January 16, 2016 marked the relaxation of certain sanctions against Iran, following the implementation of the Joint Comprehensive Plan of Action (JCPOA). Six months on, we assess the economic impact.
The UN, EU, and the U.S. agreed to lift certain nuclear-related economic and financial sanctions after Iran had implemented its nuclear-related commitments, as verified by the International Atomic Energy Agency (IAEA). However, specific sanctions do remain in force and others were imposed. It is still not always clear who may or may not conduct business with Iran, particularly for U.S. companies, or foreign subsidiaries of U.S. companies.
Trade deals amounting to tens of billions of dollars with China, Italy and France were announced shortly after implementation of the JCPOA. According to a recent Reuters exclusive report, oil exports are currently close to pre-sanctions-era levels. Asia retains its position as the number one destination for crude oil carriers but, according to the report, tankers are now heading to Europe.
Trade with Iran for Europe and the rest of the world has started to gain momentum. However, the door remains closed to transactions in U.S. dollars, and with remaining U.S. Treasury Specially Designated Nationals (SDNs).
Some sanctioning bodies still have asset freezes on the government of Iran, as well as its security and armed forces and certain financial institutions. U.S. companies and citizens may only trade under license from the U.S. Treasury Office of Foreign Assets Control (OFAC).
International ship owners reportedly remain reluctant to handle Iranian oil, due to the remaining U.S. restrictions around the involvement of U.S. firms, including banks and reinsurers. Similarly, the export and re-export of content originating in the U.S. by non-U.S. people is still prohibited in the Iranian Transactions and Sanctions Regulations (ITSR). The complexity of the revised regime is apparent in the specific provisions that relate to dual-use (civil-military) applications.
It should be noted that U.S. secondary sanctions impacting non-U.S. business with the approximately 225 OFAC-listed Specially Designated Nationals – including IRGC, Mahan Air and Bank Saderat – will continue.
Overall, it hasn’t been plain sailing for Iran trade since the sanctions were relaxed.
Non-U.S. domiciled companies owned or controlled by a U.S. person can conduct business with Iran, provided that certain conditions are met. U.S. persons may not be involved in operations or decision-making relating to Iran, however, a person or entity’s resources can. This could include internationally integrated accounting, email, telecommunications, and other systems owned/operated by the parent or by third-party providers. The exportation of commercial passenger aircraft and related parts and services to Iran will be dealt with on a case-by-case basis. Importing Iranian carpets and foodstuff is allowed.
There has been a roll back of U.S. secondary sanctions that expose non-U.S. persons to U.S. designation risk if they engage in nuclear-related sanctionable activity, in relation to various U.S. Executive Orders associated with nuclear proliferation.
There has been a much broader relaxation of EU sanctions. This includes lifting restrictions on payment transfers and removing sanctions affecting Iran’s oil and gas sector. Most asset freezes have been lifted on designated targets with the exception of those connected to entities, such as the IRGC and Bank Saderat. Prior authorization is still required to sell and supply certain listed graphite, and raw or semi-finished metals.
The JCPOA agreement contains what is termed as a “snap back” clause, which remains in place until the termination day of the agreement. The clause allows for reinstatement of sanctions should commitments set out in the agreement be unfulfilled and if the JCPOA dispute resolution mechanisms are unable to settle the matter.
Corporations and financial institutions will need to assess their business cases and risk appetite with care when doing business with Iran. A full understanding of the distinctive country context, and one’s own vulnerability profile in relation to compliance demands and country risk, would be desirable before considering trade in Iran’s rapidly changing commercial and financial environment.
Read the full white paper: Lifting of sanctions against Iran — Not all plain sailing