Order Code RS20871
Updated January 23, 2008
The Iran Sanctions Act (ISA)
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Summary
No firms have been sanctioned under the Iran Sanctions Act (ISA), although the
GAO reported in December 2007 said that the effects on Iran’s economy of ISA and
of other US sanctions are “difficult to determine.” Legislation in the 109th Congress
(P.L. 109-293) extended ISA until December 31, 2011, terminated application to Libya,
and added provisions. Legislation in the 110th Congress, such as H.R. 1400 (passed by
the House on September 25, 2007), would add still more provisions. See CRS Report
RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman.
Background and Original Passage
The Iran Sanctions Act (ISA), originally called the Iran-Libya Sanctions Act (ILSA),
is one among many U.S. sanctions in place against Iran. It was enacted in a context of
tightening U.S. sanctions on Iran, in response to Iran’s stepped up nuclear program and
its support to terrorist organizations such as Hizbollah, Hamas, and Palestine Islamic
Jihad. The year before enactment, an Executive Order, 12959 of May 6, 1995, banned
U.S. trade with and investment in Iran. The rationale was that these sanctions would curb
the strategic threat from Iran by hindering its attempts to modernize its petroleum sector,
which generates about 20% of Iran’s GDP. Iran’s onshore oil fields, as well as its oil
industry infrastructure, are aging and need substantial investment, and its large natural
gas resources (940 trillion cubic feet, exceeded only by Russia) were undeveloped when
ISA was first considered. Iran has 136.3 billion barrels of proven oil reserves, the third
largest after Saudi Arabia and Canada (according to Oil and Gas Journal, January 2007).
In 1995 and 1996, U.S. allies refused to impose sanctions on Iran, and the Clinton
Administration and Congress believed that it might be necessary for the United States to
try to deter their investment in Iran. The opportunity to do so came in November 1995,
when Iran first opened its energy sector to foreign investment. To accommodate its
philosophy of retaining control of its national resources, Iran developed a “buy-back”
investment program in which foreign firms recoup their investments from the proceeds
of oil and gas discoveries but do not receive equity stakes.

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With input from the Administration, some in Congress developed legislation to
sanction such investment. On September 8, 1995, Senator Alfonse D’Amato introduced
the “Iran Foreign Oil Sanctions Act” to sanction foreign firms’ exports to Iran of energy
technology. The bill passed the Senate on December 18, 1995 (voice vote) but, this
version instead sanctioned investment in Iran’s energy sector. On December 20, 1995,
the Senate passed a version applying the legislation to Libya as well, which was refusing
to yield for trial the two Libyan intelligence agents suspected in the December 21, 1988,
bombing of Pan Am 103. The House passed its version of the bill, H.R. 3107, on June
19, 1996 (415-0), and then concurred on a slightly different Senate version adopted on
July 16, 1996 (unanimous consent). It was signed on August 5, 1996 (P.L. 104-172).
Key Provisions. ISA requires the President to impose at least two out of a
menu of seven sanctions on foreign companies (entities, persons) that make an
“investment” of more than $20 million in one year in Iran’s energy sector.1 The
sanctions menu (Section 6) includes (1) denial of Export-Import Bank loans, credits, or
credit guarantees for U.S. exports to the sanctioned entity; (2) denial of licenses for the
U.S. export of military or militarily-useful technology to the entity; (3) denial of U.S.
bank loans exceeding $10 million in one year to the entity; (4) if the entity is a financial
institution, a prohibition on its service as a primary dealer in U.S. government bonds;
and/or a prohibition on its serving as a repository for U.S. government funds (each counts
as one sanction); (5) prohibition on U.S. government procurement from the entity; and (6)
restriction on imports from the entity, in accordance with the International Emergency
Economic Powers Act (IEEPA, 50 U.S.C. 1701). In the original law, the President may
waive the sanctions on Iran if the parent country of the violating firm agrees to impose
economic sanctions on Iran (Section 4(c)), or if he certifies that doing so is important to
the U.S. national interest (Section 9(c)). It terminates application to Iran if Iran ceases
its efforts to acquire WMD and is removed from the U.S. list of state sponsors of
terrorism. Application to Libya terminated when the President determined on April 23,
2004, that Libya had fulfilled the requirements of all U.N. resolutions on Pan Am 103.
Traditionally skeptical of imposing economic sanctions, European Union states
opposed ISA as an extraterritorial application of U.S. law. In April 1997, the United
States and the EU agreed to avoid a trade confrontation in the World Trade Organization
(WTO) over it and a separate Cuba sanctions law, P.L. 104-114). The agreement
contributed to a May 18, 1998, decision by the Clinton Administration to waive ISA
sanctions (“national interest” grounds — Section 9(c)) on the first project determined to
be in violation: a $2 billion2 contract (September 1997) for Total SA of France and its
partners, Gazprom of Russia and Petronas of Malaysia to develop phases 2 and 3 of the
1 The definition of “investment” in ISA (Section 14 (9)) includes not only equity and royalty
arrangements (including additions to existing investment, as added by P.L. 107-24) but also any
contract that includes “responsibility for the development of petroleum resources” of Iran. The
definition excludes sales of technology, goods, or services for such projects, and excludes
financing of such purchases. For Libya, the threshold was $40 million, and sanctionable activity
included export to Libya of technology banned by Pan Am 103-related Security Council
Resolutions 748 (March 31, 1992) and 883 (November 11, 1993).
2 Dollar figures for energy investment contracts with Iran represent public estimates of the
amounts investing firms are expected to spend during the life of the project, which might in some
cases be several decades.

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25-phase South Pars gas field. The EU pledged to increase cooperation with the United
States on non-proliferation and counter-terrorism, and the Administration indicated future
investments by EU firms in Iran would not be penalized.
ISA was to sunset on August 5, 2001, in the context of somewhat improved U.S.
relations with both Iran and Libya. During 1999 and 2000, the Clinton Administration
had eased the trade ban on Iran somewhat to try to engage the relatively moderate Iranian
President Mohammad Khatemi. In 1999, Libya yielded for trial the Pan Am 103
suspects. However, proponents of renewal maintained that both countries would view
its expiration as a concession, and renewal legislation was enacted in the 107th Congress
(P.L. 107-24, August 3, 2001). This law required an Administration report on ISA’s
effectiveness within 24 to 30 months of enactment; that report was submitted to Congress
in January 2004 and did not recommend that ISA be repealed.
Modifications in the 109th Congress. With U.S. concern about Iran’s nuclear
program increasing, ISA was to sunset on August 5, 2006. Members, concerned that
foreign companies had begun to ignore ISA, introduced the “Iran Freedom and Support
Act” (H.R. 282, S. 333) to extend ISA indefinitely, to increase the requirements to justify
waiving sanctions, to set a 90-day time limit for the Administration to determine whether
an investment is a violation (there is no time limit in the original law), and to authorize
funding for pro-democracy activists in Iran. H.R. 282 (passed by the House on April
26,2006 by a vote of 397-21) would have cut U.S. foreign assistance to countries whose
companies violate ISA and applied the U.S. trade ban on Iran to foreign subsidiaries of
U.S. companies. To prevent expiration while these bills were being considered, there was
a temporary extension until September 29, 2006 (P.L. 109-267). The version that
ultimately was passed was H.R. 6198, which addressed Administration demands for
flexibility; H.R. 6198 recommended, but did not require, a 180-day time limit for a
determination of violation. It made sanctionable sales of WMD-useful technology or
“destabilizing numbers and types of” advanced conventional weapons, added a required
determination that Iran “poses no significant threat” to terminate application to Iran,
changed the multi-lateral sanctions waiver provision (“4(c) waiver,” see above) to a
national security interest waiver, and recommended against U.S. nuclear agreements with
countries that supply nuclear technology to Iran. It extended ISA until December 31,
2011, formally dropped Libya, contained a provision to curb money-laundering by
criminal groups, terrorists, or proliferators, and formally changed the name of the law to
the Iran Sanctions Act. H.R. 6198 was passed by the House and Senate by voice vote and
unanimous consent, respectively, and was signed on September 30, 2006 (P.L. 109-293).
Effectiveness and Ongoing Challenges
Successive Administrations have argued that ISA has slowed Iran’s energy
development, but, as shown by the projects agreed to below and as discussed in a
December 2007 report by the GAO, its effect on Iran is difficult to determine. The GAO
report (Iran Sanctions: Impact in Furthering U.S. Objectives in Unclear and Should be
Reviewed. GAO-08-58, December 2007) contains a chart of post 2003 investments in
Iran’s energy sector, totaling over $20 billion in investment, but the GAO table includes
petrochemical and refinery projects, as well as projects that might not exceed the $20
million/one year investment threshold. The table below lists oil and gas exploration and
development investments only. The projects listed in the table and in the GAO report are
said to be under review for ISA sanctions by the State Department (Bureau of Economic

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Affairs), but no determinations of violation have been announced. State Department
reports to Congress on ISA, required every six months, state that U.S. diplomats raise
U.S. policy concerns about Iran with both investing companies and their parent countries.
Many of the projects agreed before 2004 are now producing gas or oil. Some experts
believe that what investment has been deterred has been caused more by Iran’s aggressive
negotiating style than by ISA. The investment has not boosted Iran’s sustainable oil
production significantly — it is still about 4.1 million barrels per day (mbd) — and
analyses, including by the National Academy of Sciences, say that, partly because of
growing domestic consumption, Iranian oil exports are declining to the point where Iran
might have negligible exports of oil by 2015.3 Others maintain that Iran’s gas sector,
virtually non-existent in 1998, is becoming an increasingly important factor in Iran’s
energy future because of foreign investment.
ISA’s definition of “investment” does not include oil or gas purchases from Iran, but
does include construction of energy routes to or through Iran because such routes help
Iran develop its petroleum resources. The Clinton Administration used that argument to
deter energy routes involving Iran and thereby successfully promoted an alternate route
from Azerbaijan (Baku) to Turkey (Ceyhan), which became operational in 2005.
However, no sanctions have been imposed on a 1997 project viewed as beneficial to U.S.
ally Turkey: a natural gas pipeline from Iran to Turkey (each country constructing the
pipeline on its side of their border). The State Department said that the project did not
violate ISA because Turkey would be importing gas from Turkmenistan, not Iran, and
would therefore not benefit Iran’s energy sector directly. However, direct Iranian gas
exports to Turkey began in 2001, and, as shown in the table, in July 2007 a preliminary
agreement between Iran and Turkey would expand that arrangement to transshipment of
Iranian gas to Europe, via the Iran-Turkey pipeline. Construction of oil refineries or
petrochemical plants in Iran – included in the referenced GAO report – would also appear
to constitute projects that develop Iran’s petroleum resources. Iran has plans to build or
expand — possibly involving new foreign investment — at least eight refineries in an
effort to ease gasoline imports that have totaled as much as 30% of Iran’s needs in early
2007. However, it is not clear whether or not Iranian investments in energy projects in
other countries, such as reputed Iranian investment to help build five oil refineries in Asia
(China, Indonesia, Malaysia, and Singapore) and in Syria, reported in June 2007, would
constitute sanctionable investment under ISA.

Further major tests loom, and some of the large, long-term deals between Iran and
several Asian countries, listed below, could significantly enhance Iran’s energy export
prospects. Most of the value of these agreements includes long-term contracts to
purchase Iranian oil and gas, and the exact investment amounts for the exploration and
production phases of these projects are not known. A related deal, particularly those
involving several Indian firms, is the construction of a gas pipeline from Iran to India,
through Pakistan, with a possible extension to China.4 The three governments appeared
3 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.
4 The Indian companies reportedly include ONGC Corp.; GAIL Ltd.; Indian Oil Corp.; and
Bharat Petroleum Corp. Some large European companies have also expressed interest. See
Solomon, Jay and Neil King. “U.S. Tries to Balance Encouraging India-Pakistan Rapprochement
(continued...)

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committed to the $4 billion to $7 billion project, which will take about three years to
complete after work begins, but India did not sign a reported “finalization” of a deal on
the project, signed by Iran and Pakistan on November 11, 2007. The two countries
reportedly are requiring that India decide within a few months whether or not it will join
the project; previously, the three countries had difficulty agreeing on such issues as a
pricing formula, pipeline routing, transportation tariffs, pipeline security, and the Indian
and Pakistani split of the gas supplies. U.S. officials, including Secretary of State Rice,
have on several occasions “expressed U.S. concern” about the pipeline deal or have called
it “unacceptable,” but no U.S. official has stated outright that it would be sanctioned.
ISA is one of many mechanisms the United States is using to try to squeeze Iran’s
economy. U.S. officials are having some success persuading European governments to
limit new export credits guarantees to Iran, and to persuade European banks not to
provide letters of credit for exports to Iran or to process dollar transactions for Iranian
banks. Forty banks worldwide have thus far agreed to end their business in Iran,
according to the Administration, by many accounts making it more difficult to fund
energy industry and other projects in Iran and causing potential investors in the energy
sector to hesitate on finalizing pending projects. In addition, prior to the December 3,
2007 release of a U.S. intelligence estimate on Iran’s nuclear program that dampened the
international threat perception of Iran, there were reports that a new U.N. Security Council
Resolution might include a worldwide ban on financing of energy projects in Iran and a
ban on all financial dealings with Iran’s banks. Some have speculated that the U.N.
Security Council — or a coalition of countries acting outside the Council — might
impose a worldwide ban on gasoline sales to Iran, although industry experts say that there
are so many gasoline suppliers near Iran that any such embargo could be skirted. On
October 25, 2007, several major Iranian banks (Saderat, Melli, Mellat, and related banks)
were designated by the Bush Administration, along with Revolutionary Guard and Guard
business entities, as ineligible to deal with U.S. persons (or banks) under Executive order
13224 (terrorism supporting entities) and Executive order 13382 (proliferation entities).
Proposed Further Amendments in the 110th Congress
In the 110th Congress, H.R. 1400 contains numerous provisions, some of which
pertain to ISA, others of which do not. It passed the House on September 25, 2007 by a
vote of 397-16. It would remove the Administration’s ability to waive application of
sanctions under ISA under Section 9(c), national interest grounds, but it would not
impose on the Administration a time limit to determine whether a project is sanctionable.
Both it and its Senate counterpart S. 970, and another House bill, H.R. 957 (the latter
passed the House on July 31, 2007) would expand the definitions of sanctionable entities
to official credit guarantee agencies, such as France’s COFACE and Germany’s Hermes,
and apply ISA sanctions to investment to develop a liquified natural gas (LNG) sector in
Iran, which currently has no LNG export terminals. H.R. 1400 also would require the
President to impose the ban on U.S. procurement from any entity sanctioned under ISA,
and impose one other of the menu of sanctions. H.R. 2880 would apply ISA sanctions to
sales to Iran of refined petroleum resources after December 31, 2007. Another bill, H.R.
2347, which passed the House on July 31, 2007, would protect from shareholder lawsuits
4 (...continued)
With Isolating Tehran.” Wall Street Journal, June 24, 2005, p. A4.

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fund managers that divest from firms that have made ISA-sanctionable investments. (For
all the major provisions of H.R. 1400, see CRS Report RL32048, referenced above.)
Post-1999 Major Investments in Iran’s Energy Sector
(Oil and gas fields only; pure infrastructure projects such refineries, petrochemical plants, not
included.)
Date
Field
Company(ies)
Value
Output/Goal
Totalfina Elf (France)/ENI
Feb. 1999 Doroud (oil)
$1 billion
205,000 bpd
(Italy)
Totalfina Elf/ Bow Valley
Apr. 1999 Balal (oil)
$300 million
40,000 bpd
(Canada)/ENI
Nov. 1999 Soroush and Nowruz (oil)
Royal Dutch Shell
$800 million
190,000 bpd
Norsk Hydro
Apr. 2000 Anaran (oil)
$100 million 100,000 (by 2010)
(Norway)/Lukoil (Russia)
2 billion cu.ft./day
July 2000 Phase 4 and 5, South Pars (gas) ENI $1.9
billion
(cfd)
Mar. 2001 Caspian Sea oil exploration
GVA Consultants (Sweden)
$225 million
?
June 2001 Darkhovin (oil)
ENI
$1 billion
160,000 bpd
May 2002 Masjid-e-Soleyman (oil)
Sheer Energy (Canada)
$80 million
25,000 bpd
Sep. 2002 Phase 9 + 10, South Pars (gas) LG (South Korea)
$1.6 billion
2 billion cfd
Oct. 2002 Phase 6, 7, 8, South Pars (gas) Statoil
(Norway)
$2.65 billion
3 billion cfd
$200 million
Jan. 2004 Azadegan (oil)
Inpex (Japan) 10% stake
260,000 bpd
(Inpex stake)
Yadavaran (oil). Finalized
185,000 bpd (by
Oct. 2004
Sinopec (China)
$2 billion
December 9, 2007
2011)
June 2006 Gamsar block (oil)
Sinopec (China)
$20 million
?
Sept. 2006 Khorramabad block (oil)
Norsk Hydro (Norway)
$49 million
?
Golshan and Ferdows onshore
Dec. 2007
SKS Ventures (Malaysia)
$16 billion
3.4 billion cfd
and offshore gas fields
Oil: 1.085 million
Totals
$27.9 billion bpd Gas: 10.4
billion cfd
Pending Deals/Preliminary Agreements
Kharg and Bahregansar fields (gas)
IRASCO (Italy)
$1.6 billion
?
Salkh and Southern Gashku fields (gas).
LNG Ltd. (Australia)
?
?
Includes LNG plant (Nov. 2006)
$16 billion
North Pars Gas Field (offshore gas)
China National Offshore
3.6 billion
(includes gas
(Dec. 2006)
Oil Co.
cu.ft/day
purchases
Phase 13, 14 - South Pars (gas);(Feb.
Royal Dutch Shell, Repsol
$4.3 billion
?
2007). Deadline to finalize: June 2008.
(Spain)
Phase 12 - South Pars (gas). Includes
OMV (Austria)
?
?
building LNG terminal (May 2007)
Phase 22, 23, 24 - South Pars (gas), plus
Turkish Petroleum
agreement to transport Iranian gas to
$3 - $4 billion
2 billion cfd
Company (TPAO)
Europe (July 13, 2007)

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