How will an Iran/P5+1 Accord Impact Sanctions?

There is much curiosity surrounding what the immediate (as opposed to long term) impact of an accord between Iran and the Permanent UN Security Council members (the United States, United Kingdom, France, China, and Russia) and Germany (the so-called “P5+1”) can have on the U.S. sanctions regime on Iran. Indeed, a number of posts on this blog and my other blog (MENALawyer.com) have discussed this issue.  As we all saw, no deal came through last night, presumably due to a difference of opinion in the P5+1 side.  That said, negotiations will resume on November 20, and many appear to be hopeful that the big breakthrough will happen then.

Contrary to what many people think, an accord between the P5+1 is not the end of all tensions between Iran and the western world, and naturally it does not signify the restoration of economic ties between Iran and the west. It could (emphasis here) mark the beginning of a thaw in those relations and the eventual roll-back of sanctions. I’ve been thinking that many may see a handshake between EU Foreign Policy Chief Catherine Ashton and Iranian Foreign Minister Zarif (or especially one with US Secretary of State John Kerry shaking hands with Dr. Zarif) as a sign that everything is fine and dandy between Iran and the rest of the world. That’s when mistakes and violations start creeping up.

What has been discussed is that Iran may have access to certain revenues from the sale of its oil to various countries that are effectively frozen. Due to recent US legislation of the past few years, many of these funds that are not denominated in local currencies are basically in a “frozen” state – meaning, if say a country in Asia has paid for Iranian oil in Euros, those Euros are more than likely stuck in a bank in that country.  US laws can impose sanctions on countries that remit Iran’s oil income back to Iran through the Central Bank of Iran, so what has happened is that Iran’s oil money is sitting in locally denominated bank accounts in those countries. Therefore, instead of receiving dollars or RMB directly back in Iran from sales to China, Iran instead has essentially RMB-denominated trust account for much of its oil sales to China and can use that account to buy goods from that country.  What has been proposes is that some of this money (in the tens of billions of dollars) be unblocked and made free to be sent back to Iran.

The other existing limits on business will largely stay in place. Businesses around the world, including the United States, look to be gearing up for the day that they will be free to trade with Iran, and that may come soon if everything goes well. However, for the time being, expect most sanctions as they impact day to day matters (such as financial transfers, exports, etc.) to remain largely the same. What may happen is that agencies like OFAC in the United States may be more open to licensing activities that it may normally not license or that may be a bit too tangential from what it normally licenses. But it is probably safe to say that activities that fall squarely within the prohibited column and have no convincing public policy arguments supporting their approval will stay off limits and it is accordingly a safe bet that OFAC will not authorize them.

The further Iran and the P5+1 go down the negotiating path, we may see some peeling back of sanctions laws and the gradual reentry of Iran into the world’s oil and financial markets (with various countries opening up to Iran at various speeds).  Even then, there is no reason to expect sanctions to be completely rolled back in the immediate foreseeable future. Remember, politicians can shake hands for photo opps all day, but what ultimately shapes things is whether or not the laws or directives change (or at least waivers are granted).

Therefore, between perception based on current events, some limited sanctions relief and a change in mood, there will be great room for confusion.  The best policy remains to not believe any change until you see it, and to stay on the safe side. That’s to say compliance will remain critical and even if laws begin to change, anybody choosing to engage in transactions with Iran should keep a finger on the pulse of where the law stands as this can change at any given moment.  Too much hope can lead to too much confidence which can open the door to violations and folly. Keep your eye on the news, but also on the law.

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An international trade and regulatory lawyer.

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This website aims to provide notes and commentary on international legal, business, and political developments in economic and other sanctions. It is intended solely for information and entertainment purposes and should in no way be construed as legal advice. If you have any questions or are unclear on any of the subject matters addressed or discussed on this site, please consult a licensed legal professional. Views presented in the comments and outside links do not necessarily reflect those of the website author. All external links on this website to articles and documents are external and provided for informational purposes only. They have no relation to the author of this website unless specified otherwise.

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Copyright 2017 Farhad R. Alavi.
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