Report: Impact of Sanctions on Iran

May 5, 2015

Sanctions have constricted Iran’s economy and played a role in bringing Iran to the negotiating table over its nuclear program, according to Kenneth Katzman in an updated Congressional Research Service report. International sanctions have caused a decline in Iran’s GDP, oil production and exports, currency value, and industrial production. But sanctions have not caused Iran to improve its human rights record or reduce its support for armed groups in Syria, Iraq, or Yemen. The following is an excerpt from the report.

International sanctions on Iran’s key energy and financial sectors harmed Iran’s economy and arguably contributed to Iran’s acceptance of restrictions on expanding its nuclear program in exchange for modest sanctions relief. The interim nuclear agreement (Joint Plan of Action, JPA) has been in effect since January 20, 2014, and extended twice (until June 30, 2015) to allow time to translate it into a comprehensive nuclear agreement. The economic pressure caused:
 
  • Iran’s crude oil exports to fall to about 1.1 million barrels per day (mbd) at the end of 2013, from about 2.5 million barrels per day Iran in 2011. The crude oil exports are capped at the 1.1 mbd level by the JPA.
  • Iran’s economy to shrink by about 5% in 2013 as Iran’s private sector reduced operations. The economy has rebounded only modestly since the JPA sanctions relief went into effect.
Sanctions have constricted Iran’s ability to procure equipment for its nuclear and missile programs and to import advanced conventional weaponry, but have not halted Iran’s provision of arms to the Assad government in Syria, the Iraqi government, and to pro-Iranian factions such as Lebanese Hezbollah or Houthi rebels in Yemen. Sanctions have not altered Iran’s repression of domestic dissent.
 
Under the JPA, Iran has obtained sanctions relief through presidential waivers of several U.S. sanctions laws and authority under several executive orders. The core of the sanctions relief is $700 million per month in access to hard currency from oil sales, plus about $65 million per month in additional hard currency provided to educational institutions for Iranians studying abroad. The JPA caps Iran’s crude oil exports at the pre-JPA level of about 1.1 mbd. The JPA also suspends sanctions on Iran’s auto manufacturing sector and on its sales of petrochemicals. The fall in oil prices since June 2014 has additionally harmed Iran’s economy, perhaps introducing an additional incentive for Iranian leaders to negotiate a comprehensive nuclear deal.
 
According to an April 2, 2015, framework for a comprehensive nuclear accord, a finalized nuclear deal will entail—upon certification that Iran has implemented its nuclear program commitments— easing of U.S., U.N., and multilateral sanctions on Iran’s energy exports and foreign investment in Iran’s energy sector. Sanctions will also be eased on Iran’s financial, shipping, automotive, and other industrial sectors. U.S. sanctions that apply only to U.S. companies and those imposed because of Iran’s support for terrorism or for human rights abuses will not be altered as a consequence of a finalized deal. The Administration has asserted that, in the event of an agreement, it will act on its own authority to suspend most sanctions on Iran and, after testing Iran’s compliance over an unspecified period of time, would request that Congress provide long-term sanctions relief. Legislation in the 114th Congress would impose additional sanctions that would go into effect immediately if diplomacy fails. One bill, S. 615, would prevent the President from suspending U.S. sanctions on Iran pending congressional review of a finalized nuclear deal.
 
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