Nuclear Issue and Sanctions in Iran

Iran's leaders have worked to pursue a nuclear program since the 1950s and made steady progress, with Western help, through the early 1970s. After Iran's 1979 Islamic revolution, however, the West ended its assistance, the United States broke diplomatic relations with Iran in 1980 and imposed its first round of economic sanctions. As of January 2012, diplomatic relations between Iran and the United States and its allies had yet to be restored.

The United States has had sanctions against Iran for most of the period since the 1979 revolution, with sanctions expanded especially in 1995 and 2005. In November 2011, the International Atomic Energy Agency issued a report that it had information suggesting that Iran had carried out tests "relevant to the development of a nuclear explosive device"; the report prompted both the US and the EU to impose tougher sanctions in the following two months.

=History of Iran's nuclear program= On 5 March 1957, Iran and the United States announced a "proposed agreement for cooperation in research in the peaceful uses of atomic energy" under the auspices of US President Dwight D. Eisenhower's 'Atoms for Peace' program. Intended to pave the way for US investment in Iran's civilian nuclear industries, such as health care and medicine, the deal saw the United States over the next decade provide Iran with nuclear fuel and equipment to start up its research. In July 1968 Iran signed the Nuclear Nonproliferation Treaty (NPT) on the day it opened for signature, and by the 1970s, France and Germany had joined the US in assisting Iran's nuclear program.

Western concerns over Iran's nuclear program grew during this period, however, and in 1974 a US special national intelligence estimate warned that Iranian ambitions could lead it to pursue nuclear weapons. After the Islamic Revolution, the Iranian seizure of US hostages, and the termination of diplomatic relations in 1979, US opposition to Iran's nuclear ambitions grew in the 1980s and 90s.

=Imposition of sanctions=

United States sanctions
Five US administrations have imposed sanctions on Iran. The US first imposed unilateral economic sanctions on Iran under President Jimmy Carter in 1980; then in 1983, the administration of Ronald Reagan declared Iran a state sponsor of terrorism and imposed further sanctions in subsequent years. In 1995, Iran's opening of its energy sector to foreign investment presented the US with the opportunity to deal the country a further blow. In March of that year Bill Clinton banned all US participation in Iranian petroleum development; in May of the same year, he broadened the sanctions to encompass a total trade and investment embargo on Iran. After 2005, under the administration of George W. Bush, the US issued a series of orders to freeze the assets of firms and individuals suspected to be involved in Iran's nuclear and missile programs, its support for terrorism, and its role in destabilising Iraq. Sanctions under the Bush administration included dozens of foreign entities, particularly Chinese and Russian companies, for helping Iran's nuclear and missile programs; more than 30 arrests were made between 2008 and 2010.

In 2010, Barack Obama tightened US sanctions on Iran, targeting especially the supply of refined petroleum products sent to Iran by non-US firms. Obama signed a new round of sanctions into law on 31 December 2011, targeting Iran's oil revenues and the Central Bank of Iran (CBI). The new law would cut off from the US foreign financial institutions that do business with the CBI, and included a grace period of six months for oil-related transactions, while for non-oil transactions, sanctions could be imposed as early as February 2012.

United Nations sanctions
UN sanctions, multilateral by nature, have tended to be more effective than unilateral US sanctions, according to the US Congressional Research Service. Between 2006 and 2008, three UN Security Council Resolutions — 1737, 1747, and 1803 — imposed sanctions mainly on Iran's 'weapons of mass destruction' infrastructure, while multilateral negotiations offered Iran incentives to suspend uranium enrichment. After negotiations failed in 2009, the UN in June 2010 adopted Resolution 1929, which expanded sanctions to, among other things: add several firms associated with the Revolutionary Guard to the list of sanctioned entities; authorise countries to inspect any shipments if they are suspected of carrying contraband items; prohibit countries from allowing Iran to invest in uranium mining and related nuclear technologies; and ban sales to Iran of most categories of heavy arms.

European Union sanctions
The European Union has in the past opposed US sanctions against Iran, as evidenced in November 1996 when the EU imposed "blocking legislation" to prevent EU companies from complying with the US' Iran-Libya Sanctions Act (ILSA). The EU encouraged member states to impose their own sanctions on companies that complied with the ILSA, and issued a complaint against the US with the World Trade Organisation (WTO).

In January 2012, however, the EU foreign ministers adopted an oil embargo against Iran, prohibiting the import, purchase and transport of Iranian crude oil and petroleum products as well as related finance and insurance. All existing oil contracts within Iran were phased out by 1 July 2012, as required by the sanctions, which also froze the assets of the Central Bank of Iran in the EU and restricted Iran's ability to trade gold, precious metals and diamonds. The EU sanctions dictated that any Iranian bank transaction over 40,000 euros ($51,000) would have to be authorised by EU governments before being processed. China - a key ally of Iran and its top trading partner - and Russia have consistently opposed the use of sanctions against Iran in favor of continued negotiation; China reacted on 26 January 2012 to the EU sanctions, calling them "not constructive".

=Impact of sanctions 2012=

In a January 2012 report, US officials conceded that US and international sanctions on Iran had not achieved the core goal of altering Tehran's commitment to its nuclear program. An August 2011 report by the International Monetary Fund cast doubt on the idea that sanctions are seriously impacting Iran's economy. According to the report, Iran's Gross Domestic Product (GDP) growth rate was expected to increase from 3.5% to 4.5% in the medium term, while high oil prices - over $100 per barrel in January 2012 - have enabled the regime to mitigate the effects of international sanctions.

Most outside observers agree however, according to the US Congressional Research Service, that sanctions have contributed to increasing pressure on Iran's economy. Senior US officials have stated that sanctions are preventing Iran’s economy from performing to its potential, citing high unemployment, and also that sanctions have shut Iran out of the global financial system, caused international firms to exit Iran, and threatened to reduce Iran’s oil sales. During 2006 and 2010, US Treasury and State Department officials say they persuaded at least 80 banks not to process transactions for Iranian banks; Iranian President Mahmoud Ajmadinejad told Parliament in November 2011 that sanctions were causing serious problems for Iran's banking sector.

A key strand of international sanctions has been targeted at Iran's energy sector, which as of January 2012 accounted for nearly 70% of government revenues. US officials said in 2011 that Iran has lost close to $60 billion in investment as numerous major firms have distanced themselves from Iran projects. According to the Congressional Research Service in January 2012, it is highly unlikely that Iran will attract the $145 billion in investment that Iran's Deputy Oil Minister said was needed in November 2008. Partially as a result of the lack of new investment, Iran's oil production has remained relatively stable at about 4.1 million bpd since the mid-2000s, despite government efforts to expand production.

In response to the passing of the rounds of US and EU sanctions in December 2011 and January 2012, respectively, Tehran threatened to block the Strait of Hormuz, a narrow passage between the Persian Gulf and the Gulf of Oman and a vital transit route for nearly one-fifth of the oil traded globally. According to the New York Times, even a partial blockage of the strait would raise the world price of oil within days by $50 a barrel or more. US officials said the US Navy’s Fifth Fleet, based in nearby Bahrain, was ready to defend the shipping route and, if necessary, retaliate militarily against Iran.

=Extension of Sanctions=

According to a Bloomberg report in August 2012, shipments from Iran have fallen by 1.2 million bpd since the ban on purchase, transport, finance and insurance of Iranian crude. With the intensified pressure of sanctions, Iran has been increasingly forced to store oil on board tankers and lower production. Between September 2011 and August 2012, the rial depreciated by around 50 percent whilst Iran was effectively cut off from the international banking system as a direct result of financial sanctions. Unemployment and inflation soared and the period saw a sustained exit of numerous major international firms from Iran’s market. According to the Congressional Research Service, the  energy sector saw successive cuts in oil and gas production as of July 2012, putting greater pressure on Tehran.

The US Department of Defence among other assessments indicate that sanctions as of July 2012 have not yet pressured Iran to cease the build up of its conventional military and missile capabilities. Iran is also understood to not be complying with UN stipulations to halt any weapons shipments beyond its borders.

On 30 July 2012, the US Congress agreed to a new round of sanctions to target Iran’s financial and shipping sectors. President Ahmadinejad lambasted the sanctions as ‘ridiculous’ whilst Supreme Leader Ayatollah Khamenei advised weaning Iran away from its traditional reliance on exporting oil, promoting the development of a knowledge-based industry. Iranian vice president Mohammadreza Rahimi played down the impact of sanctions, claiming ‘they do not know Iran, because oil only plays a role in 10 percent of the country’s economy’. Additionally, he reinforced Tehran’s expectations to raise non-petroleum exports to between $70 billion and $75 billion.

=External Links= Overview of 2011 US Sanctions against Iran: www.fas.org/sgp/crs/mideast/RS20871.pdf

What You Need to Know About US Economic Sanctions: US Treasury

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