2006) to the
FY2007 defense authorization bill (P.L. 109-364) supported the Administration’s
May 2006 offer to join nuclear talks with Iran. As part of the U.S. declared openness
to talk with Iran if it complies on nuclear issues, the Administration indicated 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.
U.S. officials have not, to date, welcomed a direct U.S.-Iran bilateral dialogue
on all outstanding issues of U.S. concern: nuclear issues, Iranian support of militant
movements, involvement in Iraq, and related issues. President Bush again appeared
to rule out the idea of a broad direct bilateral dialogue with Iran in an interview with
PBS’s Charlie Rose, broadcast April 24, 2007. U.S. officials rebuffed a reported
overture from Iran just before the May 12, 2003, Riyadh bombing to negotiate all
outstanding U.S.-Iran issues as part of a so-called “grand bargain” that has been
discussed by outside experts and reported in various press articles. The Washington
Post
reported on February 14, 2007 (“2003 Memo Says Iranian Leaders Backed
Talks
”), that the Swiss Ambassador to Iran in 2003, Tim Guldimann, had informed
U.S. officials of a comprehensive Iranian proposal for talks with the United States.
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.
International and Multilateral Sanctions
With the adoption of Resolution 1747, an immediate question is whether, and
if so what, further international sanctions might be imposed on Iran if it does not
suspend uranium enrichment by May 24, 2007 (the deadline stated in that
resolution). The following represent sanctions that the Security Council might
impose. Administration officials say these or other additional sanctions might also
be considered by a “coalition” of countries, outside Security Council authorization.
! Mandating Reductions in Diplomatic Exchanges with Iran or
Prohibiting Travel by Iranian Officials. Such measures were not
made mandatory in Resolution 1737 or 1747, and Russia and China
reportedly continue to oppose a mandatory ban on travel by Iranian
WMD officials. However, Resolution 1747 requires U.N. members
to report visits by Iranian officials or persons named in Resolution
1737 or 1747 (see Table 4 at the end of this paper for those
persons). 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.

CRS-39
! 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. A gas exports ban would almost
certainly hurt Iran’s economy because Iran does not refine enough
gasoline to meet demand and must import gasoline at a cost of about
$5 billion per year.
! 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.
Resolution
1737 and 1747 only freeze the assets of specific Iranian entities and
individuals named in those resolutions. Virtually all U.S. allies that
conduct extensive trade with Iran, including Japan and most of the
EU states, oppose comprehensive sanctions on trade in civilian
goods with Iran. However, in response to U.S. urgings, U.S. allies
and their banks are reducing export credit guarantees and financing
for Iran, as discussed below.
! Imposing a Worldwide Ban on Sales of Arms to Iran. Such a
sanction reportedly is incurring Security Council opposition from
Russia and China, which have been Iran’s key arms suppliers in
recent years. However, Russian and Chinese opposition might be
weakening because they accepted language in Resolution 1747
calling for — but not requiring — U.N. member states to exercise
restraint in selling arms to Iran.
! 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
nearly $60 per barrel.

CRS-40
European/Japanese Policy on Sanctions, Lending, and Trade
Agreements. Although the United States and its allies are now mostly aligned with
the United States on Iran policy, some philosophical and policy differences might
complicate U.S. efforts to establish a stricter international or multilateral sanctions
regime on Iran, either within or outside Security Council action. Most U.S. allies still
favor engagement and incentives — not just economic or political punishments —
as an important tool to change Iran’s behavior. During 1992-1997, when the United
States was tightening its own sanctions against Iran, the European Union (EU)
countries maintained a policy of “critical dialogue” with Iran, and the EU and Japan
refused to join the 1995 U.S. trade and investment ban on Iran. The European
dialogue with Iran was suspended in April 1997 in response to the German terrorism
trial (“Mykonos trial”) that found high-level Iranian involvement in assassinating
Iranian dissidents in Germany, but resumed in May 1998 after Khatemi became
president.
More recently, as Iran has defied the international community on nuclear issues,
the European countries and Japan are linking Iranian nuclear compliance to trade
agreements. 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,” but after the eighth
round of negotiations on July 12-13, 2005, the talks were suspended after the August
2005 breakdown of the Paris Agreement. During the active period of such talks,
there were 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. A further indicator that trade
and investment agreements with Iran are on hold pending a nuclear solution is the
apparent decision of Japan’s Inpex to cut its $2 billion investment to develop Iran’s
large (26 billion barrels) onshore Azadegan oil field to a stake of only about 10% in
that project. That project was signed in April 2007.
Similarly, Iran is unlikely to obtain membership in the World Trade
Organization (WTO) until there is progress on the nuclear issue. 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 formally began accession talks.
Banking and Financing Limitations.
U.S. officials are also urging
European and other creditors not to extend new export credits to Iran, and
Undersecretary of State Burns told Congress on March 29, 2007, that some of them
are limiting official credits for exports to Iran. This result is due not only to U.S.
diplomacy but also to U.S. presentations of the financial risk posed by providing

CRS-41
credit to Iran. The Organization for Economic Cooperation and Development
(OECD) in 2006 raised the financial risk rating for Iran.
Previously, the EU countries have maintained that trade in purely civilian goods
is not banned by any U.N. resolution and that exporters of such goods should not be
penalized through denial of export credits or credit guarantees. In the 1990s, when
European and Japanese creditors — over U.S. objections — rescheduled 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, as shown in Table 2,
"Selected Economic Indicators," earlier in this report. 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 EU and Japan appear to have also made new international lending to Iran
contingent on Iran’s response to international nuclear demands. This is a departure
from past differences between the United States and its allies on this issue. 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. (A provision of H.R. 1400 and S. 970, introduced in the 110th
Congress, would impose a similar restriction.) By 1999, Iran’s moderating image
had led the World Bank to consider new loans over U.S. opposition. 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.
The U.S. Treasury and State Departments have begun using U.S. financial
regulations — as well as the new authorities in Resolution 1737 — in an apparently
successful effort to pressure European banks not to provide letters of credit for
exports to Iran or to process dollar transactions for Iranian banks. Undersecretary of
State Burns and Undersecretary of the Treasury Stuart Levey testified on March 21,
2007, that “... many leading foreign banks have either scaled back dramatically or
terminated entirely their Iran-related business ... concluding that they simply did not
wish to be a banker for a regime that deliberately conceals the nature of its illicit
business.”
Among specific actions, in 2004, the Treasury Department fined UBS $100
million for the unauthorized movement of U.S. dollars to Iran and other sanctioned
countries, and on December 20, 2005, the Treasury Department 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). UBS and three other European banks, HSBC (Britain), Credit Suisse
(Switzerland), and Germany’s Commerzbank A.G, reportedly have stopped dollar

CRS-42
transactions from within Iran or pursuit of new business in Iran. On September 8,
2006, the Treasury Department said it would bar U.S. banks from handling any
indirect transactions (“U-turn transactions, meaning transactions with non-Iranian
foreign banks that are handling transactions on behalf of an Iranian bank) with Iran’s
state-owned Bank Saderat, which the Administration accuses of providing funds to
Hezbollah.56 The restrictions on financing are, according to Iranian and outside
observers, making it more difficult to fund energy industry and other projects in Iran.
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, even before U.S. allies have begun to impose
some sanctions on Iran, which U.S. sanctions alone were slowing Iran’s economy,
forcing it to curb spending on weapons purchases.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, as continued by executive order), 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 or
arms. Waivers are provided for.
56 Kessler, Glenn. “U.S. Moves to Isolate Iranian Banks.” Washington Post, September 9,
2006.
57 On November 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.

CRS-43
! U.S. laws do not bar disaster relief and the United States donated
$125,000, through relief agencies, to help victims of two
earthquakes in Iran (February and May 1997), and another $350,000
worth of aid to the victims of a June 22, 2002 earthquake. (The
World Bank provided some earthquake related lending as well.) The
United States provided $5.7 million in assistance (out of total
governmental pledges of about $32 million, of which $17 million
have been remitted) to the victims of the December 2003 earthquake
in Bam, Iran, which killed as many as 40,000 people and destroyed
90% of Bam’s buildings. The United States flew in 68,000
kilograms of supplies to Bam, flown in by U.S. military flights.
Proliferation Sanctions. Iran is prevented from receiving advanced
technology from the United States under relevant and Iran-specific anti-proliferation
laws.59 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,
but it nonetheless threatened to limit U.S. access to the international space station
after April 2006, when Russia started charging the United States for transportation
on its Soyuz spacecraft. Legislation in the 109th Congress (S. 1713, P.L. 109-112)
amended the provision in order to facilitate continued U.S. access to the station and
extended INA sanctions provisions to Syria; the law is now called the Iran-Syria
Non-Proliferation Act (ISNA).60 A law enacted in the 109th Congress to extend the
Iran Sanctions Act (ISA), H.R. 6198 (P.L. 109-293), made 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.
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.

CRS-44
! On September 17, 2003, the Administration imposed sanctions on
a leading Russian arms manufacturer, the Tula Instrument Design
Bureau, for allegedly selling laser-guided artillery shells to Iran.
! On April 7, 2004, the Administration announced sanctions on 13
entities under the INA, including companies from Russia, China,
Belarus, Macedonia, North Korea, UAE, and Taiwan.
! On September 29, 2004, fourteen entities were sanctioned under the
INA from China, North Korea, Belarus, India (two nuclear scientists,
Dr. Surendar and Dr. Y.S.R. Prasad), Russia, Spain, and Ukraine.
! In December 2004 and January 2005, INA sanctions were imposed
on fourteen more entities, mostly from China, for alleged supplying
of Iran’s missile program. Many, such as North Korea’s
Changgwang Sinyong and China’s Norinco and Great Wall Industry
Corp, have been sanctioned several times previously. Other entities
sanctioned included North Korea’s Paeksan Associated Corporation,
and Taiwan’s Ecoma Enterprise Co.
! On December 26, 2005, the Administration sanctioned another nine
entities, including those from China (Norinco included yet again),
India (two chemical companies), and Austria. At the same time,
sanctions against Dr. Surendar of India (see September 29, 2004)
were ended, presumably because of information exonerating him of
helping Iran.
! On June 13, 2006, the Treasury Department designated four Chinese
companies, under Executive order 13382 (June 29, 2005),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.
! In January 2007, the Administration imposed sanctions against four
Russian (Rosobornesksport, Tula Design, and Komna Design Office
61 [http://www.whitehouse.gov/news/releases/2005/06/print/20050629.html].

CRS-45
of Machine Building, and Alexei Safonov), three Chinese (Zibo
Chemical, China National Aerotechnology, and China National
Electrical), and one North Korean entity (Korean Mining and
Industrial Development) for WMD or advanced weapons sales to
Iran (and Syria).
! On April 23, 2007, the State Department announced sanctions on 14
more entities under ISNA, including Lebanese Hezbollah. Some of
the sanctioned entities were penalized for transactions with Syria.
Among the new entities sanctioned for assisting Iran were Shanghai
Non-Ferrous Metals Pudong Development Trade Company (China);
Iran’s Defense Industries Organization; Sokkia Company
(Singapore); Challenger Corporation (Malaysia); Target Airfreight
(Malaysia); Aerospace Logistics Services (Mexico); and Arif
Durrani (Pakistani national).
As with previous years’ appropriations, the FY2006 foreign aid appropriation
(P.L. 109-102) punished 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. A
provision of H.R. 1400 would restrict nuclear cooperation with any country that
assists Iran’s WMD or advanced conventional weapons capabilities. S. 970
specifically applies this same restriction to Russia.
Another provision, Executive Order 13382, allows the President to block the
assets of proliferators of weapons of mass destruction (WMD) and their supporters
under the authority granted by the International Emergency Economic Powers Act
(IEEPA, 50 U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C. 1601 et
seq.), and Section 301 of Title 3, United States Code. The Iranian entities in Table
4
have been designated under E.O. 13382 for allegedly providing assistance to Iran’s
nuclear and ballistic missile programs since June 2005.
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. This exempts 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.
U.S. 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

CRS-46
multilateral containment of Iran less credible. Each March since 1995, 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 trade that does exist between the United States and Iran. (H.R. 1400
and S. 970, introduced in the 110th Congress, would reimpose the restrictions that
have been eased.) 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 September 2006, the Bush Administration, in
the interests of safe operations of civilian aircraft, permitted 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. OFAC testified before a House Foreign Affairs
Committee subcommittee on April 18, 2007, that licenses for
exports of medicines to treat HIV and leukemia are routinely
expedited for sale to Iran, and license applications are viewed
favorably for business school exchanges, earthquake safety seminars,
plant and animal conservation, and medical training in Iran. Private
letters of credit can be used to finance approved transactions, 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 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, and
few such sales to Iran have been completed.
! 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
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.

CRS-47
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 Sanctions Act (ISA),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.64 On April 10, 2007, Halliburton announced
that its subsidiaries had completed all contractual commitments with
Iran and that it is no longer operating there.
! General Electric (GE) announced in February 2005 that 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.
! In relevant legislation, a provision of a bill in the 109th Congress,
Section 102 of H.R. 282, was removed from an amended version
that was enacted (P.L. 109-293). In the 110th Congress, a provision
of H.R. 957, of H.R. 1400, and of S. 970 would consider parent
corporations of U.S. subsidiary firms overseas to have violated the
trade ban if they create or use a subsidiary to undertake such trade
with Iran.
! 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, January 11, 2005.
64 Boyd, Roderick. “Halliburton Agrees to Leave Iran, Thompson Says.” New York Sun,
March 25, 2005.

CRS-48
! 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 Iran Sanctions Act (ISA)/H.R. 1400/S. 970. The Iran Sanctions Act
(P.L. 104-172, August 5, 1996; renewed by P.L. 107-24, August 3, 2001; renewed
again for two months by P.L. 109-267; and renewed and amended by P.L. 109-293)
sanctions foreign (or U.S.) investment of more than $20 million in one year in Iran
or Libya’s energy sector. In the 109th Congress, broad ISA-amendment bills were
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). This “Iran Freedom Support Act,” discussed
above, extends ISA until December 31, 2011, and drops Libya from the law, and is
now called the Iran Sanctions Act. It codifies existing Iran sanctions, makes exports
to Iran of WMD or advanced conventional weapons technology sanctionable, and
recommends (but does not mandate) a 180-day time limit for the Administration to
determine whether a project violates ISA. It did not change the menu of available
sanctions, as was contained in early versions of H.R. 282. As noted above, it also
authorizes additional funding for promoting democracy in Iran.
No projects have actually been sanctioned under ISA, and numerous investment
agreements with Iran since its enactment have helped Iran slow deterioration of its
energy export sector. However, Iran’s oil minister said in December 2006 that the
nuclear dispute between Iran and the international community had caused some
foreign banks to shy away from financing energy projects in Iran. One major project
that Iran believes would help its gas export sector considerably is a proposed gas
pipeline from Iran through Pakistan, to India, which all three countries say they are
proceeding with despite U.S. opposition. (See CRS Report RS20871, The Iran
Sanctions Act
, by Kenneth Katzman.)
In the 110th Congress, H.R. 1400 would remove the Administration’s ability to
waive application of sanctions under ISA. The Administration opposes that
restriction on the grounds that requiring sanctions on allied companies would divide
the United States and its allies on Iran policy; the Senate counterpart bill, S. 970,
does not contain this restriction. H.R. 1400 would not impose on the Administration
a time limit to determine whether a project is sanctionable. H.R. 1400, S. 970, and
another bill, H.R. 957, would clarify the definitions of sanctionable entities to include
official credit guarantee agencies, such as France’s COFACE and Germany’s
Hermes. H.R. 1400 and S. 970 would also clearly apply ISA sanctions to pipeline
and liquified natural gas (LNG) projects. Another bill, H.R. 1357, would require
government pension funds to divest of shares in firms that have made ISA-
sanctionable investments in Iran’s energy sector and bar government and private
pension funds from future investments in such firms.
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. On November 1, 2006, it was 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.

CRS-49
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.65
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. The Administration and many experts believe that Iran
has become emboldened by the installation of pro-Iranian regimes in Iraq and
Afghanistan, and the new strength of Hezbollah in Lebanon, and that Iran now seeks
to press its advantage to strengthen regional Shiite movements and possibly drive the
United States out of the Gulf. Others reach an opposite conclusion, stating 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. Some 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 and that major diplomatic overtures to Iran, including
direct bilateral talks to resolve all outstanding issues, should be explored.
65 See CRS Report RL31258, Suits Against Terrorism States by Victims of Terrorism, by
Jennifer K. Elsea.

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Figure 1. Structure of the Iranian Government


CRS-51
Figure 2. Map of Iran

CRS-52
Table 4. Entities Sanctioned by U.N. Resolutions and
Executive Order 13382
Entities Sanctioned Under Resolution 1737
Atomic Energy
Mesbah Energy Company
Kalaye Electric
Organization of Iran
(Arak supplier)
(Natanz supplier)
(AEIO)
Pars Trash Company
Farayand Technique
Defense Industries
(centrifuge program)
(centrifuge program)
Organization (DIO)
7th of Tir
Shahid Hemmat Industrial
Shahid Bagheri
(DIO subordinate)
Group (SHIG) - missile
Industrial Group (SBIG)
program
missile program
Fajr Industrial Group
Mohammad Qanadi, AEIO
Behman Asgarpour
(missile program)
Vice President
(Arak manager)
Dawood Agha Jani
Ehsan Monajemi
Jafar Mohammadi
(Natanz official)
(Natanz construction
(adviser to AEIO)
manager)
Ali Hajinia Leilabadi
Lt. Gen. Mohammad Mehdi
Gen Hosein Salimi
(director of Mesbah
Nejad Nouri
(Commander, IRGC Air
Energy)
(Malak Ashtar University of
Force)
Defence Technology rector)
Ahmad Vahid Dastjerdi
Reza Gholi Esmaeli
Bahmanyar Morteza
(head of Aerospace
(AIO official)
Bahmanyar
Industries Org. , AIO)
(AIO official)
Maj. Gen. Yahya Rahim
Safavi
Commander in Chief,
IRGC)
Entities Added by Resolution 1747
Ammunition and
Esfahan Nuclear Fuel
Kavoshyar Company
Metallurgy Insditries
Researh and Production
(subsidiary of AEIO)
Group
Center and Esfahan Nuclear
(controls 7th of Tir)
Technology Center
Parchin Chemical
Karaj Nuclear Research
Novin Energy Company
Industries
Center
(branch of DIO)
Cruise Missile Industry
Bank Sepah
Sanam Industrial Group
Group
(funds AIO and subordinate
(subordinate to AIO)
entities)
Ya Mahdi Industries
Qods Aeronautics Industries
Pars Aviation Services
Group
(produces UAV’s, para-
Company
gliders for IRGC assymetric
(maintains IRGC Air
warfare)
Force equipment)

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Sho’a Aviation
Fereidoun Abbasi-Davani
Mohasen Fakrizadeh-
(produces IRGC light
(senior defense scientist)
Mahabai
aircraft for assymetric
(defense scientist)
warfare)
Seyed Jaber Safdari
Amir Rahimi
Mohsen Hojati
(Natanz manager)
(head of Esfahan nuclear
(head of Fajr Industrial
facilities)
Group)
Mehrdada Akhlaghi
Naser Maleki
Ahmad Derakshandeh
Ketabachi (head of SBIG)
(head of SHIG)
(head of Bank Sepah)
Brig. Gen. Morteza Reza’i
Vice Admiral Ali Akbar
Brig. Gen. Mohammad
(Deputy commander-in-
Ahmadiyan
Reza Zahedi
chief, IRGC)
(chief of IRGC Joint Staff)
(IRGC ground forces
commander)
Rear Admiral Morteza
Brig. Gen. Mohammad
Brig. Gen. Qasem
Safari
Hejazi
Soleimani
(commander, IRGC Navy)
(Basij commander)
(Qods Force
commander)
Gen. Mohammad Baqr
Zolqadr
(IRGC officer serving as
deputy Interior Minister
Entities Designated Under Executive Order 13382
Entity
Date Named
Shahid Hemmat Industrial Group
June 2005
Shahid Bakeri Industrial Group
June 2005
Atomic Energy Organization of Iran
June 2005
Novin Energy Company
January 2006
Mesbah Energy Company
January 2006
Sanam Industrial Group
July 2006
Ya Mahdi Industries Group
July 2006
Bank Sepah
January 2007
Defense Industries Organization
March 2007