Iran Sanctions
Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed Gao ID: GAO-08-58 December 18, 2007The 2006 U.S. National Security Strategy stated that the United States faces challenges from Iran, including Iran's proliferation efforts and involvement in international terrorism. To address these concerns, the United States employs a range of tools, including diplomatic pressure, a military presence in the Gulf, and sanctions. A U.S. sanction is a unilateral restriction or condition on economic activity imposed by the United States for reasons of foreign policy or national security. We were asked to review (1) U.S. sanctions targeting Iran and their implementation, (2) reported sanction impacts, and (3) factors limiting sanctions. To conduct the review, we assessed trade and sanction data, information on Iran's economy and energy sector, and U.S. and international reports on Iran, and discussed sanctions with U.S. officials and Iran experts.
Since 1987, U.S. agencies have implemented numerous sanctions against Iran. First, Treasury oversees a ban on U.S. trade and investment with Iran and filed over 94 civil penalty cases between 2003 and 2007 against companies violating the prohibition. This ban may be circumvented by shipping U.S. goods to Iran through other countries. Second, State administers laws that sanction foreign parties engaging in proliferation or terrorism-related activities with Iran. Under one law, State has imposed sanctions in 111 instances against Chinese, North Korean, Syrian, and Russian entities. Third, Treasury or State can use financial sanctions to freeze the assets of targeted parties and reduce their access to the U.S. financial system. U.S. officials report that U.S. sanctions have slowed foreign investment in Iran's petroleum sector, denied parties involved in Iran's proliferation and terrorism activities access to the U.S. financial system, and provided a clear statement of U.S. concerns to the rest of the world. However, other evidence raises questions about the extent of reported impacts. Since 2003, the Iranian government has signed contracts reported at about $20 billion with foreign firms to develop its energy resources. Further, sanctioned Iranian banks may fund their activities in currencies other than the dollar. Moreover, while Iran halted its nuclear weapons program in 2003, according to the November 2007 National Intelligence Estimate, it continues to enrich uranium, acquire advanced weapons technology, and support terrorism. Finally, U.S. agencies do not systematically collect or analyze data demonstrating the overall impact and results of their sanctioning and enforcement actions. Iran's global trade ties and leading role in energy production make it difficult for the United States to isolate Iran and pressure it to reduce proliferation and support for terrorism. For example, Iran's overall trade with the world has grown since the U.S. imposed sanctions, although this trade has fluctuated. Imports rose sharply following the Iran-Iraq war in 1988 and then declined until 1995; most export growth followed the rise in oil prices beginning in 2002. This trade included imports of weapons and nuclear technology. However, multilateral UN sanctions began in December 2006.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-58, Iran Sanctions: Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed
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Report to the Ranking Member, Subcommittee on National Security and
Foreign Affairs, House Committee on Oversight and Government Reform:
United States Government Accountability Office:
GAO:
December 2007:
Iran Sanctions:
Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed:
GAO-08-58:
GAO Highlights:
Highlights of GAO-08-58, a report to the Ranking Member, Subcommittee
on National Security and Foreign Affairs, Committee on Oversight and
Government Reform, House of Representatives.
Why GAO Did This Study:
The 2006 U.S. National Security Strategy stated that the United States
faces challenges from Iran, including Iran‘s proliferation efforts and
involvement in international terrorism. To address these concerns, the
United States employs a range of tools, including diplomatic pressure,
a military presence in the Gulf, and sanctions. A U.S. sanction is a
unilateral restriction or condition on economic activity imposed by the
United States for reasons of foreign policy or national security. We
were asked to review (1) U.S. sanctions targeting Iran and their
implementation, (2) reported sanction impacts, and (3) factors limiting
sanctions. To conduct the review, we assessed trade and sanction data,
information on Iran‘s economy and energy sector, and U.S. and
international reports on Iran, and discussed sanctions with U.S.
officials and Iran experts.
What GAO Found:
Since 1987, U.S. agencies have implemented numerous sanctions against
Iran. First, Treasury oversees a ban on U.S. trade and investment with
Iran and filed over 94 civil penalty cases between 2003 and 2007
against companies violating the prohibition. This ban may be
circumvented by shipping U.S. goods to Iran through other countries.
Second, State administers laws that sanction foreign parties engaging
in proliferation or terrorism-related activities with Iran. Under one
law, State has imposed sanctions in 111 instances against Chinese,
North Korean, Syrian, and Russian entities. Third, Treasury or State
can use financial sanctions to freeze the assets of targeted parties
and reduce their access to the U.S. financial system.
U.S. officials report that U.S. sanctions have slowed foreign
investment in Iran‘s petroleum sector, denied parties involved in
Iran‘s proliferation and terrorism activities access to the U.S.
financial system, and provided a clear statement of U.S. concerns to
the rest of the world. However, other evidence raises questions about
the extent of reported impacts. Since 2003, the Iranian government has
signed contracts reported at about $20 billion with foreign firms to
develop its energy resources. Further, sanctioned Iranian banks may
fund their activities in currencies other than the dollar. Moreover,
while Iran halted its nuclear weapons program in 2003, according to the
November 2007 National Intelligence Estimate, it continues to enrich
uranium, acquire advanced weapons technology, and support terrorism.
Finally, U.S. agencies do not systematically collect or analyze data
demonstrating the overall impact and results of their sanctioning and
enforcement actions.
Iran‘s global trade ties and leading role in energy production make it
difficult for the United States to isolate Iran and pressure it to
reduce proliferation and support for terrorism. For example, Iran‘s
overall trade with the world has grown since the U.S. imposed
sanctions, although this trade has fluctuated. Imports rose sharply
following the Iran-Iraq war in 1988 and then declined until 1995; most
export growth followed the rise in oil prices beginning in 2002 (see
figure). This trade included imports of weapons and nuclear technology.
However, multilateral UN sanctions began in December 2006.
Figure: Iran‘s Total Exports and Imports, 1986-2006:
[See PDF for image]
This figure is a multiple line graph illustrating Iran‘s total exports
and imports, 1986-2006. The vertical axis of the graph represents
billions of 2006 dollars from 0 to 80. The horizontal axis of the graph
represents years from 1986 to 2006. Two lines are illustrated on the
graph: Imports and Exports. Additionally, the following data is
depicted:
1987: U.S. ban on imports from Iran;
1995: U.S. ban on U.S. exports to Iran; Annual export growth rate, 1987-
2006: 8.6%; Annual import growth rate, 1987-2006: 7.0%.
Source: GAO analysis of IMF Direction of Trade Statistics, May 2007.
[End of figure]
What GAO Recommends:
Congress should consider requiring the National Security Council, in
collaboration with key agencies, to (1) assess data on Iran sanctions
and complete an overall baseline assessment of sanctions, (2) develop a
framework for ongoing assessments, and (3) periodically report the
results to Congress.
The Department of the Treasury commented that it assesses the impact of
financial sanctions. We now cite Treasury‘s assessments in our report
but conclude no overall assessment of all U.S. sanctions has been
conducted.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-58]. For more information, contact Joseph
A. Christoff at (202) 512-8979 or christoffj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
U.S. Agencies Implement Numerous Sanctions Targeting Iran:
U.S. Agencies Have Not Assessed the Overall Impact of Sanctions
Targeting Iran:
Iran's Global Trade Ties Limit U.S. Sanction Influence on Iran's
Behavior; UN Sanctions Have Recently Been Imposed:
Conclusion:
Matter for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: U.S. and UN Sanctions Targeting Iran:
Appendix III: Sanctions Imposed Under the Law Currently Known as the
Iran, North Korea, and Syria Nonproliferation Act:
Appendix IV: Potential Investors in Iran's Energy Sector:
Appendix V: Comments from the Department of the Treasury:
GAO Comments:
Appendix VI: Comments from the Department of Commerce:
GAO Comments:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: U.S. Sanction Laws Targeting Iran:
Table 2: Iran's Top Export Markets, by Country, 1994 and 2006:
Table 3: Iran's Top Import Suppliers, by Country, 1994 and 2006:
Table 4: Top Iranian Crude Oil Export Destinations and Country Share,
2005:
Table 5: Imposition of Sanctions under the Iran Nonproliferation Act
(INPA) and the Iran and Syria Nonproliferation Act (ISNA), 2001-2007,
Iran-Related Cases:
Table 6: List of Recent Major Agreements between Iran and Foreign
Investors in Iran's Energy Sector:
Figures:
Figure 1: Map of Iran:
Figure 2: Iran's Total Exports and Imports, 1986-2006:
Figure 3: Establishment of U.S. and UN Sanctions Targeting Iran:
Abbreviations:
BIS: Bureau of Industry and Security (Department of Commerce):
CBP: Customs and Border Protection (Department of Homeland Security:
CCL: Commerce Control List:
CRS: Congressional Research Service:
DHS: Department of Homeland Security:
DOD: Department of Defense:
EIA: Energy Information Administration:
EU: European Union:
FBI: Federal Bureau of Investigation (Department of Justice):
GDP: gross domestic product:
IAEA: International Atomic Energy Agency:
ICE: Immigrations and Customs Enforcement (Department of Homeland
Security):
IEEPA: International Emergency Economic Powers Act:
ILSA: Iran-Libya Sanctions Act of 1996:
IMF: International Monetary Fund:
INKSNA: Iran, North Korea, and Syria Nonproliferation Act:
INPA: Iran Nonproliferation Act of 2000:
ISNA: Iran and Syria Nonproliferation Act:
IRGC: Islamic Revolutionary Guard Corps:
ITR: Iranian Transaction Regulations:
NSC: National Security Council:
ODNI: Office of the Director of National Intelligence:
OFAC: Office of Foreign Assets Control (Department of the Treasury):
PSV: post-shipment verification:
UAE: United Arab Emirates:
UN: United Nations:
UNSC: United Nations Security Council:
WMD: weapons of mass destruction:
[End of section]
United States Government Accountability Office: Washington, DC 20548:
December 18, 2007:
The Honorable Christopher Shays:
Ranking Member:
Subcommittee on National Security and Foreign Affairs: Committee on
Oversight and Government Reform: House of Representatives:
Dear Mr. Shays:
The 2006 National Security Strategy stated that the challenges that
Iran presents to the United States include the country's proliferation
efforts, involvement in international terrorism, opposition to the
Middle East peace process, and poor human rights record. To address
these concerns, the United States employs a range of tools, including
diplomacy, a military presence in the Gulf, and unilateral sanctions.
The broad U.S. strategy is intended to deter Iran from developing
weapons of mass destruction, acquiring advanced conventional weapons,
and supporting terrorist activities. Sanctions have played an important
role in the U.S. approach to confronting Iran. A U.S. "sanction" is any
unilateral restriction or condition on economic activity with respect
to a foreign country or foreign entity that is imposed by the United
States for reasons of foreign policy or national security.[Footnote 1]
We reviewed (1) U.S. sanctions targeting Iran and their implementation,
(2) the reported impact of the sanctions, and (3) factors that affect
the ability of U.S. sanctions to reduce Iran's proliferation and
terrorism-related activities.
To determine implementation and assessment of U.S. sanctions involving
Iran, we identified and reviewed U.S. executive orders and laws that
established sanctions targeted at Iran. While we focused on Iran-
specific sanctions, we also reviewed financial sanctions that address
proliferation and terrorism concerns that the United States can use
against any party, including Iran, as well as United Nations (UN)
sanctions. We reviewed data identifying how often sanctions have been
imposed. Further, to review assessments and information about sanction
impacts and factors influencing sanctions, we reviewed U.S. agency
documents and analyzed international trade, energy, and private sector
data. We interviewed experts on Iran regarding the sanctions and their
impact. We further reviewed documentation from the United Nations,
Department of State, and Congressional Research Service (CRS) that
identifies current proliferation and terrorism-related activities by
Iran. We also reviewed U.S. classified documents related to the
imposition of sanctions; however, no classified information is used in
this report. On the development of nuclear power and Iran's nuclear
program, we reviewed information from the Department of Energy and the
International Atomic Energy Agency (IAEA) and the November 2007
National Intelligence Estimate on Iran. For all objectives, we
interviewed officials from the Departments of the Treasury, State,
Commerce, Defense (DOD), Justice, Homeland Security (DHS), and Energy,
as well as the Central Intelligence Agency. We conducted our review
from November 2006 to November 2007 in accordance with generally
accepted government auditing standards. Appendix I contains a more
detailed description of our scope and methodology.
Results in Brief:
Since 1987, U.S. agencies have been implementing numerous sanctions
against Iran that fall into three categories. First, Treasury leads
efforts to implement a comprehensive U.S. trade and investment ban
against Iran.[Footnote 2] Between 2003 and 2007, Treasury filed 94
civil penalty cases against companies violating the ban. However, the
ban may be circumvented by exporters who ship U.S. goods to Iran
through other countries. Second, State administers sanction laws
against foreign parties that engage in proliferation or terrorism-
related activities with Iran. State has imposed sanctions under these
laws to varying degrees. For example, under one law, sanctions have
been imposed in 111 instances. Almost one-half of these cases involved
Chinese entities selling sensitive goods to Iran, and over 30 percent
of all sanction cases under this law involved parties that were
sanctioned multiple times. According to a State official, entities
engaged in conventional arms transfers were the most widely sanctioned,
followed by those involved in chemical-biological, missile, and nuclear
activities. Under another law, sanctions have never been imposed.
Third, Treasury or State can designate parties that engage in
proliferation or terrorism-related activities involving Iran as subject
to financial sanctions that freeze their assets and reduce their access
to the U.S. financial system.[Footnote 3]
U.S. officials and experts report that U.S. sanctions have specific
impacts on Iran; however, the extent of such impacts is difficult to
determine. First, according to U.S. officials and experts, U.S.
sanctions may have slowed foreign investment in Iran's petroleum
sector, which hinders Iran's ability to fund its acquisition of
prohibited items and terrorism-related activities. Second, U.S.
officials state that financial sanctions deny parties involved in
Iran's proliferation and terrorism activities access to the U.S.
financial system and complicate their support for such activities. For
example, in January 2007, the U.S. government sanctioned Bank Sepah as
a supporter of the proliferation of weapons of mass destruction,
thereby eliminating its access to the U.S. financial system and
reducing its ability to conduct dollar transactions. Third, U.S.
officials have identified broad impacts of sanctions, such as providing
a clear statement of U.S. concerns about Iran. However, other evidence
raises questions about the extent of reported economic impacts. Since
2003, the Iranian government has signed contracts reported at
approximately $20 billion with foreign firms to develop its energy
resources, though it is uncertain whether these contracts will
ultimately be carried out. In addition, sanctioned Iranian banks may be
able to turn to other financial institutions or fund their activities
in currencies other than the U.S. dollar. Moreover, while Iran halted
its nuclear weapons program in 2003, according to the November 2007
U.S. National Intelligence Estimate, it continues to acquire advanced
weapons components, enrich uranium, and support terrorism. Finally,
U.S. agencies do not assess the overall impact of sanctions. Except for
Treasury, the agencies, do not collect data demonstrating the direct
results of their sanctioning and enforcement actions, such as the types
of goods seized under the trade ban or the subsequent actions of
sanctioned entities.
Iran's global trade ties and leading role in energy production make it
difficult for the United States to isolate Iran and pressure it to
reduce proliferation activities and support for terrorism; however,
multilateral efforts to target Iran have recently begun. From 1987
through 2006, Iran's exports grew from $8.5 billion to $70 billion,
while Iran's imports grew from $7 billion to $46 billion.[Footnote 4]
During that period, the annual real growth rate of Iran's exports was
nearly 9 percent and about 7 percent for Iran's imports. Both exports
and imports fluctuated during this period. For example, imports rose
sharply following the Iran-Iraq war in 1988, and most of Iran's export
growth has occurred since 2002, coinciding with sharp increases in oil
prices. Iran's trade included imports of weapons and nuclear
technology. Second, global interest in purchasing and developing Iran's
substantial petroleum reserves has kept Iran active in global commerce.
The growing worldwide demand for oil, coupled with high oil prices and
Iran's extensive reserves, enabled Iran to generate more than $50
billion in oil revenues in 2006. However, multilateral efforts
targeting Iran have recently begun. Beginning in December 2006, and
again in March 2007, the UN Security Council (UNSC) adopted sanctions
against Iran.[Footnote 5] Among other things, these sanctions prohibit
UN member states from supplying Iran with specific nuclear materials or
technology, require them to freeze the financial assets of certain
Iranian individuals and companies with ties to Iran's nuclear or
ballistic programs, and ban the import of all Iranian conventional arms.
We recommend that the Congress consider requiring the National Security
Council (NSC), in collaboration with the Departments of State, the
Treasury, Energy, and Commerce; the intelligence community; and U.S.
enforcement agencies to (1) collect, analyze, and improve data on Iran
sanctions and conduct a baseline assessment of the impact and use of
the sanctions; (2) develop a framework for assessing the ongoing impact
of U.S. sanctions, taking into consideration the contribution of
multilateral sanctions; and (3) report periodically to the Congress on
the sanctions' impact.
We provided a draft of this report to the Departments of State, the
Treasury, Commerce, Defense, Energy, Justice, and Homeland Security. We
also provided a draft to the NSC and the Office of the Director of
National Intelligence (ODNI). The Department of the Treasury provided a
formal response emphasizing that, as a result of financial pressure,
Iran is experiencing increasing isolation from the global community.
The department also states that Iran continues to pursue nuclear
capabilities and ballistic missile technology and to fund terrorism.
This comment reinforces our finding that the overall impact of
sanctions is unclear. In addition, Treasury noted its assessments of
the effectiveness of financial sanctions. We revised the report to
recognize that Treasury assesses the impact of financial sanctions but
maintain that an overall impact assessment of all U.S. sanctions has
not been undertaken. Treasury's letter can be found in appendix V.
The Departments of State, the Treasury, Commerce, and Energy provided
written technical comments. We incorporated these comments into the
report as appropriate. The Department of Commerce submitted its
technical comments in a letter that is included in appendix VI. The NSC
provided brief oral comments and ODNI provided a classified response;
we considered this information and revised the report as appropriate.
The Departments of Defense, Justice, and Homeland Security provided no
comments on the draft report, though Homeland Security supported the
part of our Matter for Congressional Consideration that specifically
involves the department.
Background:
Iran is a nation of strategic importance due to its central geographic
location and huge reserves of fossil fuels. Iran's neighbors include
Iraq and Afghanistan, two countries with ongoing U.S. and coalition
military operations, and Pakistan and Turkey, key U.S. allies in the
global war on terrorism (see fig. 1). Furthermore, Iran borders both
the Persian Gulf and the Strait of Hormuz, through which roughly one-
fifth of the global oil supply is exported. According to the Department
of Energy, Iran has the third largest proven oil reserves in the world.
Iran's oil export revenues constitute about 80 percent of its total
export revenue, and accounted for nearly one-fifth of its gross
domestic product (GDP) in 2004. High oil prices in recent years have
further boosted Iran's oil export revenues.
Figure 1: Map of Iran:
[See PDF for image]
This figure is a map of Iran with the international boundary noted as
well as the national and provincial capitals and surrounding countries.
Source: GAO.
[End of figure]
U.S.-Iranian relations have often been strained since the early years
of the Cold War. Following the U.S.-supported overthrow of Iran's prime
minister in 1953, the United States and others backed the regime of
Shah Mohammed Reza Pahlavi for a quarter century. Although it did much
to develop the country economically, the Shah's government repressed
political dissent. In 1978, domestic turmoil swept the country as a
result of religious and political opposition to the Shah's rule,
culminating in the collapse of the Shah's government in February 1979
and the establishment of an Islamic republic led by Supreme Leader
Ayatollah Khomeini. In November 1979, militant Iranian students
occupied the American embassy in Tehran with the support of Khomeini.
Shortly thereafter, the United States broke diplomatic relations with
Iran, which remain suspended to this day.
U.S. Agencies Implement Numerous Sanctions Targeting Iran:
U.S. sanctions to deter Iran's proliferation and support for terrorism
fall into three categories. First, Treasury leads U.S. government
efforts to implement a comprehensive trade and investment ban against
Iran. Second, State is responsible for implementing several laws that
sanction foreign parties engaging in proliferation or terrorism-related
transactions with Iran. Third, Treasury or State can impose financial
sanctions, including a freeze on assets and a prohibition on access to
U.S. financial institutions, against parties who engage in
proliferation or terrorism-related activities with any party, including
Iran. (See app. II for more information regarding the timing and nature
of U.S. and UN sanctions.)
Treasury's Trade and Investment Ban Prohibits Virtually All U.S.
Commercial Ties with Iran, but Transshipments May Circumvent Ban:
Treasury administers a ban on almost all U.S. trade or investment
activity involving Iran.[Footnote 6] The prohibitions of the trade and
investment ban began with a 1987 ban on Iranian imports and were
followed by a 1995 ban on U.S. exports to and investment in Iran. These
prohibitions apply to U.S. persons, including U.S. companies and their
foreign branches, wherever located.[Footnote 7] U.S. officials stated
that the ban does not apply to independent foreign subsidiaries of U.S.
companies.[Footnote 8] Non-U.S. persons are generally exempt from the
provisions of the ban.[Footnote 9] Trade sanctions against Iran were
eased in 2000 to allow for the purchase and import from Iran of carpets
and food products.[Footnote 10] Further, the Trade Sanctions Reform and
Export Enhancement Act of 2000 lifted, subject to certain exceptions,
U.S. sanctions on commercial sales of food, agricultural commodities,
and medical products to several sanctioned countries, including
Iran.[Footnote 11] The ban also prohibits U.S. financial institutions
from having direct banking relationships with banks in Iran and banks
owned or controlled by the government of Iran.[Footnote 12]
According to a Treasury official, the trade and investment ban is aimed
at making it more difficult for Iran to procure U.S. goods, services,
and technology, including those that could be used for terrorism or
proliferation. The official further stated that, as with all U.S.
economic sanctions programs, the premise of the sanctions is to exact a
price on the sanctioned entity, which serves as an inducement to change
the behavior that threatens U.S. national security and foreign policy
goals. Sanctions also serve to make it more difficult for a sanctioned
entity to pursue its threatening conduct.
Treasury's Office of Foreign Assets Control (OFAC) administers the
trade and investment ban and is responsible for reviewing and licensing
requests to export or re-export goods to Iran, with most items subject
to a general policy of denial. OFAC is also responsible for conducting
civil investigations of sanctions violations, which can result in
warning letters, cease and desist orders, and civil penalties of up to
$250,000 (or an amount that is twice the amount of the transaction that
is the basis for the violation) imposed administratively. We found that
Iran sanctions were involved in 94 out of 425 civil penalty cases that
OFAC assessed or settled as a result of sanction violations between
2003 and 2007. In cases where OFAC finds evidence of willful violations
of the trade and investment ban, it may refer those cases to other
federal law enforcement agencies for criminal investigation.
Investigations of potential criminal violations can be conducted by the
Department of Commerce's Bureau of Industry and Security (BIS), DHS's
Immigration and Customs Enforcement (ICE), and the Department of
Justice's Federal Bureau of Investigation (FBI), sometimes acting
jointly. Criminal prosecutions are pursued by the Department of
Justice. Under recently enacted legislation, criminal penalties for
violations of the trade and investment ban can range up to $1,000,000
and (for natural persons) 20 years in jail.[Footnote 13]
According to officials at key U.S. export enforcement agencies, the
trade ban may be circumvented by the transshipment of U.S. exports
through third countries. Officials identified several locations that
serve as common transshipment points for goods destined for Iran. These
locations include Germany, Malaysia, Singapore, the United Kingdom,
and, according to Commerce officials, the United Arab Emirates (UAE) in
particular.
Two trends underscore the possibility that U.S. goods are being shipped
to Iran through the UAE. First is the considerable growth in U.S. trade
flows through the UAE. The United States has become the number one
supplier of imports to the UAE and Iran is the UAE's largest trade
partner. Moreover, although trade statistics do not specify the portion
of UAE exports to Iran that are of U.S.-origin, the UAE transships a
higher proportion of its U.S. imports than other countries do.
According to Commerce officials transshipments have been a considerable
problem in terms of the effectiveness of sanctions in place against
Iran. The second trend is the high rate of unfavorable end-use checks
for U.S. items exported to the UAE. The Department of Commerce relies
on post-shipment verification (PSV) checks as its primary method of
detecting and preventing illegal transfers, including transshipments,
of U.S.-origin exports to Iran. However, according to Commerce
officials, in August 2007, the UAE enacted a comprehensive export,
reexport, and transshipment control law to better enable the UAE to
control transshipment of sensitive goods through its ports. The law is
too new to assess its effectiveness. (Further information is
classified.)
State Sanctions Foreign Entities under Iran-Specific Laws:
Congress has taken steps to discourage trade by third-country parties
with Iran by enacting sanction laws that have a "secondary boycott"
effect. Three U.S. sanction laws discourage foreign parties from
engaging in proliferation or terrorism-related activities with Iran
(see table 1). State leads efforts to implement these laws and has
imposed sanctions under these laws to varying degrees.
Table 1: U.S. Sanction Laws Targeting Iran:
U.S. law: Iran, North Korea, and Syria Nonproliferation Act[A];
Sanctionable activities: Transfer to Iran of goods, services, or
technology listed in various multilateral export control arrangements
or that contribute to weapons of mass destruction or missile programs;
Sanctions imposed against foreign parties: Among other things, no U.S.
government procurement, no U.S. assistance, no licenses for exports
from the United States to the foreign party of defense or dual-use
items; Sanctions are discretionary and State has typically imposed
sanctions for a 2-year period;
Use of sanctions: Sanctions imposed 111 times since 2000 in Iran-
related cases, including:
* 52 instances against Chinese parties;
* 9 instances against North Korean parties;
* 8 instances against Syrian parties, and;
* 7 instances against Russian parties.
U.S. law: Iran-Iraq Arms Nonproliferation Act of 1992[B];
Sanctionable activities: Transfer to Iran of controlled goods or
technology so as to contribute "knowingly and materially" to Iran's
efforts to acquire destabilizing numbers and types of advanced
conventional weapons;
Sanctions imposed against foreign parties: Against persons: No U.S.
government procurement or export licenses; Against foreign countries:
Among other things, no U.S. government assistance or support for
multilateral development bank assistance; Sanctions are mandatory and
are imposed for a 2-year period against persons and for a 1-year period
against foreign countries. The President also has the authority to
impose an additional discretionary sanction against foreign countries;
Use of sanctions: Sanctions imposed 12 times in 2002 and 2003.
U.S. law: Iran Sanctions Act[C];
Sanctionable activities: Investment of $20 million or more within a 12-
month period that directly and significantly contributed to the
enhancement of Iran's ability to develop its petroleum resources;
Exports, transfers, or other provision to Iran of any goods, services,
technology or other items knowing that the provision of such items
would contribute materially to Iran's ability to acquire or develop
chemical, biological, or nuclear weapons or related technologies; or
destabilizing numbers and types of advanced conventional weapons;
Sanctions imposed against foreign parties: Two of the following
options:
* no Export-Import Bank assistance;
* no export licenses to export certain goods to sanctioned parties;
* no loans or credits totaling more than $5 million in a 12-month
period from U.S. financial institutions;
* no U.S. government procurement;
* for sanctioned financial institutions, no designation as a primary
dealer in U.S. government debt instruments, and may not serve as an
agent of the U.S. government or as repository for U.S. government
funds, or;
* additional sanctions, as appropriate, to restrict imports regarding
the sanctioned party; Sanctions are mandatory and are imposed for a
period of not less than 2 years;
Use of sanctions: Sanctions never imposed, though State officials note
that the law has been used as a tool in diplomatic efforts.
Source: U.S. public laws, [hyperlink,
http://www.state.gov/t/isn/c15231.htm], Federal Register.
[A] This law was enacted as the Iran Nonproliferation Act of 2000;
Restriction on Extraordinary Payments in Connection with the
International Space Station, Pub. L. No. 106-178, 114 Stat. 38; Syria
was added to the act in 2005 by the Iran Nonproliferation Amendments
Act of 2005, Pub. L. No. 109-112, §4, 119 Stat. 2366, 2369; and North
Korea was added in 2006 by the North Korea Nonproliferation Act of
2006, Pub. L. No. 109-2353, 120 Stat. 2015.
[B] Enacted by the National Defense Authorization Act for fiscal year
1993, Pub. L. No. 102-484, Title XVI, 106 Stat. 2315, 2571-75 (1992).
We are unable to distinguish between Iran and Iraq sanction cases, as
this information is classified.
[C] This act was originally enacted as the Iran-Libya Sanctions Act of
1996, Pub. L. No. 104-172, 110 Stat. 1541; Libya was removed from the
law in 2006 by the Iran Freedom Support Act, Pub. L. No. 109-293, 120
Stat. 1344. Proliferation-related sanctionable activities were added to
the law in 2006.
[End of table]
As table 1 shows, State has imposed sanctions against foreign parties,
including bans on U.S. government procurement opportunities and sales
of defense-related items, in 111 Iran-specific cases since 2000 under a
law currently known as the Iran, North Korea, and Syria
Nonproliferation Act (INKSNA).[Footnote 14] This law targets foreign
persons that have transferred goods, services, or technology to Iran
that are listed on various multilateral export control lists.[Footnote
15] According to a State official, entities engaged in conventional
arms transfers were the most widely sanctioned, followed by those
involved in chemical-biological, missile, and nuclear activities. Since
2000, almost half of the cases (52) involved Chinese parties, with
North Korean and Russian parties accounting for 9 and 7 cases,
respectively. In 2007, Syrian parties were sanctioned in 8 cases.
According to State officials, in most cases, the full range of
sanctions authorized under INKSNA is imposed, and sanctions have been
typically imposed for a 2-year period. Over 30 percent of all sanction
cases involve parties that were sanctioned multiple times under the
law--some, primarily Chinese firms, 3 or more times. According to a
State official, such instances were the result of new proliferation
activities by these firms. Because the law establishes the sanctions
that are available, the practical effect of continuing to impose
sanctions against the same parties is to extend the length of time the
sanctions are imposed and make the public aware of the firms
facilitating proliferation with Iran. State officials said that
generally no consideration of additional penalties or measures is given
to parties who have been sanctioned multiple times, although some of
these entities have been sanctioned under other sanction tools.
However, State officials emphasized that they raise concerns about the
activities of such entities with foreign governments as appropriate.
In deciding to sanction an entity under INKSNA, State officials
reported that every 6 months they assess as many as 60,000 intelligence
reports to identify transfer cases that should be submitted to agencies
for review. State decides, on a discretionary basis, which parties to
sanction following a meeting chaired by the NSC that solicits input
from DOD, Energy, and Treasury and other agencies regarding the
disposition of each case. According to a State official, the Deputy
Assistant Secretary-level interagency group reviews cases to recommend
whether the foreign persons were reportable under the act, and if so,
(1) whether there was information establishing that a case was exempt
from sanctions under the act, (2) whether to seek from the foreign
person additional information concerning the transfer or acquisition as
provided for in the act, and (3) whether sanctions under the act should
be applied. The final decision regarding the disposition of each case
is made by the Deputy Secretary of State. One State official noted that
there have been several cases in which State decided not to impose
sanctions because of positive nonproliferation actions taken by the
foreign government responsible for the firm engaging in the
proliferation transfer. A foreign government punishing or prosecuting
the firm responsible for the transfer is one example of the type of
positive action that has resulted in a decision not to impose
penalties. Another reason why State may decide not to impose sanctions
is a concern that such an action, which is made public, may compromise
the intelligence "sources and methods" used to collect information on a
particular proliferation case. Once final decisions are made, State
then submits a classified report to Congress identifying parties that
have engaged in sanctionable activities and parties that will be
sanctioned, and ultimately publishes the names of sanctioned entities
in the Federal Register.[Footnote 16] (See appendix III for a detailed
listing of these sanction cases.)
Under a second law, the Iran-Iraq Arms Nonproliferation Act of
1992[Footnote 17] (also shown in table 1), State has imposed sanctions
12 times. Under this act, mandatory sanctions include prohibiting the
export to Iran of all goods specified on the Commerce Control List
(CCL).[Footnote 18] State also can impose sanctions against foreign
parties, such as a ban on U.S. government procurement opportunities or
export licenses that knowingly and materially contribute to Iran's
efforts to acquire destabilizing numbers and types of advanced
conventional weapons. As with the Iran, North Korea, and Syria
Nonproliferation Act, decisions under this act include interagency
input from Commerce, Energy, and DOD, with State in the lead and
responsible for deciding which cases warrant imposition of sanctions.
In 2002, State imposed sanctions in 10 instances, 9 of which were
against Chinese parties.[Footnote 19] In 2003, sanctions were imposed
against two parties, one Jordanian and one Indian. No sanctions have
been imposed since 2003 primarily because, according to State
officials, it is difficult to establish that transfers were made by
parties who knowingly and materially contributed to Iran's
proliferation.
Table 1 shows that State has not imposed sanctions against any party
under a third law--the Iran Sanctions Act--though State officials noted
that the law has been useful in raising U.S. concerns over Iran. The
goal of the Iran Sanctions Act (previously known as the Iran-Libya
Sanctions Act of 1996,[Footnote 20] or ILSA) has been to deny Iran the
financial resources to support international terrorism or the
development of weapons of mass destruction (WMD) by limiting Iran's
ability to find, extract, refine, or transport its oil resources. State
considered sanctions on one occasion in 1998; however, the U.S.
government granted waivers to the parties involved.[Footnote 21] In
that instance, the U.S. government determined that the investments of
three foreign companies--Total (France), Gazprom (Russia), and Petronas
(Malaysia)-in the development of Iran's South Pars gas field were
sanctionable under ILSA. However, the Secretary of State determined
that it was important to the U.S. national interest to waive the
imposition of sanctions against these firms. In making this
determination, the Secretary considered factors such as the desire to
build an effective multilateral regime to deny Iran the ability to
acquire WMD and support acts of international terrorism. Further, the
European Union (EU) had concerns that the use of the act to impose
sanctions would constitute extraterritorial application of U.S. law.
The possibility that the EU might take this issue to the World Trade
Organization for resolution played a role in convincing the U.S.
government to waive sanctions. In addition, a report on the use of ILSA
prepared by State and cleared by the NSC noted that the sanctions that
could be imposed were unlikely to induce the three companies to abandon
their investments because the companies were insulated from any
practical negative impact of the sanctions.[Footnote 22]
Targeted Financial Sanctions Freeze Assets of Parties Involved in
Proliferation and Terrorism-Related Activities:
The U.S. government has taken actions against Iran using targeted
financial sanctions that can be used against any party that engages in
certain proliferation or terrorism activities.[Footnote 23] In June
2005, the President issued Executive Order 13382 to freeze the assets
of persons engaged in proliferation of WMD and members of their support
networks.[Footnote 24] This action followed the issuance in September
2001 of Executive Order 13224 to freeze the assets of persons who
commit, threaten to commit, or support terrorism.[Footnote 25]
Executive Orders 13382 and 13224 were both issued under the authority
of the International Economic Emergency Powers Act (IEEPA).[Footnote
26] Persons targeted under these financial sanctions are said to be
"designated" as either WMD proliferators or global terrorists,
depending on which set of sanctions is employed, and any transactions
with them by U.S. persons are prohibited.[Footnote 27] According to
Treasury, the goal of this action is to deny sanctioned parties' access
to the U.S. financial and commercial systems. Treasury or State can
make designations under these financial sanctions, which are published
in the Federal Register.[Footnote 28]
As of October 25, 2007, 53 of the 70 parties designated under the
nonproliferation financial sanctions were tied to Iranian proliferation
activities. Of these 53 parties, 48 were either Iranian entities or
overseas subsidiaries of Iranian banks, 4 were Chinese, and 1 was
American. Several designations have been made in recent months. For
example, in June 2007, Treasury designated four Iranian companies for
their role in Iran's proliferation of WMD.[Footnote 29] On October 25,
2007, State and Treasury designated 27 entities or individuals under
Executive Order 13382, including the Islamic Revolutionary Guard Corps
(IRGC)[Footnote 30] and other companies or individuals affiliated with
the IRGC, the Ministry of Defense and Armed Forces Logistics, and two
Iranian banks, including Bank Melli--Iran's largest bank.
With regard to the antiterrorism financial sanctions, Treasury was
unable to provide us with data on the number of Iran-related
designations because it does not compile information about the country
or countries with which the designated entities are involved. We were,
however, able to identify instances where antiterrorism financial
sanctions were imposed. For example, on October 25, 2007, under
Executive Order 13224, Treasury designated the IRGC's Qods Force a
supporter of terrorism. According to Treasury, the Qods Force provides
material support to the Taliban, Lebanese Hizbollah, Hamas, and other
terrorist groups. Treasury also designated Iran's Bank Saderat, which
is already subject to financial restrictions under the trade ban, as a
terrorism financier.
U.S. Agencies Have Not Assessed the Overall Impact of Sanctions
Targeting Iran:
U.S. officials and experts report that U.S. sanctions are having
specific impacts on Iran; however, the extent of such impacts is
difficult to determine, and agencies have not assessed the overall
impact of sanctions. First, U.S. officials report that U.S. sanctions
have slowed foreign investment in Iran's petroleum sector, which
hinders Iran's ability to fund proliferation and terrorism-related
activities. Second, financial sanctions deny parties involved in Iran's
proliferation and terrorism activities access to the U.S. financial
system and complicate their support for such activities. Third, U.S.
officials have identified broad impacts of sanctions, such as providing
a clear statement of U.S. concerns about Iran. However, other evidence
raises questions about the extent of reported economic impacts. Since
2003, the Iranian government has signed contracts reported at
approximately $20 billion with foreign firms to develop its energy
resources, though it is uncertain whether these contracts will
ultimately be carried out. In addition, sanctioned Iranian banks may be
able to turn to other financial sources or fund their activities in
currencies other than the U.S. dollar. U.S. and international reports
also find that Iran continues proliferation activities and support for
terrorism. Finally, U.S. agencies, except for Treasury's assessments of
its financial sanctions under Executive Orders 13382 and 13224, do not
assess the impact of sanctions in helping achieve U.S. objectives nor
collect data demonstrating the direct results of their sanctioning and
enforcement actions.
Agencies Report that Sanctions Have Delayed Investment in Iran's
Petroleum Sector and Had Other Impacts:
State and Treasury officials report that sanctions have had specific
impacts such as delaying foreign investment in Iran's petroleum sector
and reducing Iran's access to the U.S. financial system. In addition,
broad impacts of sanctions, such as their symbolic value, also have
been recognized.
U.S. Officials State that Iran Sanctions Act Has Contributed to Delays
in Foreign Investment in Iran's Petroleum Sector:
U.S. officials and experts have stated that U.S. sanctions have played
a role in slowing Iran's progress in developing its oil and gas
resources. The Iran Sanctions Act is intended to limit investment in
Iran's petroleum sector, with an expectation that curbing such
investment would disrupt the revenue generated by new oil and gas
investments and reduce Iran's ability to pursue policies that the
United States deemed unacceptable. A 2004 State Department report noted
that the law had, among other things, helped delay investment in Iran's
petroleum sector.[Footnote 31] According to State Department officials,
there have been no new final oil and gas investment deals in Iran since
2004. Other experts have similarly noted a slowdown in investment in
Iran's oil and gas sectors and have cited statements that Iranian oil
officials had made to that effect. U.S. officials and experts have also
noted that, while the existence of the Iran Sanctions Act and its use
as a tool for dialogue with foreign parties may be a contributing
factor to a slowdown in foreign investment in Iran, Iran's own
investment policies[Footnote 32] may be contributing to a reduced flow
of investment.
On the other hand, the Department of State has raised concerns about
possible energy deals between Iran and potential foreign investors,
including the reported $16 billion China National Offshore Oil
Corporation deal for the development of Iran's North Pars gas field.
Further, the United States has expressed concerns about the estimated
$4.3 billion preliminary agreement that Royal Dutch Shell, along with
Spain's Repsol, concluded with the Iranian regime for the construction
of a liquefied natural gas plant at South Pars, the world's largest
natural gas field. Also, Indian firms have entered into contracts in
recent years for the purchase of Iranian gas and oil. The proposed
construction of a pipeline to deliver Iranian natural gas to India
through Pakistan is a project about which the United States has
expressed concerns.
We also found that since 2003 the Iranian government has signed
contracts reported at approximately $20 billion with foreign firms to
develop Iran's energy resources. It is uncertain whether these
contracts will ultimately be carried out, and at least one has already
been withdrawn. However, these agreements demonstrate foreign firms'
significant interest in financing or underwriting projects in Iran's
energy sector. (See app. IV for a listing of recent major agreements
between Iran and foreign investors in Iran's energy sector.)[Footnote
33]
U.S. Officials Report that Financial Sanctions Deny Entities Involved
in Proliferation and Terrorism Access to U.S. Financial System:
State and Treasury officials have testified that financial sanctions
deny designated individuals and entities access to the funds needed to
sustain Iran's proliferation.[Footnote 34] For example, in January
2007, the U.S. government designated Bank Sepah under Executive Order
13382 as a supporter of WMD proliferation, thereby eliminating its
access to the U.S. financial system and reducing its ability to conduct
dollar transactions.[Footnote 35] Further, U.S. financial sanctions
also have reportedly disrupted Iran's support for terrorism. U.S.
officials report that the United States has disrupted Hizbollah's
financial support network by reducing the ability of Iranian banks to
interact with the U.S. financial system. For example, in September
2006, Treasury altered the trade ban regulations to cut off Bank
Saderat, Iran's second largest state-owned bank, from dollar
transactions due to its support for terrorism.[Footnote 36] Treasury
officials reported that Iran used Bank Saderat to move millions of
dollars to terrorist organizations such as Hizbollah, Hamas, and the
Palestinian Islamic Jihad. This action complicated the bank's financial
transactions and alerted the world's financial community to Bank
Saderat's role in funding terrorism.
However, Iran may be able to find alternative financial sources or fund
its activities in currencies other than the dollar. Treasury officials
have noted that sanctioned parties often find "workarounds" to lessen
the sanctions impact, and other financial options can be used.[Footnote
37] For example, sanctioned Iranian banks may turn to euro or other
currency transactions to support Iranian government activities.
Further, in 2006, a Treasury official testified that stopping money
flows to Iran is particularly challenging because the Iranian
government draws upon a large network of state-owned banks and
parastatal companies that is difficult to penetrate.
State and Treasury officials further reported that the effects of U.S.
financial sanctions have been augmented because several large European
banks, responding to U.S. diplomatic efforts, have curtailed their
business with sanctioned Iranian entities and are refraining from
conducting dollar transactions with Iran. At least 7 of the banks that
have limited or ended their dealings with sanctioned Iranian entities
rank among the 20 largest European banks.[Footnote 38] U.S officials
also report that a number of governments, including France, Germany,
Italy, and Japan, are beginning to reduce their export credits[Footnote
39] for goods shipped to Iran.[Footnote 40] U.S. officials have
contended that such developments have made it increasingly difficult
for Iran to execute important financial transactions necessary for
Iran's domestic energy and other projects. U.S. agency officials and
experts also have cited the increased costs[Footnote 41] to Iran of
obtaining finance and goods, sometimes resulting in inferior component
parts. State officials assert that as more countries limit their
financial interactions with Iranian entities and individuals engaging
in suspect activities, these parties have been denied access to major
financial and commercial systems.
Experts and Officials Recognize that Sanctions Have Other Broad Impacts:
U.S. officials and sanction experts state that sanctions have other
broad impacts. For example, State officials stressed that U.S.
sanctions serve as a clear symbolic statement to the rest of the world
of U.S. concerns regarding Iran's proliferation and terrorism-related
activities. State officials also noted that sanction laws can be used
as a vehicle for dialogue with foreign companies or countries, and the
prospect of sanctions can encourage foreign parties to end their
interactions with Iran. Finally, U.S. officials have stated that
publicly identifying entities and listing them in the Federal Register
may deter other firms from engaging in business with sanctioned
entities.[Footnote 42]
Iran Halted Its Nuclear Weapons Program but Continues to Enrich
Uranium, Acquire Advanced Weapons, and Support Terrorism:
The extent of the sanctions' impact in deterring Iran from
proliferation activities, acquiring advanced weapons technology, and
support for terrorism is unclear. Although Iran halted its nuclear
weapons program, it continues to enrich uranium, acquire advanced
weapons, and support terrorism. According to the November 2007 U.S.
National Intelligence Estimate, Iran halted its nuclear weapons program
in the fall of 2003. According to the estimate, Iranian military
entities were working under government direction to develop nuclear
weapons. However, Iran halted the program because of international
scrutiny and pressure resulting from exposure of Iran's previously
undeclared nuclear activities. (See app. II for a timeline of UN and
international actions with regard to Iran's enrichment activities.)
Although it has halted its nuclear weapons program, Iran continues its
uranium enrichment program. While enriched uranium can be used for
nuclear weapons, Iran has stated that its program is for peaceful
civilian purposes. The Director General of the International Atomic
Energy Agency[Footnote 43] (IAEA) stated on September 17, 2007, that
Iran had not suspended its enrichment activities and continued to build
its heavy water reactor at Arak. This announcement followed a series of
IAEA discoveries about Iran's nuclear program. In 2002, the IAEA was
informed of a previously undeclared nuclear enrichment plant in Natanz
and a heavy water plant in Arak.[Footnote 44] Subsequent IAEA
inspections revealed that Iran had made significant progress toward
mastering the technology to make enriched uranium.
Iran also continues to acquire advanced weapons technology, including
ballistic missile technology, according to Treasury. According to State
officials, Chinese entities supply certain dual-use items to Iran,
including some that U.S. officials believe could be used in support of
Iran's WMD, ballistic and cruise missiles, or advanced conventional
weapons programs.
The U.S. government also reports that Iran continues to support
terrorism. We have reported that Iran is one of several countries from
which Islamic extremism is currently being propagated.[Footnote 45] In
addition, according to State's 2006 Country Report on Terrorism, Iran
continues to be an active state sponsor of terrorism.[Footnote 46] The
report states that the IRGC and Ministry of Intelligence and Security
influence Palestinian groups in Syria and the Lebanese Hizbollah to use
terrorism in pursuit of their goals. The report also noted that Iran
provided guidance and training to select Iraqi Shi'a political groups
and weapons and training to Shi'a militant groups to enable
anticoalition attacks. In July 2007, officials of U.S. intelligence
agencies testified that Iran regards its ability to conduct terrorism
operations as a key element of its national security strategy.
U.S. Agencies Do Not Assess the Overall Impact of Sanctions and Lack
Data on Sanction Results:
U.S. agencies do not assess the overall impact of sanctions in
deterring Iran's proliferation, acquisition of advanced weapons
technology, or terrorism-related activities, noting the difficulty of
isolating the impact of sanctions from all other factors that influence
Iran's behavior. In addition, except for Treasury assessments of
financial sanctions, agencies do not possess data on the direct results
of sanctions, such as the types of goods seized that violate the trade
ban or the subsequent behavior of parties that sell prohibited goods to
Iran.
Agency Officials Cite Difficulties Measuring the Overall Impact of
Sanctions on Iran:
State, Treasury, and Commerce officials said that they do not measure
the overall impact of sanctions they implement. For example, both State
and Treasury officials emphasized that, with one exception regarding
one sanction law, they have not attempted to measure the ability of
U.S. sanctions to deter Iran's proliferation or terrorism-related
activities. State officials stated it is not possible to isolate the
impact of sanctions from all other factors that influence Iran's
behavior, such as the actions of other countries. Further, State
officials reported that sanctions are just one component of U.S.
efforts to influence Iran's behavior.
Treasury officials conduct classified assessments of entities
designated under Executive Orders 13382 and 13224, but report that they
do not assess the overall impact of sanctions, stating it can be
difficult to differentiate the impact of various U.S. efforts. For
example, it is difficult to know where the effects of U.S. diplomacy
end and the effects of U.S. sanctions begin. State and Treasury
officials noted that, while the goal of sanctions is to change Iran's
behavior, such changes take time, and it is not possible to track how
sanctions imposed today might affect overall behavior in the future.
Such an exercise would be extremely difficult due to the challenges
associated with establishing any causal linkage between U.S. sanctions
and Iran's subsequent behavior. In addition, agency officials noted
that the sanctions targeting Iran do not constitute a separate program
or line of effort; thus, these activities are not monitored or assessed
separately. However, according to Treasury officials, sanctions
implemented by OFAC constitute a separate program with its own set of
regulations (the Iranian Transaction Regulations) and OFAC does focus
specific effort on Iran sanctions. Finally, Treasury and Commerce
officials stated that it would be difficult to measure either the
deterrent impact of sanctions or, conversely, the extent to which
illegal or sanctionable activities continue undetected.
In 2004, State completed a review of the Iran Sanctions Act (then known
as the Iran-Libya Sanctions Act). The ILSA Extension Act of 2001
required the President to provide Congress with a report describing the
extent to which the act had been effective in denying Iran the ability
to support acts of international terrorism and fund the acquisition of
WMD by limiting Iran's ability to develop its petroleum
resources.[Footnote 47] This report stated that actions taken pursuant
to the act had a "modest positive impact." The 2004 report is the only
formal assessment U.S. agencies have completed on the broad impact of
sanctions against Iran.
Agencies Lack Data on Direct Sanction Results:
In addition, agency officials do not possess data on the direct results
of sanctions. For example, regarding the trade ban, officials from
DHS's Customs and Border Protection reported that inspectors are not
required to document whether or not a given seizure is related to the
ban. As a result, they are unable to provide complete data on the
volume or nature of goods seized that violate this ban. Further,
although Treasury posts on the Internet its OFAC administrative
penalties, it does not compile information regarding the number of
cases that involve violations of Iran sanctions (we were able to
identify such cases after reviewing more than 400 detailed case
descriptions) and the nature of such violations. FBI officials said
that, within their counterintelligence division, they classify
investigations by country of origin but would not be able to
distinguish cases involving Iran sanctions from other Iran-related
cases because the bureau's automated data systems do not include such
information. In addition, complete DHS/ICE data on Iran sanctions cases
are not available because ICE agents are not required to document the
country of destination when opening a case, nor is this information
always subsequently added as the case progresses. Further, a Justice
official stated that the department prosecutes and organizes its cases
by statute and does not classify its cases by the specific country or
nationality of the individual involved in its data system. It is thus
not possible to identify cases specific to the trade and investment ban
with Iran. In addition, although agencies cite transshipment as a key
means of evading the trade ban, they do not collect data that would
help illustrate the magnitude of the problem.
Further, State does not review whether sanctions imposed under the law
currently known as the Iran, North Korea, and Syria Nonproliferation
Act--the law used most frequently to sanction foreign parties--stop
sanctioned parties from engaging in proliferation activities with Iran
or are relevant for these parties. The law does not require such a
review. State officials said that, while they are aware of instances
where proliferation activities ended following the imposition of
sanctions on particular firms, such information is primarily collected
on an anecdotal basis. There has been no overall or systematic review
of whether sanctioned entities ended their proliferation activities,
though State officials indicated that they monitor the activities of
sanctioned parties as part of their daily responsibilities. Further,
these officials emphasized that State must apply the sanctions
established by law, such as a prohibition on participating in U.S.
government procurement opportunities, regardless of their relevance or
potential impact. State officials acknowledged the likelihood that the
sanctions established by law may have limited relevance for sanctioned
parties, which may be illustrated in cases where the same parties are
sanctioned repeatedly for proliferation activities with Iran.
In addition, OFAC does not compile data on the value of assets frozen
pursuant to targeted financial sanctions. OFAC tracks information on
assets frozen in the aggregate, not by the amount of assets frozen for
each particular party that is sanctioned. OFAC also did not have
information regarding the number of parties sanctioned under Iran-
related antiterrorism financial sanctions. According to OFAC,
systematically tracking these data and information is not a useful
measure of the efficacy of sanctions.
Iran's Global Trade Ties Limit U.S. Sanction Influence on Iran's
Behavior; UN Sanctions Have Recently Been Imposed:
Iran's global trade ties and leading role in energy production make it
difficult for the United States to isolate Iran and deter its
acquisition of advanced weapons technology and support for terrorism.
First, Iran's trade with the world--both imports and exports--has grown
since the U.S. trade ban began in 1987. Although trade has fluctuated
from year to year, most of the growth has occurred since 2002,
coinciding with the rise in oil prices. This trade includes imports of
weapons and nuclear technology. Second, global interest in purchasing
and developing Iran's substantial petroleum reserves has kept Iran
active in global commerce. Iran's integration in the world economy has
complicated U.S. efforts to encourage other countries to isolate Iran;
however, multilateral efforts targeting Iran have recently begun.
Beginning in December 2006, the UNSC adopted sanctions against Iran in
response to Iran's noncompliance with its international obligations.
These sanctions are still being implemented.
Iran's Strong Global Trade Makes It Difficult for U.S. Sanctions to
Pressure Iran:
Over the past 20 years, U.S. trade with Iran has decreased, but Iran's
trade with the rest of the world has increased, in large part due to
increases in oil prices between 2002 and 2006. Asian countries,
particularly China, are increasing their trade with Iran. Countries
such as China and Russia continue to provide Iran with sensitive goods.
Iran's Trade with the United States Decreased Substantially Following
the Imposition of the Trade Ban:
U.S. trade with Iran declined sharply immediately following the
adoption of both the 1987 U.S. ban on imports from Iran and the 1995
ban on U.S. exports to and investment in Iran. However, U.S exports to
Iran rebounded to some degree when the sanctions were eased in 2000.
Before the 1987 U.S. import ban, 16 percent of Iran's total exports,
primarily oil, were shipped to the United States. Following the ban,
this share dropped to about .1 percent. According to our analysis of
U.S. trade data, Iran exported $2 billion in goods to the United States
in 1987, about $10 million in 1988, and less than $1 million annually
for most of the 1990s.[Footnote 48] Further, 2 percent of Iran's
imports were from the United States before the export ban in 1995; this
dropped to almost zero after the ban. Total U.S. exports to Iran
declined from about $282 million in 1995 to less than $400,000 in 1996.
By 2000, however, total U.S.-Iran trade had increased to about $218
million, largely as a result of the relaxation of the sanctions in that
year to allow for the purchase and import of Iranian carpets. In 2006,
total U.S.-Iran trade was $247 million.
Our analysis of U.S. trade data indicates that both the export and
import declines coincided with significant changes in the types of
goods traded. For example, the top U.S. exports to Iran prior to the
1995 export ban were in the UN trade category "nuclear reactors,
boilers, and machinery," while the top exports immediately following
the ban were in the category "printed books and other informational
materials." In 2006, the top U.S. exports to Iran were pharmaceuticals
and tobacco products. The top U.S. import from Iran before the 1987
import ban was oil, whereas the top import immediately following the
ban--and also in 2006--was carpets and other textile floor coverings.
Iran's Overall Trade Has Grown Since 1987, and Its Trading Partners Are
Diverse:
Despite the ban of Iranian imports to the United States in 1987 and the
ban on U.S. exports to Iran in 1995, Iran's overall trade has
grown.[Footnote 49] From 1987 through 2006, Iran's exports grew from
$8.5 billion to $70 billion, while Iran's imports grew from $7 billion
to $46 billion (see fig. 2).[Footnote 50] The annual real growth in
Iran's exports between 1987 and 2006 was nearly 9 percent; however, the
export growth rate between 2002 and 2006 was 19 percent, reflecting the
steep rise in oil prices since 2002 (see fig. 2).[Footnote 51] Iran's
imports grew at an average annual rate of about 7 percent between 1987
and 2006. Iran's exports and imports both fluctuated during this
period. For example, Iran's imports increased significantly following
the end of the Iran-Iraq war in 1988, followed by steep declines from
1993 to 1994, following Iran's major currency devaluation (over 1,800
percent). Likewise, Iran's exports fluctuated. The growth in Iran's
exports from 1989 to 1993 was followed by a general decline through
1998. Exports grew dramatically from 2002 to 2006, coinciding with the
rise in the price of oil from $25 to $65 a barrel. The overall growth
in Iran's trade from 1986 to 2006 demonstrates the limits of the U.S.
trade ban to isolate Iran and pressure it to reduce its proliferation
activities and support for terrorism.
Figure 2: Iran's Total Exports and Imports, 1986-2006:
[See PDF for image]
This figure is a multiple line graph illustrating Iran‘s total exports
and imports, 1986-2006. The vertical axis of the graph represents
billions of 2006 dollars from 0 to 80. The horizontal axis of the graph
represents years from 1986 to 2006. Two lines are illustrated on the
graph: Imports and Exports. Additionally, the following data is
depicted:
1987: U.S. ban on imports from Iran;
1995: U.S. ban on U.S. exports to Iran; Annual export growth rate, 1987-
2006: 8.6%; Annual import growth rate, 1987-2006: 7.0%.
Source: GAO analysis of IMF Direction of Trade Statistics, May 2007.
Note: Iran's trade figures are provided in constant 2006 dollars using
an alternative exchange rate developed by the World Bank (see app. I).
[End of figure]
Figure 2 shows that in the year following the 1987 U.S. ban on Iranian
imports, Iran's exports to the world did not decline. In fact, Iran's
exports began growing dramatically in 1989. In the 2 years following
the 1995 ban on U.S. exports to Iran, Iran's imports from the world
grew, and have generally continued to grow. Iran has been able to
readily replace the loss in U.S. trade through trade with other
countries, and the total value of Iranian imports and exports has
continued to grow largely uninterrupted.
In addition to the overall growth of Iran's trade since 1987, Iran has
extensive global trade ties with Europe and the developing world. In
particular, trade with Asian countries has nearly doubled since
1994.[Footnote 52] Asian countries accounted for 30 percent of Iran's
exports in 2006, up from about 16 percent in 1994. Iran's exports to
China increased from about 1 percent in 1994 to about 13 percent in
2006. Japan and China were the top two recipients of exports from Iran,
together accounting for more than one-quarter of Iran's exports in 2006
(see table 2).
Table 2: Iran's Top Export Markets, by Country, 1994 and 2006 (in
millions of 2006 dollars).
1994:
Country: Japan;
Dollar amount: $5,632;
Share of Iran's total exports: 15.1%.
Country: United States;
Dollar amount: 5,184;
Share of Iran's total exports: 13.9.
Country: United Kingdom;
Dollar amount: 3,427;
Share of Iran's total exports: 9.2.
Country: Germany;
Dollar amount: 2,303;
Share of Iran's total exports: 6.2.
Country: Korea;
Dollar amount: 1,776;
Share of Iran's total exports: 4.8.
Country: Turkey;
Dollar amount: 1,656;
Share of Iran's total exports: 4.4.
Country: UAE;
Dollar amount: 1,493;
Share of Iran's total exports: 4.0.
Country: Italy;
Dollar amount: 1,452;
Share of Iran's total exports: 3.9.
Country: Greece;
Dollar amount: 1,349;
Share of Iran's total exports: 3.6.
Country: Singapore;
Dollar amount: 1,344;
Share of Iran's total exports: 3.6.
Country: All other;
Dollar amount: 11,600;
Share of Iran's total exports: 31.2.
1994 Total:
Dollar amount: $37,217;
Share of Iran's total exports: 100.0.
2006:
Country: Japan;
Dollar amount: $9,941;
Share of Iran's total exports: 14.2%.
Country: China;
Dollar amount: 9,194;
Share of Iran's total exports: 13.1.
Country: Turkey;
Dollar amount: 5,112;
Share of Iran's total exports: 7.3.
Country: Italy;
Dollar amount: 4,451;
Share of Iran's total exports: 6.3.
Country: Korea;
Dollar amount: 4,040;
Share of Iran's total exports: 5.8.
Country: Netherlands;
Dollar amount: 3,263;
Share of Iran's total exports: 4.6.
Country: South Africa;
Dollar amount: 2,710;
Share of Iran's total exports: 3.9.
Country: France;
Dollar amount: 2,710;
Share of Iran's total exports: 3.9.
Country: Spain;
Dollar amount: 2,275;
Share of Iran's total exports: 3.2.
Country: Greece;
Dollar amount: 2,066;
Share of Iran's total exports: 2.9.
Country: All other;
Dollar amount: 24,420;
Share of Iran's total exports: 34.8.
2006 Total:
Dollar amount: $70,181;
Share of Iran's total exports: 100.0.
Source: GAO analysis of IMF Direction of Trade Statistics, May 2007.
Note: Percentages may not add to 100 due to rounding.
[End of table]
Iran's growing trade with China has played a large role in replacing
the declining share of EU countries' trade with Iran over the past
decade and contributing to Iran's growing trade with Asian countries.
In 2006, the EU accounted for nearly one-quarter of Iran's exports to
the world, down from 33 percent in 1994. Germany and the United Kingdom
were part of this decline. From 1994 to 2006, Iran's exports to Germany
declined from about 6 percent to less than 1 percent and from about 9
percent to less than 1 percent for the United Kingdom.
In 2006, Germany and China were Iran's largest providers of imports,
accounting for 23 percent of Iran's imports. Although Germany has
remained the largest supplier of imports to Iran for over a decade, its
share of Iran's imports has declined from about 19 percent in 1994 to
12 percent in 2006, while Iran's imports from China increased from
about 1 percent in 1994 to about 11 percent in 2006 (see table 3). Iran
increased its imports from Middle East countries from about 8 percent
to 13 percent, with UAE's share increasing from over 5 percent in 1994
to about 9 percent in 2006.
Table 3: Iran's Top Import Suppliers, by Country, 1994 and 2006
(millions of 2006 dollars).
1994:
Country: Germany;
Dollar amount: $4,231;
Share of Iran's total imports: 18.7%.
Country: Italy;
Dollar amount: 1,931;
Share of Iran's total imports: 8.5.
Country: Japan;
Dollar amount: 1,712;
Share of Iran's total imports: 7.6.
Country: Belgium-Luxembourg;
Dollar amount: 1,246;
Share of Iran's total imports: 5.5.
Country: UAE;
Dollar amount: 1,239;
Share of Iran's total imports: 5.5.
Country: United Kingdom;
Dollar amount: 1,041;
Share of Iran's total imports: 4.6.
Country: France;
Dollar amount: 917;
Share of Iran's total imports: 4.1.
Country: Azerbaijan;
Dollar amount: 751;
Share of Iran's total imports: 3.3.
Country: United States;
Dollar amount: 665;
Share of Iran's total imports: 2.9.
Country: Korea;
Dollar amount: 612;
Share of Iran's total imports: 2.7.
Country: All other;
Dollar amount: 8,243;
Share of Iran's total imports: 36.5.
1994 Total:
Dollar amount: $22,588;
Share of Iran's total imports: 100.0.
2006:
Country: Germany;
Dollar amount: $5,631;
Share of Iran's total imports: 12.3%.
Country: China;
Dollar amount: 5,020;
Share of Iran's total imports: 11.0.
Country: UAE;
Dollar amount: 3,972;
Share of Iran's total imports: 8.7.
Country: Korea;
Dollar amount: 2,908;
Share of Iran's total imports: 6.4.
Country: France;
Dollar amount: 2,615;
Share of Iran's total imports: 5.7.
Country: Italy;
Dollar amount: 2,537;
Share of Iran's total imports: 5.6.
Country: Russia;
Dollar amount: 1,680;
Share of Iran's total imports: 3.7.
Country: India;
Dollar amount: 1,616;
Share of Iran's total imports: 3.5.
Country: Brazil;
Dollar amount: 1,315;
Share of Iran's total imports: 2.9.
Country: Japan;
Dollar amount: 1,287;
Share of Iran's total imports: 2.8.
Country: All other;
Dollar amount: 17,041;
Share of Iran's total imports: 37.4.
2006 Total:
Dollar amount: $45,624;
Share of Iran's total imports: 100.0.
06: Share of Iran's total imports: 3.7.
Source: GAO analysis of IMF Direction of Trade Statistics, May 2007.
Note: Percentages may not add to 100 due to rounding.
[End of table]
A regional shift in Iran's import suppliers also took place between
1994 and 2006. The EU's share of Iran's imports from the world declined
from 50.5 percent in 1994 to slightly over one-third of Iran's imports
in 2006, while Asian countries' share has tripled, from 9 percent to 27
percent.
Other Countries Continue to Provide Weapons and Nuclear Technology to
Iran:
Other countries' exports to Iran include dual-use or sensitive goods,
such as arms, aircraft, and nuclear equipment and technology-goods that
the U.S. statutorily prohibits from export to Iran. For example,
according to UN trade data, Russia and Spain exported $28.9 million of
nuclear reactor parts from 2004 to 2005, over 89 percent from Russia.
Iran also acquired spare parts to U.S.-made fighter jets, parts that
were sold to other countries as surplus.[Footnote 53] According to
State officials, Chinese entities supply certain dual-use items to
Iran, including some that U.S. officials believe could be used in
support of Iran's WMD, ballistic missile, cruise missiles, or advanced
conventional weapons programs. According to a CRS report[Footnote 54]
and the testimony from U.S. intelligence agencies, Iran is becoming
self-sufficient in the production of ballistic missiles, largely with
foreign help. Iran is also an important customer for Russia's weapons
and civil nuclear technology. Additional information detailing Iran's
purchases of weapons and nuclear technology is classified.
Iran's Prominent Oil-Producing and Exporting Role Limits the Impact of
Sanctions:
Demand for Iranian crude oil, coupled with high oil prices, helps
support Iran's economy and limits the effects of the U.S. trade ban.
Iran is a prominent world oil producer, and its economy relies heavily
on oil export revenues. Iran ranked fourth in terms of world oil
production and exports in 2005, exporting about 2.6 million barrels of
oil per day. Iran has the third largest proven oil reserves and the
second largest reserves of natural gas worldwide,[Footnote 55]
according to the Oil and Gas Journal. Oil export revenues represent
nearly 80 percent of Iran's total merchandise export earnings and
accounted for about 19 percent of Iran's GDP in 2004.
In 2005, Japan and China accounted for 27 and 14 percent of Iran's
crude oil exports, respectively, as shown in table 4.[Footnote 56]
Table 4: Top Iranian Crude Oil Export Destinations and Country Share,
2005:
Country: Japan;
Share of Iran's crude oil exports: 27.3%.
Country: China;
Share of Iran's crude oil exports: 14.4.
Country: Italy;
Share of Iran's crude oil exports: 9.0.
Country: South Korea;
Share of Iran's crude oil exports: 8.9.
Country: France;
Share of Iran's crude oil exports: 7.0.
Country: Turkey;
Share of Iran's crude oil exports: 6.5.
Country: South Africa;
Share of Iran's crude oil exports: 6.1.
Country: Greece;
Share of Iran's crude oil exports: 5.0.
Country: Spain;
Share of Iran's crude oil exports: 4.7.
Country: Philippines;
Share of Iran's crude oil exports: 2.8.
Country: All other countries;
Share of Iran's crude oil exports: 8.2.
Country: Total;
Share of Iran's crude oil exports: 100.0.
Source: GAO analysis of UN Trade Statistics, Iran's exports of oil
(commodity grouping, HS2709), other countries reporting, 1989-2005.
Note: Percentages may not add to 100 due to rounding.
[End of table]
Given the strong demand for Iranian crude oil, bolstered by continuing
support for Iran's non-oil exports, several private sector and U.S.
economic experts stated that Iran's near-term growth prospects look
favorable. However, a sharp drop in oil prices is a risk, and,
according to the IMF, a further escalation of tensions associated with
nuclear issues would adversely affect investment and growth.[Footnote
57] Another concern is Iran's growing gasoline consumption, which is
heavily subsidized by the government. According to the Department of
Energy, Iran is the second largest importer of gasoline in the world
after the United States and has a shortage of refining capacity to
produce gasoline.[Footnote 58] In 2006, as part of the Iranian
government's effort to reduce the subsidy on gasoline, the government
raised the price of gasoline 25 percent and introduced "smart cards" in
an effort to deter gas smuggling, reduce gasoline shortages, and
improve the budget situation.[Footnote 59] In addition, according to
economic experts, Iran has benefited from strong growth in non-oil
exports in recent years.[Footnote 60] Non-oil exports increase the
resiliency of Iran's economy and mitigate its vulnerability to falling
oil prices, as well as provide jobs. As part of the government's policy
to move away from crude oil exports, Iran is expanding its
petrochemical production capacity and moving toward export of
petrochemical products.[Footnote 61]
UN Established Multilateral Sanctions against Iran in 2006:
Multilateral efforts targeting Iran resulted in the imposition of UN
sanctions in 2006 as a result of concerns that Iran's nuclear program
might contain a weapons-related component. In July 2006, UNSC
resolution 1696 demanded that Iran suspend its uranium enrichment
program by August 2006 or face possible sanctions.[Footnote 62] Iran
did not suspend these activities, and in December 2006, the UNSC
unanimously approved UNSC resolution 1737.[Footnote 63] This resolution
prohibits UN member states from supplying Iran with the nuclear and
missile-related materials or technology specified in the resolution, as
well as any other items that would contribute to proliferation-
sensitive nuclear activities or the development of nuclear weapon
delivery systems. In addition, UN member states are required to freeze
the financial assets and other economic resources of individuals and
entities designated by the UNSC as having ties to Iran's nuclear or
ballistic missile programs. Further, the resolution provides for a ban
on the provision of financial services related to the supply, sale,
manufacture, transfer or use of prohibited items specified in the
resolution. Iran was required to suspend its enrichment-related,
reprocessing, and heavy water-related activities and cooperate fully
with the IAEA by February 2007 or face possible additional sanctions.
The UNSC imposed further sanctions on Iran after the IAEA found that it
did not suspend its enrichment or heavy water-related activities. In
March 2007, the UNSC passed resolution 1747,[Footnote 64] which banned
arms exports from Iran; called upon all UN member states to exercise
restraint in sales to Iran of certain categories of heavy conventional
arms; designated additional individuals and entities, including Bank
Sepah and those affiliated with the IRGC, as subject to the asset
freeze requirement; and urged UN member states and international
financial institutions not to enter into new commitments for financial
assistance to the government of Iran, except for humanitarian and
developmental purposes. Resolution 1747 reaffirmed Iran's obligation to
suspend its enrichment, reprocessing, and heavy water-related
activities and affirmed UNSC intentions to consider additional
sanctions should Iran fail to comply by May 2007. The IAEA Director
General confirmed Iran's failure to comply in its report of May 2007.
State officials noted that this report triggered ongoing consultations
among six countries regarding next steps, including the possible
adoption of additional sanctions.[Footnote 65]
UNSC resolution 1737 established a sanctions committee charged with
monitoring implementation by UN member states of the measures imposed
under the resolution, including by reviewing required country
compliance reports. The State Department reported that, as of August
2007, the UNSC 1737 Sanctions Committee had received reports from 82 UN
member countries (43 percent) on resolution 1737 and reports from 64 UN
member countries (33 percent) on resolution 1747.
U.S. officials have stated that UN sanctions enhance the international
credibility of U.S. sanctions and provide leverage to increase pressure
on Iran. State officials have noted that multilateral sanctions enhance
the potential effectiveness of U.S. sanctions. Since UN sanctions have
been in place for about a year, it is difficult to assess their impact.
Conclusion:
For the past 20 years, U.S. sanctions against Iran have been an
important element of U.S. policy to deter Iran from weapons
proliferation and support for terrorism. Congress is considering
additional sanctions targeting Iran. UN sanctions may also play an
important role in pressuring Iran, but these sanctions have not yet
been fully implemented. However, the overall impact of sanctions, and
the extent to which these sanctions further U.S. objectives, is
unclear. On the other hand, some evidence, such as foreign firms
signing contracts to invest in Iran's energy sector and Iran's
continued proliferation efforts, raise questions about the extent of
the sanctions' impact. Moreover, U.S. agencies do not systematically
collect information on the direct results of the multiple sanctions
they implement, or their data do not provide specific information on
Iran sanctions. These agencies have not conducted a baseline assessment
of the impact of the sanctions. Collecting data on the results of
multiple sanctions against Iran and conducting an overall baseline
assessment is challenging, given all the agencies involved and the
complexities of collecting some of the necessary information. However,
without an overall assessment of the sanctions' impact and subsequent
reviews on a periodic basis, the Congress and the Administration will
continue to lack important information for developing effective
strategies to influence Iran's behavior.
Matter for Congressional Consideration:
Congress and the Administration need a better understanding of the
impact of U.S. sanctions against Iran and the extent to which sanctions
are achieving U.S. foreign policy objectives. The Administration needs
to take a series of actions to first improve the disparate data
collected on Iran sanctions and then establish baseline information for
the continuous monitoring and periodic reporting on what U.S. sanctions
have achieved. Accordingly, we recommend that Congress consider
requiring the NSC, in collaboration with the Departments of State, the
Treasury, Energy, and Commerce; the intelligence community; and U.S.
enforcement agencies to take the following actions:
(1) collect, analyze, and improve data on U.S. agencies' actions to
enforce sanctions against Iran and complete an overall baseline
assessment of the impact and use of U.S. sanctions, including factors
that impair or strengthen them. This assessment should collect
information, to the extent feasible, from various U.S. agencies and
consider factors such as, but not limited to, the following:
* the number of goods seized, penalties imposed, and convictions
obtained under the trade ban (Homeland Security, Treasury, Commerce,
Justice);
* sensitive items diverted to Iran through transshipment points
(Commerce and the intelligence community);
* the extent to which repeat foreign violators of Iran-specific
sanctions laws have ended their sales of sensitive items to Iran (State
and intelligence community);
* the amount of assets frozen resulting from financial sanctions
(Treasury and the intelligence community); and:
* the extent of delays in foreign investment in Iran's energy sector
(State, Energy, and the intelligence community).
(2) develop a framework for assessing the ongoing impact of U.S.
sanctions, taking into account any data gaps that were identified as
part of the baseline assessment , and the contribution of multilateral
sanctions.
(3) report periodically to the Congress on the impact of sanctions
against Iran in achieving U.S. foreign policy objectives.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Departments of State, the
Treasury, Commerce, Defense, Energy, Justice, and Homeland Security. We
also provided a draft to the NSC and the Office of the Director of
National Intelligence (ODNI). The Department of the Treasury provided a
formal response emphasizing that, as a result of financial pressure,
Iran is experiencing increasing isolation from the global community.
The department's response also states that Iran continues to pursue
nuclear capabilities and ballistic missile technology and to fund
terrorism. This comment reinforces our finding that the overall impact
of sanctions is unclear. In addition, the Treasury noted its
assessments of the effectiveness of financial sanctions. We revised the
report to recognize that Treasury assesses the impact of financial
sanctions but maintain that an overall impact assessment of all U.S.
sanctions has not been undertaken. Finally, Treasury commented that the
amount of assets blocked under available financial sanctions is not a
measure of the program's value. The department also noted that other
sanction effects, such as the inability of designated parties to use
the U.S. financial system or the reputational harm that stems from a
designation, can often be the primary way sanctions have an
international impact. We have noted the broad positive benefits of
sanctions in our report. Treasury also told us in an earlier
communication that it did not disagree with the part of our Matter for
Congressional Consideration calling for an assessment of assets frozen
using these financial tools. Treasury's letter can be found in appendix
V.
The Departments of State, the Treasury, Commerce, and Energy provided
written technical comments. We incorporated these comments into the
report as appropriate. The Department of Commerce submitted its
technical comments in a letter that is included in appendix VI. The NSC
provided brief oral comments and ODNI provided a classified response;
we considered this information and revised the report as appropriate.
The Departments of Defense, Justice, and Homeland Security provided no
comments on the draft report, though Homeland Security supported the
part of our Matter for Congressional Consideration that specifically
involves the department.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to other
congressional offices as well as the Departments of State, the
Treasury, Commerce, Defense, Energy, Justice, and Homeland Security.
Further, we will provide copies to the NSC and the Office of the
Director of National Intelligence. We will also make copies available
to others on request. In addition, this report will be available on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-8979 or at christoffj@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Other contacts and major
contributors are listed in appendix VII.
Sincerely yours:
Signed by:
Joseph A. Christoff:
Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The Ranking Member of the House Subcommittee on National Security and
Foreign Affairs of the Committee on Oversight and Governmental Reform
requested that we review U.S. sanctions involving Iran. This report
addresses (1) U.S. sanctions targeting Iran and their implementation,
(2) the reported impact of the sanctions, and (3) factors that limit
the ability of U.S. sanctions to reduce Iran's proliferation and
terrorism-related activities.
To identify U.S. sanctions targeting Iran and determine the U.S.
efforts to implement and assess sanctions against Iran, we first
identified, reviewed, and summarized U.S. executive orders and laws
that establish sanctions and are targeted at Iran. While we focused on
Iran-specific sanctions, we also reviewed targeted financial sanctions
that address proliferation and terrorism concerns and can be used
against any party, including Iran. In addition, we discussed the
sanctions with officials from the Departments of State, Treasury,
Commerce, Defense, Energy, Homeland Security (DHS), and Justice, as
well as the Central Intelligence Agency.
We submitted several requests for specific data to help illustrate U.S.
trade ban implementation and enforcement efforts; however, in many
cases agencies were not able to fully answer our requests. Due to
limitations in how agencies collect and organize their information, we
were unable to collect complete data on export licenses issued by
Treasury, or Customs and Border Protection seizures, Federal Bureau of
Investigation (FBI) or Immigration and Customs Enforcement
investigations, or Justice criminal convictions related to sanctions
against Iran. We could not compile comprehensive data on the number of
ongoing FBI investigations because the FBI considers such data
sensitive. We were able to collect data on the extent of civil
penalties imposed by Treasury, which we assessed to be sufficiently
reliable for our purposes of showing the number of Iran-specific
sanction violations since 2003. We were also able to collect data on
the number of post-shipment verification checks conducted by Commerce
in the past 5 years, which GAO has previously assessed as reliable.
To determine the use of Iran-specific laws to impose sanctions, we
reviewed and compiled publicly available information on the Department
of State's Web site [hyperlink, http://www.state.gov/t/isn/c15231.htm],
reviewed relevant Federal Register notices, and additional information
that was declassified. We determined that such data are sufficiently
reliable for our purposes. State officials explained that they do not
collect data on direct sanction results, emphasizing that such data
falls within the purview of the intelligence community. Regarding the
targeted financial sanctions, we were able to collect data on Iran-
related designations made under the nonproliferation sanctions, which
we determined to be sufficiently reliable. However, Treasury could not
provide data on designations made under the antiterrorism sanctions or
specify the amount of assets frozen under either set of financial
sanctions.
To obtain U.S. government views on the impact of sanctions on Iran, we
collected publicly available testimonies, speeches, and other remarks
made by U.S. officials from the Departments of State, Commerce,
Treasury, and DHS from March 2006 through April 2007. We reviewed these
documents for statements regarding the U.S. government's position on
the impacts of sanctions on Iran, factors that might lessen their
impact, UN sanctions, and other issues identified as key to the U.S.
foreign policy strategy for Iran. We also interviewed U.S. officials as
well as a judgmentally selected group of experts from think tanks and
universities and reviewed numerous scholarly articles and testimonies
to gain additional perspectives on the impact of sanctions on Iran.
After reviewing the literature on Iran sanctions and conducting a Web-
based search of universities and other institutions with research
projects or issue areas focusing on U.S. policies toward Iran, we
identified a large field of experts. To balance our selection of
experts to interview, we identified the institutions with which they
were affiliated. These 39 institutions represented a wide variety of
perspectives on U.S. foreign policy and, within them, we identified 56
scholars who have written papers and given presentations on Iran
sanctions. We then selected six prominent scholars, each from an
institution having a different political perspective, and with multiple
publications on Iran sanctions. After reviewing their publications and
speeches, we interviewed them on a set of questions concerning the
impact of unilateral and UN sanctions against Iran, factors that might
hinder impact, and other issues identified as key to U.S. foreign
policy strategy for Iran.
To obtain information on the impact of sanctions in deterring
investment in Iran's energy sector, FACTS Global Energy provided us
with a list of recent major agreements between Iran and foreign firms
and governments. FACTS Global Energy explained, in response to our
questions concerning its methodology and the value of the contracts,
that these are publicly reported figures, though the actual worth of
the contract may be slightly higher or lower. While FACTS reports that
some contracts are legally binding, Iran has been involved in several
instances in which these contracts have not been fulfilled. We also
substantiated many of these reported agreements based on our review of
a variety of sources, including expert reports (Congressional Research
Service [CRS], Economist Intelligence, Global Insight, Energy
Information Administration); scholarly articles; testimony of senior
U.S. officials; and other experts. Based on our interviews and checks,
we determine the data were sufficiently reliable for the purposes of
indicating the estimated value of publicly announced binding contracts
between foreign companies and Iran.
To determine the major factors that affect U.S. sanctions ability to
influence Iran's behavior, we reviewed numerous scholarly articles,
professional economists' publications, official U.S. documents, and
testimonies of officials and experts. In addition, we read open-source
documents, including newspaper and journal articles, both national and
global. We also interviewed a selected group of experts on Iran, met
with agency officials, and attended conferences on the subject. In
addition, we collected and analyzed data from several widely used
databases of international trade statistics, including International
Monetary Fund (IMF) Direction of Trade Statistics and International
Financial Statistics National Income database, the UN trade database,
U.S. Department of Commerce Trade Statistics, Department of Energy
statistics, and United Nations Conference on Trade and Development
Foreign Direct Investment statistics. We also reviewed and analyzed
proprietary private sector data from an internationally recognized
consultant on Iran's energy sector. We have determined that these data
are sufficiently reliable for the purposes for which they were used in
this report.
To determine the effect of U.S. sanctions on U.S. trade with Iran, we
used 1986 to 2006 U.S. trade statistics from the Department of
Commerce, Bureau of the Census Web-based database. We converted these
data from nominal dollars to 2006 dollars using Department of Commerce,
Bureau of Economic Analysis U.S. export and import commodity price
deflators from the online database. We also analyzed these data at the
2-digit commodity level to determine what goods the United States
exported to and imported from Iran in various years and the relative
importance of U.S. trade to Iran for various years encompassing the
imposition of the trade bans.
We used IMF Direction of Trade Statistics (May 2007 CD ROM) to analyze
trends in Iran's trade, exports and imports, as well as Iran's trade
with the world by major country groupings and individual partners, from
1986 to 2006.[Footnote 66] We determined that the U.S. commodity price
deflators noted above were not appropriate deflators for the purpose of
analyzing Iran's global trade. Thus, we converted the annual export and
import data, which IMF reports in U.S. dollars, into 2006 dollars using
the following methodology. We converted annual dollar trade flows to
Iranian rials using an exchange rate conversion factor from the World
Bank's World Development Indicators Online. This conversion factor,
known as the DEC alternative conversion factor, is, as a rule, the
official exchange rate reported in the IMF's International Financial
Statistics. This alternative conversion factor differs from the
official rate when the official exchange rate is judged to diverge by
an exceptionally large margin from the rate actually applied in
international transactions.[Footnote 67] In such cases, it employs a
method known as the Atlas method to average exchange rates for a given
year and the two preceding years, adjusted for differenced in rates of
inflation between the country and a specified groups of major trading
countries.[Footnote 68] For 1991 and 1992, for which the World Bank
does not publish a DEC alternative conversion factor for Iran, we
constructed conversion rates by applying rates of change exhibited in a
purchasing power parity conversion rate for Iran, from the World
Development Indicators Online, from 1990 to1993.
As Iran does not publish separate price indices for exports and
imports, in their place we use the Iranian gross domestic product (GDP)
deflator from the World Bank's World Development Indicators Online to
convert trade flows into 2006 rials. We then use the official 2006
exchange rate (which happens to be the same as the DEC conversion
factor) to express these trade flows in constant 2006 dollars. This
methodology preserves the real growth rates computed in real Iranian
rials. Thus, it reflects how Iran may view its global trade when
adjusted for exchange rate anomalies and price inflation.
We obtained general information on other countries' trade in sensitive
goods (arms, aircraft, and nuclear equipment and technology) from
publicly available official sources, including State Department reports
and testimonies, Department of Justice data, the unclassified National
Intelligence Estimate, and CRS reports and testimonies. To identify
countries and the value of their exports to Iran of possibly sensitive
items, we used the global shipping company DHL's online interactive
product classification tool to identify Harmonized System (HS) trade
codes in the export control category 0: Nuclear materials, facilities,
equipment and miscellaneous items. We then used the UN trade database
to identify countries and their reported value of exports to Iran for
these items.
The Department of Energy's Energy Information Administration (EIA)
provided data on Iran's position in world oil and gas reserves and
production, gasoline consumption, and export earnings.[Footnote 69] We
calculated Iran's oil export revenue as a percent of Iran's GDP using
reporting countries' crude oil import statistics from Iran[Footnote 70]
and GDP data from the most currently available IMF International
Financial Statistics CD ROM (December 2006). To determine top Iranian
crude oil export destinations and respective country shares, we used UN
trade statistics at the 2-digit commodity level (HS2709), for the
period 1989 to 2005, and ranked countries by dollar value and country
share of crude oil exports from Iran. For the top recipients of Iran's
crude oil, we also calculated each country's crude oil imports from
Iran as a percent of that country's total crude oil imports to
demonstrate the relative importance of Iranian crude oil to these
countries. We also used 2-digit commodity level (HS2710 and HS2711) UN
trade statistics to determine the major suppliers of refined petroleum
products to Iran.
We based our assessment of Iran's near-term growth prospects on a
review of economists' reports on Iran, including IMF's 2007 Article IV
consultation with Iran and country reports on Iran from Economists
Intelligence Unit and Global Insight. We also utilized proprietary
information obtained from FACTS Global Energy regarding current
developments in Iran's energy sector. We supplemented our review with
reports on Iran from other official sources, including CRS and the
Department of Energy's EIA.
To determine the development and current status of Iran's nuclear
program, we reviewed documents from the International Atomic Energy
Agency, an independent agency affiliated with the United Nations. We
also reviewed reports by the CRS specific to Iran's nuclear program and
proliferation concerns. Finally, we reviewed the November 2007
unclassified National Intelligence Estimate on Iran. We also reviewed
State and other documents to examine Iran's broad proliferation
efforts. To identify continued behavior by the government of Iran that
establishes continued support for terrorism, we reviewed the Department
of State's 2006 Country Report on Terrorism, other unclassified
documentation (such as Department of State testimonies and CRS reports)
as well as classified information.
To trace the development of UN sanctions against Iran for its efforts
to enrich uranium and possibly develop nuclear weapon capability, we
reviewed UN Security Council (UNSC) resolutions 1696 (2006), 1737
(2006), and 1747 (2007) and reports and documents from the UNSC 1737
Sanctions Committee. We also reviewed documentation from the Department
of State and CRS. The State Department's Bureau for International
Organization Affairs declined to meet with us, which precluded direct
contact with the United Nations. The Bureau stated that negotiations in
the UNSC were ongoing at the time.
We conducted our review from November 2006 to November 2007 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: U.S. and UN Sanctions Targeting Iran:
Figure 3: Establishment of U.S. and UN Sanctions Targeting Iran:
[See PDF for image]
The following data is depicted in this figure:
Year: 1984;
U.S. government sanctions: Iran designated "state sponsor of
terrorism."
Year: 1987;
U.S. government sanctions: Executive Order 12613 – U.S. imports of
Iranian goods banned.
Year: 1992;
U.S. government sanctions: Iran - Iraq Arms Nonproliferation Act of
1992 – sanctions against foreign parties engaging in proliferation
activities (advanced conventional weapons) that contribute to Iran‘s
efforts in this area.
Year: 1995:
U.S. government sanctions: Executive Order 12957 – restrictions on U.S.
involvement with the development of Iran's petroleum resources;
Executive Order 12959 – ban on U.S. imports of Iranian goods, U.S.
exports to Iran, and U.S. investment in Iran.
Year 1996:
U.S. government sanctions: Iran-Libya Sanctions Act of 1996 (ILSA) –
sanctions against parties that invest $40 million or more in the
development of Iran's petroleum resources. After the first year,
sanctions shall be applied to nationals of nonwaiver countries who
invest $20 million or more.
Year: 1997:
U.S. government sanctions: Executive Order 13059 – consolidation of
prior executive orders, prohibition on trade and investment activities
with Iran.
Year: 2000;
U.S. government sanctions: Iran Nonproliferation Act of 2000 –
sanctions against foreign persons transferring controlled goods
(nuclear, biological, or chemical weapons, or ballistic or cruise
missile systems) to Iran; Lifting of restrictions on certain (1) U.S.
imports of Iranian goods such as carpets, dried fruits, and nuts; and
(2) U.S. exports to Iran such as food, agricultural commodities and
medical products.
Year: 2003;
International Atomic Energy Agency (IAEA) and U.N. Security Council
(UNSC) actions: June: IAEA states that Iran failed to report certain
nuclear materials and activities and requests cooperation from Iran.
Year: 2004;
International Atomic Energy Agency (IAEA) and U.N. Security Council
(UNSC) actions: November: under the Paris Agreement with the European
Union-3 (Britain, France, and Germany), Iran agrees to suspend
enrichment in exchange for renewed trade talks and other aid.
Year: 2005;
U.S. government sanctions: Iran Nonproliferation Amendments Act of 2005
– amended Iran Nonproliferation Act of 2000 to include Syria (renamed
Iran and Syria Nonproliferation Act);
International Atomic Energy Agency (IAEA) and U.N. Security Council
(UNSC) actions: August: Iran breaks the seals on its uranium conversion
facility at Isfahan; IAEA calls on Iran to suspend enrichment-related
activities.
Year: 2006;
U.S. government sanctions: Iran Freedom Support Act – amended ILSA to
(1) add nuclear, chemical, biological, advanced conventional weapons as
sanctionable, (2) remove Libya from ILSA (renamed Iran Sanctions Act);
North Korea Nonproliferation Act of 2006 – amended Iran and Syria
Nonproliferation Act to include North Korea (renamed Iran, North Korea,
Syria Nonproliferation Act);
International Atomic Energy Agency (IAEA) and U.N. Security Council
(UNSC) actions: January: Iran resumes enrichment activities. February:
IAEA votes for a resolution to report Iran to the UNSC. July: UNSC
resolution 1696 calls for Iran to suspend all uranium enrichment
related and reprocessing activities. December: UNSC resolution 1737
requires Iran to suspend its uranium enrichment and reprocessing
activities as requested under resolution 1696 and decides that all
states take measures to prevent the supply, sales or transfer of all
items, goods and technology, which could contribute to Iran‘s
enrichment-related activities or the development of nuclear weapon
delivery systems.
Year: 2007;
International Atomic Energy Agency (IAEA) and U.N. Security Council
(UNSC) actions: March: UNSC resolution 1747 requires Iran to suspend
enrichment by May 2007. This resolution widened the scope of the
previous resolution by banning Iran‘s arms exports and freezing the
assets and restricting travel of additional individuals engaged in the
country‘s proliferation-sensitive nuclear activities. May: IAEA reports
that Iran has not suspended its uranium enrichment activities and has
continued operation of its pilot fuel enrichment plant.
Source: GAO analysis of U.S. laws and executive orders, as well as UN
documents, including UN Security Council resolutions.
[End of figure]
[End of section]
Appendix III: Sanctions Imposed Under the Law Currently Known as the
Iran, North Korea, and Syria Nonproliferation Act:
Table 5: Imposition of Sanctions under the Iran Nonproliferation Act
(INPA) and the Iran and Syria Nonproliferation Act (ISNA), 2001-2007,
Iran-Related Cases[A]:
Number of sanctioned parties: [Empty].
Iran Nonproliferation Act of 2000: Sanctions imposed against foreign
parties from 2001 to 2006:
Country of sanctioned parties: China;
Number of sanctioned parties: 46[B].
Country of sanctioned parties: North Korea;
Number of sanctioned parties: 9.
Country of sanctioned parties: India;
Number of sanctioned parties: 6.
Country of sanctioned parties: Russia;
Number of sanctioned parties: 5.
Country of sanctioned parties: Armenia;
Number of sanctioned parties: 2.
Country of sanctioned parties: Moldova;
Number of sanctioned parties: 2.
Country of sanctioned parties: Macedonia;
Number of sanctioned parties: 2.
Country of sanctioned parties: Belarus;
Number of sanctioned parties: 2.
Country of sanctioned parties: Taiwan;
Number of sanctioned parties: 2.
Country of sanctioned parties: All others;
Number of sanctioned parties: 5.
Total, Number of sanctioned parties: 81.
Iran and Syria Nonproliferation Act: Sanctions imposed against foreign
parties in 2006 to 2007.
Country of sanctioned parties: Syria;
Number of sanctioned parties: 8.
Country of sanctioned parties: China;
Number of sanctioned parties: 6.
Country of sanctioned parties: Sudan;
Number of sanctioned parties: 3.
Country of sanctioned parties: Malaysia;
Number of sanctioned parties: 3.
Country of sanctioned parties: Russia;
Number of sanctioned parties: 2.
Country of sanctioned parties: Iraq;
Number of sanctioned parties: 2.
Country of sanctioned parties: Mexico;
Number of sanctioned parties: 2.
Country of sanctioned parties: Pakistan;
Number of sanctioned parties: 2.
Country of sanctioned parties: All others;
Number of sanctioned parties: 2.
Total, Number of sanctioned parties: 30.
Both Acts Combined: Sanctions imposed against foreign parties, 2001 to
2007.
Country of sanctioned parties: China;
Number of sanctioned parties: 52.
Country of sanctioned parties: North Korea;
Number of sanctioned parties: 9.
Country of sanctioned parties: Syria;
Number of sanctioned parties: 8.
Country of sanctioned parties: Russia;
Number of sanctioned parties: 7.
Country of sanctioned parties: India;
Number of sanctioned parties: 6.
Country of sanctioned parties: Malaysia;
Number of sanctioned parties: 3.
Country of sanctioned parties: Sudan;
Number of sanctioned parties: 3.
Country of sanctioned parties: All others;
Number of sanctioned parties: 23.
Total, Number of sanctioned parties: 111.
Sources: [hyperlink, http://www.state.gov/t/isn/c15231.htm], Federal
Register.
[A] The Iran Nonproliferation Act of 2000 (INPA) was amended to include
Syria in 2005 (the Iran and Syria Nonproliferation Act, or ISNA), and
North Korea in 2006, and is now known as the Iran, North Korea, and
Syria Nonproliferation Act (INKSNA).
[B] For the total number of sanctions involving parties from specific
countries, in particular China, the total number of sanction cases
includes multiple instances of sanctions that were imposed against the
same party.
[End of table]
[End of section]
Appendix IV: Potential Investors in Iran's Energy Sector:
The following table illustrates various major agreements between Iran
and foreign firms and governments in Iran's energy sector.[Footnote 71]
The table is not intended to imply a complete or thorough listing of
foreign deals. Because several of these deals are in progress, we are
making the conservative assumption that these agreements, at a minimum,
express commercial interest between Iran and the foreign party to
trade, finance or underwrite a project in Iran's energy sector.
Table 6: List of Recent Major Agreements between Iran and Foreign
Investors in Iran's Energy Sector:
Date: March 2003;
Type of agreement: Binding Contract;
Country/Investor: France, Technip-Coflexip;
Type of investment: Construction of an ethylene cracker on Kharg
Island. (Petrochemical);
Amount: $232 million;
Status: Completed.
Date: May 2003;
Type of agreement: Binding Contract;
Country/Investor: South Korea, Daelim;
Type of investment: Engineering, Procurement and Construction (EPC)
contract for 645,000 ton/year (t/y) capacity ethyl-benzene plant in
Assaluyeh. (Petrochemical);
Amount: $600 million;
Status: To be completed in 2008.
Date: January 2004;
Type of agreement: Binding Contract;
Country/Investor: Japan, INPEX;
Type of investment: Development of the Azadegan oil field. (Oil);
Amount: $4.45 billion;
Status: INPEX withdrew in 2006 from the project due to the political
environment in Iran. National Iran Oil Company (NIOC) has since offered
this project to domestic companies.
Date: April 2004;
Type of agreement: Binding Contract;
Country/Investor: Japan, consortium consisting of Japan's Toyo
Engineering Corp. and Chiyoda Corp;
Type of investment: Construction of a 670,000 t/y ammonia and urea
plant in Assaluyeh. (Petrochemical);
Amount: $220 million;
Status: To be completed in late 2007.
Date: August 2004;
Type of agreement: Binding Contract;
Country/Investor: Brazil, Petrobras;
Type of investment: Exploration and Development Contract for the Tusan
block. If commercial volumes of hydrocarbons are found, Petrobras will
be awarded the contract for the development of the field(s). (Oil);
Amount: $34 million;
Status: Near completion.
Date: January 2005;
Type of agreement: Binding Contract;
Country/Investor: Consortium: South Korea, Daelim; UK's SembCorp Simon-
Carves;
Type of investment: EPC Contract for a 300,000 t/y LDPE at the Amir
Kabir petrochemical plant. (Petrochemical);
Amount: $242 million;
Status: To be completed in 2008.
Date: March 2005;
Type of agreement: Binding Contract;
Country/Investor: Thailand, PTT Exploration and Production (PTTEP);
Type of investment: Exploration and development contract for the Saveh
block. If commercial volumes of hydrocarbons are found, PTTEP will
invest up to $39 million for further appraisals of the block. Upon
completion of exploration for commercial hydrocarbon reserves, PTTEP
will be awarded the contract for the development of the field(s).
(Oil);
Amount: $5.4 million (Minimum exploration contract);
Status: In progress.
Date: May 2005;
Type of agreement: Binding Contract;
Country/Investor: China, China National Petroleum Corporation (CNPC);
Type of investment: Exploration and development contract for the
Kuhdasht Block. If commercial volumes of hydrocarbons are found, CNPC
will invest up to $51 million for further appraisals of the block. Upon
completion of exploration for commercial hydrocarbon reserves, CNPC
will be awarded the contract for the development of the field(s).
(Oil/Gas);
Amount: $18 million (Minimum exploration contract);
Status: In progress.
Date: July 2005;
Type of agreement:
Binding Contract; Country/Investor: Consortium: UK, Costain Oil, UK,
Gas and Process; Spain, Dragados;
Type of investment: EPC of Bid Blonad 2 gas processing plant. (Gas);
Amount: $1.42 billion;
Status: To be completed sometime in 2010-2011.
Date: July 2005;
Type of agreement: Binding Contract;
Country/Investor: Consortium: South Korea, Hyundai Engineering and
Construction Co; German, Linde;
Type of investment: EPC of a 1.2 million t/y ethylene plant.
(Petrochemical);
Amount: $1.3 billion;
Status: To be completed sometime in 2009-2010.
Date: August 2005;
Type of agreement: Binding Contract;
Country/Investor: Italy, Tecnimont;
Type of investment: Construction of a 300,000 t/y LDPE plant at Sanadaj
(Kordestan). (Petrochemical);
Amount: $292 million;
Status: To be completed sometime in 2009-2010.
Date: November 2005;
Type of agreement: Binding Contract;
Country/Investor: Italy, Tecnimont;
Type of investment: Construction of 300,000 t/y LLDPE/HDPE plant
(Petrochemical); Construction of 30,000 t/y Butene-1 plant at
Khorramabad (Lorestan) (Petrochemical);
Amount: Total contracts worth: $536 million;
Status: To be completed in 2010.
Date: November 2005;
Type of agreement: Binding Contract;
Country/Investor: Japan, Mitsui Engineering & Shipbuilding Co. (MES);
Type of investment: EPC contract for 300,000 t/y HDPE petrochemical
plant in Ilam province. (Petrochemical);
Amount: $288 million;
Status: To be completed in 2010.
Date: May 2006;
Type of agreement: Binding Contract;
Country/Investor: German ABB Lummus;
Type of investment: EPC contract for the expansion of Abadan oil
refinery to increase gasoline production. (Oil refining);
Amount: $478 million;
Status: To be completed sometime in 2009-2010.
Date: June 2006;
Type of agreement: Binding Contract;
Country/Investor: China, China Petroleum & Chemical Corporation
(Sinopec);
Type of investment: Exploration and development contract for the
Garmsar Block. If commercial volumes of hydrocarbons are found, Sinopec
will be awarded the contract for the development of field(s);
Amount: $19.6 million (Minimum investment);
Status: In progress.
Date: August 2006;
Type of agreement: Binding Contract;
Country/Investor: China, China Petroleum & Chemical Corporation
(Sinopec);
Type of investment: Upgrade 8 existing units of the Arak refinery in
the Markazi province and add 14 more units to increase gasoline
production;
Amount: $1.6 billion;
Status: To be completed in 2010.
Date: September 2006;
Type of agreement: Binding Contract;
Country/Investor: Norway, Norsk Hydro ASA;
Type of investment: Exploration and development contract for the
Khorramabad Block. If commercial volumes of hydrocarbons are found,
Norsk Hydro will invest up to $58 million for further appraisals of the
block. Upon completion of exploration for commercial hydrocarbons
reserves Norsk Hydro will be awarded the contract for the development
of the field(s). (Oil);
Amount: $49 million (Minimum exploration contract);
Status: In progress.
Date: October 2006;
Type of agreement: Binding Contract;
Country/Investor: Italy, IRASCO s.r.l, subsidiary of Iran International
Engineering Company (IRITEC);
Type of investment: Kharg and Bahregansar associated gas gathering &
Natural Gas Liquids (NGL) recovery project. (Kharg NGL project)
(Natural Gas);
Amount: $1.6 billion;
Status: To be completed in 2010.
Date: November 2006;
Type of agreement: Nonbinding Memorandum of Understanding (MOU);
Country/Investor: Australia, Liquefied Natural Gas Limited (LNG Ltd);
Type of investment: Development of Salkh (Qeshm 4) and Southern Gashu
gas fields and the construction of a 3.4 mtpa LNG plant (Qeshm LNG) on
Qeshm Island. (Natural gas);
Amount: This is a preliminary agreement, no details available;
Status: Under negotiations.
Date: November 2006;
Type of agreement: Binding Contract;
Country/Investor: Consortium: German, ABB Lummus;
Type of investment: EPC Contract for increasing of gasoline production
in Bandar Abbas oil refinery. (Oil refining);
Amount: $442 million;
Status: To be completed in 2010.
Date: December 2006;
Type of agreement: Nonbinding; MOU;
Country/Investor: China, China National Offshore Oil Corporation
(CNOOC);
Type of investment: Development of the North Pars gas field for LNG
Exports. (Natural Gas);
Amount: $16 billion;
Status: Under negotiations.
Date: December 2006;
Type of agreement: Binding contract;
Country/Investor: China, Sinopec;
Type of investment: EPC contract for gasoline production unit at Tabriz
refinery. (Oil refining);
Amount: $144.7 million;
Status: To be completed in 2009.
Date: December 2006;
Type of agreement: Nonbinding; MOU;
Country/Investor: Iran and Belarus (Inter government agreements);
Type of investment: Development of the Jofeir oil field. (Oil);
Amount: NIOC announced negotiations with Belarusian party is near
completion and the contract is expected to be signed in July 2007;
Status: Under negotiations.
Date: January 2007;
Type of agreement: Nonbinding; MOU;
Country/Investor: Malaysia, SKS Ventures;
Type of investment: Development of the Golshan and the Ferdos gas
fields for LNG exports. (Natural Gas);
Amount: $16 billion;
Status: Under negotiations.
Date: February 2007;
Type of agreement: Nonbinding contract;
Country/Investor: Netherlands, Shell; Spain, Repsol;
Type of investment: Development of Phases 13 and 14 (Persian LNG).
Shell (25%), Repsol (25%). (Natural Gas);
Amount: $4.3 billion;
Status: Contract effectiveness is subject to Persian LNG final
investment decision (FID). Start-up depends on; project FID.
Date: February 2007;
Type of agreement: Binding contract;
Country/Investor: Korea, Daelim;
Type of investment: Agreement on the construction of LNG and LPG
storage tanks for the Iran LNG plant and the construction of port and
dock facilities. (Natural Gas);
Amount: $500 million;
Status: To be completed in 2014-2015.
Date: March 2007;
Type of agreement: Binding contract;
Country/Investor: Consortium: South Korea, Daelim; German, Lurgi and
UHDE;
Type of investment: EPC contract for upgrading the Isfahan oil
refinery. (Oil refining);
Amount: $1.72 billion;
Status: To be completed in 2012.
Date: April 2007;
Type of agreement: Binding contract;
Country/Investor: Indonesia, Star Petrogas;
Type of investment: EPC contract for Bandar Abbas condensate splitter.
(Oil refining);
Amount: Approximate worth of contract at $2 billion;
Status: To be completed in 2010.
Date: May 2007;
Type of agreement: Nonbinding Heads of Agreement (HOA);
Country/Investor: Austria, OMV;
Type of investment: OMV has 20% share in the development of South Pars
Phase 12 and holds 10% share in Iran LNG Project. OMV also agreed to
buy 2.2 mt LNG from Iran LNG Project. (Natural Gas);
Amount: Early planning stages, no details;
Status: Under negotiations.
Date: May 2007;
Type of agreement: Nonbinding; MOU;
Country/Investor: Iran and Oman (inter government agreement);
Type of investment: Construction of a 670,000 t/y ammonia and urea
plant in Assaluyeh. (Petrochemical);
Amount: This is a preliminary agreement, no details available;
Status: Under negotiations.
Date: May 2007;
Type of agreement: Nonbinding; MOU;
Country/Investor: Iran and Oman (inter government agreement);
Type of investment: Construction of a gas pipeline from Iran to Oman
and the cooperation in LNG production and development of Hengam gas
field. (Natural gas);
Amount: This is a preliminary agreement, no details available;
Status: Under negotiations.
Date: May 2007;
Type of agreement: Nonbinding; MOU;
Country/Investor: Iran and Iraq (inter government agreement);
Type of investment: Construction of an oil pipeline. (Oil
infrastructure);
Amount: This is a preliminary agreement, no details available;
Status: Under negotiations.
Source: FACTS Global Energy:
Note: Contract worth stated in this list only constitutes those
contracts signed with foreign companies. For exploration and
development contracts, the contract value (minimum-maximum range
applies only for exploration activities. Should oil and gas reserves be
found, new contracts for field development are required to be signed.
Heads of Agreement (HOA) and Memoranda of Understanding (MOU) are not
normally binding or completed deals. These are typically preliminary
stage agreements with the intention to create a legally binding
contract and are used to identify the principal elements of the deal.
In general, typical preliminary stages can include Letter of Indication
or Letter of Interest, MOU, Letter of Intent, HOA, and Confirmation of
Intent. In the table, a binding contract means that it is a done deal
and is legally binding. Nonbinding deals such as MOUs and HOAs and
preliminary agreements and are generally beyond the stage of a Letter
of Interest (i.e., expressed commercial interest to trade, finance or
underwrite the project). We did not independently review the contracts.
[End of table]
[End of section]
Appendix V: Comments from the Department of the Treasury:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Department of The Treasury:
Under Secretary:
Washington, DC:
December 6, 2007:
Mr. Joseph Christoff:
Director, International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Christoff:
Thank you for the opportunity to review the draft Government
Accountability Office (GAO) report entitled, Iran Sanctions: Impact in
Furthering U.S. Objectives Is Unclear and Should Be Reviewed (GAO-08-
58). Please find attached recommended clarifications to the draft
report.
As a result of the collective efforts of the international community
and financial leaders to apply financial pressure on Iran, the country
is experiencing increasing economic, financial, and political isolation
from the global community.
Iran remains a danger to the security of people worldwide. Iran
continues to pursue nuclear capabilities and ballistic missile
technology and sends hundreds of millions of dollars each year to
deadly terrorist groups, all the while attempting to mask these
activities through deceptive financial practices. In additional to the
comprehensive country sanctions maintained against Iran, the Treasury
Department, in cooperation with its partners in the interagency
community, has implemented targeted financial measures aimed at
altering this illicit conduct emanating from Iran. The U.S.
Government's efforts have been reinforced by two unanimous United
Nations Security Council Resolutions, 1737 and 1747, targeting Iran's
nuclear and ballistic missile pursuits.
A key component in our efforts to sustain the pressure on Iran has been
the voluntary response we have seen from the private sector, thereby
reinforcing governmental actions. We have shared information with the
private sector about how Iran employs deceptive financial practices to
send money to terrorist groups and pursue nuclear capabilities and
missile programs. Further, we have notified private financial
institutions about Iran's attempts to lure reputable banks unwittingly
into those activities. As they become aware of this misconduct,
financial institutions across the globe are refusing to deal with Iran
in any currency, determining the business is too risky.
As a further result of this international pressure, foreign-based
branches and subsidiaries of Iran's State-owned brinks are increasingly
isolated, threatening their viability. The OECD has also taken notice
and increased Iran's risk classification for the likelihood that the
country will pay its external debts to its second-worst rating, thereby
increasing the cost of financing for Iranian companies and invoking a
devastating reduction in the foreign investment Iran needs to develop
its vast oil reserves.
The report drafted by the GAO specifically recommends that the National
Security Council, in collaboration with the Departments of State,
Treasury, Energy and Commerce, the intelligence community, and U.S.
enforcement agencies collect, analyze, and improve agencies' actions to
enforce sanctions against Iran and develop a baseline assessment of
their impact. The Treasury Department continues to assess the
effectiveness of its authorities that have been used against Iranian
entities or Iranian interests. These assessments, which not publicly
available, are designed to determine the specific impact of Treasury
actions and their success in meeting policy goals. [See comment 1]
As a part of this larger recommendation, GAO also recommends the
Treasury Department consider the amount of Iranian assets frozen
pursuant to Treasury's terrorism and WMD proliferation sanctions
programs as a component of this assessment. The Iranian program is
primarily a rejection-based program, with over 25,000 rejected
transactions valued at over $5 billion since 1997. While some terrorism
and proliferation-based designations of foreign entities involve an
Iranian nexus, the amount of assets that are blocked as a result of
these designations is typically peripheral to their objective, and not
a measure of the Iran program's value. These frozen assets do not
reflect the inability of designated parties to use the U.S. financial
system or transact business with U.S. persons, the international
isolation that designated vanities face due to the use by international
financial institutions of the Office of Foreign Assets Control's
Specially Designated Nationals (SDN) list, or reputational and
diplomatic harm that stems from a designation. These broader effects
can be severe and are often the primary way in which sanctions deliver
impact internationally. [See comment 2]
Thank you for your efforts and should you have any additional questions
please do not hesitate to contact me or my staff.
Sincerely,
Signed by:
Stuart A. Level:
Attachment:
Comments Matrix: [See commend 3]
[End of letter]
The following are GAO's comments on the Department of the Treasury's
letter dated December 6, 2007.
GAO Comments:
1. GAO has acknowledged Treasury's efforts to identify the impact of
financial sanctions as appropriate in the report. While Treasury
assesses such impact, we maintain that a larger impact assessment of
all U.S. sanctions has never been undertaken.
2. Our report acknowledges various broad positive impacts of sanctions.
3. Treasury's letter included an attachment with numerous technical
comments that we incorporated into the report as appropriate.
[End of section]
Appendix VI: Comments from the Department of Commerce:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
The Secretary Of Commerce:
Washington, D.C. 20230:
November 1, 2007:
Mr. Joseph Christoff:
Director, International Affairs and Trade:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Christoff:
Thank you for the opportunity to comment on GAO's draft report Iran
Sanctions: Impact in Furthering U.S. Objectives is Unclear and Should
be Reviewed, GAO-08-58.
The Department of Commerce has two technical comments on the report.
One comment is enclosed and the other comment is classified and will be
provided separately. [See comment 1]
Sincerely,
Signed by:
Carlos M. Gutierrez:
Enclosure:
[End of letter]
U.S. Department of Commerce:
Comments on:
Iran Sanctions: Impact in Furthering U.S. Objectives is Unclear and
Should Be Reviewed, GAO-08-58.
p. 10, footnote 8. Add: Sanctions were recently extended by the
Department of Commerce's July 12, 2007, addition of five Iranian
entities to the Entity List. All reexports of any item subject to the
Export Administration Regulations now require an export license, with a
presumption of denial, to the listed entities. [See comment 2]
[End of enclosure]
The following are GAO's comments on the Department of Commerce's letter
dated November 1, 2007.
GAO Comments:
1. We reviewed Commerce's classified technical comment and considered
it in revising our report.
2. We incorporated this information into the report.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Joseph Christoff, (202) 512-8979 or christoffj@gao.gov:
Staff Acknowledgments:
In addition to the person named above, Tet Miyabara, Assistant
Director; Kathryn Bernet; Lynn Cothern; Aniruddha Dasgupta; Martin De
Alteriis; Leslie Holen; Bruce Kutnick; Grace Lui; Roberta Steinman;
Anne Stevens; and Eddie Uyekawa made key contributions to this report.
[End of section]
Footnotes:
[1] The House Committee on Ways and Means defined "unilateral
sanctions" as such in a February 18, 1998, letter to the U.S.
International Trade Commission Chairman.
[2] Exec. Order No. 13059, 62 Fed. Reg. 44,531 (Aug. 19, 1997).
[3] See Exec. Order No. 13224, 66 Fed. Reg. 49,079 (Sept. 23, 2001);
Exec. Order No. 13382, 70 Fed. Reg. 38,567 (June 28, 2005).
[4] We are reporting global trade data in constant 2006 dollars. This
reflects the real value of Iran's trade. (See app. I for further
explanation regarding the method used to adjust the nominal trade
figures reported by the International Monetary Fund [IMF] into 2006
dollars).
[5] S.C. Res. 1737, U.N. SCOR, 61ST Sess., U.N. Doc. S/RES/1737 (2006);
S.C. Res. 1747, U.N. SCOR, 62ND Sess., U.N. Doc. S/RES/1747 (2007).
[6] A ban on imports of Iranian goods and services was enacted in
October 1987 via Executive Order 12613, 52 Fed. Reg. 41940 (Oct. 29,
1987). In March 1995, the President issued Executive Order 12957, 60
Fed. Reg. 14615 (Mar. 15, 1995) prohibiting U.S. involvement with
petroleum development in Iran. Executive Order 12959, 60 Fed. Reg.
24757 (May 6, 1995) was issued 2 months later, banning specified
exports and investment. Finally, on August 19, 1997, the President
signed Executive Order 13059, 62 Fed. Reg. 44531 (Aug. 19, 1997) which
consolidated prior executive orders and prohibits virtually all trade
and investment activities with Iran by U.S. persons, wherever located.
[7] Executive Order 13059 defines "U.S. persons" as "—any United States
citizen, permanent resident alien, entity organized under the laws of
the United States (including foreign branches), or any person in the
United States."
[8] Some U.S. companies have come under scrutiny for dealings by their
foreign subsidiaries with Iran. For example, the U.S. company
Halliburton announced in 2005 after criticism of a subsidiary's
involvement with Iran that its subsidiaries had completed all
contractual commitments with Iran and that it would no longer operate
there.
[9] With some exceptions, the ban does prohibit foreign persons from
reexporting sensitive U.S.-origin goods, technology, or services to
Iran. Executive Order No. 13059, § 2(b). Sanctions were recently
extended by the Department of Commerce's July 12, 2007, addition of
five Iranian entities to the Entity List. All reexports of any item
subject to the Export Administration Regulations now require an export
license, with a presumption of denial, to the listed entities.
[10] See Iranian Transaction Regulations: Licensing of Imports of, and
Dealings in, Certain Iranian-Origin Foodstuffs and Carpets, 65 Fed.
Reg. 25,642 (May 3, 2000).
[11] Agriculture, Rural Development, Food and Drug Administration, and
Related Agencies Appropriations Act, 2001, Pub. L. No. 106-387, Title
IX, § 906, 114 Stat. 1549, 1549A-69 (2000). This law enacted as U.S.
policy the principle that commercial sales of food, other agricultural
products, medicine, and other medical products shall not be used as a
tool to conduct foreign policy or to address national security
objectives.
[12] Our previous work noted that sanctions can increase the costs of
trade and finance to the sanctioning nation (in this case, the United
States) because it loses commercial transactions and profits with the
target nation. See GAO Economic Sanctions: Effectiveness as Tools of
Foreign Policy, GAO/NSIAD-92-106 (Washington, D.C. Feb. 19, 1992).
[13] International Emergency Economic Powers Enhancement Act, Pub. L.
No. 110-96, § 2, 121 Stat. 1011 (2007) (codified at 50 U.S.C. § 1705).
[14] The Iran Nonproliferation Act of 2000 (INPA) was amended to
include Syria in 2005 (the Iran and Syria Nonproliferation Act, or
ISNA), and North Korea in 2006, and is now known as the Iran, North
Korea, and Syria Nonproliferation Act of 2006 (INKSNA), Pub. L. No. 106-
178, 114 Stat. 38 (codified as amended at 50 U.S.C. § 1701 note).
[15] The act refers to controls established under numerous multilateral
export control lists, including under the Australia Group, Chemical
Weapons Convention, Missile Technology Control Regime, Nuclear
Suppliers Group, and the Wassenaar Arrangement.
[16] The Department of State's International Security and
Nonproliferation (ISN) Bureau was in charge of this effort until 2007
when the department's Verification, Compliance, and Implementation
(VCI) Bureau took over this responsibility.
[17] Pub. L. No. 102-484 (codified as amended at 50 U.S.C. § 1701
note).
[18] The Iran-Iraq Arms Nonproliferation Act applies to Iran specific
sanctions against Iraq as established in section 586G of the Iraq
Sanctions Act of 1990, as contained in the Foreign Operations, Export
Financing, and Related Programs Appropriations Act, 1991, Pub. L. No.
101-513, §§ 586-586J, 104 Stat. 1979, 2047-55 (1990). These sanctions
include a prohibition on exports of items on the CCL, which falls
within the Export Administration Regulations and establishes all items
that are determined to have a potential "dual use" - that is, a use
that has both a commercial and military or other strategic application.
See 50 App. U.S.C. §§ 2401-2420; 15 C.F.R. Pt. 774, Supp. 1. Such
exports to Iran can only be allowed if a presidential waiver is granted
citing that a waiver is essential to the national interest of the
United States. See Pub. L. No. 102-484, § 1606. State officials in the
Economic, Energy and Business Bureau (EEB), the bureau responsible for
coordinating this waiver process, report that such waivers are granted
infrequently.
[19] For sanctions imposed under this act, we are unable to provide
information that specifies which sanctions were due to proliferation
activities with Iran and which were due to proliferation activities
with Iraq. Such information is classified.
[20] Pub. L. No. 104-172. Libya was removed from the act in 2006 by the
Iran Freedom Support Act, Pub. L. No. 109-293, and the act is now known
as the Iran Sanctions Act.
[21] Waivers are available under this act if the President determines
that a waiver is important to the U.S. national interest.
[22] For example, the report stated that Petronas had only limited
connections to the United States and Total had divested many of its
U.S. assets prior to entering into the South Pars contract.
[23] In addition to these financial sanctions, other broad sanction
tools available for use against any violating party, including Iran,
include Executive Order 12938, which targets proliferation of WMD.
Exec. Order No. 12938, 59 Fed. Reg. 58,099 (Nov. 14, 1994). Since 1998,
this order has been used to impose sanctions against multiple parties
that have engaged in proliferation activities related to Iran's nuclear
or missile programs.
[24] Exec. Order No. 13382, 70 Fed. Reg. 38,567 (June 28, 2005).
[25] Exec. Order No. 13224, 66 Fed. Reg. 49,079 (Sept. 23, 2001).
[26] Pub. L. No. 95-233, Title II, 91 Stat. 1625 (1977) (codified at 50
U.S.C. § 1701 et seq). IEEPA grants certain authorities to the
President to deal with unusual and extraordinary threats if the
President declares a national emergency with respect to such threat.
For example, under IEEPA, the President may prohibit transactions
involving any property in which a foreign country or national thereof
has any interest by any person subject to the jurisdiction of the
United States.
[27] A U.S. person is defined as any United States citizen or national
or permanent resident alien anywhere in the world; entity organized
under the laws of the United States or any jurisdiction within the
United States (including foreign branches); or any person in the United
States.
[28] Treasury also posts information on its Web site and publishes
designations in its Specially Designated Nationals (SDN) list. Treasury
officials note that U.S. financial institutions use the SDN list to
identify and freeze assets of sanctioned parties.
[29] The designated entities are Pars Tarash, Farayand Technique, Fajr
Industries Group, and Mizan Machine Manufacturing Group.
[30] The IRGC is a component of Iran's military, focusing on national
security, internal and border security, and law enforcement.
[31] While official data on U.S. investment in Iran are incomplete,
available figures indicate negligible U.S. investment in Iran, even
prior to the adoption of the investment ban in 1995.
[32] For example, according to the Department of Energy's Energy
Information Administration (EIA), Iran utilizes buyback contracts,
which are arrangements in which the contractor funds all investments,
receives remuneration from the Iranian government in the form of an
allocated production share, then transfers operation of the field to
Iran after a set number of years, at which time the contract is
completed. However, according to U.S. Iran country report, the buyback
of 5 to 7 years has not given contractors sufficient time to recoup
their investment costs. Also, according to a State Department report, a
number of other negative elements in addition to the relative
difficulty of reaching satisfactory arrangements affect foreign
investment in Iran: prohibitions on foreign ownership of natural
resources, sometimes unappealing financial and other contractual terms,
alleged corruption, and political uncertainty are among the other
negative elements.
[33] A recent project by the American Enterprise Institute (AEI) cites
300 companies from 38 countries that, as of May 2007, have, at a
minimum, expressed commercial interest to trade, finance, or underwrite
a project in one of Iran's economic sectors.
[34] According to Department of Treasury sources, targeted financial
measures are "directed specifically at individuals, key regime members,
front companies, and financial institutions." Targeted financial
measures are aimed at "conduct" not a country. Some of these targeted
measures require financial institutions to freeze funds and close the
accounts of designated actors, effectively denying these actors access
to the traditional financial system.
[35] Additional Designation of Entities Pursuant to Executive Order
13382, 72 Fed. Reg. 7,919 (Feb. 21, 2007).
[36] Iranian Transaction Regulations, 71 Fed. Reg. 53,569 (Sept. 12,
2006).
[37] According to Treasury officials, states engaged in sanctionable
activities have been subject to sanctions and export control
restrictions for decades and have adopted a variety of evasive
techniques.
[38] These seven banks are HSBC (UK), UBS (Switzerland), Barclays (UK),
Société Général (France), ABN (Netherlands), Standard Chartered (UK),
Deutsche Bank (Germany).
[39] An export credit is a loan to the buyer of an export, extended by
the exporting firm when shipping the good prior to payment, or by a
facility of the exporting country's government. In the latter case, by
setting a low interest rate on such loans, a country can indirectly
subsidize exports. An export credit guarantee is a government-sponsored
credit guarantee for commercial financing of exports, often to protect
a country's exporters against potential loss due to nonpayment by
foreign buyers.
[40] According to a Treasury official, "Iran is one of the largest
beneficiaries of official export credits and guarantees, with $22.3
billion in exposure reported by OECD countries as of the end of 2005."
Exposure means that the countries that provided export credit
guarantees are now vulnerable, or responsible, for the payment should
something go amiss with the exports, such as the foreign buyer not
paying.
[41] In early 2006, the OECD raised Iran's risk rating, and the IMF
reported in its 2007 Article IV consultation with Iran that Iran's
sovereign debt was downgraded by Fitch due to perceived increase in
country risk.
[42] Treasury also posts information on its Web site and publishes
designations in its Specially Designated Nations list.
[43] The International Atomic Energy Agency (IAEA) is an independent
agency affiliated with the UN established in 1957 to control and
promote the use of atomic energy. Currently, the IAEA has safeguard
agreements through the Treaty of the Non-Proliferation of Nuclear
Weapons with more than 150 member states.
[44] In the Arak heavy water plant, heavy water is extracted from
regular water by replacing the hydrogen atom with the deuterium
isotope. It is used in certain types of nuclear reactors where
plutonium is bred from natural uranium. Plutonium is used in nuclear
weapons and for nuclear power production.
[45] GAO, International Affairs: Information on U.S. Agencies' Efforts
to Address Islamic Extremism, GAO-05-852 (Washington, D.C.: Sept. 16,
2005).
[46] In 1984, the Secretary of State designated Iran as a state sponsor
of terrorism for its repeated support for acts of international
terrorism. The effects of this designation include restrictions on U.S.
foreign assistance, a ban on defense exports and sales, certain
controls over exports of dual-use items, and various financial
restrictions.
[47] ILSA Extension Act of 2001, Pub. L. No. 107-24, § 3, 115 Stat.
199.
[48] We are reporting U.S. trade statistics from the Department of
Commerce in 2006 dollars.
[49] Oil-related exports average approximately 80 percent of Iran's
total exports.
[50] We are reporting global trade data in constant 2006 dollars. This
reflects the real value of Iran's trade. (See app. I for further
explanation regarding the method used to adjust the nominal trade
figures reported by the IMF into 2006 dollars).
[51] Growth rates are calculated using ordinary least square, which
takes into account the value of trade for each year over the designated
time period, calculates the slope of the best fitting regression line,
and ensures that extreme changes in a single year do not give a
distorted average growth rate for the period.
[52] In 1994, EU countries received one-third of Iran's exports and
provided 50 percent of Iran's imports. At the same time, developing
countries' share of trade with Iran has increased from 32 percent of
Iran's exports in 1994 to 47 percent in 2006, and from 34 percent to 60
percent of Iran's imports over the same period, due in large part to
growth of trade with China, India, Korea, and other Asian countries.
[53] GAO, Sales of Sensitive Military Property to the Public, GAO-07-
929R (Washington, D.C.: July 6, 2007).
[54] CRS, Iran: U.S. Concerns and Policy Responses, RL32048, Ken
Katzman (Washington, D.C.: June 2007).
[55] According to the Oil and Gas Journal, Russia has the largest
reserves of natural gas in the world.
[56] Japan's and China's Iranian crude oil imports comprised 12.6 and
11.1 percent, respectively, of these countries' total crude oil imports
in 2005. Also of note, Turkey, South Africa, Greece, and the
Philippines obtained more than 25 percent of their crude oil imports
from Iran.
[57] To assess the impact of future oil prices on the Iranian economy,
the IMF and Iranian officials constructed a medium term budget and
economic model. Assuming the agreed upon budget reforms will be
implemented, the economy can achieve an annual average growth rate of
4.5 percent over the 2007-2008 to 2011-2012 period and a fully financed
budget if average long-term oil prices are $65 per barrel. If long-term
oil prices fall below $55 per barrel, the budget and implied growth
rates would not be sustainable.
[58] According to one energy expert, Iran is in the midst of a major
country-wide refinery expansion and upgrade program, and there is also
a push to process more of its expected condensate supplies and at least
partially reduce its gasoline dependence.
[59] Smart cards were introduced as a means to limit drivers'
consumption of subsidized gasoline.
[60] According to economic experts and Iranian country authorities,
Iran has experienced a rapid increase in non-oil exports in the last
decade. More recently, however, Iran has taken steps to diversify and
promote non-oil exports. According to academic researchers, non-oil
exports as a percentage of total exports were just over 3 percent in
1979. In 2000, the last year for which data are available, non-oil
exports stood at almost 27 percent of total exports. In addition to
petrochemical products, non-oil exports includes carpets, fresh and
dried fruits, detergents and soaps, chemical products, ready-made
clothes, metallic mineral ores, iron, and steel.
[61] Petrochemicals are a large group of chemicals derived from
petroleum and natural gas, which are used for a variety of commercial
purposes. The term petrochemicals refers to feedstocks-the chemicals
used in petrochemical plants and the finished products made from
feedstocks. Petrochemical products include common items such as
plastics, soaps and detergents, solvents, fertilizers, rubbers, paints,
drugs, rocket propellants, and synthetic fibers. Petrochemicals are
also found in products as diverse as aspirin, luggage, surfboards,
carpets, and phonograph records.
[62] S.C. Res. 1696, U.N. SCOR, 61st Sess., U.N. Doc. S/RES/1696
(2006).
[63] U.N. Doc. S/RES/1737.
[64] U.N. Doc. S/RES/1747.
[65] These six countries are the United States, the United Kingdom,
France, China, Russia, and Germany.
[66] According to the IMF, data are collected from Iran's trade
partners as well as from Iran. IMF staff use their best judgment to
determine bilateral and global trade flows.
[67] According to the World Bank, during most of 1986 to 2006, Iran's
official exchange rate did not reflect the actual market exchange rate
(the official exchange rate and the market exchange rate do coincide
beginning in 2003).
[68] These major trading countries include the G-5 countries (France,
Germany, Japan, the United Kingdom, and the United States) through
2000. From 2001, these countries include the Euro Zone, Japan, the
United Kingdom, and the United States.
[69] EIA calculates net export revenues as the weighted average spot
price of Iranian crude oil multiplied by Iran's' net oil exports
multiplied by number of days in the year. EIA calculates Iran's net oil
exports as Iran's total liquids production (production of crude oil and
condensates, natural gas plant liquids, and refinery processing gain or
loss) less Iran's total petroleum consumption.
[70] EIA provided the reporting countries import statistics of their
petroleum imports from Iran. These data are comparable to UN trade
statistics data for the same 2-digit petroleum commodity breakdown,
2709.
[71] All contracts are partner arrangements between Iran and the
foreign party. However, we have not listed the Iranian partner. For
example, both the first and second contracts are with National Iranian
Petrochemical Company (NIPC). For the remaining contracts, other
Iranian partners include, for example, National Iran Oil Company
(NIOC), National Iranian Gas Company (NIGC), National Iranian Oil
Refining and Distribution Company (NIORDC), among others. Also,
consortiums are partnerships with Iranian companies.
[End of section]
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