End Of The Iran Sanctions? Not So Fast…

by Faegre Baker Daniels

After the Joint Plan of Action (JPOA) was signed last November by Iran and the P5+1 nations, many U.S. companies asked whether they could reestablish business relationships with Iran.  That was a fair question, but unfortunately the answer was a resounding “no”.  The JPOA was designed to keep Iran at the negotiating table, not to improve the fortunes of U.S. businesses.  With that said, the JPOA’s July 20 expiration date looms at the end of this week, and the pressure is palpable.  Many U.S. companies are waiting with bated breath for some positive news.

The JPOA loosened restrictions on the automotive, petrochemical, precious metal and aviation industries, but not for U.S. companies or their owned or controlled foreign subsidiaries.  Instead, Iran and the foreign parties already doing business with Iran were the primary beneficiaries of the JPOA.  The purpose of the loosened restrictions was to give Iran a reward for negotiating in the first place, but to leave it hungry for more.  Any benefits for U.S. companies would be contingent on the parties reaching a formal and permanent agreement, with the removal or relaxation of U.S. sanctions to follow.

The U.S. negotiators have been able to entice Iran thus far with moderate economic incentives while also leaving the sanctions program almost completely intact.  This has given the U.S. a good bargaining position and is due to the uniqueness of the Iran sanctions program.  Parties that would normally fall outside the ambit of OFAC’s jurisdiction (such as foreign financial institutions, foreign automotive manufacturers and foreign purchasers of Iranian oil), are all subject to sanction.  OFAC extended jurisdiction over these foreign parties by conditioning their access to U.S. financial markets, U.S.-based credit, U.S. export licensing approval and U.S. Government contracting on compliance with the Iran sanctions program.  The JPOA temporarily halted some of those sanctions and allowed major importers of Iranian crude oil, for example (like China, South Korea, Taiwan, India, Turkey and Japan), to maintain their supplies without running afoul of the regulations.  Several other economic sectors, however, such as the financial services industry, have remained blocked.  The U.S. Government has made it clear that those parts of the Iran sanctions program that were not relaxed under the JPOA will continue to be actively enforced (see our last post on BNP Paribas).

With the JPOA’s deadline looming, both sides may actually have a harder sell on a deal at home than they do across the negotiating table.  Hardliners in the U.S. and Iran have put demands on the negotiators that make finding any middle ground extremely difficult.  But, despite the long odds of reaching a deal by Sunday, the negotiators have yet to annouce an extension of the July 20 expiration date.  All signs point to extension as a best case scenario, with the worst case scenario being a complete breakdown in negotiations and the imposition of even stricter sanctions.  We’ll hold out hope for a major breakthrough in Vienna this week, but U.S. companies should expect to see their shadows on July 20 and hunker down for at least six more weeks of (nuclear) winter.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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