93033: Iran: Current Developments and U.S. Policy

Updated January 2, 1997

Kenneth Katzman Foreign Affairs and National Defense Division

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CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Interpreting Iranian Intentions

Iran's Strategic Buildup

Conventional Weapons

Air and Air Defense

Naval Systems

Ground Forces

Weapons of Mass Destruction

Chemical Weapons

Biological Weapons

Ballistic Missiles

Nuclear Weapons

Foreign Nuclear Help

Iranian Foreign Policy and Involvement in Terrorism

Persian Gulf

Gulf Islands Dispute/Iranian Buildup

Iraq

Broader Middle East

Peace Process

Syria/Lebanon

Turkey/Gas Pipeline

Sudan/Egypt/Algeria/Africa

Central Asia/Azerbaijan

Afghanistan

Bosnia/Europe/Other Areas

Human Rights Concerns

Religious Persecution

Rushdie Affair

U.S. Policy and Legislation

Economic Sanctions

Terrorism and Drug List Sanctions

Additional U.S. Export Controls

May 1995 Trade Ban and Congressional Response

Differences With U.S. Allies

International Lending

Military Containment

Supporting the Opposition

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SUMMARY

More than 16 years after the seizure of the U.S. hostages in Tehran, the United States and Iran remain adversaries. Reports of an Iranian strategic buildup have caused alarm in the Administration and in Congress. Some analysts believe Iran's modernization of its conventional forces threatens U.S. interests in the Persian Gulf, but others argue that the buildup slowed during 1993 to 1995 and that Iran still is less well-equipped than its neighbors. The Central Intelligence Agency has said Iran probably could, with some foreign help, acquire a nuclear weapons capability within 8 to 10 years. Others say the evidence that Iran is trying to achieve a weapons capability is inconclusive, that it is abiding by its obligations as a signator of the Nuclear Non-Proliferation Treaty (NPT), and that Iran's resources to acquire and develop weapons of mass destruction programs are limited and technical bottlenecks significant. Iran is reportedly building up its arsenal of surface-to-surface missiles with North Korean and Chinese help.

Iranian foreign policy under President Rafsanjani has generated expressions of both hope and criticism by analysts and policymakers. Many believed that the release of remaining U.S. hostages from Lebanon in late 1991 and Iran's relative neutrality in the Persian Gulf war would usher in a new era of Iranian moderation and an end to its support for international terrorism. However, Iran has actively opposed the Middle East peace process, it continues to support Hizballah in Lebanon and radical anti-peace process Palestinian groups, it reportedly has sent Revolutionary Guards to Sudan and Bosnia, and it has asserted control over the Persian Gulf island of Abu Musa, which it had been sharing with the United Arab Emirates.

Since Iran's revolution the United States has tried to isolate Iran diplomatically, militarily, and economically, relying primarily on wide ranging unilateral economic sanctions. U.S. initiatives, administrative and congressional, have sought to contain Iran in an effort to change its behavior. This is part of a policy of "dual containment" of both Iran and Iraq. In particular, the Administration has been encouraging U.S. allies to curtail high technology exports to Iran and end reschedulings of Iranian debt, and it has tried to block international lending to Iran. The United States also has been pressing Russia, China, and other countries to end arms and technology sales to Iran. In an effort to persuade U.S. allies and others to contain Iran, on May 6, 1995, President Clinton issued an executive order banning all U.S. trade with and investment in Iran. A bill signed August 1996 (H.R. 3107, P.L. 104-172) imposes sanctions on foreign companies that make substantial investments in Iran's oil industry. However, there are indications that the second Clinton Administration will consider options to reduce U.S.-Iran tensions.

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MOST RECENT DEVELOPMENTS

On May 6, 1995, President Clinton issued an executive order banning virtually all U.S. trade with and investment in Iran. On August 5, 1996, President Clinton signed a bill (H.R. 3107, P.L. 104-172) sanctioning foreign investment in Iran's (and Libya's) energy sector. On August 12, 1996, Iran and Turkey signed a 23-year, $23 billion deal for Iran to export natural gas to Turkey via a yet-to-be constructed pipeline, and they signed several trade agreements December 21, 1996. On October 24, 1996, Assistant Secretary of State for the Near East Robert Pelletreau said he was hopeful a U.S.-Iran dialogue could begin in a second Clinton Administration.

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BACKGROUND AND ANALYSIS

Interpreting Iranian Intentions

Analysts and policymakers have consistently had difficulty interpreting Iranian intentions because of the many conflicting statements and actions that emanate from Tehran. Iran's President since 1989, mid ranking cleric Ali Akbar Hashemi-Rafsanjani, appears to emphasize Iran's national interests over the ideology of the Islamic revolution. Some senior clerics, such as Supreme Leader Ali Khamene'i, and parliament speaker Ali Akbar Nateq-Nuri, are closer to radical elements in the regime and less open to future diplomatic discussions with the United States. Parliamentary elections were last held March 8, 1996, producing a more diverse and factionalized Majles than the previous one. Of the 5,300 candidates that registered, about 2,000 were prohibited from running because they were deemed insufficiently supportive of the Islamic revolution. Rafsanjani is constitutionally barred from seeking a third term as President in June 1997 presidential elections. Nateq-Nuri is the likely front runner in that upcoming contest. In late November and early December 1996, rioting in Western Iran and government confiscation of satellite dishes suggested to some that there is serious opposition to the regime.

Iran's Strategic Buildup

The Clinton Administration is concerned about the pace and scope of Iran's reported conventional and mass destruction weapons programs. Others, however, believe that Iran is merely replacing the arms it lost in the Iran-Iraq war and that, on its own, it lacks the scientific expertise or the financial resources to develop a nuclear weapon. Iran generally lacks the capability to move significant numbers of troops across the Gulf, but its capabilities to temporarily block the Strait of Hormuz or disrupt international oil shipping are growing, according to U.S. defense officials.

Conventional Weapons

Iran's armed forces total about 600,000 personnel, including both regular military and the Revolutionary Guard, the latter a bastion of support for a radical foreign policy. (For further information on Iran's conventional weapons inventory, see CRS Report 95- 380, Persian Gulf Armed Forces.) U.S. Government military analysts believe Iran programmed $10 billion in hard currency for conventional rearmament during 1990-94 ($2 billion per year). However, many experts believe Iran's financial problems slowed the rearmament to about $400 million toward the end of the 1990-94 period, and totaled about $600 million during 1992-1995, of which Russia and China accounted for 80%. (See CRS Report 96-677 F, Conventional Arms Transfers to Developing Nations, 1988-1995, by Richard Grimmett.) In late August 1996, there were reports that China and Iran had signed a $4.5 billion arms deal for combat aircraft, missiles, and armored vehicles. On November 21, 1996, the Washington Times, quoting a CIA report, said China had recently sold Iran air defense radar equipment, components to test or upgrade missiles, and chemicals for possible use in nerve agents. On October 29, 1996, that paper reported that Indonesia and China were close to a $40 million deal to sell Iran Super Puma helicopters that could carry Chinese anti-ship missiles. House Speaker Newt Gingrich and International Relations Committee Chairman Benjamin Gilman called on the Administration to try to block that sale.

Air and Air Defense. Iran's acquisition programs are focused on aircraft and air defense, and Iran has already taken delivery of as many as 30 MiG-29s from Russia, as well as about 30 Russian-made Su-24 modern strike aircraft and has already received some less sophisticated F-7s from China. On September 27, 1994, a senior U.S. official said Russia had also given Iran sophisticated aircraft missiles. Many military analysts believe Iran is integrating these aircraft into its force structure slowly. Iran has also reportedly received SA-5 surface-to-air missiles (SAMs) and some Chinese SAMs as well. Iran is also widely reported to have ordered SA-6s, SA-11s, and SA-13 (mobile) surface-to-air missiles.

Naval Systems. On August 4, 1993, Iran took delivery of a second Russian Kilo-class diesel submarine, and the third and final Russian sub reportedly is on its way to Iran as of December 1996. Russia went ahead with the first two deliveries despite vigorous U.S. protests. Most analysts believe that the U.S. Navy could counter this threat to U.S. forces or international shipping in a crisis or conflict, but the Navy reportedly is concerned about the difficulty of detecting submarines in the shallow waters of the Gulf and the submarine's capacity to lay mines. According to the former commander of U.S. naval forces in the Gulf, Iran has received ten Chinese Houdong patrol boats. These boats, which are under the control of the Revolutionary Guard Navy, as well as ten other patrol boats controlled by the regular Navy, are being equipped with C-802 anti-ship cruise missiles (75-mile range), which have been tested (with Chinese help) and are operational, according to U.S. officials. Iran has about 40 C-802s. The Administration reportedly has determined that the C-802 transfers do not constitute "destabilizing conventional weaponry" sanctionable under the Iran-Iraq Arms Non-Proliferation Act (see below). Iran reportedly is trying to mount air-launched C-801 missiles on its 10 operational U.S.-made F-4 Phantom aircraft. The U.S. Fifth Fleet commander said July 15, 1996 that, over the past two years, Iran had tripled its anti-aircraft and anti-ship missiles on its Gulf coast and Iran-controlled islands in the Gulf. (See also, CRS Report 96-572, Iran: Military Relations With China, June 26, 1996.

Ground Forces. Iran is still relatively weak in heavy ground force equipment. However, Iran has taken delivery of about four hundred T-72 tanks from Russia since 1991 and artillery from China. Poland said on March 17, 1995 that it would honor an existing contracts with Iran for 100 T-72 tanks with Iran, although U.S. officials say they have extracted a pledge from Poland not to enter into new arms deals with Iran.

Congress has sought to sanction Iran's arms suppliers. The FY1994, 1995, 1996 and 1997 foreign aid appropriations (P.L. 103-87, P.L. 103-306, P.L. 104-107, and P.L. 104-208 respectively) contain sections that bar aid to countries that sell arms to countries on the U.S. terrorism list. The measures allow for a presidential waiver. According to the Administration, the measures apply to sales agreements concluded after the law first took effect in October 1993. During the September 27-8, 1994 and May 10-11, 1995 U.S.-Russian summits, President Yeltsin pledged that Russia would refrain from entering into any new arms agreements, although many additional deliveries could fall under the existing contracts. Following a June 26-30, 1995 meeting of the Gore-Chernomyrdin Commission, an agreement ending new Russian sales to Iran was finalized to U.S. satisfaction, which included a Russian accounting of the scope of existing arms contracts with Iran.

Weapons of Mass Destruction

In many public statements over the last few years, senior U.S. intelligence officials have asserted that Iran is aggressively pursuing weapons of mass destruction capabilities.

Chemical Weapons. High ranking U.S. intelligence officials have said publicly that Iran has a large program, intended to become self-sufficient, to manufacture and stockpile chemical weapons, and that it is trying to acquire increasingly toxic nerve agents. On August 14, 1996, Jane's Defence Weekly quoted a CIA report as saying Iran had a chemical weapons stockpile of several thousand tons of chemical weapons agents, including sulfur mustard, phosgene, and cyanide agents, and it can produce 1,000 tons of agent annually. Iran is believed to be working on an ability to deliver chemical agents with artillery, aircraft, and ballistic missiles. Iran, possibly to deflect criticism that it was developing chemical weapons, became an original signator of the new Chemical Weapons Convention on January 13, 1993, but it has not yet ratified that agreement. It also has denied producing chemical weapons. On March 8, 1996, the Washington Post quoted U.S. officials that Chinese firms were heavily involved in providing technology to Iran's chemical weapons program.

Biological Weapons. Iran is said by U.S. intelligence officials to have a biological weapons program, capable of producing biological agents, but that its program remains largely in the research and development stage. Iran is a party to the 1972 convention on biological weapons. According to an August 1996 British press report, the CIA believes Iran has biological weapons that can be wielded by terrorists.

Ballistic Missiles. Over the last few years, Iran has reportedly acquired several hundred improved Scud (Scud C) missiles and missile production facilities from North Korea, as well as missiles and production facilities from China. Chinese advisors reportedly are in Iran helping set up facilities to make and upgrade anti-ship cruise and possibly Scud-design ballistic missiles. Iran reportedly tested an indigenously upgraded Chinese Silkworm missile during late November 1996 naval exercises. Iran is expected to acquire 600 mile range Nodong 1 missiles from North Korea when the missile is ready for export and, in October 1996, Iranian experts were reportedly in North Korea for an expected test of the missile. On April 19, 1996, the United States and North Korea began talks in Berlin on limiting North Korean missile sales to Iran and other Middle Eastern countries. On April 29, 1996, an official from U.S. Central Command said Iran was constructing tunnels along its Persian Gulf coast, apparently as a storage site for ballistic missiles. On December 23, 1996, Rafsanjani admitted Iraq is developing missiles, but he said they are for defensive purposes only.

Nuclear Weapons. Concerns about an Iranian nuclear program were raised in October 1991 when Deputy President Ataollah Mohajerani said that Iran should strive with its Muslim partners to build an "Islamic bomb." International Atomic Energy Agency (IAEA) visits in February 1992, November 1993, April 1994, and October 1995 found no evidence at the sites visited, at those times, to indicate Iran was developing nuclear weapons. Although State Department arms control officials maintain Iran is not known to have violated the Nuclear Non-Proliferation Treaty (NPT) to which it is a party, Secretary of State Christopher testified before the House International Relations Committee on January 26, 1995 that Iran was engaged in a "crash effort" to acquire nuclear weapons. He has not since deviated from that characterization. There appears to be a consensus among U.S. officials that Iran is 8 to 10 years away from achieving a nuclear weapons capability, and that Iran could shorten that timetable to five years if it succeeds in what U.S. officials say is an effort to acquire critical nuclear technologies and materiel from abroad. Press reports suggest Iran is pursuing both plutonium separation and gas centrifuge enrichment in its nuclear program.

Foreign Nuclear Help. Iran is apparently receiving foreign help for its nuclear programs, primarily from Russia and China. On January 8, 1995, Russia went ahead with signing a contract with Iran to complete up to four light water nuclear reactors at the Bushehr nuclear plant, begun by German companies in 1974. (For further information on the Russian sale, see CRS Report 95-641, Russian Nuclear and Conventional Arms Transfers to Iran). Russia's Atomic Energy Ministry said September 5, 1995 that it would provide two light water reactors as well as complete the unfinished reactor at Bushehr, although it is unclear whether or not a contract for additional reactors has been signed. About 200 technicians are at the site, and the project has begun, although significant technical problems have been encountered. Russia will provide fuel for the reactor for at least ten years, and reprocess spent fuel. A Russian news agency said April 20, 1996 that Russia was discussing with Iran the training of up to 700 Iranian nuclear experts who will manage Bushehr when it is completed. On September 25, 1996, Assistant Secretary of State Thomas McNamara said Germany was helping Iran's civilian nuclear power program, thereby unwittingly helping Iran develop a nuclear weapons capability. China suggested to the Clinton Administration in October 1996 that it might cancel the planned sale to Iran of a nuclear "uranium conversion facility," that the Administration has strongly urged China not to sell to Iran, and the United States has continued to press China to end virtually all military and technology-related sales to Iran.

Some in Congress have pressed the Administration to impose sanctions on Russia for the nuclear deal with Iran. The Administration has said it believes sanctions are not mandated under the (original version of the) Iran-Iraq Arms Non-Proliferation Act (Title XVI of P.L. 102-484) or the FREEDOM Support Act (P.L. 102-511) because the nuclear technology transfer is permissible within the scope of Iran's obligations under the NPT and related safeguards. On April 10, 1995, President Clinton signed into law H.R. 889, a defense supplemental that included a provision to preclude U.S. civilian nuclear cooperation with Russia if it goes ahead with the nuclear sale to Iran. The FY1996 and FY1997 foreign aid appropriations (P.L. 104-107, and P.L. 104-208) made aid to Russia contingent on an Administration determination that Russia has ended its nuclear deal with Iran, although allowing the President broad waiver authority. For both fiscal years, the Administration has formally waived (P.D. 96-24 of May 9, 1996 and P.D. 97-01 of November 8, 1996) the provision on the grounds that it was more important to support reformers in Russia. However, the Administration has refused to renew certain nuclear cooperation agreements with Russia because of its Iran deal. On December 23, 1996, Iran and Russia signed an export controls accord billed as ensuring Iran will not use the Russian help to build nuclear weapons.

Iranian Foreign Policy and Involvement in Terrorism

Senior U.S. officials routinely label Iran "the world's leading state sponsor of terrorism," a characterization repeated in the annual State Department report on international terrorism for 1995, released April 30, 1996. Iran called the November 4, 1995 assassination of Israeli Prime Minister Yitzhak Rabin "divine revenge" for the October 26, 1995 killing of Palestinian militant Islamic leader Fathi al-Shiqaqi, which Rabin had welcomed. A trial on the possible role of Iranian intelligence in the murder in Berlin of Iranian Kurdish leaders in September 1992 is under way in Germany, and has provoked significant German-Iranian diplomatic strains. (In October 1994, German officials hosted Iran's Intelligence Minister as part of their low-level intelligence cooperation program with Iran.) On March 14, 1996, Belgian police found a mortar and shells bound for Munich Germany on an Iranian ship. Israeli and U.S. officials believe the cargo was intended for Iranian attacks on Israeli or Jewish targets in Germany.

Persian Gulf

To some extent, Rafsanjani has tried to improve relations with the six states of the Gulf Cooperation Council (GCC; Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, and the United Arab Emirates) with mixed success. In December 1991, Iran and Saudi Arabia reestablished diplomatic relations. It is discussing joint oil projects with Kuwait and Oman, and sea border demarcation with Kuwait. However, Iran frequently holds major naval exercises in the Gulf -- most recently in late November 1996 -- which many analysts believe are intended to intimidate the GCC states.

On June 4, 1996, Bahrain said it uncovered an Iranian plot to destabilize Bahrain, working through a group called Hizballah Bahrain - military wing. Over 50 Bahrainis were arrested and some confessed publicly to have received guerrilla training in Iran and Lebanon. The United States supported Bahrain's actions and said there was "credible evidence" of an Iranian role in the plot.

No firm evidence has yet come to light linking Iran to the June 25, 1996 bombing of a U.S. military housing complex in Dhahran. However, Secretary of Defense Perry said August 2, 1996 that some information led in that direction and that the United States would retaliate against Iran militarily if a link were conclusively established. Some Members of Congress publicly supported that apparent threat. In late 1996, several major U.S. papers reported that the Saudi investigation of the bombing was finding an Iranian connection, and that the U.S. military was actively planning strikes if a firm connection were demonstrated conclusively. Rafsanjani said December 23, 1996 that the Iranian government had investigated and disproved information that the bombers were linked to Iranian institutions.

Gulf Islands Dispute/Iranian Buildup. In April 1992, Iran expelled South Asian workers from the Persian Gulf island of Abu Musa, asserting full control of the island. Iran had shared control of Abu Musa with the United Arab Emirates since a 1971 agreement between Iran and the emirate of Sharjah (one of the seven emirates of the UAE). (In 1971, Iran seized two other islands, Greater and Lesser Tunb, from the emirate of Ras al-Khaymah, which later became part of the UAE). The UAE has said it wants to refer the dispute to the International Court of Justice at the Hague, but Iran is opposed to using that forum. The United States has generally supported UAE proposals for resolving the dispute, without taking a position on the sovereignty of the islands. Iran has built up the island militarily, including constructing an airport, upgrading port facilities, and placing anti-aircraft missiles and upgraded Silkworm anti-ship missiles on the island. (For further information, see CRS Report 95-572, Iran's Military Buildup: What Sort of Threat to Persian Gulf Oil Supply?)

Iraq. Deep seated mutual suspicions between Iran and Iraq will likely prevent them from forming a close relationship, but relations have improved over the past few years. The two countries have been returning each others' prisoners or missing from the 1980-88 Iran-Iraq war and the United States has accused Iran of helping Iraq export oil in contravention of U.N. Security Council resolutions banning such trade. (Approximately 700 Iranian and 12,000 Iraqi prisoners of war remain.) President Rafsanjani met with an Iraqi envoy October 16, 1996, and vice presidents from the two countries met in Italy November 16, 1996.

Some Iranian radicals have sought to take advantage of Saddam's post-war weakness by providing military and financial support to Shiite militants that led a revolt against Saddam Husayn in southern Iraq in March 1991. On July 29, 1996, Iranian forces briefly entered northern Iraq in hot pursuit of Iranian Kurdish guerrillas. Iran's Kurdish ally in northern Iraq, the Patriotic Union of Kurdistan (PUK) was defeated by the Iraq-backed Kurdish Democratic Party (KDP) in September 1996, forcing PUK leaders and guerrillas to seek refuge in Iran. The PUK recaptured much of the lost ground in October 1996 but the United States said it did not have evidence of major Iranian assistance to the PUK counterattack.

Broader Middle East

The United States believes Iran is trying to expand its influence significantly in the broader Middle East, and derail the U.S.-sponsored Middle East peace process. For further information, see CRS Report 95-872, Terrorism: Middle Eastern Groups and State Sponsors.

Peace Process. There are numerous reports that Iran is funding and training Hamas and Palestinian Islamic Jihad (PIJ), two radical Islamic fundamentalist Palestinian organizations on the West Bank and Gaza. Iranian leaders frequently meet with these organizations and express public support for their opposition to compromise with Israel. Secretary of State Christopher said May 21, 1996 that Iran provides up to $100 million per year to Hizballah and several million per year to Palestinian anti-peace process groups, including Hamas and PIJ. Iran's media praised the February and March 1996 Hamas suicide bombings in Israel.

Syria/Lebanon. Iran continues as the primary patron of the Lebanese Shiite militia, Hizballah, which operates in Lebanon with tacit Syrian approval. Iran is believed partly responsible for Hizballah's escalation in March and April 1996 against Israeli and Israeli proxy forces in an Israeli "security zone" in southern Lebanon, including rocket attacks into northern Israel. The escalation led to an Israeli counteroffensive, "Operation Grapes of Wrath" (April 11-27, 1996) In November 1996, Jane's Defence Weekly reported Iran had provided Hizbollah with Iranian-produced long-range rocket artillery, and the Los Angeles Times reported December 13, 1996 that Iran has stepped up arms shipments to Hizballah. In June 1996, Iran reportedly offered Syria a formal military pact to counter a February 1996 strategic cooperation agreement between Israel and Turkey, and there are reports Iran is helping Syria upgrade its ballistic missiles.

U.S. officials also have linked Iran to Hizballah's March 17, 1992 bombing of the Israeli Embassy in Buenos Aires in retaliation for Israel's killing of Hizballah leader Abbas Musawi. A bombing in Buenos Aires of the Argentine-Jewish Mutual Association building July 18, 1994 appeared to be the work of Hizballah, according to the State Department's report on terrorism for 1994.

On the other hand, Israel thanked Iran for its cooperation in a German-brokered July 21, 1996 return of the bodies of two Israeli soldiers (Rahamim Sheikh and Yossi Fink, missing since 1986) to Israel in exchange for the return of the bodies of 123 Hizballah guerrillas. Talks between Germany and Hizballah have continued and Hizballah has said it would look for Israeli pilot Ron Arad, the only one of six Israelis captured by Hizballah that is believed still alive. As recently as November 12, 1996, Iran said it did not know Arad's fate.

Turkey/Gas Pipeline. Iran and Turkey reportedly provide safehaven to each others' opposition forces. However, the two countries signed a border agreement in September 1992 in which they agreed to curb that support. On several occasions since then the two nations have strengthened that agreement. On August 12, 1996, over U.S. opposition, the new Islamist government in Turkey signed a previously negotiated agreement to import from Iran $23 billion in natural gas over 23 years. The United States is attempting to dissuade Turkey from implementing the deal, but Turkey has gone out for bids and pipeline construction reportedly is to begin in March 1997. On December 21, 1996, Iran and Turkey signed several trade accords during a Rafsanjani visit to Ankara. The United States then criticized Turkey for drawing closer to Iran. (For further information, see CRS Report 96-858, The Iran-Turkey Pipeline Deal: The Geopolitics of Natural Gas.)

Sudan/Egypt/Algeria/Africa. Reports persist that a small contingent of Iran's Revolutionary Guards are in Sudan training Islamic guerrillas to promote Islamic revolution primarily in Algeria, Tunisia, Egypt, and possibly Saudi Arabia. In September 1996, Egypt blamed Iran and Sudan for helping the gunmen who tried to assassinate President Mubarak in Ethiopia in June 1995. In late October 1996, Egypt arrested 56 Egyptian Shiites for promoting Iran's revolution in Egypt. Sudan's relations with Iran -- as well as its hosting of Hizballah and militant Palestinian organizations, -- led to Sudan's placement on the U.S. "terrorism list" on August 18, 1993. In Algeria, the military-dominated regime accuses Iran of helping radical Islamic groups in their efforts to wrest power from the regime, but most observers believe the Islamic movement's strength there has indigenous roots.

In the wake of the May 1995 imposition of the U.S. trade embargo on Iran, Iranian diplomats have sought new allies in southern Africa. In August 1995, Iran reached tentative agreement with South Africa for that country to store and market 15 - 22 million barrels of Iranian oil and to cooperate in peaceful nuclear technology, although the United States is pressing South Africa not to go through with the agreement. Rafsanjani visited six African nations in September 1996, including South Africa, in an attempt to push the South Africa deal through. (South Africa imports 65% of its oil from Iran.) Iran also is mediating an agreement between Sudan and Uganda to mutually end support for each other's rebels; talks are to resume in January 1997.

Central Asia/Azerbaijan

Iran's policy in Central Asia has thus far emphasized economic cooperation over Islamic ideology. The centerpiece of that strategy, an Iran-Central Asia railway, was inaugurated May 13, 1996. In February 1992 Iran initiated the drive to bring the Central Asian states and Azerbaijan into the Economic Cooperation Organization (founded in 1985 by Iran, Pakistan, and Turkey, as a successor to an organization founded by those states in 1964). Iran has tried to mediate disputes between the Tajik government and Islamic rebels and between Armenia and Azerbaijan over the Nagorno-Karabakh territory. Iran sought a 5% stake in a deal between Azerbaijan and Western oil companies, including Amoco, McDermott International, Pennzoil, and Unocal, to develop three Caspian sea oilfields, but U.S. pressure apparently contributed to Azerbaijan's April 1995 decision to deny Iranian participation in the project. However, in early June 1996, Iran received a 10% stake in a multilateral project, which has no U.S. partners, to develop Azerbaijan's Shakh Deniz oil and gas field. The United States indicated it was displeased at Iran's inclusion in the project. In December 1996, Iran and Russia agreed to establish a company to explore for Caspian Sea oil. In early 1997, Kazakhstan is expected to begin 40,000 barrels per day of oil swaps with Iran.

Afghanistan. In response to the Taliban takeover in Kabul, which Iran opposed, fears, and refuses to officially recognize, Iran hosted a regional conference on Afghanistan October 29-30, 1996. Iran's Ambassador to the United Nations wrote a November 4, 1996 editorial in the Washington Post indicating that Iran and the United States had common interests in resolving the Afghan conflict. For further information on Iran's policy in Afghanistan, see CRS Report 95-533, Afghanistan: Current Issues and U.S. Policy Concerns, by Kenneth Katzman.

Bosnia/Europe/Other Areas

Iran, which often sees itself as the protector of Muslims worldwide, reportedly maintains a small residual presence in Bosnia, even though the Dayton accords require all foreign forces to leave. The United States held up a major shipment of military equipment to Bosnia under a $400 million "equip and train" program until Bosnia dismisses its Deputy Defense Minister Hasan Cengic, who has close ties to Iran. The shipment went forward November 21, 1996 when Cengic's dismissal was confirmed. A Senate Intelligence Committee report on U.S. tacit approval of Iranian arms shipments to Bosnia, made public November 8, 1996, said the policy helped keep Bosnia's army viable but it criticized the Administration's secret conduct of the policy. (See CRS Report 96-360, Bosnia and Iranian Arms Shipments: Issues of U.S. Policy and Involvement.)

Human Rights Concerns

The U.S. Government human rights report for 1995, as it has for many years, criticized Iran for widespread human rights abuses, (especially of the Baha'i faith), including assassinations and executions of regime opponents abroad (Kurds, People's Mojahedin, and other opponents) in Iran and abroad. Iran has dropped its previous opposition to U.N. human rights visits and permitted two U.N. human rights envoys to visit Iran in December 1995 and January 1996. The new U.N. Human Rights Commission rapporteur for Iran, Maurice Copithorne, visited Iran in February 1996 to gather information on Iran's human rights practices, and said in his March 21, 1996 report that new social diversity in Iran could be setting the stage for human rights improvements. However, his later report (October 11, 1996) said there were indications the social climate was becoming less tolerant.

Religious Persecution. The regime is widely suspected of killings, in 1994, of several Iranian Christian leaders, including Mehdi Dibaj, Bishop Haik Hovsepian Mehr, and Tateos Michaelean. The United States called on Iran to investigate, and it did so in some cases. A court has convicted three women, alleged by the regime to be members of the People's Mojahedin, of the killings. Iran reportedly has also shut down some churches and placed surveillance on some pastors. Another Christian priest (Mohammad Ravanbaksh) was found dead in early October 1996.

The Bahai sect has traditionally been oppressed because it is considered heretical to Islam. A Bahai (Dhabihullah Mahrami) was reportedly sentenced to death in February 1996 for apostasy; the United States condemned the death sentence. On October 1, 1996, the United States urged Iran to annul a death sentence on another Bahai, Musa Talibi. Copithorne's October 11 report said nine Bahais continue to be detained in Iran because of their beliefs. In letters, statements, and resolutions, such as H.Con.Res. 102 passed by the House March 27, 1996 and by the Senate June 26, 1996, Congress has repeatedly condemned Iran's treatment of the Bahais.

Rushdie Affair. Iran continues to maintain that Ayatollah Khomeini's 1989 death sentence against author Salman Rushdie cannot be revoked (his "Satanic Verses" novel was labeled blasphemous) and the Iranian foundation that offers the $2 million bounty for Rushdie's death says the offer is still valid. Although they have been meeting since early 1995, Iran and the European Union (EU) have not yet reached an agreement under which Iran would pledge, in writing, not to pursue the Rushdie death sentence. Some Iranian officials have pledged not to try to implement the death sentence but others insist it should be carried out. The June 29, 1996 communique of the G-7 summit in Lyon called on Iran to reject terrorism and "desist from endorsing" threats against Rushdie's life.

U.S. Policy and Legislation

The fall of the United States' key ally in the Persian Gulf, the former Shah of Iran, in February 1979, began a large rift in U.S.-Iranian relations. On November 4, 1979, radical "students," loyal to the late Iranian revolutionary leader Ayatollah Ruhollah Khomeini seized the U.S. Embassy in Tehran and held the staff hostage until minutes after Ronald Reagan's inauguration in January 1981.

The United States and Iran have not had diplomatic relations since the United States, in response to the holding of the American hostages, broke relations on April 7, 1980. However, the two countries have had limited direct contact since 1981 through the U.S.-Iran Claims Tribunal at the Hague, which was established, pursuant to the Algiers Accords, to arbitrate claims from both sides. On May 16, 1996, the President reported to Congress that the tribunal had decided 567 cases thus far. Iran has allowed the balance of the "Security Account," which Iran is required to maintain as collateral, to remain below the required $500 million, and the balance is currently less than half what is required. The largest case yet to be decided is an Iranian claim for U.S. military equipment and services the Shah's government had paid for but the United States, because of the hostage crisis, did not ship (Case B/61). Iran asserts that it is owed several billion dollars from the case and U.S. officials say it is likely the United States will have to reimburse Iran to some degree. To facilitate the tribunal process at the Hague, the United States retains some control over Iranian assets in the United States, including $22.4 million in blocked diplomatic property. About 3,000 U.S. "small claims" (under $250,000) against Iran have been adjudicated by the Foreign Claims Settlement Commission, pursuant to a May 13, 1990 Settlement Agreement between Iran and the United States. Effective March 1, 1996, disputed assets in the United States, belonging to the surviving family of the former Shah, were unblocked.

During 1985-86, the United States entered into a small, clandestine arms supply relationship with Iran, partly in exchange for some American hostages held by pro-Iranian forces in Lebanon (part of the so-called "Iran-Contra Affair"). However, U.S. forces in the Gulf skirmished with Iran during 1987-88 and, on July 3, 1988, mistakenly shot down an Iranian passenger Airbus. The skirmishes form the basis of a case about to come before the International Court of Justice. Regarding the Airbus incident, on February 22, 1996, the United States agreed to pay Iran $61.8 million in compensation ($300,000 per wage earning victim, $150,000 per non wage earner) for the 248 Iranians killed in the shootdown. Another $15 million from the settlement package will go to replenish the Security Account, and $55 million will be held in the Federal Reserve Bank in New York to pay awards to U.S. claimants or creditors of Iran. The funds for this settlement come from a general appropriation for judgments against the United States.

Iran remained relatively neutral in the 1991 Persian Gulf war and all remaining American hostages in Lebanon were released by the end of December 1991. Upon taking office in 1993, the Clinton Administration moved to further isolate Iran as part of a strategy of "dual containment" of Iran and Iraq. In 1995, the Clinton Administration imposed major new sanctions on Iran in response to reports of Iranian nuclear procurement activity and involvement in efforts to subvert the Arab-Israeli peace process, and additional sanctions became law in 1996.

On October 24, 1996, Assistant Secretary of State for the Near East Robert Pelletreau said he was hopeful a U.S.-Iran dialogue could begin in a second Clinton Administration. The statement, issued in Dubai, came amid increasing calls by academics and policy analysts to rethink the strategy of isolating Iran. Some Iranian leaders reacted somewhat positively, but others, including Supreme Leader Ali Khamene'i, rejected the idea of talks with Washington. Senator D'Amato subsequently wrote to Secretary of State Christopher asking for an explanation of the Pelletreau remarks. U.S. officials note that the United States welcomes a dialogue with Iran, as long as it is conducted openly, with an "authoritative" Iranian official, and involves no preconditions, but deny that the Pelletreau statement reflected a change in U.S. policy. On December 7, 1996, Iran criticized Madeleine Albright as Secretary of State designee by calling her "hostile to Islam and Iran."

Economic Sanctions

Since the November 4, 1979 seizure of the U.S. hostages in Tehran, economic sanctions have formed a major part of U.S. policy toward Iran. (For further information on U.S. sanctions imposed prior to the Clinton Administration, see CRS Report 94-652, Iran: U.S. Containment Policy). On November 14. 1979, President Carter declared a national emergency with respect to Iran, which the President has renewed every year since 1979. (Every six months, the President must also report to Congress on developments concerning the emergency, including the U.S.-Iran Claims Tribunal and amendments to U.S. regulations regarding trade with Iran.) In connection with the hostage crisis, a wide array of sanctions were imposed, including the halting of all shipments of military spare parts to Iran; travel to Iran; U.S.-Iran trade and financial transactions; military and economic aid; and the movement of Iranian assets in the United States. Many of these sanctions were formally lifted on January 19, 1981 as part of the settlement to the hostage crisis (Algiers Accords). However, most of the above sanctions were subsequently reimposed or modified in response to unacceptable Iranian actions or behavior. Travel to Iran is permitted but State Department warnings are in effect. Informational materials may be exported to Iran, and some goods related to the safe operation of civilian aircraft have been granted licenses for export to Iran. During September 17-27, 1996, the Federal Aviation Administration barred overflights of Iran by U.S. airliners because of concerns about a newly established air defense battery. In late October 1996, the State Department issued new regulations establishing a 14-day waiting period for Iranians applying for U.S. visas.

Terrorism and Drug List Sanctions. Iran was added to the "terrorism list" in January 1984, disqualifying Iran from foreign aid, sales of U.S. munitions list items, Export-Import Bank credits, and U.S. support for foreign loans, and requiring strict export licensing requirements for any controlled goods or technology under Section 6(j) of the Export Administration Act [P.L. 96-72; 50 U.S.C. app. 2405(j)]. The terrorism list sanctions were reinforced by Iran's designation in February 1987, as a state that failed to cooperate with U.S. anti-drug efforts or take adequate steps to control narcotics production or trafficking. Iran has been redesignated as non-cooperative on drug issues every year since, most recently March 1, 1996. In addition, successive foreign aid appropriations have barred Iran from benefitting from U.S. contributions to international aid programs, although some restrictions have received administration waivers so that U.S. aid would still flow to international assistance programs.

Additional U.S. Export Controls. U.S. policy has focused heavily on trade controls to prevent Iran from acquiring weapons of mass destruction and to prevent U.S. contributions to Iran's economy. On October 29, 1987, following Iranian attacks on shipping in the Persian Gulf, President Reagan, by executive order, embargoed imports from Iran and banned exports of 14 types of militarily useful goods. Exports of certain dual use chemicals were banned by executive orders of March 1984 and July 1987. In October 1992, fearful that advanced U.S. technology was reaching Iran, the Iran-Iraq Arms Non-Proliferation Act, introduced by Senators McCain and Gore, was passed as an amendment to the FY1993 Defense Authorization Act, signed October 23, 1992 (P.L. 102-484). It provides for sanctions against persons or countries that supply Iran or Iraq any goods or technology that could contribute to destabilizing conventional weapons programs and requires that license applications to export militarily useful equipment be denied. A provision, based on a bill introduced by Senators McCain and Lieberman, to sanction countries and foreign persons that provide any weapons of mass destruction technology to Iran or Iraq, was adopted in the FY1996 DoD authorization bill (P.L. 104-106).

May 1995 Trade Ban and Congressional Response. As a result of loopholes in U.S. sanctions, the United States became a major trading partner with Iran, with exports to Iran rising to a peak of $748 million for 1992. U.S. exports to Iran were about $328 million for 1994, the last full year of U.S.-Iran trade. Major U.S. exports to Iran included oil drilling and engineering equipment, chemicals, gas turbines, medical equipment, spare parts for machinery, and foodstuffs. In 1994, U.S. oil companies bought about 700,000 barrels per day of Iranian oil (about 25% of Iran's oil exports) for sale overseas, making U.S. companies the largest buyers of Iranian oil.

In the 104th Congress, amid reports of Iranian support for groups opposed to the Arab-Israeli peace process and a burgeoning nuclear program, Senator D'Amato introduced legislation imposing a total embargo on trade with Iran (S. 277, introduced January 25, 1995). A companion measure was introduced in the House (H.R. 1033) by Representative Peter King. (For more information on that legislation, see CRS Report 95-419, Iran: U.S. Trade Regulation and Legislation.) On March 27, 1995, Senator D'Amato introduced S. 630, which would penalize foreign companies that do business with Iran. A companion House measure, H.R. 1541, was introduced on May 2, 1995.

In advance of Senate Banking Committee hearings on S.277 on March 16, 1995, President Clinton issued an executive order (EO 12957, of March 15, 1995) barring U.S. persons or companies, and their subsidiaries, from financing or managing the development of Iran's petroleum resources. The Executive order prompted Conoco Inc., a U.S. oil company, to withdraw from an agreement to develop Iranian oilfields off Sirri Island. On July 13, 1995, the French firm Total SA signed a contract with Iran to develop the Sirri fields. The United States criticized France for allowing the agreement, even though France is not providing official credits for it.

On May 6, 1995, following a review of U.S. policy toward Iran, President Clinton issued an Executive order (EO 12959) banning U.S. trade and investment in Iran, including the trading of Iranian oil overseas by U.S. companies and their foreign affiliates. (For provisions of the ban and its effects, see CRS Report 95-909, Iran: U.S. Trade Ban and Legislation.) The trade ban appeared intended to blunt criticism -- in Congress and among U.S. allies -- that U.S. trade with Iran made U.S. appeals for multilateral containment of Iran less credible. However, on September 8, 1995, Senator D'Amato introduced S. 1228, targeted at foreign companies, such as Total SA, that want to help Iran develop its energy resources. The introduction of the bill was at least partly intended to reduce the participation of foreign companies at a November 11-14, 1995 bidders meeting in Tehran on ten Iranian oil development projects. Negotiations between the Administration and Senator D'Amato led to the December 20, 1995 Senate passage of a scaled-back version of S. 1228, a bill to sanction foreign investment in Iran's oil industry, with an amendment applying the same sanctions to Libya. A tougher version, H.R. 3107, passed the House June 19, 1996 by a vote of 415-0. President Clinton signed H.R. 3107 on August 5, 1996 (P.L. 104-172).

The new law mandates that the President impose at least two of the following sanctions on foreign firms or persons that invest over $40 million in one year to develop Iran or Libya's petroleum resources: (1) denial of Export-Import Bank loans; (2) denial of specific U.S. licenses for exports to the sanctioned firm; (3) denial of U.S. bank loans of over $10 million in one year; (4) denial of (sanctioned bank) status as a primary dealer in U.S. Government bonds and as a repository of U.S. Government funds; (5) a prohibition on imports from the sanctioned firm; and (6) a prohibition on U.S. Government procurement from the sanctioned firm. In addition to investment, the export to Libya of certain oil equipment, specified in U.N. Resolutions 748 and 833, is a sanctionable offense. However, financing of energy projects in Iran or Libya is not specifically listed as a sanctionable offense. The law also provides for reduced sanctions for firms of countries that join a multilateral sanctions regime, and lowers the criteria for sanctions for firms of countries that do not join such a regime. The State Department guidelines for implementing the new law were published in the Federal Register on December 16, 1996.

Supporters of the secondary sanctions law note that none of the projects Iran put up for bid in November 1995 have been contracted, and that Iran's long term energy outlook was being hurt by the new law. However, Iran said in early December 1996 that six of the oil projects would be awarded by June 1997. Some in Congress are pressing for sanctions under the new law against Malaysia's state-owned Petronas company, which took a 30% stake in the Total SA Sirri Island project in August 1996, as well as against Turkey for its gas pipeline deal with Iran. Several Members believe France's Elf Aquitaine should be sanctioned if proceeds to develop Iran's Doroud gas field. Other firms, such as Australia's Broken Hill Proprietary, and Japan's JGC, have backed away from deals with Iran because of U.S. sanctions or pressure from the Administration and Senator D'Amato.

Differences With U.S. Allies. Before and since imposing the trade ban, the Clinton Administration has been pursuing diplomatic initiatives to persuade allied countries to help contain Iran. At the July 1993 Tokyo summit of industrialized countries and follow-up meetings, the United States asked for and largely received European and Japanese cooperation in halting sales of military useful technology to military end-users in Iran.

However, the European Union countries have maintained their policy of "critical dialogue" with Iran, asserting that trade and contacts with Iran will moderate Iranian behavior. The EU countries oppose the new secondary sanctions law as extraterritorial application of U.S. law, but, as of November 1996, the EU had no plans to take action against the new law in the World Trade Organization (WTO). (The United States and its allies have been stalling Iran's bid to join the WTO.)

Since February 1994 Iran has rescheduled about $14 billion in debts held by Germany (the first and biggest rescheduler, with about $2.7 billion in official credits and $600 million in private debts rescheduled), Japanese trading companies, Italy, Switzerland, Denmark, Austria, France, the Netherlands, Belgium, Sweden, Spain, Finland, and Turkey. These countries (governments and private creditors) rescheduled Iran's debt bilaterally in spite of Paris Club rules that call for multilateral rescheduling and International Monetary Fund (IMF) involvement. (Iran's total debt, including medium and short term, is believed by the IMF to be about $23 billion.) During December 1995 - April 1996, Iran began repaying principal and some assessments indicate Iran will be able to repay about $5 billion due each year through the year 2000 (about one quarter of Iran's oil earnings), without falling further into arrears (currently about $200 million). Iran's economy is projected to grow 3-4% in each of 1996 and 1997. The improved picture has caused some official export credit agencies (Germany's Hermes, France's COFACE, and Britain's ECGD, for example) to restore, or consider restoring, insurance cover for exports to Iran. In February 1996, a German bank extended Iran $695 million in credit for imports of capital goods; the loan will be covered by Hermes. Iran said in mid May 1996 that 42 German banks had joined together to offer Iran virtually unlimited lines of credit. Iran owes German creditors about $8.7 billion.

Secretary of State Christopher said March 30, 1995 that Japan had agreed to hold up the second increment (about $500 million) of a $1.4 billion development loan, (about $350 million has already been disbursed) but Japan said May 10, 1995 it was still considering the loan program. The loans are being used for the construction of a hydroelectric dam.

International Lending. To signal opposition to international lending to Iran, the FY1994 foreign aid appropriations act (P.L. 103-87) cut the Administration's request for the U.S. contribution to the World Bank by the amount the Bank loaned Iran in 1993. Despite U.S. opposing votes, the Bank loaned Iran $460 million in 1993 for electricity, health, and irrigation projects). That law, the FY1995 foreign aid appropriation (P.L. 103-326), and the FY1996 foreign aid appropriations (P.L. 104-107), significantly reduced U.S. payments to the Bank if the Bank provided new loans to Iran. The legislation reportedly contributed to the Bank's refusal to approve any new lending to Iran since 1994. However, the Bank reportedly might take up an Iranian request for $600 million in new loans in early 1997.

Military Containment

U.S. policy has focused on containing the military threat posed by Iran to the United States, U.S. allies in the Persian Gulf, and international shipping. The United States tilted toward Iraq in the Iran-Iraq war (1980-88) and became directly involved during the later stages of that war (the 1987-88 U.S. naval escort operation for U.S.-flagged Kuwaiti tankers -- Operation Earnest Will). Although containing Iraq has been the primary goal of U.S. forces in the Persian Gulf region since the Iraqi invasion of Kuwait, U.S. military officials note that U.S. forces can also be used to monitor and deter an increasingly aggressive Iran, if necessary. The United States also continues to work closely with regional states to monitor Iranian military activity. In mid-February 1996, the United States sent two minesweepers to the Gulf. Aboard the USS Kitty Hawk aircraft carrier in the Gulf in early December 1996, Secretary of Defense Perry threatened to sink Iran's navy if it attacked a U.S. ship.

Supporting the Opposition

The State Department has refrained from establishing contacts with the People's Mojahedin Organization of Iran (PMOI) and its umbrella organization, the National Council of Resistance (NCR), which most analysts say are the most active and effective exile opposition groups. In a congressionally mandated report released October 31, 1994, the State Department said the group retains ties to Iraq, that it killed several Americans before the Shah fell and supported the 1979 takeover of the U.S. Embassy in Iran, and that it lacks support inside Iran. Because the State Department did not talk to PMOI representatives in preparing the report, several Members denounced the report as a violation of the spirit of the conference report on H.R. 2333 (H.Rept. 103- 482), the FY1994 State Department authorization (P.L. 103-236), which called on the State Department to talk with "the widest range of people possible" in preparing the report. (For a further discussion of the PMOI, see CRS Report 94-683, The People's Mojahedin Organization of Iran.) In December 1996, PMOI leader Maryam Rajavi, who is based in France, visited PMOI military forces based in Iraq.

On February 8, 1995, House Speaker Newt Gingrich said that a U.S. policy supporting the overthrow of Iran's regime was the only policy that made sense. The Administration accepted a House-Senate conference agreement to include $18-$20 million in funding authority for covert operations against Iran in the FY1996 intelligence authorization act (H.R. 1655, P.L. 104-93) -- about $14 million more than requested -- according to a Washington Post report of December 22, 1995. The Administration reportedly succeeded in focusing the covert aid on changing the regime's behavior, rather than its overthrow. Iran says the new funds violate the U.N. Charter and the 1981 Algiers Accords ending the hostage crisis, which calls for mutual Iranian-U.S. non-interference. As retaliation, Iran's Majlis approved $20 million for an information campaign against the United States. A Senate amendment to the FY1997 foreign aid appropriations (H.R. 3610, P.L. 104-208) earmarking $3 million to establish an independent radio broadcasting service to Iran was removed in conference action.

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