On 14 July the E3+3 (the United Kingdom, France, Germany, China, the Russian Federation and the United States ("US"), along with the High Representative of the European Union ("EU") for Foreign Affairs and Security Policy) and the Islamic Republic of Iran ("Iran") finally reached a long overdue agreement on a Joint Comprehensive Plan of Action ("JCPOA") with respect to Iran's nuclear programme.

Under the terms of the JCPOA, Iran has agreed to implement a series of commitments in relation to limiting its nuclear programme in return for a phased lifting of United Nations ("UN"), EU and US sanctions targeting Iran.

The deal culminates almost two years of negotiations of a Joint Action Plan. However, until such time as the International Atomic Energy Agency ("IAEA") verifies that Iran has implemented its commitments under the JCPOA, there will be no immediate change to the existing sanctions frameworks adopted, implemented and enforced by the UN, EU and US. Whilst such measures remain in place they will continue to be robustly enforced.

Iran's commitments under the JCPOA include:

  • Reducing its enrichment capacity by two-thirds.
  • Reducing its stockpile of low enriched uranium to 300kg (a greater than 90% reduction of current levels). It will achieve this reduction either by diluting it or shipping it out of the country.
  • Removing the core of the heavy water reactor in Arak and redesigning it in such a way that it will not produce significant amounts of plutonium.
  • Allowing UN inspectors to enter sites, including military sites, when the inspectors have grounds to believe undeclared nuclear activity is being carried out there.

The IAEA will monitor and verify the nuclear-related measures as detailed in the JCPOA.

EU and US sanctions relief will be provided through the suspension and eventual termination of sanctions measures, beginning only if and when the IAEA verifies that Iran has implemented key nuclear-related measures described in the JCPOA (this is the so termed "Implementation Day" and is explored further below). This could take several years.

Under the terms of the JCPOA, sanctions will be progressively phased out in areas including: oil and gas, including trade in Iranian-origin product and the supply of equipment for the oil and gas industry; transfers of funds and banking activities; insurance and reinsurance; specialised banking messaging services (SWIFT); financial support for trade (e.g. export credit and guarantees, export insurance); financing of the Iranian Government; transport (sea and air); trade in diamonds, precious metals, graphite and certain raw and semi-finished metals; delivery of Iranian banknotes and coins; and, the provision of US dollar banknotes to the Government of Iran.

In addition, a significant volume of Iranian assets currently blocked by the international community will be unfrozen by removing the designation of an extensive list of Iranian persons entities and bodies currently subject to asset freezes.

Under an ambitious timeframe, the Implementation Day triggering the lifting of sanctions could be achieved by mid-January 2016.

Proposed timetable

There are five key milestones envisaged in the JCPOA, which will guide the potential suspension and termination of international sanctions measures: Finalisation Day, Adoption Day, Implementation Day, Transition Day and UN Security Council Resolution Termination Day.

Finalisation Day: 14 July 2015, the date negotiation of the JCPOA was concluded. The E3+3 are now required to "promptly" submit a draft resolution to the UN Security Council endorsing the JCPOA.

Adoption Day: 90 days after the endorsement of this JCPOA by the UN Security Council, (or such earlier date as may be determined by mutual consent of the JCPOA participants), at which time the JCPOA comes into effect and participants make necessary arrangements and preparations for the implementation of their JCPOA commitments.

Implementation Day: The key milestone and the date on which, simultaneously with an IAEA report verifying implementation by Iran of nuclear-related commitments, the UN, EU and US will take measures to suspend and terminate certain sanctions measures. However, even when the JCPOA is fully implemented, a wide range of UN, EU and US sanctions measures will continue to apply including the arms embargo, sanctions targeted at Iran's nuclear and ballistic missile programmes, and those measures related to Iran's humans rights record and support for terrorism.

Transition Day: The earliest of either eight years after Adoption Day, or the date on which the IAEA concludes that the Iranian civilian nuclear programme is of an exclusively peaceful nature. On this date, the EU and the US will take further measures to suspend and terminate sanctions measures.

UN Security Council Resolution Termination Day: 10 years from Adoption Day. As of this date, it is envisaged that the EU will terminate all remaining nuclear related sanctions measures.

Practicalities

The announcement marks a significant step towards the easing of international sanctions targeting Iran. Nonetheless, for the foreseeable future nothing has changed and EU and US sanctions measures not previously suspended during JCPOA negotiations (see our earlier alert) remain in full force and effect.

As noted above, the first step towards implementation is a new United Nations Security Council Resolution ("UNSCR"). It is expected that the UN will endorse the JCPOA today (20 July 2015). EU leaders will then need to agree on a new EU Council Regulation implementing the new UNSCR. However, all existing EU economic sanctions and trade restrictions will remain in place until the IAEA has verified that Iran has taken the measures agreed under the JCPOA.

Existing EU sanctions imposed against Iran prohibit the following activities:

  • The sale, supply, transfer or export of the following goods, software and technology:
    • all military goods
    • certain dual-use items
    • equipment which may be used for internal repression
    • key equipment and technology for the oil and gas industry
    • key naval equipment
    • software for integrating industrial processes
    • graphite and raw and semi-finished metals
    • newly minted banknotes and coins
  • the provision of associated technical assistance, brokering services and financial assistance related to the above goods, software and technology
  • the import, purchase or transport from Iran of military goods of all kinds, and of dual-use items
  • the import or purchase of crude oil or petroleum products which are located in or which originated in Iran; and the provision of related financial assistance including insurance and re-insurance
  • the purchase, transport or import of natural gas which is located in Iran or which has been exported from Iran, and the provision of related financial assistance or brokering services
  • the granting of any loan or financial credit to, the acquisition or extension of a participation in, or the creation of a joint venture with, any Iranian entity or person engaged in:
    • the manufacture of military goods or dual-use items
    • the exploration or production of crude oil and natural gas, the refining of fuels or the liquefaction of natural gas 
    • the petrochemical industry
    • uranium mining, uranium enrichment and reprocessing of uranium

In addition, the following activities require prior authorisation:

  • the sale, supply, transfer or export of non-prohibited dual-use items and associated technical assistance, brokering services and financial assistance
  • the making of an investment in an Iranian entity engaged in the manufacture of non-prohibited dual-use items
  • the sale, supply, transfer or export of equipment which might be used for the monitoring or interception of internet or telephone communications and associated technical assistance, brokering services and financial assistance

In the US, President Obama will need to get any suspension of sanctions through Congress, not a quick timetable or easy task with Congress moving towards recess and the GOP holding the majority in both houses. Congress has 60 days to review the agreement, which means any potential vote will not take place before September. Congressional leadership has already expressed significant reservations about the deal.

Whilst Iranian sanctions remain in place they will continue to be enforced robustly. If Iran adheres to its JCPOA commitments and sanctions are lifted, Iran will remain a challenging place to do business, and banks and other financial institutions may remain reluctant to handle Iran-related transactions while full US sanctions remain in place.

It should also be noted that the JCPOA provides for sanctions measures to be reintroduced if Iran does not comply with its commitments. A Joint Commission consisting of the E3+3 and Iran will be established to monitor the implementation of this JCPOA. If there are allegations that Iran has not met its obligations, the Joint Commission will seek to resolve the dispute within 30 days. If that effort fails it would be referred to the UN Security Council, which would have to vote to continue sanctions relief. A veto by a permanent member would mean that sanctions are re-imposed.

We await further details and expect further clarity from the UN, EU and US in the coming days on the specific measures which may be suspended.

Conclusion

The JCPOA deal significantly increases the likelihood that the international sanctions against Iran covering a wide range of sectors will be progressively phased out. In the meantime, the existing measures remain in place and national authorities have made it clear that, for the time being, trade with Iran is not encouraged and many companies remain concerned about re-engaging in Iran until confidence is rebuilt.

Nonetheless, if Iran adheres to its commitments and sanctions are lifted, opportunities will arise for the business and financial sector. However, even as sanctions are lifted Iran will remain a challenging place to do business, and banks and other financial institutions may remain reluctant to handle Iran-related transactions while sanctions remain in place.

Therefore, it would be advisable for businesses active in areas currently restricted by sanctions to monitor closely the developments in the implementation of the JCPOA and prepare for the potential opportunities that may be opened once the sanctions are lifted.

The JCPOA states that the EU and its Member States and the US will issue relevant guidelines and make publicly accessible statements on the details of sanctions or restrictive measures which have been lifted under the JCPOA.