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Iran sanctions lifted: opportunities and uncertainties

Hydrocarbon Engineering,

Following many years in the international wilderness thanks to wide-ranging European Union (EU) and US sanctions, Iran returned to the international fold in January, opening up the country to international energy companies after a long absence. On 16 January 2016, the US, China, France, Russia, United Kingdom, Germany and Iran, with the EU High Representative for Foreign Affairs and Security Policy, marked Implementation Day for the Joint Comprehensive Plan of Action (JCPOA), the international agreement designed to constrain Iran’s nuclear program. Implementation Day signaled the International Atomic Energy Agency’s (IAEA) verification that Iran had implemented JCPOA-mandated measures to curb its nuclear capabilities and triggered the lifting of certain EU and US sanctions.

The EU sanctions lifting is particularly significant for dealings in the Iranian energy and financial sectors. In the energy sector, EU persons may now import, purchase, swap and transport crude oil and other petroleum, gas and petrochemical products from Iran. EU persons may also invest in and export equipment and technology for the Iranian oil, gas and petrochemical sectors, as well as provide technical assistance in relation to such items.

Changes in the financial services arena may make it easier for EU oil and gas companies to do business in Iran. Specifically, the EU lifted restrictions on financial transfers to and from Iran, including notification and authorisation requirements; permitted banking activities in Iran, such as establishing new correspondent banking relationships with non-listed Iranian banks; and allowed financial support for trade with Iran, such as providing export credit, guarantees, or insurance. EU persons also may now supply specialised financial messaging services, including SWIFT, to non-listed Iranian persons.

Additionally, the EU removed many (but not all) Iranian persons and entities from its list of designated parties. De-listed persons and entities are no longer subject to asset freezes and visa bans, and it is no longer prohibited to make funds available to such persons. De-listed entities include the Central Bank of Iran and the National Iranian Oil Company (NIOC).

On the US side, the US ceased efforts to reduce Iran’s crude oil sales and waived so-called “secondary sanctions” applied against non-US entities. Simultaneously, it removed over 400 parties from the Treasury Department’s Specially Designated Nationals and Blocked Persons List (the SDN List).

Nonetheless, the continuation of the US embargo and primary sanctions may cause some in the industry to hesitate, depending upon the extent to which their operations are managed, or require support, from the US. US primary sanctions continue to prohibit involvement by US persons (including US citizens and green-card holders working abroad) in Iran-related transactions and the supply of goods or services, including financial services, from the US to Iran. Such US involvement in Iranian operations has resulted in recent US criminal enforcement actions against oilfield services companies.

The US has issued a General License across all industries that permits activities related to establishing or altering internal operating policies and procedures necessary to “allow” (note, it does not say “support”) overseas business with Iran and make available IT support through automated “globally integrated systems.” However, the limits on US persons under the General License are still not clearly defined. Even if a non-US affiliate can theoretically conduct Iran-related business independently, that company must prevent unintended involvement by US persons or unauthorised supply of goods or services from the US.

Finally, the potential “snap-back” of US sanctions calls for care and forethought before embarking into the Iranian market. Barring a JCPOA breach by Iran, a snap-back of US sanctions would incur diplomatic costs but remains a possibility, depending upon the outcome of the 2016 presidential and congressional elections. Should the sanctions snap back, the US has committed not to retroactively impose sanctions for legitimate activity undertaken after Implementation Day but before the snap-back; however, there is no promise to “grandfather” existing contracts.

Naturally, energy and financial sector companies, which have experienced intense regulatory scrutiny, will be more reluctant to take advantage of the General License. Particularly in the wake of numerous US criminal sanctions settlements in the hundreds of millions of dollars, it remains to be seen how willing non-US banks and companies in the oil and gas sector will be to re-enter the fray.

Written by Chris Caulfield and Ginger Faulk, Baker Botts LLP.

Chris Caulfield is a partner in Baker Botts’ London office where he leads the London export control and sanctions team. Ginger Faulk is a partner in Baker Botts’ International Trade practice and is based in the Washington, DC office.

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