Order Code RL32048
Iran: U.S. Concerns and
Policy Responses
Updated September 5, 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 continues, generated primarily by Iran’s
nuclear program and intensified by Iran’s military assistance to armed groups in Iraq
and Afghanistan and to Lebanese Hezbollah. In part to direct regional attention to
that view but also to engage Iran on an Iraq solution, the Administration attended
regional conferences on Iraq on March 10, 2007, and May 3-4, 2007, both attended
by Iran (and Syria), and subsequently held bilateral meetings with Iran in Baghdad
on May 28 and July 24, agreeing in the latter meeting to form a working group on
Iraq security issues, which met for the first time on August 6.
The Bush Administration is pursuing several approaches to attempt to contain
the potential threat posed by Iran, but the U.S. emphasis is now on multilateral
economic sanctions on Iran. Iran has not complied with repeated U.N. Security
Council deadlines since August 2006 to cease uranium enrichment. That demand is
encapsulated in two U.N. resolutions (1737 and 1747) 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. With Iran still refusing to comply on enrichment but offering to reveal to
the International Atomic Energy Agency additional information on its nuclear
program, further steps are under discussion at the U.N. Security Council. Separate
U.S. efforts, showing some success, have included trying to persuade European
governments to curb trade, investment, and credits to Iran; and pressuring foreign
banks not to do business with Iran.
To strengthen its diplomacy, the Administration has added components to
efforts to contain Iran, including a consistent large naval presence in the Persian
Gulf; arrests of Iranian agents in Iraq. The Administration strongly denies it is
planning on military action against Iran, but has refused to rule it out. Some
legislation introduced in the 110th Congress, including H.R. 1400, S. 970, and H.R.
2880, would increase U.S. sanctions on Iran — both the U.S. trade ban and the Iran
Sanctions Act that seeks to prevent foreign investment in Iran’s energy sector. The
Administration opposes aspects of these bills that would limit Administration
flexibility in applying sanctions. Other legislation, such as H.R. 957, H.R. 1357, and
S. 1430, would promote divestment of companies that do business with Iran. Some
in the Administration believe that only a change of Iran’s regime would end the threat
posed by Iran, although without specifying 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
Human Rights Practices and the Opposition . . . . . . . . . . . . . . . . . . . . . . . . 8
Prominent Internal Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Exile Groups: People’s Mojahedin Organization of Iran (PMOI) . . . . 11
The Son of the Former Shah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Other Exiled Activists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . . . . 13
Conventional Military/Revolutionary Guard . . . . . . . . . . . . . . . . . . . . . . . 13
Nuclear Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Offer to Join Talks and Future Steps . . . . . . . . . . . . . . . . . . . . . . 18
Resolution 1696 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Resolution 1737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Resolution 1747 and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Lebanese Hezbollah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
U.S. Policy Responses, Options, and Legislation . . . . . . . . . . . . . . . . . . . . . . . . 31
Overview of Bush Administration Iran Policy . . . . . . . . . . . . . . . . . . . . . . . 32
Containment and Possible Military Action . . . . . . . . . . . . . . . . . . . . . . . . . 32
“Gulf Security Dialogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Pre-Emptive or Preventive Military Action . . . . . . . . . . . . . . . . . . . . . 34
Unconventional Conflict Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Presidential Authorities and Legislation . . . . . . . . . . . . . . . . . . . . . . . 36
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Congress and Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Further International and Multilateral Sanctions . . . . . . . . . . . . . . . . . . . . . 41
European/Japanese/Other Foreign Country Policy on Sanctions and
Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Foreign Banking and Financing Limitations . . . . . . . . . . . . . . . . . . . . 43
World Bank Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
H.R. 1400/S. 970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
U.S. Trade Ban/Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
The Iran Sanctions Act (ISA)/H.R. 1400/S. 970 . . . . . . . . . . . . . . . . . 50
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 51
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
List of Figures
Figure 1. Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Figure 2. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
List of Tables
Table 1. Major Factions and Personalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 3. Human Rights Practices and Dissent . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 4. Iran’s Conventional Military Arsenal . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Iran’s Ballistic Missile Arsenal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 5. Entities Sanctioned by U.N. Resolutions and Executive Order 13382 . 55

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, a two term
president (1981-1989), was selected Supreme Leader by an “Assembly of Experts”
(an elected body).1 The fourth election for the Assembly of Experts, which is
empowered to oversee the work of the Supreme Leader and replace him if necessary,
as well as to amend the constitution, was held on December 15, 2006 After that
election, Akbar Hashemi-Rafsanjani, still a major figure having served two terms as
president himself (1989-1997), was elected deputy chief of the Assembly of Experts,
positioning him for elevation to leader following the August 2007 death of the
existing chief, Ayatollah Ali Meshkini. Rafsanjani was narrowly voted head of the
Assembly of Experts on September 4, 2007, defeating harder line cleric Ayatollah
Ahmad Jannati.
Khamene’i 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 Headed by Ayatollah Jannati, 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
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).

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headed by Rafsanjani; its executive officer is former Revolutionary Guard
commander-in-chief Mohsen Reza’i.
Table 1. Major Factions and Personalities
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. Possibly at Rafsanjani’s
urging, Khamene’i has taken steps to constrain Ahmadinejad’s
authority. Khamene’i 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. Cabinet consists largely of his
hardline associates in the Revolutionary Guard, the Basij, or the Tehran
mayoralty. In keeping with a practice begun by Khatemi, Ahmadinejad
has a woman as one of his nine vice presidents.
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.
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. Possible challenger to Ahmadinejad in 2009.
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 harbors ambition to replace Khamene’i.

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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.
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.” Reformist Mostafa Moin finished fifth in
the first round of presidential elections on June 17, 2005.
Reformists regrouped and won four of fifteen Tehran city council
seats in December 2006 local elections.
Office of
Hardline reformists. Originally strong Khatemi supporters, but
Consolidation
turned against him for failing to challenge hardliners, particularly
Unity (Daftar
after July 1999 violent crackdown on student riots, in which four
Tahkim-e-
students were killed.
Vahdat)
The Islamic
The most prominent and best organized pro-reform grouping. Its
Iran
leaders include Khatemi’s brother, Mohammad Reza Khatemi (a
Participation
deputy speaker in the 2000-2004 Majles) and Mohsen Mirdamadi.
Front (IIPF).
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. Its leader is former Heavy
Organization
Industries Minister Behzad Nabavi.
(MIR).
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 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.

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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
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. 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 questioning 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. On June 3, 2007, Ahmadinejad
said that Hezbollah in Lebanon and Hamas in the Palestinian territories had pressed
“the countdown button for the destruction of the Zionist regime....” On June 21,
2007, the House passed H.Con.Res. 21, calling on the United Nations Security
Council to charge Ahmadinejad with violating the 1948 Convention on the
Prevention and Punishment of the Crime of Genocide; the Convention includes
“direct and public incitement” to commit genocide as a punishable offense.
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 seat. Just before the elections,
students protested Ahmadinejad during a speech at Tehran’s Amir Kabir University,
a possible preview of his waning popularity. His political strength will be tested
again in March 2008 Majles elections, which will be followed a year later by
presidential elections in which Ahmadinejad is expected to run for a second term.
3 “Bush Criticizes Iran Election Process as Unfair.” Reuters, June 16, 2005.

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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. Limiting confrontation is advocated by Rafsanjani, who has been in
eclipse since his election loss to Ahmadinejad but who now might be ascendant after
his selection to head the Assembly of Experts in September 2007. 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 and the lowering of interest rates
for poorer borrowers, cancelled some debts of farmers, and increased social welfare
payments and subsidies. Some analysts believe these moves have backfired, to
some extent, by causing skyrocketing rents and costs to purchase a home. His
distributive policies have been supported, in part, by relatively high oil prices, 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. Ahmadinejad’s political standing has
been somewhat further undermined by the June 27, 2007 rationing of gasoline — a
moves intended to curb consumption that forces Iran to import refined gasoline. The

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rationing harms poorer Iranians — Ahmadinejad’s key political base — who
sometimes use their cars as unofficial taxis. Some protests have taken place,
including attacks on gas stations, after the rationing went into effect, a although the
unrest eased when the government offered to hand out six months worth of gas
rations in advance. The Oil Minister resigned in August 2007, probably because of
the unpopularity of the rationing program.
Table 2. Selected Economic Indicators
Economic Growth
4.3% (2006 est.)
Per Capita Income
$8,100/yr purchasing power parity
Proven Oil Reserves
100 billion barrels (fifth in world)
Refined Gasoline
$5 billion value per year (60% from European oil trader Vitol)
Imports
Oil
4 million barrels per day (mbd)/ 2.4 mbd exports
Production/Exports
Major Oil/Gas
China — 300,00 barrels per day (bpd); about 4% of China’s oil
Customers
imports; Japan — 600,000 bpd, about 12% of oil imports;
other Asia (mainly South Korea) — 450,000 bpd; Italy —
300,000 bpd; France — 210,000 bpd; Netherlands 40,000
bpd; other Europe — 200,000 bpd; India — 150,000 bpd (10%
of its oil imports; Africa — 200,000 bpd. Turkey — gas: 8.6
billion cubic meters/yr
Refined Gasoline
India, Kuwait, UAE, Turkey, Venezuela, Singapore,
Suppliers
Netherlands, China
Major Export
UAE ($2 billion); Iraq ($1 billion); China ($1 billion); Japan
Markets (January -
($690 million); Singapore ($480 million); Italy $420 million);
September 2006)
Netherlands ($415 million); Afghanistan $285 million; Saudi
Arabia ($275 million)
Major Imports From
UAE ($6.7 billion); Germany ($3.9 billion); China ($2 billion);
(same time frame)
France ($1.7 billion); Italy ($1.5 billion); Switzerland ($1.4
billion); Korea ($1.4 billion); India ($1.1 billion); Poland
($856 million); Japan ($820 million)
Export Credit
Italy — $6.2 billion; Germany $5.4 billion; France — $1.4
Guarantees
billion; Spain — $1 billion, and Austria — $1 billion
Major Non-Oil
Renault (France) and Mercedes (Germany)- automobile
Investments
production in Karaj, Iran — valued at $370 million; Renault
(France), Peugeot (France) and Volkswagen (Germany) —
auto parts production; Turkey — Tehran airport,hotels; China
— shipbuilding on Qeshm Island, aluminum factory in
Shirvan, cement plant in Hamadan; UAE financing Esfahan
Steel Company; India — steel plant; S. Korea — steel plant in
Kerman Province; S. Korea and Germany — $1.7 billion to
expand Esfahan refinery.
Trade With U.S.
$242 million (trade is severely restricted by U.S. sanctions).
(2006)
Exports to U.S. — $157 million (large categories: pomegranate
juice, caviar, pistachio nuts, carpets, medicines, artwork).
Imports from U.S. — $85 million (food, medicines, tobacco
products).

CRS-8
Foreign Exchange
$40 billion+
External Debt
$19 billion (2005 est.)
Unemployment Rate
11%+
Source: CIA World Factbook, various press, IMF, Iran Trade Planning Division (2006).
Human Rights Practices and the Opposition
The regime appears to have a relatively firm grip on power, in part because
Iran’s leaders have taken numerous steps to suppress dissent. 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 including summary executions,
disappearances, torture, arbitrary arrest and detention, and discrimination against
women. Other accounts say that, during 2007, the regime has launched a broad
crackdown on dissent and personal freedoms.4
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.
Table 3. Human Rights Practices and Dissent5
Group/
Regime Practice/Recent Developments
Issue
Ethnic and
Persians are about 51% of the population, and Azeris (a Turkic people)
Religious
are about 24%. Kurds are about 7% of the population, and about 3% are
Breakdown
Arab. Of religions, Shiite Muslims are about 90% of the Muslim
population and Sunnis are about 10%. About 2% of the population is
non-Muslim, including Christians, Zoroastrians (an ancient religion in
what is now Iran), Jewish, and Baha’i.
4 Wright, Robin. “Iran Curtails Freedom in Throwback to 1979.” Washington Post, June
16, 2007.
5 Sources: State Department reports on human rights and on religious freedom.
[http://www.state.gov/g/drl/rls/hrrpt/2006/78852.htm]; [http://www.state.gov/g/drl/rls
/irf/2005/51599.htm].

CRS-9
Group/
Regime Practice/Recent Developments
Issue
Private
Since 2000, judicial hardliners have closed hundreds of reformist newspapers,
Media
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. During 2006, regime 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, in September
2006, the government closed a major reformist daily newspaper, Shargh, citing its
publishing of a satirical cartoon with political overtones.
Labor
In 2006, regime forcibly repressed strikes by the 17,000-member Tehran bus
Unions/
drivers union, including arresting its leaders. In 2007, regime reportedly
Students
dissolving student unions and replacing them with regime loyalists following
student criticism of Ahmadinejad.
Women
Regime strictly enforcing requirement that women fully cover themselves in public,
generally with a garment called a chador, including through detentions. In March
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 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.
Religious
Each year since 1999, the State Department religious freedom report has named
Freedom
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.)
Baha’is
Iran 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.

CRS-10
Group/
Regime Practice/Recent Developments
Issue
Jews
Along with Christians, a “recognized minority,” with one seat in the Majles), the
30,000-member Jewish community (the largest in the Middle East aside from
Israel) enjoys somewhat more freedoms than Jewish communities in several
other Muslim states. However, in practice the freedom of Iranian Jews to
practice their religion is limited, and Iranian Jews remain reluctant to speak out
for fear of reprisals. During 1993-1998, Iran executed five Jews allegedly
spying for Israel. In June 1999, Iran arrested 13 Jews (mostly teachers,
shopkeepers, and butchers) from the Shiraz area that it said were part of an
“espionage ring” for Israel. After an April-June 2000 trial, ten of the Jews and
two Muslims accomplices were convicted (July 1, 2000), receiving sentences
ranging from 4 to 13 years. An appeals panel reduced the sentences, and all
were released by April 2003.
Sunnis
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.
Human
The June 12, 2007 (latest annual), State Department “Trafficking in Persons”
Traffick-ing
report continues to place 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.
Prominent Internal Dissidents. The regime is highly concerned about
those dissidents who previously held senior regime positions. These dissidents 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 virtual house arrest. 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 similar positions,
Ayatollah Mohammad Kazemeni Boroujerdi, was arrested on October 8, 2006.
Dissidents with similar views 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.
Some dissidents were not high level regime figures, but have sought to
challenge or expose the regime’s practices from inside Iran. One example is
journalist Akbar Ganji, who conducted hunger strikes to protest regime oppression.
He was released on schedule on March 18, 2006 after sentencing 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. Another example was a Canadian journalist of Iranian origin, Zahra Kazemi,
who died in 2003, allegedly of beating, while in Iranian detention. She had been

CRS-11
detained in 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.
Exile Groups: People’s Mojahedin Organization of Iran (PMOI). Of
the groups seeking to replace the regime outright, one of the best known is the
People’s Mojahedin Organization of Iran (PMOI).6 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 19977 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. In 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.8
The State Department report on international terrorism for 2006 asserts that the
organization — and not just a radical element of the organization as the group asserts
— was responsible for the alleged killing of seven American defense advisers to the
former Shah in 1975-1976. The State Department report has, in the past, noted the
group’s promotion of women in its ranks, but the report for 2006 emphasizes the
group’s “cult-like” character, including indoctrination of its members and separation
of family members from its activists.

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

CRS-12
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.9 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.10 His
political adviser is MIT-educated Shariar Ahy.
Other Exiled Activists. Numerous other Iranians in exile want to see a
change of regime in Tehran. Many of them are based in California, where there is
a large Iranian-American community, and there are about 25 small-scale radio or
television stations that broadcast into Iran. Some U.S.-based activists are the
following:
! The Abdorrahman Boroumand Foundation. This foundation, led
by two Boroumand sisters, is trying to document human rights
abuses in Iran.
! The Iran Human Rights Documentation Center (IHDC). The center
is run by persons mostly of Iranian origin and affiliated with Yale
University’s Griffin Center for Health and Human Rights. It is
documenting abuses in Iran, using contacts with Iranians in Iran.
! The National Iranian American Council (NIAC). The organization’s
objective is to build and expand networks of Iranian-American
9 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal
, May 12, 2003.
10 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, August 26, 2002.

CRS-13
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,
stated the sense of Congress that the Administration consider such financial support.
Iran’s Strategic Capabilities and
Weapons of Mass Destruction Programs
The Administration’s “National Security Strategy” document released March
16, 2006 — which continues to represent a prevailing Administration view — 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.11 Iran’s advanced
and other conventional weaponry is deemed to pose a less significant threat than its
WMD, but Iran’s forces could still, in some cases, threaten U.S. forces and allies in
the Gulf region, as discussed in the section later in this paper on military action and
scenarios.
Conventional Military/Revolutionary Guard
Iran’s 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. Iran’s armed forces have few formal
11 See [http://www.whitehouse.gov/nsc/nss/2006/].

CRS-14
relationships with foreign militaries, but Iran and India have a “strategic dialogue”
and some Iranian naval officers reportedly are being trained in India.
Lacking confidence in its combat capability, Iran has avoided cause for conflict
with its more militarily capable neighbors such as Turkey and Pakistan. Iran’s
Revolutionary Guard Corps, which also controls the Basij volunteer militia that
enforces adherence to Islamic customs, is generally loyal to the hardliners politically.
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. Press
reports in August 2007 said the Administration is leaning toward such a designation
of the Guard, or possibly of its Qods Force that supports Islamist factions abroad.
Some versions of the report suggest that the Administration might designate the
Guard or the Qods Force as a “specially designated global terrorist entity” under
Executive Order 13224. Both moves would freeze the assets and prevent
transactions with designated entities, but the FTO designation carries heavy criminal
penalties for U.S. nationals proven to have provided “material support” (funds,
donations, arms, information) to an FTO. On September 2, 2007, Khamene’i
replaced Rahim Safavi with Mohammad Ali Jafari as commander in chief of the
Guard; Jafari is considered a hardliner on dissent but he is believed politically aligned
with Rafsanjani and former Guard chief Mohsen Reza’i, rather than with
Ahmadinejad. More information on Iran’s military and how it might perform in
combat against the United States is discussed under “military options” later in this
paper.

CRS-15
Table 4. Iran’s Conventional Military Arsenal
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
and 30 Su-24)
made Hudong, 40
Revolutionary
some
Boghammer, 3
Guard Corps
Stinger
frigates) Also has
(IRGC).
3 Kilo subs
IRGC is about
one-third of
total force.
Number of “Qods Forces” of
Approximately 3,000 total in the Qods Force, which
IRGC
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.
Midget Subs
Iran is said to possess several, possibly purchased
assembled or in kit form from North Korea.
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.
Nuclear Program
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
12 Schweid, Barry. “Bush: Won’t Allow A Nuclear-Armed Iran.” Associated Press,
September 5, 2006.

CRS-16
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 On June 3, 2007, Secretary of Defense
Gates said it is the “general view” of the U.S. intelligence community that Iran could
develop a nuclear device “probably sometime in the period 2010-2011 or 2014-
2015.” 16 Other experts focus on a so-called “point of no return,” a point at which
Iran has the expertise and proficiency to enrich uranium to weapons grade levels.
The IAEA report of August 30, 2007 said that Iran is running at least 1,950
centrifuges (12 lines of 164 centrifuges each), with others in testing or under
construction, suggesting it has overcome some, but not all, of its technological
roadblocks to high enrichment. Ahmadinejad subsequently said Iran is running the
critical number of 3,000 centrifuges, a figure disputed by IAEA experts. Supporting
those who say that Iran’s program still faces significant bottlenecks, the IAEA report
also said Iran had enriched uranium to only 3.7%, and not to 4.8% as Iran has
claimed.
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.
16 Burns, Robert. “Gates Urges Penalties Against Tehran ‘Right Now.’” Washington Times,
June 3, 2007.

CRS-17
European Diplomatic Efforts/Paris Agreement. International 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 pulled most of its 800 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
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, when 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 the
Arak reactor; (3) agreement to no-notice nuclear inspections; and (4) pledge not to
17 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, January 24, 2004.
18 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].

CRS-18
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 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 However, because of opposition by Russia and China to immediately
punishing Iran, on May 8, 2006, the Administration said it would support another
diplomatic overture.
U.S. Offer to Join Talks and Future Steps. In an effort to strengthen the
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. Iran-Solana negotiations have
continued on the package in 2007, without result to date.
Reported Incentives22
! Negotiations on an EU-Iran trade agreements and acceptance of Iran
into the World Trade Organization.
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 One source purports to have obtained the contents of the package from ABC News:
[http://www.basicint.org/pubs/Notes/BN060609.htm]

CRS-19
! 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.
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, 2006).
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. 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.

CRS-20
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 required U.N. member states to freeze the financial assets of ten
named Iranian nuclear and missile firms, including those in Table 4.
The Resolution did not mandate the banning of travel by these personalities, but
called on member states not to admit them. It also provided 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.
Resolution 1747 and Results. Resolution 1737 demanded enrichment
suspension by February 21, 2007. An IAEA report sent to Board member countries
that day said Iran continued 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:
! It added 10 military/WMD-related entities; 3 Revolutionary Guard
entities; 8 persons, and 7 Revolutionary Guard commanders listed
in Table 4.
! 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 or dual use items to Iran and to avoid any new lending or grants
to Iran.
Resolution 1747 demands Iran suspend enrichment by May 24, 2007. The
IAEA report of May 23, 2007 indicated that Iran did not comply, and new
negotiations have begun on another resolution. Observers say that a new resolution
is likely to focus on making mandatory those provisions that are only voluntary in
1737 and 1747, including an arms sale ban and travel ban on named Iranian officials.
Some reports say that a U.S. and British draft might also require inspections of
Iranian cargo flights and shipping. Suggesting that the pressure might be starting to
yield results on Iran’s nuclear decisionmaking, in July 2007 Iran offered to allow
IAEA inspectors to inspect the Arak heavy water facility and to otherwise try to clear

CRS-21
up longstanding questions about Iran’s program. In late August 2007, Iran and the
IAEA signed an agreement to clear up these outstanding uncertainties by the end of
2007, an agreement criticized by the United States as not central to preventing Iran
from achieving a nuclear capability. The potential for additional U.N. sanctions is
discussed in the section on multilateral and international sanctions later in this paper.
At the same time, IAEA Director Baradei has incurred some criticism in May
and June 2007 for reportedly telling the Security Council countries that it is no
longer realistic to demand uranium enrichment suspension, but instead to focus on
preventing industrial-scale production of enriched uranium and allowing robust
inspections to ensure the uranium is not enriched to bomb-grade levels. Others have
criticized him for reported policy comments taking issue with U.S. officials who
advocate military action as a means of curbing Iran’s nuclear program.
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, although Russia has opposed these locations as indications
that the missile defense plans are a cover for systems directed against Russia. At the
G-8 summit in June 2007, Russian President Vladimir Putin presented an alternative
proposal to cooperate with the missile defense against Iran by allowing use of a radar
facility in Azerbaijan that Russia leases.

CRS-22
Iran’s Ballistic Missile Arsenal
Shahab — 3
800 mile range. Two of first three tests (July 1998, July 2000, and
September 2000) reportedly inconclusive or unsuccessful. Apparently
successful tests in June 2003; Iran subsequently called missile
operational (capable of hitting Israel). Despite claims, some U.S.
experts say the missile 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 it in
mid-flight. On May 31, 2005, Iran announced it had successfully
tested a solid-fuel version.
Shahab — 4
1, 200 mile range. In October 2004, Iran announced it had extended
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.” Agence
France Presse
report (February 6, 2006) said test 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
1,500 mile range. On April 27, 2006, Israel’s military intelligence
chief said that Iran had received a shipment of North Korean-supplied
BM-25 missiles. Missile 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. U.S. officials believe
Iran might be capable of developing an intercontinental ballistic
missile (3,000 mile range) by 2015,23 but not clear if Iran has decided
to field such a system.
Other
On September 6, 2002, Iran said it successfully tested a 200 mile
Missiles
range “Fateh 110” missile (solid propellent), and Iran said in late
September 2002 that it had begun production.24 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).
Warheads
Wall Street Journal report of September 14, 2005, said that U.S.
intelligence believes Iran is working to adapt the Shahab-3 to deliver
a nuclear warhead. Subsequent press reports say that U.S.
intelligence captured an Iranian computer in mid-2004 showing plans
to construct a nuclear warhead for the Shahab.25 Iran denied work on
such a warhead, but the IAEA is seeking additional information from
Iran on the material.
23 “Greater U.S. Concern About Iran Missile Capability.” Reuters, March 11, 2002.
24 “Iran: New Missile on the Assembly Line.” New York Times, September 26, 2002.
25 Broad, William and David Sanger. “Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims.” New York Times, November 13, 2005.

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 2006, released April 30, 2007, 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).26
Relations With The Persian Gulf States.27 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. Saudi leaders are concerned that Iran’s
nuclear program will further strengthen Iran strategically but the
Saudis also worry about the potential for Iranian reaction against the
Kingdom should the United States take military action to stop Iran’s
program. The Saudis 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 and
sometimes violent demonstrations at annual Hajj pilgrimages in
Mecca, 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.28 After restoring relations in
26 U.S. Department of State. Country Reports on Terrorism 2005. Released April 2006.
[http://www.state.gov/documents/organization/65462.pdf].
27 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2006, by
Kenneth Katzman.
28 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
(continued...)

CRS-24
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 never
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) wants 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. As an indicator of the
degree to which the issue is fading, the UAE received Ahmadinejad
in May 2007, the highest level Iranian visit to UAE since the 1979
revolution in Iran; during the visit, Ahmadinejad led an anti-U.S.
rally of a reported several hundred Iranian-origin residents of Dubai
at a soccer stadium there.
! 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,
28 (...continued)
2001. The June 21, 2001, federal grand jury indictments of 14 suspects (13 Saudis and a
Lebanese citizen) in the Khobar bombing indicate that Iranian agents may have been
involved, but no indictments of any Iranians were announced. In June 2002, Saudi Arabia
reportedly sentenced some of the eleven Saudi suspects held there. The 9/11 Commission
final report asserts that Al Qaeda might have had some as yet undetermined involvement
in the Khobar Towers attacks.

CRS-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 18 out of the 40 seats of the elected body.
Iranian Policy in Iraq. The U.S. military ousting of Saddam Hussein has
benefitted Iran strategically,29 but U.S.-Iran differences in Iraq have widened as Iran
has sought to assist its Shiite proteges that now dominate Iraq. U.S. officials assert
that, as part of that effort to build influence in Iraq, Iran is providing arms (including
highly lethal “explosively forced projectiles,” EFPs, that have killed about nearly
200 U.S. soldiers in Iraq) and financing to Shiite militias. The militias are believed
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. On
July 2, 2007, Brig. Gen. Kevin Begner, in a briefing for journalists, said that the Qods
Force is using Lebanese Hezbollah to train and channel weapons to Iraqi Shiite
militia fighters, and that Iran is giving up to $3 million per month to its protege
forces in Iraq. Bergner based his information on the March 2007 capture — in
connection with a January 2007 attack on U.S. forces in Karbala — of former Sadr
spokesman Qais Khazali and Lebanese Hezbollah operative Ali Musa Daqduq. Iran
also has signed a number of agreements with Iraq on transportation, energy
cooperation, free flow of Shiite pilgrims, border security, intelligence sharing, and
other cooperation.
The Administration has not taken, although some advocate, military action
against Iranian factories or other facilities that support its weapons shipments into
Iraq. A Senate amendment to the FY2008 defense authorization bill (H.R. 1585)
requires a report to Congress on Iran’s interference in Iraq and accuses Iran of
destabilizing Iraq and contributing to the deaths of American soldiers there. The
amendment does not authorize or recommend use of U.S. force to stop these actions.

In an effort to limit opportunities for Iran to act against U.S. interests in Iraq, the
Bush Administration has begun a direct bilateral dialogue with Iran on the Iraq issue.
This was recommended by the “Iraq Study Group” (Recommendations 9, 10, and 11)
in its December 2006 report, but President Bush initially appeared to reject that idea
in his January 10, 2007, speech on Iraq in which he stated instead that the United
States “...will interrupt the flow of support [to armed groups] from Iran and Syria.”
As part of that stance, U.S. forces in Iraq arrested a total of seven 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 was
reviewed in June 2007, with a decision not to release them, and is to be reviewed
again in October 2007. U.S. military officials allowed Iranian diplomats to visit the
29 This issue is covered in greater depth in CRS Report RS22323, Iran’s Influence in Iraq,
by Kenneth Katzman.

CRS-26
five in July 2007. A group of visiting Iranian energy officials, some of whom were
carrying weapons, were arrested by U.S. officials in late August 2007 but released
the same day. The President also has authorized additional military deployments
directed mostly at Iran, as discussed later under “containment options.”
The Administration might have judged that the military moves in Iraq —
coupled with military moves in the Gulf discussed below — 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 were held in Egypt
during May 3-4, 2007, but Secretary of State Rice did not hold substantive bilateral
discussions with her counterpart, Iranian Foreign Minister Manuchehr Mottaki, at
that conference. U.S. Ambassador to the United States Ryan Crocker reportedly held
talks with the Iranian deputy foreign minister at the meeting. Subsequently, on May
28, the two sides met in Baghdad at the home of Prime Minister Nuri al-Maliki, who
opened the meeting. According to Ambassador Crocker (the Iranian side was
represented by Hassan Kazemi-Qomi, the Iranian Ambassador to Iraq), the two sides
agreed on broad principles for Iraq’s political evolution and stability, but the United
States would judge the dialogue by Iranian cooperation “on the ground” by stopping
military supply of Shiite militias. Another round of talks was held on July 24; it
reportedly included mutual accusations but resulted in an agreement to establish a
working group to discuss ways to stabilize Iraq. This working group met for the first
time on August 6, 2007. 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 report on terrorism for 2006 (mentioned above) again
accuses Iran of providing “extensive” funding, weapons, and training to Hamas,
Palestinian Islamic Jihad (PIJ), the Al Aqsa Martyr’s Brigades, and the Popular
Front for the Liberation of Palestine-General Command (PFLP-GC). All are named
as foreign terrorist organizations (FTO) by the State Department for their use of

CRS-27
violence to undermine the Arab-Israeli peace process. Of these groups, PIJ is closest
politically to Iran.
Some saw Iran’s regional policy further strengthened by Hamas’ victory in the
January 25, 2006, Palestinian legislative elections, and even more so by Hamas’ June
2007 armed takeover of the Gaza Strip. The Hamas gains position Hamas to block
any moves toward peace, and Hamas continues to oppose a two-state solution with
Israel. However, Hamas activists try to minimize Iran’s influence on them by noting
that Iran is mostly Shiite, while Hamas members are Sunni Muslims.30 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 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.31 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
30 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, January 29,
2006.
31 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.

CRS-28
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.32 Iran also supplied Hezbollah with an unmanned aerial vehicle
(UAV), the Mirsad, that Hezbollah briefly flew over the Israel-Lebanon border on
November 7, 2004, and April 11, 2005; at least three were shot down by Israel during
the conflict. On July 14, 2006, Hezbollah apparently hit an Israeli warship with a C-
802 sea-skimming missile probably provided by Iran. (See above for information on
Iran’s acquisition of that weapon from China.) Iran also purportedly provided advice
during the conflict; about 50 Revolutionary Guards were in Lebanon (down from
about 2,000 when Hezbollah was formed), according to a Washington Post report of
April 13, 2005) when the conflict began; that number might have increased during
the conflict to help Hezbollah operate the Iranian-supplied weaponry.
Iran has supported Hezbollah after the conflict as Hezbollah has increasingly
(but thus far peacefully) challenged the pro-U.S. government in Beirut. 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. To bolster its protege’s challenge, one press report said Iran
made $150 million available for Hezbollah to distribute to Lebanese citizens (mostly
Shiite supporters of Hezbollah) whose homes were damaged in the Israeli military
campaign.33 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).34
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
32 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, February 4, 2002.
33 Shadid, Anthony. “Armed With Iran’s Millions, Fighters Turn to Rebuilding.”
Washington Post
, August 16, 2006.
34 See CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict, coordinated
by Jeremy Sharp.

CRS-29
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. Iran is hoping to formally join the
organization, which generally opposes a longterm U.S presence in Central Asia.
Afghanistan.35 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. Because such
a shipment would appear to conflict with Iran’s policy in Afghanistan, Secretary of
Defense Gates, in a statement on the matter on June 4, 2007, said it was unclear
whether or not the shipments resulted from a deliberate Iranian government decision
to arm the Taliban. However, on June 6, 2007, NATO officers said they caught Iran
“red-handed” shipping heavy arms, C4 explosives, and advanced roadside bombs
(“explosively-forced projectiles, EFPs, such as those found in Iraq) to Taliban
fighters in Afghanistan. Responsing to a statement on CNN by Afghan President
Karzai that Afghanistan views Iran as helpful in stabilizing Afghanistan, Secretary
Gates said later that same day (August 5, 2007) on that network that Iran is “playing
35 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.

CRS-30
both sides”in Afghanistan. Some U.S. officials say the shipments are large enough
that the Iranian government would have to have known about them. In attempting
to explain the shipments, some experts believe Iran’s policy might be shifting
somewhat to gain leverage against the United States in Afghanistan (and on other
issues) by causing U.S. combat deaths.
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 Iran has not brought to justice senior Al Qaeda operatives
(spokesman Sulayman Abu Ghaith, top operative Sayf Al Adl, and Osama bin
Laden’s son, Saad36) who are believed to be in Iran,37 meaning they might be at
relative liberty within Iran. U.S. officials blamed these figures for the May 12, 2003,
bombings in Riyadh, Saudi Arabia against four expatriate housing complexes on
these operatives, saying they have been able to contact associates outside Iran.38 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.
Iran asserted on July 23, 2003, that it had “in custody” senior Al Qaeda figures.
However, if that is not their status, the explanation could be that hardliners in Iran
might want to use Al Qaeda activists as leverage against the United States and its
allies. 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
36 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
37 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones
Newswires
, May 19, 2003.
38 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July
23, 2004.

CRS-31
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.39
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, Options, 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.40 The United States tilted 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 Iraq41 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
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
39 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.
40 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”).
41 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-32
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.
Overview of Bush Administration Iran Policy
The Bush Administration has continued multi-faceted efforts to try to limit
Iran’s strategic capabilities through international diplomacy and sanctions, which
include both international sanctions as well as sanctions enforced outside Security
Council mandate. At the same time, the Administration has engaged in selected
bilateral diplomacy with Iran on specific priority issues, such as stabilizing
Afghanistan and Iraq. These efforts are mostly led by the Department of State,
officials in which believe that this policy course is the only U.S. option that would
garner broad international support and affect Iran’s behavior. This policy framework
is supported by U.S. conventional military capabilities in the Persian Gulf and
alliances with Iran’s Gulf and Central Asian neighbors.
At times, the Administration has considered or, to some extent, pursued harder
line options. Some Administration officials, reportedly led by Vice President
Cheney, believe that existing measures will not curb the threat posed by Iran and that
policy should focus on possible military confrontation with Iran and on U.S. efforts
to change Iran’s regime.42 There appeared to be some shift toward this view in early
2007, when the Administration announced several efforts, discussed below, to
contain Iran militarily and demonstrate that military and related options are available.
Legislation pending in the 110th Congress indicates congressional support for
increasing U.S. sanctions and for steps to compel other countries to adopt stricter
sanctions against Iran or to curb their companies’ business dealings with Iran. 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 believes that U.S. conventional military capabilities and
regional alliances strengthen overall efforts to contain Iran strategically. An
assertive military containment component of policy was signaled in the January 10,
2007, statement by President Bush on Iraq. He confirmed in that speech that the
42 Cooper, Helene and David Sanger. “Strategy on Iran Stirs New Debate at White House.”
New York Times, June 16, 2007.

CRS-33
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 saw the U.S.
buildup as a means of building leverage against Iran that could be useful in bolstering
U.S. diplomacy, and he, CENTCOM Commander Admiral William Fallon, and
other senior officials have 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, coincident with Iranian exercises, and large U.S. maneuvers
off Iranian waters were held in late May 2007. In July 2007, it was reported that the
United States would likely be maintaining two aircraft carrier task forces in the Gulf.

“Gulf Security Dialogue.” The U.S. Gulf deployments build on a
containment strategy inaugurated in mid-2006 by the State Department, primarily the
Bureau of Political-Military Affairs (“Pol-Mil”). The State Department effort
represented 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” (now referred to as the Gulf Security Dialogue) 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.... 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 is on boosting Gulf state capabilities fueled
speculation about major new weapons sales to the GCC states. On July 30, 2007,
on the eve of a trip to the Middle East, Secretary of State Rice and Secretary of
Defense Gates announced that the United States would begin formal discussions with
the Gulf states on a major new arms sales package, which is expected to be formally
notified to Congress in the fall of 2007. In October 2006, the Defense Department
official responsible for managing official sales to foreign states, director of the
Defense Security Cooperation Agency Lt. Gen. Jeffrey Kohler, indicated what types
of weaponry are likely in the package, saying that improving Gulf state missile
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-34
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 incurred opposition from Israel as a potential threat. Another system
mentioned in press reports is a “Hawkeye” command and control aircraft that might
be sold to the UAE.
Pre-Emptive or Preventive Military Action. As concerns over Iran’s
nuclear program have grown, many, including some Members of Congress, fear that
containment might not succeed and that Iran’s nuclear program should be stopped
before Iran possesses a working nuclear device. In discussing possible military
options against Iran’s nuclear facilities, President Bush has repeatedly maintained
that “all options are on the table.”46 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 160,000 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.
Most 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. On the other hand, in August 2007 French President Nicolas
Sarkozy indicated that such a strike might be undertaken by the United States if Iran
does not curb its nuclear program, although he said the effects of such a strike would
be a “disaster.” 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-35
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.
Unconventional Conflict Scenarios. Some officials and experts warn
that a U.S. military strike on Iran could provoke unconventional retaliation, using the
equipment discussed in the section on “conventional military capabilities,” that
could be difficult to counter. At the very least, such conflict is likely to raise world
oil prices significantly out of fear of an extended supply disruption.
Iran has acquired a structure and doctrine for unconventional warfare that partly
compensates for its conventional weakness. Former 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].” During a visit to the Gulf, Vice President Cheney warned
Iran on May 11, 2007, not to try to restrict sea traffic, saying “[The United States]
will keep the sea lanes open.”
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 at least five major military exercises since August 2006, including
exercises simultaneous with U.S. exercises in the Gulf in March 2007; there were
no reported incidents. CNN reported on February 21, 2007, that Iranian ships have
been widening their patrols, coming ever closer to key Iraqi oil platforms in the Gulf.
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. The Gulf states fear that
Iran will fire coastal-based cruise missiles at their oil loading or other installations
across the Gulf, as happened during the later stages of the Iran-Iraq war.

CRS-36
Presidential Authorities and Legislation. 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
(which was vetoed on May 1, 2007).
Regime Change
A major feature of policy for part of 2006 — promotion of “regime change” —
has appeared to since recede. U.S. officials now say that the democracy promotion
programs discussed below are intended to promote political evolution in Iran and
lead to changes in regime behavior, not outright replacement. 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.
One account says that President Bush has recently authorized covert operations to
destabilize the regime.48 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.49 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.”
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
48 Ross, Brian and Richard Esposito. Bush Authorizes New Covert Action Against Iran.
[http://blogs.abcnews.com/theblotter/2007/05/bush_authorizes.html].
49 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-37
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.50 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.51
Congress and Regime Change. The State Department has used funds
provided in recent appropriations to support pro-democracy activists. The funds
represent congressional sentiment for efforts to change Iran’s regime. The policy is
discussed in the State Department report “Supporting Human Rights and Democracy:
U.S. Record 2005-2006,” released April 6, 2006. Iran asserts that such steps
represent a violation of the 1981 “Algiers Accords” that settled the Iran hostage crisis
and provide for non-interference in each others’ internal affairs. The following have
been appropriated:
! The FY2004 foreign operations appropriation (P.L. 108-199)
earmarked “notwithstanding any other provision of law” up to $1.5
million for “making grants to educational, humanitarian and non-
governmental organizations and individuals inside Iran to support
the advancement of democracy and human rights in Iran.” The State
Department Bureau of Democracy and Labor (DRL)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
50 Stockman, Farah. “‘Long Struggle’ With Iran Seen Ahead.” Boston Globe, March 9,
2006.
51 Weisman, Steven. “U.S. Program Is Directed At Altering Iran’s Politics.” New York
Times
, April 15, 2006.
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.

CRS-38
! 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 and the regular
FY2006 funds, the State Department said on June 4, 2007 that
$16.05 million was obligated for democracy promotion programs, as
was $1.77 million for public diplomacy and $2.22 million for
cultural exchanges (inviting about 200 young Iranian professionals
and foreign language teachers to the United States).
! 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, which will receive $14.7 million of the
FY2006 broadcasting funds. Farda now broadcasts 24 hours per
day, up from 8 previously. 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). House-passed FY2008 appropriations
legislation (H.R. 2764) provides $75 million, although $50 million
of that amount is to promote rule of law, democracy, and governance
in Iran, according to the House report (H.Rept. 110-197). The
House report also stipulates that $5 million of the democracy
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.

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promotion funds are to be used to promote women’s rights. The
Senate version provides $25 million for democracy promotion. The
House version provides $4.635 million for Radio Farda, and the
Senate version provides $22.87 million of the requested
broadcasting funds overall.
Many question the prospects of U.S.-led Iran regime change through democracy
promotion or other means, short of all-out-U.S. military invasion, because of the
weakness of opposition groups. Perhaps in recognition of the difficulty of the option,
a so-called “Iran-Syria Policy and Operations Group” within the Administration that
was purportedly considering recommending covert aid to opposition groups55 was
formally disbanded in April 2007. 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.
The regime purportedly also conducts extensive regime surveillance of
democracy activists or other internal dissidents. Press reports in April 2007 said that
Iran has been arresting civil society activists by alleging they are accepting the U.S.
democracy promotion funds, while others have refused to participate in U.S.-funded
programs, fearing arrest. The highest profile such arrest came in May 2007, when
Iranian-American scholar Haleh Esfandiari, of the Woodrow Wilson Center in
Washington, D.C., who had been under house arrest and unable to leave Iran since
late December 2006, was sent to Evin prison. Three other Iranian Americans were
arrested and accused by the Intelligence Ministry of actions contrary to national
security in May 2007: U.S. funded broadcast (Radio Farda) journalist Parnaz Azima
(who is not in jail but is not allowed to leave Iran); Kian Tajbacksh of the Open
Society Institute funded by George Soros; and businessman and peace activist Ali
Shakeri. Esfandiari and Tajbacksh appeared in an Iranian government-made film on
revolutions on July 16, 2007. In late August 2007, following an appeal to the
Supreme Leader by Wilson Center director (former congressman) Lee Hamilton,
Esfandiari and then Azima were released on bail and allowed to leave Iran. Others
argue that reformist groups such as students, women, labor leaders, intellectuals, and
others might be able to galvanize regime change unexpectedly despite the repression;
all of these groups have conducted various small protests during the past few years.
Several congressional resolutions called on Iran to immediately release Ms.
Esfandiari (S.Res.214, agreed to by the Senate on May 24; H.Res 430, passed by the
House on June 5; and S.Res. 199).
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
in the section on the Iran Sanctions Act. Major provisions of the bills were included
55 Stockman, Farah. “US Unit Works Quietly to Counter Iran’s Sway,” Boston Globe,
January 2, 2007.

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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 and modifies the Iran Sanctions Act.
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
issues,56 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. Prior to the recent meetings on Iraq, discussed above, the
United States and Iran did participate in regional meetings in 2004 on the issue of
stabilizing Iraq, including a 2004 meeting in Egypt.
Regarding a broader dialogue with Iran on nuclear and other issues, since 2006
the Administration has maintained it would join multilateral nuclear talks, but Iran
must first suspend uranium enrichment. Some believe the Administration position
was based on a view that participating in a nuclear dialogue would increase
international support for sanctions and other pressure mechanisms. Others believe
the Administration might perceive that a multilateral dialogue could convince Iran
of the seriousness of the joint offer to Iran (discussed above) to resolve the nuclear
issue. An amendment by Senator Biden (adopted June 2006) to the FY2007 defense
authorization bill (P.L. 109-364) supported the Administration’s 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, clearly offered a direct U.S.-Iran bilateral
dialogue on all issues of U.S. concern: nuclear issues, Iranian support of militant
movements, involvement in Iraq, and related issues. President Bush 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
56 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.

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a comprehensive Iranian proposal for talks with the United States. However, State
Department officials question whether that proposal represented an authoritative
communication from the Iranian government. 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.
Further International and Multilateral Sanctions
With the deadline for Iranian compliance under Resolution 1747 expired, an
immediate question is whether, and if so what, further international sanctions might
be imposed on Iran. The following represent sanctions that the Security Council
might impose in the next and in any subsequent resolutions. 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. 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). According to several reports, banning travel by these
named officials is under consideration for a new resolution. Another
option is to limit sports or cultural exchanges with Iran, such as
Iran’s participation in the World Cup soccer tournament or the
Olympics. However, many experts oppose using sporting events to
accomplish political goals.
! Banning or Inspecting International Flights to and from Iran. Bans
on flights to and from Libya were imposed on that country in
response to the finding that its agents were responsible for the
December 21, 1988, bombing of Pan Am 103 (now lifted). There
are no indications that a passenger aircraft flight ban is under
consideration at the U.N. Security Council, although there reportedly
is consideration of mandating inspections of Iranian international
cargo flights and shipping.
! A Ban on Exports to Iran of Refined Oil Products or of Other
Products. Members of the U.N. Security Council do not, at this
point, appear to be ready to include this sanction in a new Security
Council resolution on Iran’s nuclear program. Some countries that
supply gasoline to Iran, such as those listed in the economic table
above, 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, although some experts believe Iran would be able
to circumvent this sanction by offering premium prices to suppliers.
The House report on H.R. 2764, the FY2008 foreign aid bill,
requires an administration report on the feasibility, cost, and impact
of blocking shipments of refined gasoline to Iran. Another bill, H.R.

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2880, would apply the Iran Sanctions Act (see below) to entities that
sell gasoline to Iran.
! Financial and Trade Sanctions, Such as a Freeze on Iran’s
Financial Assets Abroad or Limiting Lending to Iran by Banks
International Financial Institutions.
Resolution 1737 and 1747
freeze the assets only of specific Iranian entities and individuals
named in those resolutions. Some diplomats say that a future
resolution could, as was considered during discussions of Resolution
1747, mandate reduction of official credit guarantees. In response
to U.S. urging, U.S. allies and their banks are already reducing
export credit guarantees and financing for Iran, as discussed below.
Another option advocated by some is to impose a ban on worldwide
financing of energy projects in Iran as a means of cutting off energy
development in Iran, although others believe that taking this step
could cause worldwide energy prices to rise further.
! Imposing a Worldwide Ban on Sales of Arms and Technology to
Iran. Resolution 1747 calls for — but does not require — U.N.
member states to exercise restraint in selling arms to Iran. However,
Russian and Chinese opposition to this sanction might be softening.
A new resolution might also mandate, rather than suggest, a ban on
all sales to Iran of dual use items. Another option under discussion
is to eliminate the exemption from Resolution 1747 sanctions for the
Bushehr nuclear reactor project, although Russian support for such
a move is in doubt.
! 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. Virtually all
U.S. allies that conduct extensive trade with Iran, and would oppose
comprehensive sanctions on trade in civilian goods with Iran. A ban
on oil purchases from Iran is unlikely to be imposed because world
oil prices remain over $60 per barrel and could go far higher if such
sanctions were imposed on Iran.
European/Japanese/Other Foreign Country Policy on Sanctions
and Trade Agreements. Although the United States and its allies are now
mostly aligned with the United States on Iran policy, some philosophical differences
might prevent adoption of some of the most sweeping sanctions against Iran, should
Iran continue to defy the international community. 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

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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.
As Iran has defied the international community on nuclear issues, the European
countries and Japan are now linking Iranian nuclear compliance to trade agreements
and other economic interaction. 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. In addition, several EU
countries report that civilian trade with Iran is down because Iran’s defiance on the
nuclear issue is introducing more perceived risk to trading with Iran.
Similarly, there is insufficient international support to grant Iran 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, and Iran formally began accession talks.
Foreign Banking and Financing Limitations. In the area of trade
financing, U.S. officials, including Undersecretary of State Burns and
Undersecretary of the Treasury Stuart Levey, say that they are having substantial
success persuading European governments to limit new export credits guarantees 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 credit to Iran. The Organization for Economic
Cooperation and Development (OECD) in 2006 raised the financial risk rating for
Iran. Some EU countries say they have reduced credit guarantee exposure to Iran by
as much as 33% since Resolution 1737 was passed in December 2006.
The U.S. Treasury and State Departments have begun using U.S. financial
regulations — as well as the new authorities in Resolution 1737 and 1747 — in an

CRS-44
apparently successful effort to pressure individual European banks not to provide
financing for exports to Iran or to process dollar transactions for Iranian banks.
Undersecretary of State Burns and Undersecretary of the Treasury 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). 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.57 In early 2007, UBS and three other
European banks, HSBC (Britain), Credit Suisse (Switzerland), and Germany’s
Commerzbank A.G, stopped dollar transactions from within Iran or pursuit of new
business in Iran. The latest success of the policy came in July 2007, when Germany’s
largest bank, Deutsche Bank AG, said it would stop doing business in Iran later in
2007. The restrictions on financing are, according to Iranian and outside observers,
making it more difficult to fund energy industry and other projects in Iran.
Previously, the EU countries and their banks have maintained that financing for
purely civilian goods is not banned by any U.N. resolution and that exporters of such
goods should not be penalized. In the 1990s, European and Japanese creditors —
over U.S. objections — rescheduled about $16 billion in Iranian debt. 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.

World Bank Loans.
The EU and Japan appear to have made new
international lending to Iran contingent on Iran’s response to international nuclear
demands. This represents a narrowing of 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. During 1999-2005,
57 Kessler, Glenn. “U.S. Moves to Isolate Iranian Banks.” Washington Post, September 9,
2006.

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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 $400 million in loans for earthquake relief. (A provision of
H.R. 1400 and S. 970, introduced in the 110th Congress, would impose a new
restriction on U.S. contributions to the World Bank in proportion to the Bank’s
lending to 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.58 Some experts believe that, even before U.S. allies have begun to impose
some sanctions on Iran, U.S. sanctions alone were slowing Iran’s economy, forcing
it to curb spending on weapons purchases.59 Others dispute that assessment, saying
U.S. sanctions had marginal or no effect on Iran.
H.R. 1400/S. 970. Legislation pending in the 110th Congress — primarily the
Iran Counter-Proliferation Act of 2007, H.R. 1400 and S. 970 — would attempt to
compel foreign adoption of tighter sanctions against Iran. Both bills would broaden
the types of foreign entities (to include official credit guarantee agencies, for
example) that could be sanctioned by the United States for dealings with Iran. H.R.
1400, which was reported out by the House Foreign Affairs Committee on June 26,
2007, would remove presidential waiver authority to avoid sanctioning such
companies. The bills would mandate cuts in U.S. contributions to the World Bank
for lending to Iran and preventing Russia from obtaining a nuclear agreement with
the United States if it continues supplying nuclear technology to Iran. Other
provisions of both would rescind the easing of the U.S. trade ban with Iran.
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
58 On November 14, 1979, President Carter declared a national emergency with respect to
Iran, renewed every year since 1979.
59 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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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.
! U.S. sanctions laws do not bar disaster aid 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.60 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, now called the Iran-Syria Non-Proliferation Act, or ISNA) 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. 61
Reflecting a Bush Administration decision to impose sanctions for violations,
the Bush Administration has sanctioned numerous entities as discussed below. These
60 Such laws include the Atomic Energy Act of 1954 and the Energy Policy Act of 2005
(P.L. 109-58).
61 The provision contains certain exceptions to ensure the safety of astronauts, 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 and extended INA sanctions provisions to
Syria.

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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. Those entities are listed in Table 4 at the
end of this paper.
As with previous years’ appropriations, the FY2007 foreign aid appropriation
(H.R. 5522, P.L. 110-5) punishes the Russian Federation for assisting Iran by
withholding 60% of any U.S. assistance to the Russian Federation unless it
terminates technical assistance to Iran’s nuclear and ballistic missiles programs. A
similar provision is contained in House-passed and Senate version of the FY2008
foreign aid legislation (H.R. 2764). A provision of H.R. 1400 and of S. 970 would
restrict nuclear cooperation with Russia, under the Atomic Energy Act of 1954, if it
continues to assist Iran’s nuclear or advanced conventional weapons capabilities.
(The two bills refer to different sections of the Atomic Energy Act, however.)
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/Subsidiaries. On May 6, 1995, President Clinton issued
Executive Order 12959 banning U.S. trade and investment in Iran.62 This followed
an earlier March 1995 executive order barring U.S. investment in Iran’s energy
sector. The trade ban was partly intended to blunt criticism that U.S. trade with Iran
made U.S. appeals for multilateral containment of Iran less credible. Each March
since 1995, the U.S. Administration has renewed a declaration of a state of
emergency that triggered the March 1995 investment ban. Some modifications to the
trade ban since 1999 account for the trade that does exist between the United States
62 An August 1997 amendment to the trade ban (Executive Order 13059) prevented U.S.
companies from knowingly exporting goods to a third country for incorporation into
products destined for Iran.

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and Iran. (H.R. 1400 and S. 970 would reimpose many of 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 as recently as 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). H.R. 1400 would ban such sales of
spare parts.
! 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. H.R. 1400 and S.
970 do not contain provisions limiting such exports to Iran.
! In April 2000, the trade ban was further eased to allow U.S.
importation of Iranian nuts, dried fruits, carpets, and caviar. The
United States was the largest market for Iranian carpets before the
1979 revolution, but U.S. anti-dumping tariffs imposed on Iranian
pistachio nut imports in 1986 (over 300%) dampened imports of that
product. In January 2003, the tariff on roasted pistachios was
lowered to 22% and on raw pistachios to 163%. In December 2004,
U.S. sanctions were further modified to allow Americans to freely
engage in ordinary publishing activities with entities in Iran (and
Cuba and Sudan). As of mid-2007, the product most imported from
Iran by U.S. importers is pomegranate juice concentrate. H.R. 1400
and S. 970 would re-impose the ban on importation of such goods.

CRS-49
! 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.
! 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.
Subsidiaries. The trade ban does not bar subsidiaries of U.S. firms 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. H.R. 1400 and S. 970 would apply sanctions to the
parent companies of U.S. subsidiaries if those subsidiaries are directed or formed to
trade with Iran. Among subsidiaries of U.S. firms that trade with Iran are:
! 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 provided $30 million to $35 million worth of
services per year through Oriental Kish. This left 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 (Cayman
Islands-registered Halliburton Products and Service, Ltd, based in
Dubai). 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, but Halliburton has said it is setting up a headquarters in
Dubai to pursue additional business in the region.
! 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.
! A subsidiary of Foster Wheeler company is said to be providing Iran
energy related technology.
! An Irish subsidiary of the Coca Cola company provides syrup for the
U.S.-brand soft drink to an Iranian distributor, Khoshgovar. Local
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-50
versions of both Coke and of Pepsi (with Iranian-made syrups) are
also marketed in Iran by distributors who licensed the recipes for
those soft drinks before the Islamic revolution and before the trade
ban was imposed on Iran.
The Iran Sanctions Act (ISA)/H.R. 1400/S. 970. The Iran Sanctions Act
sanctions foreign (or U.S.) investment of more than $20 million in one year in Iran’s
energy sector. 65 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 by
deleting the President’s ability to ban imports from sanctioned entities, as was
contained in early versions of H.R. 282. As noted above, it also authorizes additional
funding for promoting democracy in Iran. (See CRS Report RS20871, The Iran
Sanctions Act
, by Kenneth Katzman.)
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. Some European
companies are hesitating on potential new energy investments in Iran, and there is
uncertainty about whether large preliminary agreements of investments by Asian
companies will be implemented. 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. It is also not clear whether or not Iran’s reported investment to build five
refineries in various Asian countries would constituted sanctionable investment under
ISA. H.R. 2880, as noted above, would apply ISA to sales of gasoline to Iran.
Another recently announced preliminary agreement might test Administration
application of ISA — a deal reported in July 2007 for the export of Iranian gas to
Europe through the Iran-Turkey gas pipeline (a project not sanctioned under ISA),
which includes Turkish development of phases 22, 23, and 24 of the large South Pars
gas field.
In the 110th Congress, H.R. 1400 would remove the Administration’s ability to
waive application of sanctions under ISA. (S. 970 does not contain a similar
provision.) The Administration opposes that provision of H.R. 1400 on the grounds
that requiring sanctions on allied companies would divide the United States and its
allies on Iran policy. However, H.R. 1400 would not impose on the Administration
65 Originally called the Iran-Libya Sanctions Act, or ILSA; P.L. 104-172, August 5, 1996.
It was 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.

CRS-51
a time limit to determine whether a project is sanctionable. H.R. 1400, S. 970, and
another bill, H.R. 957 (the latter passed the House on July 31, 2007) would clarify
the definitions of sanctionable entities to include official credit guarantee agencies,
such as France’s COFACE and Germany’s Hermes, and both bills would also clearly
apply ISA sanctions to pipeline and liquified natural gas (LNG) projects. H.R. 1400
would also require the president to select a ban procurement from a sanctioned entity
as one of the two sanctions to impose.
Divestment. A growing trend not only in Congress but in at least nine U.S.
states is to require or call for or require divestment of shares of firms that have
invested in Iran’s energy sector (at the same levels considered sanctionable under the
Iran Sanctions Act). H.R. 1400 does not require divestment, but requires a
presidential report on firms that have invested in Iran’s energy sector. 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. Two other bills,
H.R. 2347 (passed by the House on July 31, 2007) and S. 1430, would protect
mutual fund and other investment companies from shareholder action for any losses
that would occur from divesting in firms that have investing in Iran’s energy sector.
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. However, in May 2007 the
State Department increased its warnings about U.S. travel to Iran, based largely on
the arrests of the dual Iranian-American nationals discussed earlier.
Status of Some U.S.-Iran Assets Disputes. A U.S.-Iran Claims Tribunal
at the Hague continues to arbitrate cases resulting from the 1980 break in relations
and freezing of some of Iran’s assets. Major cases yet to be decided center on
hundreds of Foreign Military Sales (FMS) cases between the United States and the
Shah’s regime, which Iran claims it paid for but were unfulfilled. About $400
million in proceeds from the resale of that equipment was placed in a DOD FMS
account, and about $22 million in Iranian diplomatic property remains blocked,
although U.S. funds have been disbursed — credited against the DOD FMS account
— to pay judgments against Iran for past acts of terrorism against Americans. Other
disputes include the mistaken U.S. shoot-down on July 3, 1988, of an Iranian Airbus
passenger jet (Iran Air flight 655), for which the United States, in accordance with
an ICJ judgment, paid Iran $61.8 million in compensation ($300,000 per wage
earning victim, $150,000 per non-wage earner) for the 248 Iranians killed. The
United States has not compensated Iran for the airplane itself. As it has in past
similar cases, the Administration has opposed a terrorism lawsuit against Iran by
victims of the U.S. Embassy Tehran seizure on the grounds of diplomatic
obligation.66
66 See CRS Report RL31258, Suits Against Terrorism States by Victims of Terrorism, by
Jennifer K. Elsea.

CRS-52
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 should be
explored.

CRS-53
Figure 1. Structure of the Iranian Government


CRS-54
Figure 2. Map of Iran

CRS-55
Table 5. Entities Sanctioned by U.N. Resolutions and
Executive Order 13382
Entities Sanctioned Under Resolution 1737
Atomic Energy
Mesbah Energy Company (Arak
Kalaye Electric
Organization of Iran
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
program
(SBIG)
missile program
Fajr Industrial Group
Mohammad Qanadi, AEIO Vice
Behman Asgarpour
(missile program)
President
(Arak manager)
Dawood Agha Jani
Ehsan Monajemi
Jafar Mohammadi
(Natanz official)
(Natanz construction manager)
(adviser to AEIO)
Ali Hajinia Leilabadi
Lt. Gen. Mohammad Mehdi
Gen Hosein Salimi
(director of Mesbah
Nejad Nouri
(Commander, IRGC
Energy)
(Malak Ashtar University of
Air 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 Researh
Kavoshyar Company
Metallurgy Insditries
and Production Center and
(subsidiary of AEIO)
Group
Esfahan Nuclear Technology
(controls 7th of Tir)
Center
Parchin Chemical
Karaj Nuclear Research Center
Novin Energy
Industries
Company
(branch of DIO)
Cruise Missile Industry
Bank Sepah
Sanam Industrial
Group
(funds AIO and subordinate
Group
entities)
(subordinate to AIO)
Ya Mahdi Industries
Qods Aeronautics Industries
Pars Aviation
Group
(produces UAV’s, para-gliders
Services Company
for IRGC assymetric warfare)
(maintains IRGC Air
Force equipment)

CRS-56
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
facilities)
Industrial Group)
Mehrdada Akhlaghi
Naser Maleki
Ahmad
Ketabachi (head of SBIG)
(head of SHIG)
Derakshandeh
(head of Bank Sepah)
Brig. Gen. Morteza Reza’i
Vice Admiral Ali Akbar
Brig. Gen.
(Deputy commander-in-
Ahmadiyan
Mohammad Reza
chief, IRGC)
(chief of IRGC Joint Staff)
Zahedi
(IRGC ground forces
commander)
Rear Admiral Morteza
Brig. Gen. Mohammad Hejazi
Brig. Gen. Qasem
Safari
(Basij commander)
Soleimani
(commander, IRGC Navy)
(Qods Force
commander)
Gen. Mohammad Baqr
Zolqadr
(IRGC officer serving as
deputy Interior Minister
Entities Designated Under U.S. Executive Order 13382
Entity
Date Named
Shahid Hemmat Industrial Group (Iran)
June 2005
Shahid Bakeri Industrial Group (Iran)
June 2005
Atomic Energy Organization of Iran
June 2005
Novin Energy Company (Iran)
January 2006
Mesbah Energy Company (Iran)
January 2006
Four Chinese entities: Beijing Alite Technologies, LIMMT
June 2006
Economic and Trading Company, China Great Wall Industry
Corp, and China National Precision Machinery Import/Export
Corp.
Sanam Industrial Group (Iran)
July 2006
Ya Mahdi Industries Group (Iran)
July 2006
Bank Sepah (Iran)
January 2007
Defense Industries Organization (Iran)
March 2007
Pars Trash (Iran, nuclear program)
June 2007
Farayand Technique (Iran, nuclear program)
June 2007
Fajr Industries Group (Iran, missile program)
June 2007

CRS-57
Mizan Machine Manufacturing Group (Iran, missile prog.)
June 2007
Entities Sanctioned Under the Iran Non-Proliferation Act and other U.S.
Laws

Norinco (China). For alleged missile technology sale to Iran.
May 2003
Taiwan Foreign Trade General Corporation (Taiwan)
July 4, 2003
Tula Instrument Design Bureau (Russia). For alleged sales of
September 17, 2003
laser-guided artillery shells to Iran.
13 entities sanctioned including companies from Russia,
April 7, 2004
China, Belarus, Macedonia, North Korea, UAE, and Taiwan.
14 entities from China, North Korea, Belarus, India (two
September 29, 2004
nuclear scientists, Dr. Surendar and Dr. Y.S.R. Prasad),
Russia, Spain, and Ukraine.
14 entities, mostly from China, for alleged supplying of Iran’s
December 2004 and
missile program. Many, such as North Korea’s Changgwang
January 2005
Sinyong and China’s Norinco and Great Wall Industry Corp,
have been sanctioned several times previously. Newly
sanctioned entities included North Korea’s Paeksan Associated
Corporation, and Taiwan’s Ecoma Enterprise Co.
9 entities, including those from China (Norinco yet again), India
December 26, 2005
(two chemical companies), and Austria. Sanctions against Dr.
Surendar of India (see September 29, 2004) were ended,
presumably because of information exonerating him.
7 entities. Two Indian chemical companies (Balaji Amines
August 4, 2006
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).
9 entities. Rosobornesksport, Tula Design, and Komna
January 2007
Design Office of Machine Building, and Alexei Safonov
(Russia); Zibo Chemical, China National Aerotechnology,
and China National Electrical (China). Korean Mining and
Industrial Development (North Korea) for WMD or advanced
weapons sales to Iran (and Syria).
14 entities, including Lebanese Hezbollah. Some were
April 23, 2007
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).