Introduction

The Islamic Republic of Iran is a central focus of U.S. national security policy. The United States has designated the Iranian government as a state sponsor of terrorism. The United States contends that Iran is a destabilizing force in the Middle East and expresses concern about its growing influence in the region and internationally. The United States has decried Iran's uranium enrichment activities, which allegedly are being used to develop nuclear weapons. Second, in the context of U.S. economic sanctions imposed for national security and foreign policy reasons, the report evaluates Iran's economic structure, strengths, and vulnerabilities and discusses issues and options for Congress. Internal challenges include the large role of oil export revenues in financing government spending and vulnerability to oil price fluctuations; dependence on gasoline imports to meet domestic energy needs; high inflation, unemployment levels, and poverty levels; reported domestic economic mismanagement; and widespread economic inefficiency. To that end, the United States has imposed sanctions to curtail the development of Iran's petroleum sector and constrain Iran's financial resources in a way that motivates policy change in Iran. Some European Union states and other countries also have imposed sanctions on Iran in line with moves by the United Nations (U.N.). Overview of Iran's Economy

Iran's economic growth was expected to slow in 2009, owing to the decline in international oil prices in late 2008, domestic economic mismanagement, and limited oil revenue savings to weather the recent global economic turndown. In line with Ahmadinejad's populist agenda, fiscal policy has been expansionary. Many believe that bonyads enjoy a significant advantage over private companies. Economic Sectors

Iran's economy has a number of key sectors. The United States is attempting to isolate Iran from the international financial and commercial system in an effort to promote policy change in Iran regarding its nuclear program and purported terror financing. UAE-based banks may be wary of reputational and financial risks associated with such transactions. United States

U.S. trade with Iran is limited, receding drastically with the 1987 U.S. ban on imports from Iran and the 1995 ban on U.S. exports to and investments in Iran. With Western involvement in Iran's energy sector tenuous, Iran has been turning toward Asian countries, such as China and Pakistan; Russia and Central Asian countries; and regional partners, such as Bahrain and Turkey. The Iranian government contends that sanctions and international pressure have not slowed down foreign investment in Iran's gas sector. Congressional Issues and Options

Members of Congress appear to be divided about the United States' course of action with respect to Iran. Both countries also have growing trade relations with Iran. Some analysts point to Iran's low levels of foreign investment, difficulties obtaining trade finance, and challenges in developing its oil and gas sectors as evidence of the impact of sanctions. Action in the 111th Congress

In the 111 th Congress, several bills have been introduced to expand economic and diplomatic pressure on Iran. Some lawmakers have advocated targeting Iran's dependency on imports of refined petroleum products.
The Islamic Republic of Iran, a resource-rich and labor-rich country in the Middle East, is a central focus of U.S. national security policy. The United States asserts that Iran is a state sponsor of terrorism and that Iran's uranium enrichment activities are for the development of nuclear weapons. To the extent that U.S. sanctions and other efforts to change Iranian state policy target aspects of Iran's economy as a means of influence, it is important to evaluate Iran's economic structure, strengths, and vulnerabilities.
Since 2000, Iran has enjoyed broad-based economic growth. However, strong economic performance has been hindered by high levels of inflation and unemployment and low levels of foreign investment. Some contend that President Mahmoud Ahmadinejad's expansionary monetary and fiscal policies have worsened unemployment, inflation, and poverty in Iran. With the onset of the global economic downturn, Iran's economic growth was expected to slow in 2009 and through 2010.
Iran has long been subject to U.S. economic sanctions, and more recently, to United Nations sanctions, over its uranium enrichment program and purported support for terror activities. Such sanctions are believed by some analysts to contribute to Iran's growing international trade and financial isolation.
Iran's economy is highly dependent on the production and export of crude oil to finance government spending, and consequently is vulnerable to fluctuations in international oil prices. Although Iran has vast petroleum reserves, the country lacks adequate refining capacity and imports gasoline to meet domestic energy needs. Iran is seeking foreign investment to develop its petroleum sector. While some deals have been finalized, reputational and financial risks may have limited other foreign companies' willingness to finalize deals.
While Iran-U.S. economic relations are limited, the United States has a key interest in Iran's relations with other countries. As some European countries have curbed trade and investment dealings with Iran, other countries, such as China and Russia, have emerged as increasingly important economic partners. Iran also has focused more heavily on regional trade opportunities, such as with the United Arab Emirates.
High oil prices have increased Iran's leverage in dealing with international issues, but the country's dependence on oil and other weak spots in the economy have to come to light by the 2008 international financial crisis, which may portend a slowing down of Iran's economy.
Members of Congress are divided about the proper course of action in respect to Iran. Some advocate a hard line, while others contend that sanctions are ineffective at promoting policy change in Iran and hurt the U.S. economy. In the 110th Congress, several bills were introduced that reflect both perspectives. Policies toward Iran remain a key issue for the 111th Congress.