Iran's Economic Conditions: U.S. Policy Issues: RL34525.

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 Irans 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 Irans economy as a means of influence, it is important to evaluate Irans 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 Ahmadinejads expansionary monetary and fiscal policies have worsened unemployment, inflation, and poverty in Iran. Irans economic growth is expected to slow in 2009. 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 Irans growing international trade and financial isolation. Irans 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 Irans 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 Irans leverage in dealing with international issues, but the countrys 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 Irans 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. This report will be updated periodically. [ABSTRACT FROM AUTHOR]