In June 2006, China, Russia, and the United States joined France, Germany and the United Kingdom which had been negotiating with Iran since 2003, to offer another proposal for comprehensive negotiations with Iran in diplomatic efforts to reach a nuclear deal with Iran to ensure that its nuclear program is peaceful and in return Iran could rejoin the world economy by means of removing sanctions and embargos against Iran. After years of negotiations and diplomacy, the Joint Comprehensive Plan of Action (the “JCPOA”), the nuclear accord between Iran and six of the world’s major powers, went into effect on October 18, 2015, (“Adoption Day”). On that date, the United States and European Union published the legal framework for future sanctions relief and Iran began steps to ensure the peaceful nature of its nuclear program. The good news for all of us is that the world is a safer place (perhaps Prime Minister Bibi disagrees), and for Iran to be able to trade with the world.
The next major milestone in the JCPOA, the so-called “Implementation Day,” occurred on Saturday, January 16, 2016, when the International Atomic Energy Agency (“IAEA”) verified that Iran has fulfilled all of its commitments and requirements under the nuclear accord. Consequently, the United States and European Union provided the first phase of sanctions relief, including oil embargos and financial or trade embargos on Iran. Furthermore, the US and EU would also release roughly $100 billion of Iran’s assets after international inspectors concluded that the country had followed through on promises to dismantle large sections of its nuclear program. The second phase of relief will come in October 2023, on the so-called “Transition Day.” On that day, some of the restrictions on Iran’s nuclear program will be lifted.
European Union Sanctions
The EU terminated all nuclear-related economic and financial sanctions, on Implementation Day, including restrictions on:
- Transfers of funds between EU entities, including financial and credit institutions, and Iran.
- Banking activities, including the opening of new branches of Iranian banks in the EU and the opening by EU entities of new offices, subsidiaries, joint ventures, or bank accounts in Iran.
- Insurance and reinsurance for Iranian entities.
- The import of Iranian oil, gas, and petrochemical products.
- Investment in and the export of equipment for Iran’s oil, gas, and petrochemical sectors.
- The shipping, shipbuilding, and transport sectors.
- The export of gold, precious metals, and diamonds and the delivery of Iranian banknotes and coinage.
As a result of its compliance with the nuclear deal, Iran now regains access to financial messaging services, including SWIFT, (except for banks that remain designated by the EU until Transition Day.) The E.U. will allow member states to import and sell Iranian crude oil and gas. Additionally, The E.U. will allow for trade to Iran of naval equipment and technology for ship building. It’ll also allow cargo flights from Iran to access member state airports. The EU will also lift sanctions that impose asset freezes and travel bans on a first set of companies and individuals (mostly in the financial, energy, shipping, and transport sectors).
A second phase of sanctions relief is expected 8 years following the Adoption Day, or sooner if the IAEA reaches its Broader Conclusion (when the IAEA verifies that all nuclear material in Iran remains in peaceful activities). On Transition Day, all EU proliferation- related sanctions will be lifted which also include the removal of a second, smaller set of individuals and entities from the EU blacklist – those designated for proliferation activity.
United States Sanctions
When it comes to the United States and Iran, and in particular the U.S. embargos on Iran, things are a bit more complicated (isn’t everything complicated between these two?). The United States has also agreed to sanctions relief, but this relief will only affect secondary sanctions – the restrictions that the U.S. government places on non-U.S. persons (including entities). Furthermore, the United States had promised to remove, on Implementation Day, a set of entities from various restricted party lists (mostly Iranian financial institutions, individuals and entities designated for being part of the Government of Iran, as well as entities in the energy, transport, and shipping sectors). As a result, Obama administration removed 400 Iranians and others from its sanctions list. Under the new rules put in place, the United States will no longer sanction foreign individuals or firms for buying oil and gas from Iran. However, The American trade embargo remains in place, but the government will permit certain limited business activities with Iran, such as selling or purchasing Iranian food and carpets and American commercial aircraft and parts. So can Americans (individuals and entities) trade with Iran? The question begs for some more detailed clarifications that we hope will be addressed within the coming months by the Office of Foreign Assets Control (“OFAC”), part of the U.S Treasury Department. Up until now one thing is clear, according to the Treasury Department, that the U.S. will allow “the sale of U.S. origin aircraft, parts and services exclusively for commercial passenger aviation to Iran; the import of Iranian-origin carpets and foodstuff; and certain activities conducted by foreign subsidiaries of U.S. companies.” Additionally and according to the White House, “U.S. statutory sanctions focused on Iran’s support for terrorism, human rights abuses, and missile activities will remain in effect and continue to be enforced.”
The United States has also agreed to “cease the application of” the bulk of its secondary sanctions (see below) on non-U.S. persons engaged in Iran’s financial and energy sectors. However, the agreement states that “U.S. persons and U.S.-owned or -controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to the JCPOA.”
The secondary sanctions to be lifted include restrictions on:
- Financial and banking transactions with Iranian financial institutions.
- Transactions in Iranian currency (Rial).
- The provision of U.S. banknotes to the Government of Iran.
- The purchase or facilitation of issuance of Iranian sovereign debt.
- Financial messaging services (such as SWIFT).
- Insurance and re-insurance.
- Sales, investment, and transport of Iranian oil, gas, and petrochemicals.
- Shipping, shipbuilding, and port sectors.
- Trade in gold and other precious metals.
- The automotive sector.
A second phase of sanctions relief is expected 8 years following Adoption Day, or sooner if the IAEA reaches its Broader Conclusion. As a result, the United States will seek legislative action in Congress to terminate the secondary sanctions that will be suspended on Implementation Day. The United States has also promised to delist a second group of 43 entities, many of which have been involved with illicit procurement for Iran’s nuclear and missile programs.
However, what you should note is that the lifting of sanctions does not mean that the United States is removing its trade embargo on Iran.
United Nations Sanctions
On July 2015, the U.N. Security Council adopted resolution 2231 as a means of endorsing the nuclear deal and superseding the existing Iran-related resolutions. On Implementation Day, resolution 2231 will terminate the provisions of resolutions 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1929 (2010), and 2224 (2015). Resolution 2231 itself will be terminated 10 years following Adoption Day (October 18, 2025).
On Implementation Day, January 16, 2016, 36 individuals and entities (out of 121 currently blacklisted) will be removed from the sanctions list, while sanctions will remain in place on the remaining entities for eight years, or until the IAEA reaches its Broader Conclusion.
The following U.N. sanctions will also remain in place:
- The U.N. conventional arms embargo (5 years).
- The U.N. ban on ballistic missile technology imports and ballistic-missile related activity (eight years). The language of the new U.N. resolution on the restrictions on ballistic-missile related activity appears to be more permissive than the existing ban under resolution 1737.
- The U.N. restrictions on nuclear-related procurement, overseen by the procurement channel discussed above (10 years).