### Iran-Libya Sanctions Act

The United States has enacted two pieces of legislation to prevent investment in Iran, as a result of Iran’s use of international terrorism, its violent opposition to the Middle East peace process, and its pursuit of weapons of mass destruction. In 1995, President Clinton issued two Executive Orders that prohibited any investment in Iran by American companies. On July 23, 1996, the United States Congress unanimously passed the Iran-Libya Sanctions Act of 1996 (ILSA), which extended sanctions to cover foreign companies that made investments in Iran in excess of $20 million.

The efficacy of ILSA and the Executive Orders has been mixed. ILSA has discouraged investment in Iran and made it more difficult for the country to develop its energy sector, its main source of revenue. Likewise, funding for some of Iran’s weapons programs and support for terrorist groups has been delayed. However, unilateral sanctions in and of themselves will never be able to curb these activities all together. Sanctions have not been able to bring about a wide-ranging change in Iranian policy, as hoped.

ILSA and the Executive Orders have also damaged U.S. interests in certain areas. American businesses are hurt by their inability to conduct any business in Iran. More critically, ILSA has greatly angered America’s closest allies, the European Union and Canada. These nations view America’s use of “extra-territorial sanctions” as a great affront to their sovereignty and their ability to conduct independent trade policies. To assuage EU and Canadian threats to retaliate, the U.S. waived sanctions when a French, Russian, and Malaysian consortium made an investment to develop the South Pars oil field, rather than risk retaliatory measures being taken against them. Due to these waivers, it is very unlikely that sanctions will be implemented against foreign companies in the future. To do so would cause more harm than it would do good.

1997, Iran rejected a hard-line candidate in favor of Mohammed Khatami, a moderate who advocates social reforms and a rapprochement with the West. While Khatami has made limited overtures to the West, the structure of the Iranian government, which still provides the conservatives with the greater deal of control over the government despite the election defeat, has prevented Khatami from significantly altering Iranian policy. The final resolution of this power struggle is far from certain.

The U.S. has three main policy options at this point. First, it could maintain sanctions and strictly enforce them. Second, it could end sanctions against Iran by repealing ILSA and abrogating the Executive Orders. Third, it could keep the sanctions on the book, but make liberal use of waivers while looking for other ways to reach out to Iran to improve relations and aid Khatami in the struggle against conservatives..
Partially amending the Executive Orders to allow limited trade between Iran and the U.S. would be a good first step that would also minimize the damage done to U.S. companies by sanctions. The U.S. is in the process of a gradual and uncertain rapprochement with Iran. Only over time, as each side gains trust and makes reciprocal concessions can the two nations resume normal relations.

ILSA Links