Order Code RL32048
Iran: U.S. Concerns and
Policy Responses
Updated January 30, 2008
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division

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Iran: U.S. Concerns and Policy Responses
Summary
According to the Administration, Iran is a major national security challenge for
the United States. The Administration perception is generated primarily by Iran’s
nuclear program but is compounded by Iran’s military assistance to armed groups in
Iraq and Afghanistan and to the Palestinian group Hamas and Lebanese Hezbollah.
However, the threat assessment of some other governments was lessened by the
December 3, 2007 key judgements of a National Intelligence Estimate (NIE) that
indicates that Iran is likely not on a drive to develop an actual nuclear weapon.
The Bush Administration argues that the NIE at least partly validates its
approaches to containing the potential threat posed by Iran – strengthening
international economic and political isolation of Iran to compel it to comply with
international demands that it end its enrichment of uranium. Two U.N. resolutions
(1737 and 1747) ban weapons of mass destruction (WMD)-related trade with Iran,
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 suspend enrichment, a modest further
tightening of sanctions has been agreed to by the permanent members of the U.N.
Security Council and Germany. 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. However,
a December 2007 GAO report on U.S. sanctions says the impact on Iran’s economy
is difficult to determine.
To strengthen its diplomacy, the Administration has maintained a substantial
naval presence in the Persian Gulf. The Administration has been strongly denying
widespread speculation that it plans military action against Iran, but has refused to
rule it out if no other efforts to curb Iran’s uranium enrichment program succeed.
Some in Congress seek to limit the President’s authority to take unilateral military
action against Iran. Some legislation passed by the House in the 110th Congress,
including H.R. 1400 and H.R. 957, 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. Other legislation, such as H.R. 1357, H.R. 2347 (passed by
the House), and S.1430, 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. On October 21, 2007, the Administration named several
Revolutionary Guard entities and personalities as proliferators and supporters of
terrorism, and the Guard’s “Qods Force” as a terrorism supporter (but not as a
foreign terrorist organization, FTO).
For further information, see CRS Report RS20871, The Iran Sanctions Act
(ISA), and CRS Report RS22323, Iran’s Activities and Influence in Iraq, both by
Kenneth Katzman, and CRS Report RS21592, Iran’s Nuclear Program: Recent
Developments. This report is updated regularly.

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Contents
Political History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Regime Stability, Human Rights, and Recent Elections . . . . . . . . . . . . . . . . . . . . 2
The Rebound of the Conservatives and the 2005 Election of Mahmoud
Ahmadinejad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Ahmadinejad’s Policies and Popularity/2008 Majles Elections . . . . . . 5
Human Rights Practices and the Opposition . . . . . . . . . . . . . . . . . . . . . . . . 9
Prominent Internal Dissidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exile Groups: People’s Mojahedin Organization of Iran (PMOI) . . . . 12
The Son of the Former Shah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Exiled Activists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Iran’s Strategic Capabilities and Weapons of Mass Destruction Programs . . . . . 14
Conventional Military/Revolutionary Guard/Qods Force . . . . . . . . . . . . . . 14
Nuclear Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
U.S. Support for Diplomacy/Establishment of “P5+1” Contact
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Resolution 1696 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Resolution 1737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Resolution 1747 and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Chemical Weapons, Biological Weapons, and Missiles . . . . . . . . . . . . . . . 23
Ballistic Missiles/Warheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Foreign Policy and Support for Terrorist Organizations . . . . . . . . . . . . . . . . . . . 25
Relations with the Persian Gulf States . . . . . . . . . . . . . . . . . . . . . . . . . 25
Iranian Policy in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Supporting Palestinian Militant Groups . . . . . . . . . . . . . . . . . . . . . . . 28
Lebanese Hezbollah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Central Asia and the Caspian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Al Qaeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
U.S. Policy Responses, Options, and Legislation . . . . . . . . . . . . . . . . . . . . . . . . 33
Overview of Bush Administration Iran Policy . . . . . . . . . . . . . . . . . . . . . . . 34
Containment and Possible Military Action . . . . . . . . . . . . . . . . . . . . . . . . . 35
Iranian Retaliatory Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Containment and the Gulf Security Dialogue . . . . . . . . . . . . . . . . . . . 37
Presidential Authorities and Legislation . . . . . . . . . . . . . . . . . . . . . . . 38
Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Congress and Regime Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Further International and Multilateral Sanctions . . . . . . . . . . . . . . . . . . . . . 43
European/Japanese/Other Foreign Country Policy on Sanctions and
Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Foreign Banking and Financing Limitations . . . . . . . . . . . . . . . . . . . . 46
World Bank Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
U.S. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

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Terrorism/Foreign Aid Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Proliferation Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Counter-Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
U.S. Trade Ban/Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
The Iran Sanctions Act (ISA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Pending Sanctions Legislation: H.R. 1400 and S. 970 . . . . . . . . . . . . 53
Travel-Related Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Status of Some U.S.-Iran Assets Disputes . . . . . . . . . . . . . . . . . . . . . . 54
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
List of Figures
Figure 1. Structure of the Iranian Government . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Figure 2. Map of Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
List of Tables
Table 1. Major Factions and Personalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. Human Rights Practices and Dissent . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 4. Iran’s Conventional Military Arsenal . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 5. Iran’s Ballistic Missile Arsenal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table 6. Iran Democracy Promotion Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Table 7. Entities Sanctioned by U.N. Resolutions and Executive Order 13382 . 58

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Iran: U.S. Concerns and
Policy Responses
Much of the debate over U.S. policy toward Iran has centered on the nature of
the current regime; some believe that Iran, a country of almost 70 million people, is
a threat to U.S. interests because hardliners in Iran’s regime dominate and set a policy
direction intended to challenge U.S. influence and allies in the region. President
Bush, in his January 29, 2002, State of the Union message, labeled Iran part of an
“axis of evil” along with Iraq and North Korea.
Political History
The United States was an ally of the late Shah of Iran, Mohammad Reza Pahlavi
(“the Shah”), who ruled from 1941 until his ouster in February 1979. The Shah
assumed the throne when Britain and Russia forced his father, Reza Shah Pahlavi
(Reza Shah), from power because of his perceived alignment with Germany in World
War II. Reza Shah had assumed power in 1921 when, as an officer in Iran’s only
military force, the Cossack Brigade (reflecting Russian influence in Iran in the early
20th century), he launched a coup against the government of the Qajar Dynasty. Reza
Shah was proclaimed Shah in 1925, founding the Pahlavi dynasty. The Qajars had
been in decline for many years before Reza Shah’s takeover. That dynasty’s
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). Prior
to the Qajars, what is now Iran was the center of several Persian empires and
dynasties. Iran adopted Shiite Islam under the Safavid Dynasty (1500-1722), which
brought Iran out from a series of Turkic and Mongol conquests.
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

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CRS-2
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
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 other’s
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 voted head of the Assembly
of Experts on September 4, 2007, defeating the harder line Ayatollah Ahmad Jannati.
Khamene’i has vast formal powers as Supreme Leader – he is Commander in
Chief of the armed forces and appoint commanders. He has a representative on the
highest national security body, the Supreme National Security Council, which is
composed of top military and civilian security officials. The Supreme Leader
appoints half of the twelve-member Council of Guardians;2 and the members of
Iran’s Supreme Judicial Council, but he does not appoint the cabinet, which is named
by the President and confirmed by the Majles (parliament). Headed by Jannati, the
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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CRS-3
conservative-controlled Council of Guardians reviews legislation to ensure it
conforms to Islamic law, and it screens election candidates. Khamene’i also has the
power, under the constitution, to remove the elected President if either the Supreme
Judicial Council or the elected Majles (parliament) say the President should be
removed, with cause. The Supreme Leader also appoints members of the 42-
member Expediency Council, set up in 1988 to resolve legislative disagreements
between the Majles (parliament) and the Council of Guardians. Expediency Council
members serve five-year terms. The Council, appointed most recently in February
2007, is still headed by Rafsanjani; its executive officer is former Revolutionary
Guard commander-in-chief Mohsen Reza’i.
Table 1. Major Factions and Personalities
Conservatives
Supreme
Has all the formal powers (commander in chief of the military, power
Leader Ali
to make key appointments) but none of the undisputed authority of his
Khamene’i
predecessor, founder of the revolution Ayatollah Ruhollah Khomeini.
Considered moderate conservative, seeks to challenge U.S. hegemony
while avoiding isolating Iran or provoking military confrontation.
Generally supportive of the business community (bazaaris), and
opposes major state intervention in the economy.
Akbar
Key strategist of the regime, longtime advocate of “grand bargain” to
Hashemi-
resolve all outstanding issues with United States, although on Iran’s
Rafsanjani
terms. Leads both Expediency Council and Assembly of Experts.
Leads moderate conservative faction known as Executives of
Construction. Was Majles (parliament) speaker during 1981-89 and
President 1989-1997. One of Iran’s richest men, family owns large
share of Iran’s total pistachio nut production.
President
Leads faction of younger, harder line conservatives associated with
Mahmoud
Revolutionary Guard, revolutionary institutions, and provincial
Ahmadinejad
governments, who comprise much of his cabinet. Generally supports
state control of the economy, subsidies, and social welfare programs
for lower classes. More popular in the rural areas than in major cities.
Majles Speaker
Relative by marriage of Khamene’i, controls largest conservative
Gholem Ali
faction in the Majles. Possibly at Khamene’i’s behest, has sometimes
Haddad-Adel
challenged Ahmadinejad’s nominees and budget proposals. Associated
with faction known as “Builders of Islamic Iran” which supports
Ahmadinejad.
Ali Larijani
Former state broadcasting head, was head of Supreme National
Security Council and is chief nuclear negotiator until October 2007
resignation. Considered hardline but politically close to Khamene’i,
he still serves as Khamene’i’s representative on the Supreme National
Security Council. Larijani sought to avoid U.N. Security Council
isolation.
Mohammad
Former Revolutionary Guard Air Force commander and police
Baqer Qalibaf
chief, 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, propelling him to mayor of Tehran. Probable challenger
to Ahmadinejad in 2009.

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CRS-4
Ayatollah
Founder of the hardline Haqqani school, and spiritual mentor of
Mohammad
Ahmadinejad. Fared poorly in December 2006 elections for 86-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.
Mahmud
An Ayatollah, has headed the Supreme Judicial Council since 1999.
Hashemi
Ally of Khamene’i and Rafsanjani, has supported repeated
Shahrudi
crackdowns on 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.
Militant
Longtime organization of hardline clerics. Not to be confused with
Clerics
an organization with almost the same name, below.
Association
Reformists
Mohammad
Reformist president during 1997-2005. Elected May 1997, with
Khatemi/
69% of the vote; re-elected June 2001with 77%. Rode wave of
Reformists
sentiment 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.
S o c i e t y o f
Reformist grouping once led by Mehdi Karrubi. Karrubi formed a
Militant Clerics
separated “National Trust” grouping after his 2005 loss in the
presidential election.
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. Generally dispersed and repressed under
Vahdat)
conservative presidency of Ahmadinejad.
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)

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CRS-5
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 gained
strength after the February 28, 2003, municipal elections, when reformists largely
boycotted. The conservatives 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 incumbent 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 the screening.
On the tide of these conservative victories, Rafsanjani regained 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.)
After the Council of Guardians narrowed the field of candidates to 8 out of the 1,014
persons who filed,3 Rafsanjani had several opponents more hardline than he is –
three had ties to the Revolutionary Guard: Ali Larijani (see Table 1); Mohammad
Baqer Qalibaf (see Table 1); and Tehran mayor Mahmoud Ahmadinejad. 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. He took office on August 6, 2005.
Ahmadinejad’s Policies and Popularity/2008 Majles Elections.
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 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. His visit to the U.N.
General Assembly meetings in September 2007 was controversial, including a
September 24 speech at Columbia University in which he said the Holocaust needed
further study, and denied that Iran had any homosexuals. The New York City police
department denied his request for a special, escorted visit to World Trade Center site
(“Ground Zero”). His General Assembly speech on September 25 was defiant on the
nuclear issue, saying Iran considered it a “closed issue.”
3 In the 2001 presidential election, the Council permitted 10 out of the 814 registered
candidates.

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CRS-6
Some Iranian leaders, both conservative and reformist, and portions of the
population, have been concerned that Ahmadinejad’s defiance of the international
community on the nuclear issue were isolating Iran. Several experts believe that
Supreme Leader Khamene’i and Rafsanjani want to curb Ahmadinejad’s authority
in order to limit confrontation with the international community. The first decision
that strengthened the view that Khamene’i seeks to constrain Ahmadinejad was the
October 2005 grant of new governmental supervisory powers to the Expediency
Council. Another 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. A shakeup in the nuclear negotiating team in
October 2007, discussed below, represented a further indication of splits in the
leadership on that issue, especially since the former negotiator, Ali Larijani,
continues to undertake official visits representing the Supreme Leader, such as a visit
to Egypt in January 2008. However, Ahmadinejad’s ties to the Revolutionary Guard
and other revolutionary institutions, as well as his ties to the emerging new
generation of senior leaders, likely positions him to weather criticism from more
senior leaders.
Maneuvering appears to be increasing in advance of March 14, 2008 Majles
elections and presidential elections in March 2009, in which Ahmadinejad is
expected to run for a second term. About 7,000 persons had filed to run for the
Majles election. Of these, about 2,000 mostly reformist candidates, including 103
Majles incumbents, have already been disqualified to run by the Council of
Guardians, which will publish the final candidate list on March 5.
The December 15, 2006, municipal council and Assembly of Experts elections
could foreshadow the likely results of the Majles elections. These elections showed
setbacks for Ahmadinejad supporters, and appear to confirm observations that his
popularity, at least in urban areas, deteriorated during 2007. His supporters won
only 3 out of the 15 seats on the Tehran city council, with similar results in other
major cities. Just before the elections, students protested Ahmadinejad during a
speech at Tehran’s Amir Kabir University. Another student protest against him
took place on October 8, 2007, and several students have been incarcerated for these
protests. Ahmadinejad’s political standing was further undermined by the June 2007
rationing of gasoline — a move intended to curb consumption that forces Iran to
import refined gasoline. The rationing harmed poorer Iranians in the urban areas
who sometimes use their cars as unofficial taxis, although it did reduce dependence
on imported gasoline, according to industry experts. Some protests took place,
including attacks on gas stations, after the rationing went into effect, although the
unrest eased when the government offered to hand out six months worth of gas
rations in advance. In addition, some Iranians received a windfall by selling excess
ration coupons to other Iranians. The Oil Minister resigned in August 2007,
probably because of the unpopularity of the rationing program among some. In late
January 2008, the Supreme Leader ordered Ahmadinejad to implement Majles
legislation requiring the government to give natural gas to remote villages hard hit
by cold weather.

---

CRS-7
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 52, 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. A part of the “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.
Ahmadinejad also has tried to protect his position by appealing to the lower
classes, with whom he still appears to be popular. 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 increased
inflation, but rural Iranians see him as attentive to their economic plight. The
Supreme Leader is said by press reports to be increasingly critical, in private, of
Ahmadinejad’s economic performance, particularly the increasing inflation.
Ahmadinejad apparently believes that his distributive policies can still be supported
by high oil prices. The relative health of Iran’s budget is helping Iran minimize the
effects of international sanctions resulting from Iran’s nuclear defiance, although
some business owners say the difficulty obtaining credit from foreign banks is
hurting their ability to operate. 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.

---

CRS-8
Table 2. Selected Economic Indicators
Economic Growth
4.3% (2006 est.)
Per Capita Income
$8,100/yr purchasing power parity
Proven Oil Reserves
135 billion barrels (highest after Russia and Canada)
Oil
4.1 million barrels per day (mbd)/ 2.4 mbd exports. Exports could shrink
Production/Exports
to zero by 2015-2020 due to accelerating domestic consumption.
Major Oil/Gas
China — 300,00 barrels per day (bpd); about 4% of China’s oil imports;
Customers
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
Imports were $5 billion value per year in 2006, but now about $4 billion
Import/ Suppliers
per year after rationing. 60% is supplied by European oil trader Vitol,
(other traders include Russia’s Lukoil). Direct suppliers include
refineries in: India, Kuwait, UAE, Turkey, Venezuela, Singapore,
Netherlands, China, Turkmenistan, Azerbaijan. Iran planning at least
eight new or upgrade refinery projects to expand capacity to about 3
million barrels per day from 1.5 mbd.
Major Export
Japan ($9.9 billion); China ($9.2 billion); Turkey ($5.1 billion); Italy
Markets (2006)
($4.45 billion); South Korea ($4 billion); Netherlands ($3.2 billion);
France ($2.7 billion); South Africa ($2.7 billion); Spain ($2.3 billion);
Greece ($2 billion)
Major Imports From
Germany ($5.6 billion); China ($5 billion); UAE ($4 billion); S. Korea
(2006)
($2.9 billion); France ($2.6 billion); Italy ($2.5 billion); Russia ($1.7
billion); India ($1.6 billion); Brazil ($1.3 billion); Japan ($1.3 billion).
Export Credit
Germany $715 million, down from $2 billion in 2005; France — $3.8
Guarantees (2006)
billion, down from $5.7 billion in 2005.
Major Non-Oil
Renault (France) and Mercedes (Germany)- automobile production in
Investments
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, petrochemical 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). Exports to
(2006)
U.S. — $157 million (large categories: pomegranate juice, caviar,
pistachio nuts, carpets, medicines, artwork). Imports from U.S. — $85
million (food, medicines, tobacco products).
Foreign Exchange
$40 billion+
External Debt
$19 billion (2005 est.)
Development
2003 (latest available): $136 million grant aid. Biggest donors: Germany
Assistance Received
($38 million); Japan ($17 million); France ($9 million).
Unemployment Rate
11%+
Inflation
12%+ (2006), but increasing sharply in late 2007
Source: CIA World Factbook, various press, IMF, Iran Trade Planning Division (2006), press

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CRS-9
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. However, Iranian
opinion is hard to gauge and even seemingly low level unrest has the potential to
spiral into a potential threat to the regime. 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 2007 State Department “religious
freedom” report (released September 14, 2007), cite Iran for widespread human
rights abuses including summary executions, disappearances, torture, arbitrary arrest
and detention, and discrimination against women. Noted human rights lawyer and
women’s advocate, Shirin Ebadi, told journalists in January 2008 that the regime is
conducting executions of criminals with increasing frequency.
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 in order 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.

---

CRS-10
Table 3. Human Rights Practices and Dissent4
Group/
Regime Practice/Recent Developments
Issue
Ethnic and
Persians are about 51% of the population, and Azeris (a Turkic people) are about
Religious
24%. Kurds are about 7% of the population, and about 3% are Arab. Of religions,
Breakdown
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.
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 then and again in July 2007. Regime
Students
reportedly also dissolved student unions and replaced them with regime loyalists
following student criticism of Ahmadinejad. Unions are technically not
independent, but under a state-controlled “Workers’ House” umbrella. H.Con.Res.
203 condemns Iran’s July 2007 arrests of several union officers.
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 contain a requirement 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
nine women in the 290-seat Majles, down from 13 in the previous 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 continued deterioration in Iran’s practices on this issue was
noted in the International Religious Freedom report for 2007. (No sanctions have
been added because of this designation, on the grounds that Iran is already subject
to extensive U.S. sanctions.)
4 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-11
Group/
Regime Practice/Recent Developments
Issue
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.
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”
Trafficking
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 Gulf states.
Prominent Internal Dissidents. The regime is highly concerned about
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 in 2002 for publishing an opinion poll purporting to show that the
Iranian public favors restoring relations with the United States.

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CRS-12
Some dissidents were not high level regime figures, but have sought to
challenge or expose the regime’s practices from inside Iran. Journalist Akbar Ganji
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. Canadian
journalist (of Iranian origin) Zahra Kazemi died in detention in 2003, allegedly of
beating. She had been 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).5 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 19976 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.7
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
5 Other names by which this group is known is the Mojahedin-e-Khalq Organization (MEK
or MKO) and the National Council of Resistance (NCR).
6 The designation was made under the authority of the Anti-Terrorism and Effective Death
Penalty Act of 1996 (P.L. 104-132).
7 “Removal of Iran Group From Terror List Sought.” Washington Post, November 23, 2002.

---

CRS-13
— 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
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.8 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.
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, DC, calling for unity in the opposition and the institution
of a constitutional monarchy and democracy in Iran. He has since broadcast messages
into Iran from Iranian exile-run stations in California.9 His political adviser is MIT-
educated Shariar Ahy.
Other 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 organizations, such as The National
Iranian American Council (NIAC), are not necessarily seeking influence inside Iran
but generally try to promote discussion of U.S. policy toward Iran. Some well-
known U.S.-based activists include:
8 Cloud, David. “U.S., Iran Hit Bumpy Terrain on Road to Rapprochement.” Wall Street
Journal, May 12, 2003.
9 Kampeas, Ron. “Iran’s Crown Prince Plots Nonviolent Insurrection from Suburban
Washington.” Associated Press, August 26, 2002.

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CRS-14
! 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.
! 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.
No U.S. assistance has been provided to exile-run stations. 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.” The perception is based largely on Iran’s growing weapons of mass
destruction (WMD) programs and its ability to exert influence in the region that, in
most cases, runs counter to U.S. policy or objectives.10 Iran’s overall national
security goals are to protect itself from foreign, primarily U.S. interference or attack,
and to be able to protect and defend the Shiite Islamic world that Iran sees as
oppressed by the more numerous and dominant Sunnis. 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 later in this paper.
Conventional Military/Revolutionary Guard/Qods Force
Iran’s armed forces are extensive but widely considered relatively combat
ineffective against a well-trained, sophisticated military such as that of the United
States. Iran’s forces are believed to be sufficiently effective to deter or fend off
conventional threats from Iran’s relatively weak neighbors such as post-war Iraq,
Turkmenistan, Azerbaijan, and Afghanistan but are largely lacking in logistical
ability to project power much beyond Iran’s borders. Lacking confidence in its
combat capability, Iran has avoided cause for conflict with militarily capable
neighbors such as Turkey and Pakistan. Iran’s armed forces have few formal
relationships with foreign militaries, but Iran and India have a “strategic dialogue”
and some Iranian naval officers reportedly are being trained in India. Most other
10 See [http://www.whitehouse.gov/nsc/nss/2006/].

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CRS-15
military relationships between Iran and other countries, such as Russia, Ukraine,
Belarus, North Korea, and a few others generally center on Iranian arms purchases
or upgrade contracts.
Iran’s Revolutionary Guard Corps (IRGC),11 which also controls the Basij
(mobilization) volunteer militia that enforces adherence to Islamic customs, is
generally loyal to the hardliners politically and is clearly more politically influential
than is Iran’s regular military, a holdover from the Shah’s era. The two forces, the
Guard and the regular military, technically report to a Joint Headquarters. As further
evidence of the Guard’s pre-eminence, Chairman of the Joint Chiefs of Staff Admiral
Mike Mullen said on November 29, 2007 that the IRGC Navy now has responsibility
to patrol the entire Persian Gulf, and that the regular Navy is patrolling the Strait of
Hormuz and Gulf of Oman.
In IRGC leadership developments, 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 against political dissent, but he is believed politically
aligned with Rafsanjani and former Guard chief Mohsen Reza’i, rather than with
Ahmadinejad. In December 2007, Jafari briefly took direct control of the Basij,
which operates from thousands of positions in Iran’s institutions, and indicated he
would increase its role in monitoring and suppressing dissent. Later, the Basij
command was given to senior Guard leader Mohammad Baqr Zolqadr, who had been
serving as deputy Interior Minister, but was dismissed by Ahmadinejad in December
2007. 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.
The Guard also has a unit, the Qods (Jerusalem) Force, that operates outside Iran
to assist pro-Iranian movements with weapons, training, and finances. The Guard is
also increasingly involved in Iran’s economy, acting through a network of contracting
businesses it has set up, most notably Ghorb (also called Khatem ol-Anbiya, Persian
for “Seal of the Prophet”). Active duty IRGC senior commanders reportedly serve
on Ghorb’s board of directors. For the role of the Guard/Qods Force in external
activities, see below under “Foreign Policy and Terrorism.”
In the 110th Congress, a provision of H.R. 1400 (passed by the House on
September 25), S. 970, and the conference report on H.R. 4986 (FY2008 defense
authorization bill, P.L. 110-181; Guard-related Senate amendment adopted
September 6 by vote of 76-22) calls for the Revolutionary Guard to be designated a
foreign terrorist organization, or FTO. On October 25, 2007, the Administration took
a somewhat lesser step by naming the Guard, the Ministry of Defense, and several
of the Guard’s commanders and construction firms, as well as several Iranian banks,
as proliferation entities under Executive Order 13382. The Qods Force of the Guard,
along with Bank Saderat, was named as a “specially designated global terrorist
entity” under Executive Order 13224. Both orders freeze the U.S.-based assets and
prevent U.S. transactions with the named entities, but these entities are believed to
have virtually no U.S.-based assets that could be frozen - the main penalties of
11 For a more extensive discussion of the IRGC, see Katzman, Kenneth. “The Warriors of
Islam: Iran’s Revolutionary Guard,” Westview Press, 1993.

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CRS-16
Executive Order 13382 and 13324. The U.S. action might have substantial effect on
the Guard and its business entities if U.S. partner countries and others adopt similar
sanctions.
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-
(incl. 10
military and
T-72)
plus some
29 and 30 Su-
Chinese-made
Revolutionary
Stinger
24)
Hudong, 40
Guard Corps
Boghammer, 3
(IRGC)). IRGC
frigates) Also
is about one-
has 3 Kilo
third of total
subs
force.
“Qods Forces” of IRGC. Approximately 10,000 - 15,000 total in the Qods Force, which
promotes Iran’s regional and global objectives through advisory support to pro-Iranian
factions in Lebanon, Iraq, Persian Gulf states, Afghanistan, and Central Asia. Also
operates worldwide intelligence network to give Iran possible terrorist option and to assist
in procurement of WMD-related technology.
Ship-launched cruise missiles. Iran is able to arm its patrol boats with Chinese-made C-
802 cruise missiles. Iran also has Chinese-supplied HY-2 Seerseekers emplaced along
Iran’s coast.
Midget Subs. Iran is said to possess several, possibly purchased assembled or in kit form
from North Korea. Iran claimed on Nov. 29, 2007 to have produced a new small sub
equipped with sonar-evading technology.
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. In September 2006,
Ukraine agreed to sell Iran the Kolchuga radar system that can improve Iran’s detection of
combat aircraft. In December 2007, Russia agreed to sell the even more capable S-300
air defense system, purportedly modeled after the U.S. Patriot system.
Nuclear Program
Throughout 2007, Iran and the international community appeared to be
approaching a crisis over Iran’s nuclear program as many governments asserted their
belief that Iran is attempting to achieve a nuclear weapons capability. U.S. policy,
as stated repeatedly by President Bush, Vice President Cheney, and other senior
officials is that a nuclear Iran is unacceptable and that U.S. policy is to prevent that
outcome.

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CRS-17
International focus on 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,12 considered ideal for the
production of plutonium. It was revealed in 2003 that the founder of Pakistan’s
nuclear weapons program, Abdul Qadeer (A.Q.) Khan, sold Iran nuclear technology
and designs.13 The International Atomic Energy Agency (IAEA), despite intensified
inspections of Iran’s facilities since late 2002, has said it cannot verify that Iran’s
current program is purely peaceful, and several of its reports (January 31, 2006, and
February 27, 2006) say it found documents that show a possible “military nuclear
dimension” to Iran’s program. A National Intelligence Estimate (unclassified key
judgments), released December 3, 2007,14 cast doubt on the most alarmist
interpretations of Iran’s program (as well as on that of a previous NIE issued in May
2005), saying that Iran had – but in late 2003 halted – a covert nuclear weapons
program as a result of increased international scrutiny and pressure. In a press
conference on December 4, President Bush argued against a change in U.S. policy,
saying that a key concern is that Iran could, at any time, decide to revive those covert
activities.
Iranian leaders welcomed the NIE, saying it validates Iran’s position that its
Iran’s nuclear program is for electricity generation. Iran says its oil resources are
finite and that enriching uranium to make nuclear fuel is allowed under the 1968
Nuclear Non-Proliferation Treaty,15 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 2015.16 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, the NIE
says it is likely that Iran will eventually try to develop a nuclear weapon. 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
12 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.
13 Lancaster, John and Kamran Khan. “Pakistanis Say Nuclear Scientists Aided Iran.”
Washington Post, January 24, 2004.
14 Text at [http://www.dni.gov/press_releases/20071203_release.pdf]
15 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.
16 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.

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CRS-18
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.
Even before the release of the NIE, there had been disagreement over the
urgency of the issue. The Administration’s key concern is that Iran is expanding its
ability to produce enriched uranium. The NIE assessed that Iran will likely be
technically capable of producing enough highly enriched uranium for a nuclear
weapon some time during 2010-2015. An IAEA report of November 15, 2007,
based on actual observations of Iran’s facilities by IAEA inspectors, said that Iran is
now running about 3,000 centrifuges (18 cascades of 164 centrifuges each),
considered a threshold number that could allow Iran to enrich enough uranium for a
nuclear weapon. However, the IAEA report also said Iran had enriched uranium to
only about 4%, and not to 4.8% as Iran has claimed (90% is needed for a weapon),
and the NIE says that Iran still faces significant bottlenecks in enrichment. The IAEA
report added that Iran has admitted to testing a new generation of centrifuge design.
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.
At the same time, concerns continue 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 Russia had insisted (including during
President Putin’s visit to Iran in October 2007) that Iran first comply with the U.N.
resolutions discussed below. In November 2007, perhaps to signal disagreement
with further pressure on Iran, Russia began taking steps to fuel the reactor and, on
December 17, shortly after the release of the NIE, began shipping the fuel. As of
January 27, 2008, Iran had received seven fuel shipments, virtually all it needs to
become operational by June 2008. Iran says the fuel it is producing will be used for
a second reactor planned for the Darkhovin area. As part of Russia’s work with Iran,
Russia has trained about 700 Iranian nuclear engineers.
European Diplomatic Efforts in 2003 and 2004/Paris Agreement.
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.
(The NIE released on December 3, 2007 appears to indicate that it was in conjunction
with this October 2003 agreement with the EU-3 that Iran might have halted its
covert nuclear weapons work.)
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

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CRS-19
renewed trade talks and other aid.17 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 offer
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;18 (3) agreement to no-
notice nuclear inspections; and (4) a pledge not to leave the NPT (which has a legal
exit clause). On August 8, 2005, Iran broke the IAEA seals on its uranium
“conversion” (one step before enrichment) facility at Esfahan and began conversion.
On September 24, 2005, the IAEA Board voted to declare Iran in non-compliance
with the NPT and to refer the issue to the Security Council,19 but no time frame was
set for the referral. Iran did not cease uranium conversion (and now has about 200
tons of converted uranium, enough for 20 nuclear weapons if enriched). The
Administration supported a November 2005 Russian proposal to Iran to establish a
facility in Russia at which Iranian uranium would be enriched, thereby enabling Iran
to claim it had retained its right to enrich. Iran did not accept the proposal. (Putin
reportedly discussed with Khamene’i “new” Russian ideas to resolve the nuclear
issue during his October 2007 visit to Iran, but without reaching any firm agreement.
Subsequently, Saudi Arabia appeared to back the Russian suggestion by offering to
join a consortium that would enrich uranium for Iran.)
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
17 For text of the agreement, see [http://www.iaea.org/NewsCenter/Focus/IaeaIran/eu_iran
14112004.shtml].
18 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.
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].

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CRS-20
U.S. Support for Diplomacy/Establishment of “P5+1” Contact
Group. Because of opposition from Russia and China to immediately punishing
Iran, 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 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.
! 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 and institutions; a freeze of
Iran’s assets abroad; and a ban on some financial transactions.
! 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.
22 One source purports to have obtained the contents of the package from ABC News:
[http://www.basicint.org/pubs/Notes/BN060609.htm]

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CRS-21
! An end to support for Iran’s application to the WTO.
Resolution 1696. 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.
After the passage of Resolution 1696, on August 22, 2006, Iran submitted a
formal response to the June 6 offer by the six powers. The text of Iran’s response was
not disclosed, but it reportedly did not offer to suspend uranium enrichment, instead
proposing negotiations on a broader roadmap of engagement with the West — and
sought provision of guarantees that the United States would not seek regime change.
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 10
named Iranian nuclear and missile firms and 12 persons related to those programs.
See Table 6.
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. U.S. implementation of the existing Resolutions has reportedly run into
some difficulty because the United States lacks passport numbers and other data to
track the assets or movements of the named Iranian personages.23
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, which:
23 Weisman, Steven. Lack of ID Data Impedes U.N. Sanctions Against Iran. New York
Times, September 17, 2007.

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CRS-22
! added 10 military/WMD-related entities; 3 Revolutionary Guard
entities; 8 persons, and 7 Revolutionary Guard commanders listed
in Table 6. Bank Sepah is among the entities sanctioned.
! banned arms transfers by Iran, a provision targeted at Iran’s alleged
arms supplies to Lebanese Hezbollah and to Shiite militias in Iraq.
! required all countries to report to the United Nations when the
sanctioned Iranian persons travel to their territories.
! called for (but did not require) countries to avoid selling arms or
dual use items to Iran and to avoid any new lending or grants to Iran.
Resolution 1747 demanded Iran suspend enrichment by May 24, 2007. The
IAEA report of May 23, 2007 stated that Iran did not comply, but the pressure of the
Resolutions appeared to be altering Iran’s nuclear decisionmaking. In August 2007,
Iran agreed to sign with the IAEA an agreement to clear up outstanding questions on
Iran’s past nuclear activities by the end of 2007, although the agreement was
criticized by the United States as not central to preventing Iran from achieving a
nuclear capability. On that basis, the P5+1 grouping — along with the EU itself —
agreed to a joint statement on September 28, 2007 (reiterated in November 2007), in
which all the undersigned, including Russia and China, said they would negotiate
another sanctions resolution if there is no progress reported by the IAEA in
implementing the August 2007 agreement or in separate continued negotiations with
EU representative Javier Solana. The preliminary IAEA report was circulated on
November 15, 2007, saying that Iran has provided additional information on its past
programs, but the report indicated that Iran had, in many ways, become less
transparent on its current enrichment programs. IAEA Director Baradei visited
Tehran on January 11, 2008 to seek further clarifications to be included in a final
report in March 2008. On his separate diplomatic track, Solana was due to report
late in 2007, but Solana bluntly characterized a November 30, 2007, meeting with
new Iranian negotiator Sayid Jallili as “disappointing,” suggesting no progress
whatsoever.
A new sanctions resolution took a step forward on January 26, 2008 with an
agreement among the P5+1 states to circulate a draft that will reportedly: (1) ban
sales of dual use items to Iran; (2) authorize inspections of cargo in and out of Iran
along the lines of the “Proliferation Security Initiative” to prevent WMD-related
shipments to Iran; (3) impose a travel ban on named Iranians (strengthening previous
Resolutions that only authorize such a ban; and (4) call for (but not require) countries
to prohibit financial transactions with Iran’s Bank Melli and Bank Saderat. The
reported provisions are less than the United States and Britain had sought but the
Administration hailed the agreement as demonstrating that the NIE had not fractured
international solidarity to insist on curbs on Iran’s nuclear program. The potential for
additional sanctions is further discussed in the section on multilateral and
international sanctions later in this paper.

However, the NIE suggests that Iranian leaders differ on how high a price to
pay, in international sanctions and isolation, to achieve that capability. As discussed
above, one overt sign that the pressure is causing rifts was the October 2007

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CRS-23
resignation of Larijani as chief negotiator, and his replacement by deputy foreign
minister Sayid Jallili, a close Ahmadinejad confident. The move might have reflected
an effort by Ahmadinejad to ensure that the nuclear issue is handled by hardliners.
At the same time, IAEA Director Baradei incurred some criticism in 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 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. However, Iran’s technical capabilities
are a matter of some debate among experts. 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. In October 2007, U.S. officials suggested
the missile defense plan might be slowed or ended if the nuclear threat from Iran
were alleviated, and the new Prime Minister of Poland, Donald Tusk, has implied
that Poland would insist on conditions in exchange for the deployments – for
example U.S. funding of other Polish military modernizations.

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CRS-24
Table 5. 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. Related missiles claimed produced by Iran - both of about
1,200 mile range, include the “Ashoura” (claimed in November 2007)
and the “Ghadr” (displayed at military parade in September 2007. 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, with 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
U.S. officials believe Iran might be capable of developing an
intercontinental ballistic missile (3,000 mile range) by 2015.24
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.25 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.26 Iran denied work on such a
warhead, but the IAEA is seeking additional information from Iran on
the material.
24 “Greater U.S. Concern About Iran Missile Capability.” Reuters, March 11, 2002.
25 “Iran: New Missile on the Assembly Line.” New York Times, September 26, 2002.
26 Broad, William and David Sanger. “Relying On Computer, U.S. Seeks to Prove Iran’s
Nuclear Aims.” New York Times, November 13, 2005.

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CRS-25
Foreign Policy and Support for Terrorist
Organizations
Iran’s foreign policy is a product of the ideology of Iran’s Islamic revolution,
blended with long-standing national interests, and is intended largely to overturn the
“status quo” in the Middle East that Iran believes favors the United States, Israel, and
Sunni Muslim regimes. 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).27
Relations with the Persian Gulf States.28 During the 1980s and early
1990s, Iran, through the Qods Force and the MOIS, sponsored Shiite Muslim
extremist groups opposed to the Sunni Muslim-led monarchy states of the 6-member
Gulf Cooperation Council (GCC; Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, and
the United Arab Emirates). However, Iran’s efforts to “export” its Islamic
revolution were unsuccessful and caused the Gulf states to ally closely with the
United States. During Khatemi’s presidency, Iran reduced support for Gulf Shiite
dissident movements there. In part to counter Iran’s perceived growing influence in
the Gulf, in December 2006 the summit of the GCC leaders announced that the GCC
states might jointly study their own development of “peaceful nuclear technology.”
On the other hand, seeking to avoid further tensions with Iran, the GCC leaders
invited Ahmadinejad to observe and speak at the December 2-3, 2007 summit of the
GCC leaders in Doha, Qatar - the first time an Iranian president has been invited to
the meeting since the GCC was formed in 1981. His speech reiterated a consistent
Iranian theme that the Gulf countries, including Iran, should set up their own security
structure without the help of outside powers, referring to the United States.
! Saudi Arabia. Many observers closely watch the relationship
between Iran and Saudi Arabia because of Saudi alarm over the
emergence of a pro-Iranian government in Iraq and Iran’s
ascendancy in Lebanon. Saudi Arabia sees itself as leader of the
Sunni Muslim world and views Shiite Muslims as heretical and
disloyal 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, who do not want a repeat of Iran’s sponsorship of
disruptive and sometimes violent demonstrations at annual Hajj
pilgrimages in Mecca in the 1980s and 1990s – or an increase in
Iranian support for Saudi Shiite dissidents – are receptive to easing
tensions with Iran, particularly, and they hosted Ahmadinejad in the
27 U.S. Department of State. Country Reports on Terrorism 2005. Released April 2006.
[http://www.state.gov/documents/organization/65462.pdf].
28 See CRS Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2006, by
Kenneth Katzman.

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CRS-26
Kingdom in March 2007 and again for the Hajj in December 2007.
The Saudis continue to blame a pro-Iranian movement in the
Kingdom, Saudi Hezbollah, for the June 25, 1996, Khobar Towers
housing complex bombing, which killed 19 U.S. airmen.29 After
restoring relations in December 1991 (after a four-year break),
Saudi-Iran ties progressed to high-level contacts during Khatemi’s
presidency, including Khatemi visits in 1999 and 2002.
! United Arab Emirates (UAE) concerns about Iran’s intentions have
not completely recovered from the April 1992 Iranian expulsion of
UAE security forces from the Persian Gulf island of Abu Musa,
which it and the UAE shared under a 1971 bilateral agreement. (In
1971, Iran, then ruled by the U.S.-backed Shah, seized two other
islands, Greater and Lesser Tunb, from the emirate of Ras
al-Khaymah, as well as part of Abu Musa from the emirate of
Sharjah.) The UAE (particularly the federation capital, Abu Dhabi,
which takes a harder line than Dubai, which has a large Persian-
speaking community and business ties to Iran) 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. These concerns might have
prompted Qatar invited Ahmadinejad to the December 2007 GCC
summit in Qatar.
29 Walsh, Elsa. “Annals of Politics: Louis Freeh’s Last Case.” The New Yorker, May 14,
2001. The June 21, 2001, federal grand jury indictments of 14 suspects (13 Saudis and a
Lebanese citizen) in the Khobar bombing indicate that Iranian agents may have been
involved, but no indictments of any Iranians were announced. In June 2002, Saudi Arabia
reportedly sentenced some of the eleven Saudi suspects held there. The 9/11 Commission
final report asserts that Al Qaeda might have had some as yet undetermined involvement in
the Khobar Towers attacks.

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CRS-27
! In 1981 and again in 1996, Bahrain 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. Bahraini fears
that Iran would try to interfere in Bahrain’s November 25, 2006,
parliamentary elections by providing support to Shiite candidates,
did not materialize, although the main Shiite opposition coalition
won 18 out of the 40 seats of the elected body. Tensions flared in
July 2007 when an Iranian newspaper claimed Bahrain is part of Iran
– that question was the subject of the 1970 U.N.-run referendum in
which Bahrainis opted for independence.
Iranian Policy in Iraq. The U.S. military ousting of Saddam Hussein has
benefitted Iran strategically,30 but U.S.-Iran differences in Iraq 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 involved in sectarian violence.
In his September 10-11, 2007 testimony, U.S. commander in Iraq General David
Petraeus reiterated U.S. military assessments that Iran is providing aid to these
militias, and he assessed it as causing harm to the U.S. effort to stabilize Iraq.
General Petraeus particularly focused on what he called Iranian attempts to set up
“Hezbollah-like” structures in southern Iraq to serve as an Iranian proxy. In early
October 2007, Gen. Petraeus told journalists that Iran’s Ambassador to Iraq, Hassan
Kazemi-Qomi, is a member of the Qods Force. In December 2007, however, U.S.
officials said they saw signs of a diminished arms flow from Iran, in line with Iran’s
October 2007 pledge to Iraqi Prime Minister Nuri al-Maliki to stop arming Shiite
militias in Iraq. However, U.S. officials differed over whether this was a result of
U.S. operations against Iranian agents in Iraq,31 or because of a policy decision by
Tehran to reduce support for Shiite militias, whose violent activities were causing
some popular resentment among Iraqi Shiite civilians. 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 provision of the FY2008 defense authorization bill (H.R. 4986, P.L. 110-
181) requires a report to Congress on Iran’s interference in Iraq, but it does not
authorize or recommend use of U.S. force to stop these actions. On January 9, 2008,
the Treasury Department took action against suspected Iranian and pro-Iranian
30 This issue is covered in greater depth in CRS Report RS22323, Iran’s Influence in Iraq,
by Kenneth Katzman.
31 U.S. forces in Iraq arrested a total of 20 alleged Qods Force members involved in Iraq
during December 2006 - September 2007, releasing ten of them in November - December
2007 but holding those of “highest value.”

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operatives in Iraq by designating four individuals and one organization as a threat to
stability in Iraq under the July 17, 2007 Executive Order 13438, which freezes the
assets and bans transactions with named individuals. The named entities, which
includes a senior Qods Forces leader, are in the table on sanctioned entities at the end
of this paper.
The “Iraq Study Group” (Recommendations 9, 10, and 11) in its December
2006 report, recommended U.S. dialogue with Iran but President Bush initially
appeared to reject that idea. The Administration might have later judged that its 2007
“troop surge” and other military moves in the Gulf (extra aircraft carrier
deployments) strengthened the U.S. position, and the Administration supported 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 (“Expanded Neighbors of Iraq” process) 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. Nor did they directly
talk at the November 2, 2007 ministerial on Iraq held in Istanbul.
The Administration also began potentially more significant bilateral talks with
Iran on the Iraq issue. The first such meeting, in Baghdad, was on May 28, 2007; the
two sides met at the home of Prime Minister Nuri al-Maliki, who opened the
meeting. According to Ambassador Crocker (the Iranian side was represented by 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. In his September
2007 testimony before Congress, Ambassador Crocker said that the dialogue had not
yielded results on Iran’s activity in Iraq but should be nonetheless continued because
Iran might at some point see it in its interests to adjust its stance. Another round of
talks, scheduled for December 18, was postponed until January 2008 because of
differences over the agenda and the level of talks (Iran wants them to be at the
ambassador level). No date is now set.
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

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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. Ahmadinejad again articulated a hardline
position when he openly criticized the participation of Iran’s ally, Syria, at the major
U.S.-sponsored Middle East peace meeting in Annapolis, Maryland on November 27,
2007. The meeting, in part, represented a U.S. attempt to isolate Iran and other
hardline opponents of an Israeli-Palestinian peace agreement.
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
violence to undermine the Arab-Israeli peace process. Some saw Iran’s regional
policy further strengthened by Hamas’s victory in the January 25, 2006, Palestinian
legislative elections, and even more so by Hamas’s June 2007 armed takeover of the
Gaza Strip. The Hamas gains position it to block any moves toward peace, and
Hamas continues to oppose a two-state solution with Israel. However, Hamas
activists downplay Iranian influence, asserting that Iran is mostly Shiite, while Hamas
members are Sunni Muslims.32 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.
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.33 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
32 CNN “Late Edition” interview with Hamas co-founder Mahmoud Zahar, January 29,
2006.
33 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.

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CRS-30
control, despite U.N. Security Council Resolution 1559 (September 2, 2004) that
required its dismantlement. In refusing to disarm, Hezbollah says it was resisting
Israeli occupation of small tracts of Lebanese territory (Shib’a Farms).
Neither Israel nor the United States opposed Hezbollah’s progressively
increased participation in peaceful Lebanese politics. In March 2005, President Bush
indicated that the United States might accept Hezbollah as a legitimate political force
in Lebanon if it disarms. In the Lebanese parliamentary elections of May — June
2005, Hezbollah expanded its presence in the parliament to 14 out of the 128-seat
body. On the strength of this showing, two Hezbollah members were given cabinet
seats. As a matter of policy, the United States does not meet with any Hezbollah
members, even those in the parliament or cabinet. Hezbollah is a designated FTO, but
that designation bars financial transactions by the group and does not specifically ban
meeting with members of the group.
Whether or not Iran instigated Lebanese Hezbollah to provoke the July-August
2006 crisis, Iran has long been its major arms supplier. Hezbollah fired Iranian-
supplied rockets on Israel’s northern towns during the fighting. As part of a package
of aid to Hezbollah said to exceed $100 million per year, reported Iranian shipments
to Hezbollah over the past five years have included the “Fajr” (dawn) and Khaybar
series of rockets that were fired at the Israeli city of Haifa (30 miles from the border),
and over 10,000 Katyusha rockets that were fired at cities within 20 miles of the
Lebanese border.34 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 Qods Force personnel 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, including a withdrawal from the cabinet) challenged the pro-
U.S. government in Beirut. Other Lebanese factions have sought Hezbollah’s
concurrence on a consensus candidate as new president of Lebanon, but Hezbollah
insists it be allowed to remain armed. 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.35 Other reports say Iran is replacing the 4,000 rockets
Hezbollah fired during that war. 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,
34 “Israel’s Peres Says Iran Arming Hizbollah.” Reuters, February 4, 2002.
35 Shadid, Anthony. “Armed With Iran’s Millions, Fighters Turn to Rebuilding.”
Washington Post, August 16, 2006.

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CRS-31
which took place in accordance with U.N. Security Council Resolution 1701 (July
31, 2006).36
Prior to the conflict, in the 109th Congress, two resolutions (H.Res. 101 and
S.Res. 82) passed their respective chambers. They urged the EU to classify Hezbollah
as a terrorist organization; S.Res. 82 called on Hezbollah to disband its militia as
called for in U.N. Security Council Resolution 1559 (September 2, 2004).
Central Asia and the Caspian. Iran’s policy in Central Asia has thus far
emphasized Iran’s rights to Caspian Sea resources, particularly against Azerbaijan.
That country’s population, like Iran’s, is mostly Shiite Muslim, but its leadership is
secular. In addition, Azerbaijan is ethnically Turkic, and Iran fears that Azerbaijan
nationalists might stoke separatism among Iran’s large Azeri Turkic population,
which demonstrated some unrest in 2006. In July 2001, Iranian warships and combat
aircraft threatened a British Petroleum (BP) ship on contract to Azerbaijan out of an
area of the Caspian that Iran considers its own. The United States called that action
provocative, and it is engaged in border security and defense cooperation with
Azerbaijan directed against Iran (and Russia). The United States successfully backed
construction of the Baku-Tblisi-Ceyhan oil pipeline, intended in part to provide
alternatives to Iranian oil. Along with India and Pakistan, Iran has been given
observer status at the Central Asian security grouping called the Shanghai
Cooperation Organization (SCO), which contains Russia, China, Kazakhstan,
Kyrgyzstan, Uzbekistan, and Tajikistan. Iran is hoping to formally join the
organization, which generally opposes a long term U.S. presence in Central Asia.
Afghanistan.37 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
36 See CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict, coordinated
by Jeremy Sharp.
37 See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy,
by Kenneth Katzman.

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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 and again on September 6, 2007,
NATO officers said they directly intercepted Iranian shipments of heavy arms, C4
explosives, and advanced roadside bombs (“explosively-forced projectiles, EFPs,
such as those found in Iraq) to Taliban fighters in Afghanistan. U.S. commander of
international forces in Afghanistan Gen. Dan McNeil says the intercepted shipments
are large enough that the Iranian government would have to have known about them.
Responding 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 both sides”in Afghanistan
– an apparent reference to possible Iranian attempts 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, Iran might see possibilities for
tactical alliance with Al Qaeda, and 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, Saad38) who are
believed to be in Iran,39 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.40 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.
38 Gertz, Bill. “Al Qaeda Terrorists Being Held by Iran.” Washington Times, July 24, 2003.
39 Keto, Alex. “White House Reiterates Iran Is Harboring Al Qaeda.” Dow Jones Newswires,
May 19, 2003.
40 Gertz, Bill. “CIA Points to Continuing Iran Tie to Al Qaeda.” Washington Times, July 23,
2004.

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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
Minister said that 200 Al Qaeda members are in Iranian jails and that Iran had broken
up an Al Qaeda cell planning attacks on Iranian students.41
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.
Latin America. A growing concern has been Iran's developing relations with
countries and leaders in Latin America considered adversaries of the United States,
particularly Cuba and Venezuela’s Hugo Chavez. Chavez has visited Iran on several
occasions, offering Iran additional gasoline during Iran’s fuel shortages in 2007 as
well as joint oil and gas projects. The two countries have established direct air links.
In February 2006, Secretary Rice referred to Venezuela and Cuba as “sidekicks” of
Iran because of their votes in the IAEA against referring Iran to the Security Council.
On October 30, 2007, Secretary of Homeland Security Michael Chertoff said that
Iran’s relationship with Venezuela is an emerging threat because it represents a
“marriage” of Iran’s extremist ideology with “those who have anti-American views.”
The State Department terrorism report for 2006 said that Cuba maintains “close
relationships with other state sponsors of terrorism such as Iran.” In October 2007,
Uruguayan parliamentary investigators said they blocked an attempt by the
government to buy arms from Iran, using a diversion through Venezuela.42
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.43 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,
41 “Tehran Pledges to Crack Down on Militants.” Associated Press, July 18, 2005.
42 Arostegui, Martin. “Uruguay Caught Buying Iran Arms.” Washington Times, October 12,
2007.
43 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”).

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providing battlefield intelligence to Iraq44 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
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
Although some U.S. commentators, including former CENTCOM
Commander John Abizaid, believe that the United States “can live with” a nuclear
Iran, it is U.S. policy to prevent Iran from obtaining a nuclear weapons capability.
The Bush Administration has continued multi-faceted efforts to try to implement that
policy, as well as to limit Iran’s strategic capabilities more generally, through
international diplomacy and sanctions — both international sanctions as well as
sanctions enforced by its allies, outside Security Council mandate. At the same time,
the Administration has engaged in bilateral diplomacy with Iran on specific priority
issues, such as stabilizing Afghanistan and Iraq. These efforts are mostly led by
Department of State officials, who believe that this policy course is the only U.S.
44 Sciolino, Elaine. The Outlaw State: Saddam Hussein’s Quest for Power and the Gulf
Crisis. New York: John Wiley and Sons, 1991. p. 168.

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option that would garner broad international support and affect Iran’s behavior. The
policy framework is supported by maintenance of a large U.S. conventional military
capabilities in the Persian Gulf and through U.S. alliances with Iran’s 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 or on U.S. efforts to
change Iran’s regime.45 Legislation pending in the 110th Congress, discussed below,
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)
called for a report by the Administration on all aspects of U.S. policy and objectives
on Iran (and required the DNI to prepare a national intelligence estimate on Iran,
which was released on December 3, 2007 as discussed above).
Containment and Possible Military Action
A major question asked in Congress and among U.S. allies and other countries
has been whether President Bush might use military action to delay or halt Iran’s
nuclear program. Although some Members publicly oppose such action, others 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 position he reiterated after the
release of the NIE, even though most observers see the NIE as lessening the chance
of U.S. conflict with Iran. A U.S. ground invasion to remove Iran’s regime has not,
at any time, appeared 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.
45 Cooper, Helene and David Sanger. “Strategy on Iran Stirs New Debate at White House.”
New York Times, June 16, 2007.
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.

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Still others argue that there are military options available that do not involve air
or missile strikes. Some say that a naval embargo is possible that could pressure Iran
into reconsidering its stand on the nuclear issue. Others say that the imposition of a
“no-fly zone” over Iran might also serve that purpose. Either action could still be
considered acts of war that Iran might challenge, and which could escalate into
military hostilities.
Most U.S. allies in Europe, not to mention Russia, China, and some U.S.
experts, have expressed opposition to any military action. Opponents 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.”
Other members of his government made similar comments in September 2007,
possibly in an effort to provoke accelerated action on stricter international sanctions.
Some believe that a U.S. strike would cause the Iranian public to rally around Iran’s
regime, setting back U.S. efforts to promote change within Iran.

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.
Some published estimates discuss a few thousand sites, including conventional
military targets, if such action were expanded to beyond WMD sites.
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. Discussion of this possibility increased after the
NIE was released, because Israel fears it has greatly dampened the international
appetite to forcefully curb Iran’s nuclear abilities. However, several experts doubt
that Israel has the capability to make such action effective.
Iranian Retaliatory 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. Others say such
action would cause Iran to withdraw from the NPT and refuse any IAEA inspections.
Other possibilities include firing missiles at Israel, or directing Lebanese Hezbollah
or Hamas to fire rockets at Israel.
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

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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. In early
2007, Iranian ships were 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.
On January 6, 2008, the U.S. Navy reported a confrontation in which five IRGC
Navy small boats approached three U.S. Navy ships to the point where they manned
battle stations. The IRGC boats veered off before any shots were fired, but the Bush
Administration called it a “provocative act” and filed a formal protest with Tehran,
which claims the United States overblew the incident. The IRGC could have been
testing U.S. rules of engagement following months of U.S. criticism and the
proliferation designations of the IRGC and its subunits.
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.
Containment and the Gulf Security Dialogue. Whether or not a strike
on Iran is planned, 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, Iraq “troop surge” statement by President Bush, in which he
confirmed in that speech that the United States was sending a second U.S. aircraft
carrier group into the Gulf,48 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. Secretary of Defense Gates said at the time
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. In July
2007, it was reported that the United States would likely be maintaining two aircraft
carrier task forces in the Gulf.
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
48 Shanker, Thom. “U.S. and Britain to Add Ships to Persian Gulf in Signal to Iran,” New
York Times, December 21, 2006.

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(“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 December 8, 2007 speech in Bahrain, Secretary Gates
said the “Gulf Security Dialogue,” which is now in its third round of talks, has six
key pillars, some of which go beyond Iran containment:
! Defense cooperation (with the Gulf states).
! Developing a shared assessment and agenda on Iraq.
! Regional stability, especially with respect to Iran.
! Energy infrastructure security.
! Counter-proliferation
! Counter-terrorism
One goal of the initiative is on boosting Gulf state capabilities fueled
speculation about major new weapons sales to the GCC states. The emphasis of the
sales is to improve Gulf state missile defense capabilities, for example by sales of the
upgraded Patriot Advanced Capability-3 (PAC-3),49 as well as to improve border and
maritime security equipment through sales of combat littoral ships, radar systems,
and communications gear. The initial sales, including PAC-3 related sales to UAE
and Kuwait, and Joint Direct Attack Munitions (JDAMs) to Saudi Arabia and UAE
were notified to Congress in December 2007 and January 2008. Another system
mentioned in press reports is a “Hawkeye” command and control aircraft for the
UAE.
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 on April 26, 2006, called on the President to not initiate military action
against Iran without first obtaining authorization from Congress. A similar bill,
H.Con.Res. 33, has been introduced 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 S.Res. 356, H.J.Res. 14, H.R. 3119, 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. Senior 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
49 “New Persian Gulf Security Effort Expected to Fuel Arms Sales in FY-07.” Inside the
Pentagon, November 9, 2006.

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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 authorized some covert operations to
destabilize the regime.50 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.51 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
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.52 An enlarged (six-person) “Office of Iran Affairs” has been
formed at State Department, and it is reportedly engaging in contacts with U.S.-based
exile groups such as those discussed earlier.53
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. As shown below, prior
to FY2008, a total of $42.2 million has been appropriated for Iran democracy
50 Ross, Brian and Richard Esposito. Bush Authorizes New Covert Action Against Iran.
[http://blogs.abcnews.com/theblotter/2007/05/bush_authorizes.html].
51 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.
52 Stockman, Farah. “‘Long Struggle’ With Iran Seen Ahead.” Boston Globe, March 9, 2006.
53 Weisman, Steven. “U.S. Program Is Directed At Altering Iran’s Politics.” New York
Times, April 15, 2006.

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promotion ($15.2 million through DRL and $27 million through the Bureau of Near
Eastern Affairs). Of that, as of October 2007, $35.65 million has been obligated, and
$9.109 million disbursed.
Table 6. Iran Democracy Promotion Funding
FY2004
Foreign operations appropriation (P.L. 108-199) earmarked $1.5 million for
“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)54 gave $1 million to the IHDC organization, mentioned earlier;
$500,000 to National Endowment for Democracy (NED).
FY2005
$3 million from FY2005 foreign aid appropriation (P.L. 108-447) for
democracy promotion. Priority areas were political party development, media
development, labor rights, civil society promotion, and promotion of respect
for human rights.
FY2006
$11.15 for democracy promotion from regular FY2006 foreign aid
regular
appropriation (P.L. 109-102). $4.15 million administered by DRL and $7
million for the Bureau of Near Eastern Affairs.
FY2006
Total of $66.1 million (of $75 million requested) from FY2006 supplemental
supp.
(P.L. 109-234): $20 million for democracy programs ($5 million above
request); $5 million for public diplomacy directed at the Iranian population
(amount requested); $5 million for cultural exchanges (amount requested);
and $36.1 million for Voice of America-TV and “Radio Farda” broadcasting
($13.9 million less than request). 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 (bringing Iranian professionals and
language teachers to the United States). Broadcasting funds provided
through the Broadcasting Board of Governors, rebuff to the idea of funding
exile broadcasts. Broadcasting to Iran began under Radio Free Europe/Radio
Liberty (RFE/RL), in partnership with the VOA, in October 1998.55 Farda
(“Tomorrow” in Farsi) received $14.7 million of FY2006 funds; now
broadcasts 24 hours/day, from 8 previously. VOA Persian services (radio and
TV) combined cost 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.
FY2007
FY2007 continuing resolution provided $6.55 million for Iran (andy Syria)
to be administered through DRL. No funds were requested.
54 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.
55 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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FY2008
$60 million (of $75 million requested) is contained in Consolidated
Appropriation (H.R. 2764, P.L. 110-161), of which $21.8 million is ESF for
pro-democracy programs, including non-violent efforts to oppose Iran’s
meddling in other countries. Appropriation also fully funds additional $33.6
million requested for Iran broadcasting: $20 million for VOA Persian service;
and $8.1 million for Radio Farda; and $5.5 million for consular affairs related
to exchanges with Iran.
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. 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, DC, 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. As of September 24, 2007,
all were released. 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 release 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 passed the House on April 26, 2006, by a vote of 397-21. A
companion, S. 333, was introduced in the Senate. 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 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.

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Engagement
Many believe that the NIE findings largely preclude hard line options against
Iran, and that the United States should instead seek a comprehensive direct dialogue
with Iran. 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, but has refused an unconditional dialogue on all issues. 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. The recent meetings on Iraq were discussed above.
Regarding a broader dialogue with Iran on nuclear and other issues, since 2006
the Administration has maintained it would join multilateral nuclear talks, or even
potentially engage in direct bilateral talks, but Iran must first suspend uranium
enrichment. Some believe the Administration position was based on a view that
offering to participate in a nuclear dialogue with Iran would later increase
international support for sanctions and other pressure mechanisms by demonstrating
the willingness of the Administration to resolve the issue diplomatically. 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, offered an unconditional, 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. Some view this as a
“missed opportunity,” saying that U.S. officials rebuffed a reported overture from
Iran just before the May 12, 2003, Riyadh bombing to negotiate all outstanding U.S.-
Iran issues as part of a so-called “grand bargain” that has been discussed by outside
experts and reported in various press articles. The Washington Post reported on
February 14, 2007 (“2003 Memo Says Iranian Leaders Backed Talks”), that the
Swiss Ambassador to Iran in 2003, Tim Guldimann, had informed U.S. officials of
a comprehensive Iranian proposal for talks with the United States. However, State
Department officials question whether that proposal represented an authoritative
communication from the Iranian government. Some believe that the NIE gives the
United States another opportunity to explore the grand bargain possibility, in part
because alternatives to pressure Iran have become more difficult. Others might
argue that the reported offer was unrealistic because an agreement would have
56 Wright, Robin. “U.S. In ‘Useful’ Talks With Iran.” Los Angeles Times, May 13, 2003.

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required Iran to abandon key tenets of its Islamic revolution, including support for
Hezbollah and acceptance of Israel’s right to exist. On January 3, 2008, Supreme
Leader Khamene’i said he would support resumed relations with the United States
at the right time and under the right circumstances, but not at the present because the
United States would use relations to insert spies into Iran. Secretary of State Rice
said in late January 2008 that it does not consider Iran a “permanent enemy.”
Further International and Multilateral Sanctions
As noted above, the Administration focus has been on increasing pressure on
Iran to change its position on the nuclear issue by imposing increasingly strict
international or multilateral sanctions. President Bush indicated at a December 4,
2007 press conference that this focus would not change despite the NIE findings.
The following represent sanctions that the Security Council might impose in future
U.N. resolutions, along with some discussion of key positions expressed by some
Security Council or other nations on those ideas. Administration officials say these
or other additional sanctions might also be considered by a “coalition” of countries,
outside Security Council authorization — a possibility that reportedly was discussed
at a meeting of Security Council permanent members at the U.S. State Department
on September 21, 2007.57 Until the release of the NIE on December 3, pressure for
strong action outside the Council had been growing as the Council was unable to
agree to greatly increase U.N.-backed pressure on Iran. On the other hand, even
among U.S. allies, Germany opposed sanctions outside Council action on the grounds
that Iran could avoid such pressure by increasing trade and financial transactions
through Dubai, and with Asian and other countries.58 Among the further U.N. or
multilateral sanctions widely discussed are the following:
! 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 6 at the end of this paper for
those persons). Banning travel by these named officials is
reportedly included in the draft resolution being circulated. 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, as noted
57 Wright, Robin. U.S., Europeans Planning Own Iran Sanctions. Washington Post,
September 22, 2007.
58 Berlin Says U.S. and France Guilty of Hypocrisy. Spiegel Online, September 24, 2007.
[http://www.spiegel.de/international/world/0,1518,507443,00.html]

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above, inspections of Iranian international cargo flights and shipping
is reportedly authorized in the draft resolution begin circulated.
! A Ban on Exports to Iran of Refined Oil Products or of Other
Products. Even before the NIE was released, members of the U.N.
Security Council did not appear ready to include this sanction in a
new Security Council resolution. Some countries that supply
gasoline to Iran, such as those listed in the economic table above
(see Table 2), 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,
although some experts believe Iran would be able to circumvent this
sanction by offering premium prices to suppliers. A bill, H.R. 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 or
International Financial Institutions. Resolution 1737 and 1747
freeze the assets only of specific Iranian entities and individuals
named in those resolutions. A future resolution could, as was
considered during discussions of Resolution 1747, mandate
reduction of official credit guarantees, and British Prime Minister
Brown indicated British support for this idea on November 12, 2007,
although the NIE appears to have dampened support for this idea.
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. In his November 12, 2007 comments, Brown also
expressed support for a 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. As noted, the draft resolution being circulated
would authorize - but not require - countries to end banking
relationships with Iran’s Bank Melli and Bank Saderat.
! Imposing a Worldwide Ban on Sales of Arms and Technology to
Iran. Resolution 1747 called for — but did not require — U.N.
member states to exercise restraint in selling arms to Iran. A future
resolution might mandate such an arms sales ban. The draft
resolution being circulated reportedly bans sales to Iran of dual use
items. Another option under discussion is to eliminate the
Resolution 1737 exemption from sanctions for the Bushehr nuclear
reactor project, although Russian support for such a move is in
doubt.
! 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 be unlikely to be considered in the
Security Council unless the findings of the NIE somehow proved

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completely incorrect. Virtually all U.S. allies 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 about $90
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 on Iran policy, some philosophical differences remain. Most U.S.
allies still favor engagement and incentives — not just economic or political
punishments — as tools to change Iran’s behavior. During 1992-1997, when the
United States was tightening its own sanctions against Iran, the European Union (EU)
countries maintained a policy of “critical dialogue” with Iran, and the EU and Japan
refused to join the 1995 U.S. trade and investment ban on Iran. The European
dialogue with Iran was suspended in April 1997 in response to the German terrorism
trial (“Mykonos trial”) that found high-level Iranian involvement in assassinating
Iranian dissidents in Germany, but resumed in May 1998 after Khatemi became
president.
With Iran still defiant on nuclear issues, the European countries and Japan are
no longer negotiating new trade agreements and other economic interaction with Iran.
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 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. An agreement on 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.

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Foreign Banking and Financing Limitations. U.S. officials, including
Undersecretary of State Burns and Undersecretary of the Treasury Stuart Levey, say
that they are having substantial success in separate unilateral effort to persuade
European governments and companies to stop financing commerce with Iran.
Treasury and State Departments officials say they have, as of November 2007,
persuaded a total of 40 banks not to provide financing for exports to Iran or to
process dollar transactions for Iranian banks. Among those pulling out of Iran are
UBS and Credit Suisse (Switzerland), HSBC (Britain), Germany’s Commerzbank
A.G and Deutsche Bank AG, and three large Japanese banks. One press report says
that even Kuwaiti banks have stopped conducting transactions with Iranian
accounts,59 and South Korean banks are considering U.S. entreaties to stop dealing
with Iran. The restrictions on financing are, according to Iranian and outside
observers, making it more difficult to fund energy industry and other projects in Iran.
Undersecretary of State Burns and Undersecretary of the Treasury Levey testified on
March 21, 2007, that “many leading foreign banks...[have concluded] that they
simply did not wish to be a banker for a regime that deliberately conceals the nature
of its illicit business.” The results are 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 of these moves by European banks have come about by U.S. pressure. 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 Bank
Saderat (see above), which the Administration accuses of providing funds to
Hezbollah.60 Bank Sepah is subject to asset freezes and transactions limitations as
a result of their naming as sanctionable entities under Resolution 1737 and 1747.
As another sign of success for the U.S. campaign, some EU countries say they
have reduced credit guarantee exposure to Iran since Resolution 1737 was passed in
December 2006. The table at the beginning of this paper lists some countries that
have dramatically cut back credit guarantees for 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
59 Mufson, Steven and Robin Wright. “Iran Adapts to Economic Pressure.” Washington
Post, October 29, 2007.
60 Kessler, Glenn. “U.S. Moves to Isolate Iranian Banks.” Washington Post, September 9,
2006.

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credit agencies to restore insurance cover for exports to Iran. In July 2002, Iran
tapped international capital markets for the first time since the Islamic revolution,
selling $500 million in bonds to European banks.

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,
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.61 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.62 However, a report on U.S. sanctions by
the Government Accountability Office (GAO), published December 2007 (GAO-08-
58: Iran Sanctions: Impact in Furthering U.S. Objectives Is Unclear and Should Be
Reviewed ) found that the extent of the impact on Iran is “difficult to determine.”
The GAO studied said that, despite the U.S. sanctions, Iran’s global trade has
continued to expand from 1987 (when sanctions first began to be imposed) to 2006,
and that Iran had signed $20 billion in energy investment deals with foreign firms,
although these agreements might not ultimately be carried out.
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.
61 On November 14, 1979, President Carter declared a national emergency with respect to
Iran, renewed every year since 1979.
62 “The Fight Over Letting Foreigners Into Iran’s Oilfields.” The Economist, July 14, 2001.

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! The terrorism list designation bans direct U.S. financial assistance
(Foreign Assistance Act, FAA) and arms sales (Arms Export Control
Act), restricts sales of U.S. dual use items (Export Administration
Act, as continued by executive order), and requires the United States
to vote to oppose multilateral lending to the designated countries
(Anti-Terrorism and Effective Death Penalty Act of 1996, P.L. 104-
132). Waivers are provided under these laws, but successive foreign
aid appropriations laws since the late 1980s ban direct assistance to
Iran (loans, credits, insurance, Eximbank credits) without providing
for a waiver.
! Section 307 of the FAA (added in 1985) names Iran as unable to
benefit from U.S. contributions to international organizations, and
require proportionate cuts if these institutions work in Iran. No
waiver is provided for.
! Under the Anti-Terrorism and Effective Death Penalty Act, the
President is required to withhold U.S. foreign assistance to any
country that provides to a terrorism list country foreign assistance or
arms. Waivers are provided.
! 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 with U.S. military aircraft.
Proliferation Sanctions. Iran is prevented from receiving advanced
technology from the United States under relevant and Iran-specific anti-proliferation
laws.63 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
63 Such laws include the Atomic Energy Act of 1954 and the Energy Policy Act of 2005
(P.L. 109-58).

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CRS-49
or entities under its control had not transferred any WMD or missile technology to
Iran within the year prior. 64
Reflecting a Bush Administration decision to impose sanctions for violations,
the Bush Administration has sanctioned numerous entities as discussed below. These
entities were sanctioned under the INA, the Iran-Iraq Arms Non-Proliferation Act of
1992 (P.L. 102-484), and another law, the Chemical and Biological Warfare
Elimination Act of 1991, for sales to Iran. Those entities are listed in Table 6.
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 the FY2008 foreign aid bill (H.R. 2764, included in
the omnibus appropriation). 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. Iranian entities designated under E.O. 13382 are
listed in Table 6 at the end of this paper. As noted above, the Revolutionary Guard,
several Guard officers, several Iranian banks, and other entities were designated
under this Order on October 21, 2007.
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.
64 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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CRS-50
U.S. Trade Ban/Subsidiaries. On May 6, 1995, President Clinton issued
Executive Order 12959 banning U.S. trade and investment in Iran.65 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 investment ban. Some modifications to the trade ban
since 1999 account for the trade that does exist between the United States and Iran.
(H.R. 1400 and S. 970, see below, would reimpose many of the restrictions).
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. According to OFAC in April 2007, 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
65 An August 1997 amendment to the trade ban (Executive Order 13059) prevented U.S.
companies from knowingly exporting goods to a third country for incorporation into
products destined for Iran.

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CRS-51
1979 revolution, but U.S. anti-dumping tariffs imposed on Iranian
products in 1986 dampened of many Iranian products. The tariff on
Iranian carpets is now about 3% - 6%, and the duty on Iranian caviar
is about 15%. 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.
! 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 — as well as the House-passed
H.R. 957 — 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. Halliburton reportedly
provided $30 million to $35 million worth of services per year
through Oriental Kish, leaving unclear whether Halliburton would
be considered in violation of the U.S. trade and investment ban or
the Iran Sanctions Act (ISA),66 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
end its pursuit of future business opportunities there.67 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
66 “Iran Says Halliburton Won Drilling Contract.” Washington Times, January 11, 2005.
67 Boyd, Roderick. “Halliburton Agrees to Leave Iran, Thompson Says.” New York Sun,
March 25, 2005.

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CRS-52
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
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). The Iran Sanctions Act penalizes foreign
(or U.S.) investment of more than $20 million in one year in Iran’s energy sector.68
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 codified existing Iran sanctions, makes exports to Iran of WMD or
advanced conventional weapons technology sanctionable, and recommends (but does
not mandate) a 180-day time limit for the Administration to determine whether a
project violates ISA. It did not change the menu of available sanctions. As noted
above, it also authorized 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, some European companies are
reportedly hesitating on potential new energy investments in Iran, and there is
uncertainty about whether large agreements of investments by Asian companies will
be implemented. On the other hand, the NIE might have unfrozen some deals; on
December 9, 2007 China’s Sinopec finalized a 2004 deal to develop Yadavaran oil
field and on December 26, Malaysia’s SKS Ventures finalized a $16 billion, 25-year
deal to develop on shore and off shore gas fields. One major project that Iran
believes would help its gas export sector considerably is a proposed gas pipeline from
Iran through Pakistan, to India, on which Iran and Pakistan said in November 2007
that they had reached final agreement. A formal signing is reportedly to happen in
late February 2008, a delay from a planned January 25 signing. 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.
68 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.

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CRS-53
Other recently announced preliminary agreements might test Administration
application of ISA. Many of these deals are included in a chart in the December
2007 GAO study referenced above. One is 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 early October 2007, government-owned GAIL
(India) agreed to set up a $2.3 billion petrochemicals plant in Iran, which would
presumably use natural gas and oil products to manufacture rubber, plastics, or
related chemicals. Another such project is an investment by India’s Essar Steel to
build an oil refinery in Iran, although Essar said in November 2007 it is rethinking
that project since it could potentially, because of ISA, complicate its planned
investment in a steel plant in Minnesota. Syria has agreed to buy $1 billion worth of
Iranian natural gas per year from Iran (via Turkey), although this does not appear to
constitute a Syrian investment in Iran as defined in ISA. Iran says it will not extend
a June 2008 deadline for Royal Dutch Shell and partner Repsol (Spain) to finalize a
deal to develop phases 13 and 14 of the large South Pars gas field; Royal Dutch Shell
has reportedly hesitated on the deal because of U.S. pressure on foreign firms not to
do business with Iran, and the implicit threat to impose ISA sanctions.
H.R. 1400, passed by the House on September 25, 2007, would remove the
Administration’s ability to waive application of sanctions under ISA. A companion
Senate measure, S. 970, does not contain a similar provision. The Administration
opposes that provision on the grounds that requiring sanctions on allied companies
would divide the United States and its allies on Iran policy. However, H.R. 1400 does
not impose on the Administration a time limit to determine whether a project is
sanctionable. H.R. 1400, S. 970, and another bill, H.R. 957 (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). Thus far, state legislatures in California, Florida, Louisiana, and
Missouri have passed divestment legislation on Iran. Pending legislation, H.R. 1400
(see below), 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.
Pending Sanctions Legislation: H.R. 1400 and 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

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CRS-54
sanctions against Iran. Their provisions on the Iran Sanctions Act were noted above.
In addition, 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, passed by the House on September 25, 2007 by a
vote of 397-16, 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.
Travel-Related Guidance. Use of U.S. passports for travel to Iran is
permitted. Iranians entering the United States are required to be fingerprinted, and
Iran has imposed reciprocal requirements. In 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.69
Conclusion
Mistrust between the United States and Iran’s Islamic regime has run deep for
over two decades. 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
69 See CRS Report RL31258, Suits Against Terrorism States by Victims of Terrorism, by
Jennifer K. Elsea.

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CRS-55
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.

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CRS-56
Figure 1. Structure of the Iranian Government

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CRS-57
Figure 2. Map of Iran

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CRS-58
Table 7. Entities Sanctioned by U.N. Resolutions and
Executive Order 13382
Entities Sanctioned Under Resolution 1737
Atomic Energy Organization
Mesbah Energy Company (Arak
Kalaye Electric
of Iran (AEIO)
supplier)
(Natanz supplier)
Pars Trash Company
Farayand Technique
Defense Industries
(centrifuge program)
(centrifuge program)
Organization (DIO)
7th of Tir
Shahid Hemmat Industrial Group
Shahid Bagheri
(DIO subordinate)
(SHIG) — missile program
Industrial Group
(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 Nejad
Gen Hosein Salimi
(director of Mesbah Energy)
Nouri
(Commander, IRGC
(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 Metallurgy
Esfahan Nuclear Fuel Research and
Kavoshyar Company
Industries Group
Production Center and Esfahan
(subsidiary of AEIO)
(controls 7th of Tir)
Nuclear Technology Center
Parchin Chemical Industries
Karaj Nuclear Research Center
Novin Energy
(branch of DIO)
Company
Cruise Missile Industry
Bank Sepah
Sanam Industrial Group
Group
(funds AIO and subordinate
(subordinate to AIO)
entities)
Ya Mahdi Industries Group
Qods Aeronautics Industries
Pars Aviation Services
(produces UAV’s, para-gliders for
Company
IRGC asymmetric warfare)
(maintains IRGC Air
Force equipment)
Sho’a Aviation
Fereidoun Abbasi-Davani
Mohasen Fakrizadeh-
(produces IRGC light aircraft
(senior defense scientist)
Mahabai
for asymmetric warfare)
(defense scientist)
Seyed Jaber Safdari
Amir Rahimi
Mohsen Hojati
(Natanz manager)
(head of Esfahan nuclear facilities)
(head of Fajr Industrial
Group)
Mehrdada Akhlaghi
Naser Maleki
Ahmad Derakshandeh
Ketabachi (head of SBIG)
(head of SHIG)
(head of Bank Sepah)

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CRS-59
Brig. Gen. Morteza Reza’i
Vice Admiral Ali Akbar Ahmadiyan
Brig. Gen. Mohammad
(Deputy commander-in-chief,
(chief of IRGC Joint Staff)
Reza Zahedi
IRGC)
(IRGC ground forces
commander)
Rear Admiral Morteza Safari
Brig. Gen. Mohammad Hejazi
Brig. Gen. Qasem
(commander, IRGC Navy)
(Basij commander)
Soleimani
(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, Sept. 07
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
Mizan Machine Manufacturing Group (Iran, missile prog.)
June 2007
Aerospace Industries Organization (AIO) (Iran)
Sept. 2007
Korea Mining and Development Corp. (N. Korea)
Sept. 2007
Islamic Revolutionary Guard Corps (IRGC)
October 21, 2007
Ministry of Defense and Armed Forces Logistics
October 21, 2007
Bank Melli (Iran’s largest bank, widely used by the Guard); Bank
October 21, 2007
Melli Iran Zao (Moscow); Melli Bank PC (U.K.)
Bank Kargoshaee
October 21, 2007
Arian Bank (joint venture between Melli and Bank Saderat). Based
October 21, 2007
in Afghanistan
Bank Mellat (provides banking services to Iran’s nuclear sector);
October 21, 2007
Mellat Bank SB CJSC (Armenia). Reportedly has $1.4 billion in
assets in UAE
Persia International Bank PLC (U.K.)
October 21, 2007

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CRS-60
Khatam ol Anbiya Gharargah Sazendegi Nooh (Revolutionary Guard
October 21, 2007
construction, contracting arm, with $7 billion in oil, gas deals
Oriental Oil Kish (Iranian oil exploration firm)
October 21, 2007
Ghorb Karbala; Ghorb Nooh (synonymous with Khatam ol Anbiya)
October 21, 2007
Sepasad Engineering Company (Guard construction affiliate)
October 21, 2007
Omran Sahel (Guard construction affiliate)
October 21, 2007
Sahel Consultant Engineering (Guard construction affiliate)
October 21, 2007
Hara Company
October 21, 2007
Gharargahe Sazandegi Ghaem
October 21, 2007
Bahmanyar Morteza Bahmanyar (AIO, Iran missile official, see
October 21, 2007
above under Resolution 1737)
Ahmad Vahid Dastjerdi (AIO head, Iran missile program)
October 21, 2007
Reza Gholi Esmaeli (AIO, see under Resolution 1737)
October 21, 2007
Morteza Reza’i (deputy commander, IRGC) See also Resolution
October 21, 2007
1747
Mohammad Hejazi (Basij commander). Also, Resolution 1747
October 21, 2007
Ali Akbar Ahmadian (Chief of IRGC Joint Staff). Resolution 1747
October 21, 2007
Hosein Salimi (IRGC Air Force commander). Resolution 1737
October 21, 2007
Qasem Soleimani (Qods Force commander). Resolution 1747
October 21, 2007
Entities Sanctioned Under Executive Order 13224 (Terrorism Entities)
Qods Force
October 21, 2007
Bank Saderat (allegedly used to funnel Iranian money to Hezbollah,
October 21, 2007
Hamas, PIJ, and other Iranian supported terrorist groups)
Entities Sanctioned Under the Iran Non-Proliferation Act and other U.S. Proliferation
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 laser-
September 17, 2003
guided artillery shells to Iran.
13 entities sanctioned including companies from Russia, China,
April 7, 2004
Belarus, Macedonia, North Korea, UAE, and Taiwan.
14 entities from China, North Korea, Belarus, India (two nuclear
September 29, 2004
scientists, Dr. Surendar and Dr. Y.S.R. Prasad), Russia, Spain, and
Ukraine.
14 entities, mostly from China, for alleged supplying of Iran’s missile
December 2004 and
program. Many, such as North Korea’s Changgwang Sinyong and
January 2005
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 (two
December 26, 2005
chemical companies), and Austria. Sanctions against Dr. Surendar of
India (see September 29, 2004) were ended, presumably because of
information exonerating him.

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CRS-61
7 entities. Two Indian chemical companies (Balaji Amines and
August 4, 2006
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 Design
January 2007
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 penalized for
April 23, 2007
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).
Entities Designated as Threats to Iraqi Stability under Executive Order 13438
Ahmad Forouzandeh. Commander of the Qods Force Ramazan
January 9, 2008
Headquarters, accused of fomenting sectarian violence in Iraq and of
organizing training in Iran for Iraqi Shiite militia fighters
Abu Mustafa al-Sheibani. Iran based leader of network that funnels
January 9, 2008
Iranian arms to Shiite militias in Iraq.
Isma’il al-Lami (Abu Dura). Shiite miltia leader, breakaway from
January 9, 2008
Sadr Mahdi Army, alleged to have committed mass kidnappings and
planned assassination attempts against Iraqi Sunni politicians
Mishan al-Jabburi. Financier of Sunni insurgents, owner of pro-
January 9, 2008
insurgent Al-Zawra television, now banned
Al Zawra Television Station
January 9, 2008

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