What Kind of Sanctions Relief will Iran be Getting Now?

Alas, Iran and the P5+1 (the five permanent members of the United Nations Security Council and Germany) finally reached a temporary agreement in the early hours of Sunday Geneva time on Iran’s nuclear framework. This agreement will have a duration of 6 months, effectively serving as a placeholder for a more comprehensive and final agreement.  In exchange for certain limitations on Iran’s nuclear program, the P5+1 have decided to afford it with some limited sanctions relief.  The key word is limited, but of course limited does not mean insignificant.Indeed, contrary to what some opponents of the deal (along with some very optimistic people) may believe or lead others to believe, the sanctions against Iran are still very much in place.  However, some parts of the relief are noteworthy, and we will have to wait to see how these concessions will legally take shape.  In the U.S., we will have to wait until the Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Department of State, and more broadly the White House issue general licenses, directives, and Executive Orders, respectively – all of which will define the boundaries of what is permitted and what will continue to be barred.  Also notable is that the sanctions relief afforded Iran is reversible should it renege on its commitments.

So what is the P5+1 offering Iran?  Beyond the agreement that the U.N., U.S., and European Union (E.U.) will not impose new sanctions on Iran’s nuclear related program (note that does leave room for human rights and terrorism-related sanctions and designations), here are some key parts, with some possibilities as to how they could potentially work. Remember, the laws have not changed yet, and as such the analysis below is in many ways speculation.

1. Suspension of sanctions on Iran’s petrochemical exports.  

This does not mean that the U.S. can now import petrochemical products from Iran.  What it does likely mean is that companies in third countries importing petrochemicals from Iran will no longer face penalties from the United States.  The petrochemical industry in Iran is significant, and this is therefore critical for that country.

2. Suspension of U.S. and E.U. sanctions on Iran’s dealings in gold and precious metals.  

This is an awkward but important one – due to its being effectively locked out of the international banking system, Iran was increasingly relying on moving money around the world in precious metals like gold and silver.  Notably, this can also suspend the imposition of limitations on companies supplying Iran with metals like aluminum, etc.  What is interesting is that limitations on third country entities doing significant Iranian Rial transactions imposed this past summer will continue in effect.

3. Suspension of U.S. sanctions on Iran’s automobile sector and related services.  

These sanctions were imposed this past summer as part of the Iran Counter-proliferation and Freedom Act (IFCA).  The U.S. will effectively suspend its secondary sanctions on companies in third countries assisting Iran’s automobile industry. This is very significant as even international companies shipping parts for Iranian automobiles could be subjected to U.S. sanctions. 

4. Licensing Regime for Civilian Aircraft Servicing in Iran.

It is very important to note that under the U.S.’ Iranian Transaction and Sanctions Regulations (ITSR) promulgated by OFAC, U.S. companies can obtain specific licenses to overhaul U.S. made Iranian civilian aircraft in third countries (e.g., the United Kingdom or United Arab Emirates).  Under the Geneva accord, U.S. companies will apparently now be able to obtain licenses to engage in such repairs physically in Iran, which will probably make this work easier for the Iranians and the services more sought after. Given Iran’s ageing civilian aircraft fleet, this is a very notable development.

5. Facilitating Humanitarian Trade.

This is more significant than it may appear at first glance.  While this type of trade has largely been authorized under law for quite a while through a general and specific licensing regime, it has been very difficult due to the fact that UN and perhaps more importantly US sanctions have led international banks to cut dealings with Iran. This has created stop-gaps in the flow of medicine, medical goods, foods, etc. to Iran.  What appears to be the case is that there will apparently be efforts made to allow certain non-designated banks and specific banks in the west to process such payments. If this happens, the financial transfers will become generally quicker and more reliable (and therefore lessen the need for the use of third country exchange houses, a current practices that I’m sure many banks in the U.S. will be happy to no longer deal with if electronic wiring becomes possible again.

Remember, the above is based on information released tonight. These agreed upon provisions have not been made into law yet, and we will have to wait until the actual laws, regulations, and guidance are published before seeing the clear definitions and limits of these laws.  My overarching concern is that while the relaxation of certain unilateral sanctions may open up some opportunities for U.S. companies, business may misinterpret news articles and pictures of handshakes between Secretary of State Kerry and Iranian Foreign Minister Zarif and think sanctions have been repealed.  This is clearly not the case and this is where people start making mistakes – mistakes that can be very, very costly, both civilly and criminally, as well as in reputation.  As such, if anything the need for compliance becomes more heightened.  Expect this to become a trend, particularly as the laws may continue to change for the coming months or even years.

An international trade and regulatory lawyer.