ȱ
‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
Ž——Ž‘ȱ Š£–Š—ȱ
™ŽŒ’Š•’œȱ’—ȱ’•ŽȱŠœŽ›—ȱŠ’›œȱ
Ž‹›žŠ›¢ȱŘǰȱŘŖŖşȱ
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȬśŝŖŖȱ
   ǯŒ›œǯ˜Ÿȱ
ŘŖŞŝŗȱ
ȱŽ™˜›ȱ˜›ȱ˜—›Žœœ
Pr
epared for Members and Committees of Congress

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
ž––Š›¢ȱ
International pressure on Iran to curb its nuclear program is increasing the hesitation of many
major foreign firms to invest in Iran’s energy sector, hindering Iran’s efforts to expand oil
production beyond 4.1 million barrels per day. However, Iran continues to attract preliminary
energy investment interest from firms primarily in Asia, which appear eager to fill the void left by
European majors and to line up steady supplies of Iranian oil and gas. The formal U.S. effort to
curb energy investment in Iran began in 1996 with the Iran Sanctions Act (ISA), although no
firms have been sanctioned under it and the precise effects of that law on energy investment in
Iran has been unclear. In the 110th Congress, two bills passed by the House (H.R. 1400 and H.R.
7112), as well as several others, add ISA provisions and are widely expected to be reintroduced in
the 111th Congress.
This report will be updated regularly. See CRS Report RL32048, Iran: U.S. Concerns and Policy
Responses
, by Kenneth Katzman.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
˜—Ž—œȱ
Background ..................................................................................................................................... 1
Key Provisions .......................................................................................................................... 1
Effectiveness and Ongoing Challenges..................................................................................... 3
Energy Routes and Refinery Investment................................................................................... 4
Efforts in the 110th Congress to Expand ISA Application ............................................................... 5

Š‹•Žœȱ
Table 1. Post-1999 Major Investments in Iran’s Energy Sector ...................................................... 6

˜—ŠŒœȱ
Author Contact Information ............................................................................................................ 7

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
ŠŒ”›˜ž—ȱȱ
The Iran Sanctions Act (ISA) is one among many U.S. sanctions in place against Iran. Originally
called the Iran-Libya Sanctions Act (ILSA), it was enacted to complement other measures—
particularly Executive Order 12959 of May 6, 1995, that banned U.S. trade with and investment
in Iran—intended to deny Iran the resources to further its nuclear program and to support terrorist
organizations such as Hizbollah, Hamas, and Palestine Islamic Jihad. Iran’s petroleum sector
generates about 20% of Iran’s GDP, but its onshore oil fields and oil industry infrastructure are
aging and need substantial investment. Its large natural gas resources (940 trillion cubic feet,
exceeded only by Russia) were undeveloped when ISA was first enacted. Iran has 136.3 billion
barrels of proven oil reserves, the third largest after Saudi Arabia and Canada.
In 1995 and 1996, U.S. allies did not join the United States in enacting trade sanctions against
Iran, and the Clinton Administration and Congress believed that it might be necessary for the
United States to try to deter their investment in Iran. The opportunity to do so came in November
1995, when Iran opened its energy sector to foreign investment. To accommodate its ideology to
retain control of its national resources, Iran used a “buy-back” investment program in which
foreign firms recoup their investments from the proceeds of oil and gas discoveries but do not
receive equity. With input from the Administration, on September 8, 1995, Senator Alfonse
D’Amato introduced the “Iran Foreign Oil Sanctions Act” to sanction foreign firms’ exports to
Iran of energy technology. A revised version instead sanctioning investment in Iran’s energy
sector passed the Senate on December 18, 1995 (voice vote). On December 20, 1995, the Senate
passed a version applying the legislation to Libya as well, which was refusing to yield for trial the
two intelligence agents suspected in the December 21, 1988, bombing of Pan Am 103. The House
passed H.R. 3107, on June 19, 1996 (415-0), and then concurred on a slightly different Senate
version adopted on July 16, 1996 (unanimous consent). It was signed on August 5, 1996 (P.L.
104-172).
Ž¢ȱ›˜Ÿ’œ’˜—œȱ
ISA requires the President to impose at least two out of a menu of seven sanctions on foreign
companies (entities, persons) that make an “investment” of more than $20 million in one year in
Iran’s energy sector,1 or that sell to Iran weapons of mass destruction (WMD) technology or
“destabilizing numbers and types” of advanced conventional weapons.2 The sanctions (Section 6)
include (1) denial of Export-Import Bank loans, credits, or credit guarantees for U.S. exports to
the sanctioned entity; (2) denial of licenses for the U.S. export of military or militarily-useful
technology; (3) denial of U.S. bank loans exceeding $10 million in one year; (4) if the entity is a
financial institution, a prohibition on its service as a primary dealer in U.S. government bonds;
and/or a prohibition on its serving as a repository for U.S. government funds (each counts as one

1 The definition of “investment” in ISA (Section 14 (9)) includes not only equity and royalty arrangements (including
additions to existing investment, as added by P.L. 107-24) but any contract that includes “responsibility for the
development of petroleum resources” of Iran, interpreted to include pipelines to or through Iran. The definition
excludes sales of technology, goods, or services for such projects, and excludes financing of such purchases. For Libya,
the threshold was $40 million, and sanctionable activity included export to Libya of technology banned by Pan Am
103-related Security Council Resolutions 748 (March 31, 1992) and 883 (November 11, 1993).
2 This latter “trigger” was added by P.L. 109-293.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
sanction); (5) prohibition on U.S. government procurement from the entity; and (6) restriction on
imports from the entity, in accordance with the International Emergency Economic Powers Act
(IEEPA, 50 U.S.C. 1701). The President may waive the sanctions on Iran if the parent country of
the violating firm sanctions Iran (a provision later made inapplicable), or if he certifies that doing
so is important to the U.S. national interest (Section 9(c)). ISA application to Iran would
terminate if Iran is determined by the Administration to have ceased its efforts to acquire WMD
and is removed from the U.S. list of state sponsors of terrorism, and no longer “poses a
significant threat” to U.S. national security and U.S. allies.3 Application to Libya terminated when
the President determined on April 23, 2004, that Libya had fulfilled the requirements of all U.N.
resolutions on Pan Am 103.
Traditionally skeptical of imposing economic sanctions, the European Union opposed ISA as an
extraterritorial application of U.S. law. In April 1997, the United States and the EU agreed to
avoid a trade confrontation in the World Trade Organization (WTO) over it and a separate Cuba
sanctions law, (P.L. 104-114). The agreement contributed to a May 18, 1998, decision by the
Clinton Administration to waive ISA sanctions (“national interest”—Section 9(c) waiver) on the
first project determined to be in violation—a $2 billion4 contract (September 1997) for Total SA
of France and its partners, Gazprom of Russia and Petronas of Malaysia to develop phases 2 and
3 of the 25-phase South Pars gas field. The EU pledged to increase cooperation with the United
States on non-proliferation and counter-terrorism, and the Administration indicated future
investments by EU firms in Iran would not be sanctioned.
ISA was to sunset on August 5, 2001, in a climate of lessening tensions with Iran and Libya.
During 1999 and 2000, the Clinton Administration had eased the trade ban on Iran somewhat to
try to engage the relatively moderate Iranian President Mohammad Khatemi. In 1999, Libya
yielded for trial the Pan Am 103 suspects. However, some maintained that both countries would
view its expiration as a concession, and renewal legislation was enacted (P.L. 107-24, August 3,
2001). This law required an Administration report on ISA’s effectiveness within 24 to 30 months
of enactment; that report was submitted to Congress in January 2004 and did not recommend that
ISA be repealed.
In addition to the amendments to ISA referred to above, P.L. 109-293, the “Iran Freedom and
Support Act” (H.R. 6198) amended ISA by: (1) calling for, but not requiring, a 180-day time limit
for a violation determination; (2) recommending against U.S. nuclear agreements with countries
that supply nuclear technology to Iran; (3) expanding provisions of the USA Patriot Act (P.L. 107-
56) to curb money-laundering for use to further WMD programs; (4) extending ISA until
December 31, 2011; and (5) formally dropping Libya and changing the name to the Iran
Sanctions Act.
Earlier versions of the Iran Freedom and Support Act in the 109th Congress (H.R. 282, S. 333)
were viewed as too restrictive of Administration prerogatives. Among the provisions of these bills
not ultimately adopted included: setting a 90-day time limit for the Administration to determine
whether an investment is a violation (there is no time limit in the original law); to cut U.S. foreign
assistance to countries whose companies violate ISA; and to apply the U.S. trade ban on Iran to
foreign subsidiaries of U.S. companies.

3 This latter termination requirement added by P.L. 109-293
4 Dollar figures for investments in Iran represent public estimates of the amounts investing firms are expected to spend
over the life of a project, which might in some cases be several decades.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
ŽŒ’ŸŽ—ŽœœȱŠ—ȱ—˜’—ȱ‘Š••Ž—Žœȱ
The Bush Administration maintained that, even without actually imposing ISA sanctions, the
threat of sanctions, coupled with Iran’s reputedly difficult negotiating behavior, and compounded
by Iran’s growing isolation, slowed Iran’s energy development. As shown in the table below,
some foreign investment agreements have been agreed with Iran since the 1998 Total consortium
waiver, but many projects have been long stalled. Some investors, such as major European firms
Repsol, Royal Dutch Shell, and Total, have announced pullouts or declined further investment.
On July 12, 2008, Total and Petronas, the original South Pars investors, pulled out of a deal to
develop a liquified natural gas (LNG) export capability at Phase 11 of South Pars, saying that
investing in Iran at a time of growing international pressure over its nuclear program is “too
risky.” Japan significantly reduced its participation in the development of Iran’s large Azadegan
field. Some of the void has been filled, at least partly, by Asian firms such as those of China and
Malaysia. However, even some of those agreements are being implemented only slowly and these
companies are perceived not as technically capable as those that have withdrawn from the Iran
market.
These trends have constrained Iran’s energy sector significantly; Iran’s deputy Oil Minister said
in November 2008 that Iran needs about $145 billion in new investment over the next ten years in
order to build a thriving energy sector. As a result of sanctions and the overall climate of
international isolation of Iran, its oil production has not grown—it remains at about 4.1 million
barrels per day (mbd)—although it has not fallen either. Some analyses, including by the National
Academy of Sciences, say that, partly because of growing domestic consumption, Iranian oil
exports are declining to the point where Iran might have negligible exports of oil by 2015.5
Others maintain that Iran’s gas sector can more than compensate for declining oil exports,
although it needs gas to reinject into its oil fields and remains a relatively minor gas exporter. It
exports about 3.6 trillion cubic feet of gas, primarily to Turkey.
Some Members of Congress believe that ISA would have been even more effective if successive
Administrations had actually imposed sanctions. A GAO study of December 2007, (GAO-08-58),
contains a chart of post-2003 investments in Iran’s energy sector, totaling over $20 billion in
investment, although the chart includes petrochemical and refinery projects, as well as projects
that do not exceed the $20 million in one year threshold for ISA sanctionability. Some of the
projects listed in that report and in the table below may be under review by the State Department
(Bureau of Economic Affairs), but no publication of such deals has been placed in the Federal
Register
(requirement of Section 5e of ISA), and no determinations of violation have been
announced. Undersecretary of State for Political Affairs William Burns testified on July 9, 2008
(House Foreign Affairs Committee) that the Statoil project (listed in the table) is under review for
ISA sanctions; he did not mention any of the other projects. State Department reports to Congress
on ISA, required every six months, state that U.S. diplomats raise U.S. policy concerns about Iran
with investing companies and their parent countries.

5 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.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
—Ž›¢ȱ˜žŽœȱŠ—ȱŽ’—Ž›¢ȱ —ŸŽœ–Ž—ȱ
ISA’s definition of “investment” has been interpreted by successive Administrations to include
construction of energy routes to or through Iran -- because such routes help Iran develop its
petroleum resources. The Clinton Administration used the threat of ISA sanctions to deter oil
routes involving Iran and thereby successfully promoted an alternate route from Azerbaijan
(Baku) to Turkey (Ceyhan), which became operational in 2005. However, no sanctions were
imposed on a 1997 project viewed as necessary to U.S. ally Turkey—an Iran-Turkey natural gas
pipeline in which each constructed the pipeline on its side of their border. The State Department
did not impose ISA sanctions on the grounds that Turkey would be importing gas originating in
Turkmenistan, not Iran. However, direct Iranian gas exports to Turkey began in 2001, and, as
shown in the table, in July 2007, a preliminary agreement was reached to build a second Iran-
Turkey pipeline, through which Iranian gas would also flow to Europe. That agreement was not
finalized during Iranian President Mahmoud Ahmadinejad’s visit to Turkey in August 2008
because of Turkish commercial concerns but the deal remains under active discussion.
Construction of oil refineries or petrochemical plants in Iran—included in the referenced GAO
report—might also constitute sanctionable projects. Iran has plans to build or expand, possibly
with foreign investment, at least eight refineries in an effort to ease gasoline imports that supply
about 25% - 30% of Iran’s needs. According to some experts, Iran’s institution of gasoline
rationing in Iran in June 2007 reduced this dependency on gasoline imports from the 40%
previously. It is not clear whether or not Iranian investments in energy projects in other countries,
such as Iranian investment to help build five oil refineries in Asia (China, Indonesia, Malaysia,
and Singapore) and in Syria, reported in June 2007, would constitute sanctionable investment
under ISA.
Another pending deal is the construction of a gas pipeline from Iran to India, through Pakistan
(IPI pipeline). The three governments have stated they are committed to the $7 billion project,
which would take about three years to complete, but India did not sign a deal “finalization” that
was signed by Iran and Pakistan on November 11, 2007. India had re-entered discussions on the
project following Iranian President Mahmoud Ahmadinejad’s visit to India in April 2008, which
also resulted in Indian firms’ winning preliminary Iranian approval to take equity stakes in the
Azadegan oil field project and South Pars gas field Phase 12. However, India did not attend
further talks on the project in September 2008, raising continued concerns on security of the
pipeline, the location at which the gas would be officially transferred to India, pricing of the gas,
tariffs, and the source in Iran of the gas to be sold. Perhaps to address some of those concerns, but
also perhaps to move forward whether or not India joins the project, in January 2009 Iran and
Pakistan amended the proposed pricing formula for the exported gas to reflect new energy market
conditions. During the Bush Administration, Secretary of State Rice, have on several occasions
“expressed U.S. concern” about the pipeline deal or have called it “unacceptable,” but no U.S.
official has stated outright that it would be sanctioned.
Other major energy deals with Iran are considered a blow to European solidarity. In March 2008,
Switzerland’s EGL utility agreed to buy 194 trillion cubic feet per year of Iranian gas for 25
years, through a Trans-Adriatic Pipeline (TAP) to be built by 2010, a deal valued at least $15
billion. The United States criticized the deal as sending the “wrong message” to Iran. However, as
testified by Under Secretary of State Burns on July 9, 2008, the deal appears to involve only
purchase of Iranian gas, not exploration, and likely does not violate ISA. In August 2008,
Germany’s Steiner-Prematechnik-Gastec Co. agreed to apply its method of turning gas into liquid
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
fuel at three Iranian plants. In early October 2008, Iran agreed to export 1 billion cu.ft./day of gas
to Oman, via a pipeline to be built that would end at Oman’s LNG export terminal facilities.
ISA is one of many mechanisms the United States and its European partners are using to try to
pressure Iran. U.S. officials, whose leverage has been enhanced by five U.N. Security Council
Resolutions passed since 2006 that sanction Iran, have persuaded many European and other banks
not to finance exports to Iran or to process dollar transactions with Iranian banks; and they have
persuaded European governments to reduce export credits guarantees to Iran. The actions have,
according to the International Monetary Fund, partly dried up financing for energy industry and
other projects in Iran, and have caused potential investors in the energy sector to withdraw from
or hesitate on finalizing pending projects. Some observers maintain that, over and above the
threat of ISA sanctions and the international pressure on Iran, it is Iran’s negotiating behavior that
has slowed international investment in Iran’s energy sector. Some international executives that
have negotiated with Iran say Iran insists on deals that leave little profit, and that Iran frequently
seeks to renegotiate provisions of a contract after it is ratified.
˜›œȱ’—ȱ‘ŽȱŗŗŖ‘ȱ˜—›Žœœȱ˜ȱ¡™Š—ȱ ȱ
™™•’ŒŠ’˜—ȱ
In the 110th Congress, several bills contained numerous provisions that would further amend ISA.
Observers say aspects of these bills are likely to be reintroduced in the 111th Congress. H.R. 1400,
which passed the House on September 25, 2007 (397-16), would remove the Administration’s
ability to waive ISA sanctions under Section 9(c), national interest grounds, but it would not
impose on the Administration a time limit to determine whether a project is sanctionable.
That bill and several others—including S. 970, S. 3227, S. 3445, H.R. 957 (passed the House on
July 31, 2007), and H.R. 7112 (which passed the House on September 26, 2008)—(1) expand the
definition of sanctionable entities to official credit guarantee agencies, such as France’s COFACE
and Germany’s Hermes, and to financial institutions and insurers generally; and (2) sanction
investment to develop a liquified natural gas (LNG) sector in Iran. Iran has no LNG export
terminals, in part because the technology for such terminals is patented by U.S. firms and
unavailable for sale to Iran. Among other related bills, H.R. 2880 would apply ISA sanctions to
sales to Iran of refined petroleum resources, although some believe that a sanction such as this
would only be effective if it applied to all countries under a U.N. Security Council resolution
rather than a unilateral U.S. sanction. H.R. 2347, (passed the House on July 31, 2007), would
protect from lawsuits fund managers that divest from firms that make ISA-sanctionable
investments.
In early 2009, there are some indications that congressional sentiment had some effect on foreign
firms, even without enactment of significant ISA amendment in the 110th Congress. In January
2009, Relianc Industries Ltd of India said it would cease new sales of refined gasoline to Iran
after completing existing contracts that expired December 31, 2008. The Reliance decision came
after several Members of Congress urged the Exim Bank of the United States to suspend
assistance to Reliance, on the grounds that it was assisting Iran’s economy with the gas sales. The
Exim Bank, in August 2008, had extended a total of $900 million in financing guarantees to
Reliance to help it expand.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
Table 1. Post-1999 Major Investments in Iran’s Energy Sector
($20 million + investments in oil and gas fields only; refineries, petrochemical plants, not included.)
Date Field
Company(ies)
Value Output/Goal
Feb.
1999
Doroud (oil)
Totalfina Elf (France)/ENI (Italy) $1 billion
205,000 bpd
Apr.
1999
Balal (oil)
Totalfina Elf/ Bow Valley
(Canada)/ENI
$300 million 40,000 bpd
Nov.
1999
Soroush and Nowruz (oil)
Royal Dutch Shell
$800 million 190,000 bpd
Apr.
2000
Anaran (oil)
Norsk Hydro (Norway)/Lukoil
(Russia)
$100 million 100,000 (by
2010)
July
2000
Phase 4 and 5, South Pars (gas)
ENI
$1.9 billion
2 billion
cu.ft./day (cfd)
Mar.
2001
Caspian Sea oil exploration
GVA Consultants (Sweden)
$225 million ?
June
2001
Darkhovin (oil)
ENI
$1 billion
160,000 bpd
May
2002
Masjid-e-Soleyman (oil)
Sheer Energy (Canada)
$80 million
25,000 bpd
Sep.
2002
Phase 9 + 10, South Pars (gas)
LG (South Korea)
$1.6 billion
2 billion cfd
Oct.
Phase 6, 7, 8, South Pars (gas)
2002
Statoil (Norway)
$2.65 billion 3 billion cfd
(est. to begin producing late 08)
Inpex (Japan) 10% stake; China $200 million
Jan.
National Oil Co. agreed to
(Inpex stake);
2004
Azadegan (oil)
develop “north Azadegan” in
China $1.76
260,000 bpd
Jan. 2009
billion
Aug.
2004
Tusan Block
Petrobras (Brazil)
$34 million
?
Oct.
Yadavaran (oil). Finalized December
2004
9, 2007
Sinopec (China)
$2 billion
185,000 bpd
(by 2011)
June
2006
Gamsar block (oil)
Sinopec (China)
$20 million
?
Sept.
2006
Khorramabad block (oil)
Norsk Hydro (Norway)
$49 million
?
Golshan and Ferdows onshore and
Dec.
offshore gas fields and LNG plant;
2007
modified but reaffirmed December SKS Ventures (Malaysia)
$16 billion
3.4 billion cfd
2008
Totals
$29.5 billion investment

Oil: 1.085 million bpd Gas: 10.4 billion cfd
Pending Deals/Preliminary Agreements
Kharg and Bahregansar fields (gas)
IRASCO (Italy)
$1.6 billion
?
Salkh and Southern Gashku fields (gas).
Includes LNG plant (Nov. 2006)
LNG Ltd. (Australia)
?
?
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Ŝȱ

‘Žȱ ›Š—ȱŠ—Œ’˜—œȱŒȱǻ Ǽȱ
ȱ
Date Field
Company(ies)
Value Output/Goal
North Pars Gas Field (offshore gas). Includes
China National Offshore Oil
gas purchases (Dec. 2006)
Co.
$16 billion
3.6 billion cfd
Phase 13, 14 - South Pars (gas); (Feb. 2007).
Royal Dutch Shell, Repsol
Firms decided not to proceed in May 2008
(Spain)
$4.3 billion
?
Phase 12 South Pars (gas). Incl. LNG terminal
and gas purchases - 25 years (May 2007)
OMV (Austria)
$30 billion
?
Phase 22, 23, 24 - South Pars (gas), incl.
transport Iranian gas to Europe and building
Turkish Petroleum Company
three power plants in Iran. Initialed July 2007;
(TPAO)
$12. billion
2 billion cfd
not finalized to date.
Iran’s Kish gas field (April 2008)
Oman
$7 billion
1 billion cfd


ž‘˜›ȱ˜—ŠŒȱ —˜›–Š’˜—ȱ

Kenneth Katzman

Specialist in Middle Eastern Affairs
kkatzman@crs.loc.gov, 7-7612




˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ