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US clarifies position on partial suspension of Iran sanctions – Update

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Clyde & Co logoClyde & Co recently attended sanctions briefing sessions addressed by a US State Department official in London and a US Department of Treasury official in Dubai.  At the briefings, the officials emphasised the US’s commitment to implementing its obligations under the joint plan of action (JPOA) agreed between the P5+1 in Geneva in on 24 November 2013 and clarified the US position on the temporary and limited relaxation of its sanctions against Iran.

The overall message is that the US will continue vigorously to enforce its sanctions legislation and stands equally ready to progress towards the further relaxation of sanctions  against Iran or to pass more restrictive measures, as appropriate depending on Iran’s compliance with its commitments under the JPOA.

Key points
The headline points highlighted at the briefings were:
– The temporary relaxations of US sanctions legislation expire on 20 July 2014 unless extended
– If no extension is announced by 20 June 2014, then extension is unlikely, and harsher new sanctions may be introduced instead
– All business pursuant to the limited relaxations must be completed (including payment having been received) by 20 July 2014
– The suspensions of US sanctions apply only to non-US persons (with the exceptions of humanitarian and civil aviation equipment transactions)
– The restrictions on trade with designated persons are unchanged
– US sanctions legislation in general continues to be vigorously enforced
– Up to USD 4.2 billion in blocked funds is eligible for release to Iran
– Since 20 January 2014, EU insurers may underwrite the carriage of Iranian petroleum products; however, it remains unclear whether doing so would place an insurer in breach of US sanctions if the vessel’s destination is a country other than China, India, Japan, the Republic of Korea, Taiwan or Turkey

As part of their commitments to implement the JPOA, the US and EU enacted legislation on 20 January 2014 which allows for temporary and limited relief from trade sanctions against Iran. The JPOA provides the framework for the eventual lifting of all UN, US and EU sanctions aimed at preventing Iran’s development of nuclear weapons.

The US Department of State and US Treasury officials emphasised that the JPOA is not an acceptable endpoint for either side, though it does provide space for negotiation to take place towards a comprehensive resolution

Necessarily, the reliefs in the 20 January 2014 legislation are temporary, limited and reversible. In common with the reliefs under EU legislation, the US reliefs under
the JPOA will expire on 20 July 2014, unless extended by further legislation, meaning the restrictions will then revert to their previous form. The reliefs are in practice rather limited in scope, as further described below.

The US officials also noted that if there is no further progress by 20 June 2014, extension of the 6-month JPOA period is unlikely, and the US Government may instead
move to impose tougher sanctions than were previously in place. It is likely these would extend much further towards a blanket ban on all trade with Iran.

There has been concern that the US Congress could destabilise the situation by passing tougher sanctions legislation irrespective of progress under the JPOA. The officials noted that Congress now appears to accept that diplomacy should be allowed to take its course, besides which the President of the US reconfirmed in his State of the Union speech that he would exercise his veto if necessary to prevent the premature enactment of new sanctions against Iran.

Substance of the relief
As noted, the relief from US sanctions is fairly limited in scope. It extends in large part to non-US persons only and to:
1. The export of petrochemical products from Iran (not including petroleum products or natural gas condensate). This includes the provision of “associated services”, including any insurance, transportation or financial service
2. The provision of goods and services to the automotive sector in Iran. The US officials emphasised that this allows for the export of car kits to Iran, subject always to compliance with the requirement to avoid contact with designated persons, which include Iran’s container port operator
3. Trade in gold/precious metals. It was noted that the relief only allows Iran to purchase gold with funds outside Iran that are not in “oil fund” accounts. The sums held in escrow in oil fund accounts will still have to be retained there.
4. Supply and installation of civil aviation equipment. While the JPOA states that such relief applies “in Iran”, the US officials confirmed that supply and installation of civil aviation equipment outside Iran is also permitted. US and non-US persons may obtain a licence to supply and install such equipment within the JPOA period
5. Transport of petroleum products. The US sanctions permit the import of Iranian crude oil by China, India, Japan, the Republic of Korea, Taiwan and Turkey at the combined rate of 1 million bpd. Payments for Iranian crude oil imports are to remain in the blocked “oil fund” accounts outside Iran, but up to USD 4.2 billion of the funds currently held on such accounts may be released to Iran. Until 20 July 2014, it is permitted to provide insurance and other “associated services” relating to the import of crude oil by persons in the 6 permitted importer countries

There is a discrepancy between the reliefs implemented by the US and by the EU regarding insurance of crude oil transportation, and there is also a concern that parties may be unfairly affected if coverage of an insured event which occurs within the JPOA period becomes unlawful beyond 20 July 2014. The US Government is considering these and other issues and may issue further guidance in due course.

For further details of the EU and US reliefs which came into effect on 20 January 2014, please see our sanctions update “Sanctions against Iran eased”.


Further information:
If you would like further information on any issue raised in this update please get in touch with any of the key contacts listed on our sanctions microsite, sanctions.clydeco.com  or contact:
Rupert Gordon London E: rupert.gordon@clydeco.com
Patrick Murphy Dubai E: patrick.murphy@clydeco.com
Catherine West London E: catherine.west@clydeco.com


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