Sanctions relief agreed under Joint Comprehensive Plan of Action
On 14 July 2015, after almost two years of discussions, China, France, Germany, the Russia Federation, the UK and the US reached agreement with the Islamic Republic of Iran to lift sanctions in exchange for Iran restricting its nuclear programme to purely peaceful purposes.
Under the Joint Comprehensive Plan of Action (“JCPoA”), there is intended to be a phased lifting of sanctions restrictions once the International Atomic Energy Agency (“IAEA”) has carried out inspections and confirmed that Iran has implemented the required changes to its nuclear programme.
It is likely to be several months before any sanctions restrictions are lifted. In the meantime, the EU restrictive measures currently in effect will remain in place. Further, the suspensions of certain of those restrictive measures in relation to the transport of crude oil, petroleum products and petrochemical products, together with insurance for such transport, put in place by the November 2013 Joint Plan of Action (“JPoA”) have been extended until 14 January 2016.
What does the JCPoA mean for the energy industry?
As set out above, there will be no immediate change to the EU sanctions landscape but, assuming full implementation of the JCPoA, the EU will terminate all provisions of Council Regulation (EU) No 267/2012 (as subsequently amended) thus removing the restrictive measures that have hampered the energy industry.
- In particular, the following will once again be permissible activities for those operating within the EU jurisdiction:
- Financial support for trade with Iran (export credit, guarantees or insurance);
- Import and transport of Iranian oil, petroleum products, gas and petrochemical products
- Export of key equipment or technology for the oil, gas and petrochemical sectors;
- Investment in the oil, gas and petrochemical sectors;
- Transfers of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions
- Provision of insurance and reinsurance.
In addition, the EU will terminate the designation of a number of Iranian persons, entities and bodies who have been subject to asset freezes and visa bans. This will free up trade with Iran and enable international companies to once again consider investing in major energy infrastructure projects.
It has been reported that Iran is planning $185 billion-worth of oil and gas projects by 2020. Oilfields such as Azadegan and Yadarava, and the South Pars offshore gasfield are the focus of particular interest with Iran looking for Western expertise to help increase production from aging oil wells where output has been declining due to lack of investment.
Planning on investing in Iran – what do you need to know?
While the main EU restrictions will be lifted, and there are likely to be significant opportunities for those wishing to do business with Iran, there will still be a number of hurdles to overcome as follows:
- Continuation of certain US sanctions – even after implementation, most prohibitions on US companies doing business directly or indirectly with Iran and Iranian entities will remain in place. The US has, however, agreed to remove most of the sanctions restrictions imposed on non-US owned or controlled companies such as those relating to the carriage of oil, petrochemicals and most other cargoes to and from Iran. Equally, the restrictions imposed on non-US owned or controlled companies related to engaging in transactions with the energy, shipping, shipbuilding and port sectors of Iran will be lifted.
- US dollar clearing transactions relating to Iran will remain prohibited.
- The JCPoA has “snap back” provisions that will allow the EU and/or US to re-impose the sanctions restrictions if Iran fails to implement its side of the deal.
- Insurers, banks and others may continue to have stringent sanctions policies in place to guard against the risk of the re-introduction of sanctions and to address risk management issues where there are still concerns arising from the continuing existence of some sanctions restrictions.
- Concerns about the security of investing in a country where the economy is predominantly run by powerful entities close to the Supreme Leader and the Revolutionary Guards.
While the JCPoA represents an historic agreement which, if fully implemented, will bring to an end years of restrictions, there is still some way to go before any sanctions relief will be felt by Iran and those wishing to reinstate trade and investment in Iran. It will take many months for Iran to carry out the various commitments they have agreed to in order to reduce and restructure their nuclear programme towards purely peaceful ends. The IAEA must then verify that Iran has fully complied with its commitments before sanctions will be lifted. The day that report is issued is Implementation Day and it is on that day that the EU will terminate its restrictions against Iran as referred to above.
Given the above, there will be no immediate recommencement of trade and investment in Iran. Even after Implementation Day, there will still be significant US restrictions in place as well as other practical difficulties, as outlined above. That said, the time is clearly coming when doing business in Iran will not present the challenges it does now and many businesses will no doubt already be planning ahead so that they are in the best possible position to take advantage of the sanctions relief when it comes. Indeed there are suggestions that French oil giant, Total, is already lining up to make a move after sanctions are lifted. Many others are no doubt also following suit.
If you are interested in doing business with Iran, we strongly recommend that you seek advice and guidance from your insurers and lawyers in order to ensure that you fully understand which restrictions remain in place and may affect you and what risks may still be involved. In the meantime, we reiterate that, as matters currently stand, no sanctions relief has taken effect as yet. Therefore, if you are thinking of starting negotiations with Iranian entities in the expectation of sanctions relief, you should proceed with extreme caution. In particular, you should continue to carry out due diligence and ensure that you continue to comply with all existing restrictions.
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