Iran Sanctions

March 18, 2014

Weapon Program: 

  • Nuclear
  • Missile

Author: 

Kenneth Katzman

Strict sanctions on Iran–sanctions that primarily target Iran's key energy sector and its access to the international financial system–harmed Iran's economy to the point where Iran's leaders, on November 24, 2013, accepted an interim agreement ("Joint Plan of Action," JPA) that halts expansion of Iran's nuclear program in exchange for temporary and modest sanctions relief. The June 14, 2013, election of the relatively moderate Hassan Rouhani as Iran's president was an indication of the growing public pressure on the regime to achieve an easing of sanctions.

  • Oil exports fund nearly half of Iran's government expenditures and, by late 2013, sanctions had reduced Iran's oil exports to about 1 million barrels per day–far below the 2.5 million barrels per day Iran exported during 2011. The drop was caused by a European Union embargo on purchases of Iranian oil and decisions by other Iranian oil customers to obtain exemptions from U.S. sanctions by reducing purchases of Iranian oil. Twenty countries have such sanctions exemptions.
  • During 2012-2013, the loss of revenues from oil, coupled with the cut-off of Iran from the international banking system, caused a sharp drop in the value of Iran's currency, the rial; raised inflation to over 50%; and reduced Iran's accumulation of and access to reserves of foreign exchange. Iran's economy shrank by about 5% in 2013 and many Iranian firms shut down or reduced operations.
  • Prior to agreeing to the JPA, Iran's main strategy for trying to mitigate the effects of sanctions included creating front companies and using barter trade and informal banking exchange mechanisms. Iran also increased non-oil exports or exports of hydrocarbon products other than crude oil, such as petrochemicals and gas condensates. Affluent Iranians invested in–and drove up prices for–real estate and securities listed on the Tehran stock exchange.

Sanctions also attempted to directly slow Iran's nuclear and missile programs and reduce its military power by hampering its acquisition of foreign technology and weaponry. U.S. assessments indicate mixed success in these efforts. Sanctions on Iran have not halted Iran's provision of arms to the Assad government in Syria or to pro-Iranian factions in the Middle East, nor have sanctions altered Iran's repression of dissent or monitoring of the Internet.

To some experts, the November 24, 2013, nuclear deal with the international community validated the strategy of increasing sanctions on Iran. The agreement, including the approximately $7 billion in sanctions relief during the interim period, began implementation on January 20, 2014, and provisions of several laws and executive orders were waived or suspended that day. Citing initial improvements in Iran's economy and renewed international business contacts with Iran, some in Congress believe that economic pressure on Iran needs to increase to shape a final nuclear deal and ensure that the Iran sanctions architecture does not collapse. A bill in the 113th Congress, H.R. 850, passed by the House on July 31, 2013, would accelerate the oil purchase reductions required to maintain a sanctions exemption and add Iranian economic sectors to those already sanctioned. A post-JPA Senate bill, S. 1881, contains provisions similar to H.R. 850 but which would take effect only if the JPA collapses or expires without producing a comprehensive agreement. President Obama has said he would veto S. 1881, if passed, on the grounds that it could cause the JPA and prospects for a permanent agreement to unravel.

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