At the start of April, there was much celebration at the “deal” announced by the P5+1 and Iran. The joint statement of EU High Representative Federica Mogherini and Iran’s Foreign Minister Javad Zarif was short on detail, but identified the “key parameters” for the negotiation of the full agreement, the Joint Comprehensive Plan of Action (“JCPOA”) which the parties would work towards, with a 30 June deadline. Amongst these key parameters was that:

“The EU will terminate the implementation of all nuclear-related economic and financial sanctions and the US will cease the application of all nuclear-related secondary economic and financial sanctions, simultaneously with the IAEA-verified implementation by Iran of its key nuclear commitments.”

A week down the line, some of that sense of celebration is wearing off. From the first moment, there were doubts as to whether Iran and the USA in particular could persuade their respective hardliners in Tehran and in Washington to support the deal outlined. But there are also now emerging at least two very different understandings as to what has been agreed. While the UK Foreign Secretary Philip Hammond’s statement avoided any elaboration as to how and when sanctions might be lifted under the deal, the US Department of State explicitly notes that Iran will only receive US sanctions relief if it verifiably abides by its commitments regarding its nuclear program. Conversely, Iran President Rouhani is equally clear that Iran “will not sign any agreements unless on the first day of the implementation of the deal all economic sanctions are totally lifted on the same day”. It is easy to see that closing the gap between these incompatible positions in the JCPOA may prove elusive, especially in view of the various headwinds, which include some practical difficulties in the proposed “snapback” arrangement (ie that the sanctions would snap back into place if Iran failed to comply with its commitments), and opposition to the deal not only within USA and Iran, but also from Israel and other Middle Eastern governments.

In the meantime, the EU has made clear that it does not propose to soften its approach to sanctions on Iran just yet. On Wednesday this week it re-imposed sanctions on Bank Tajerat, an Iranian bank, and on 32 Iranian shipping companies – all of them subsidiaries of Islamic Republic of Iran Shipping Lines and including Hamburg-based Ocean Capital Administration GmbH – following the recent ruling of the EU’s General Court striking out those listings. The EU’s “reasons for listing” have been amended in light of the criticisms made by the General Court, and 8 further entities whose listings were struck out by the Court have not been relisted. Nonetheless, these relistings send a clear message that it is sanctions business as usual with regard to Iran for the EU until an actual agreement is reached.

In a separate development, the EU has this week extended until 13 April 2016 its other sanctions regime against Iran, which is unrelated to concerns about nuclear weapons proliferation, and targets persons and entities said to be responsible for human rights abuses, while removing 3 names from the list and updating the reasons for the continued listing of others.

What does this mean for Dechert clients?

This deal has raised, for the first time in many years, the real prospect of Iran opening up to the West, with plenty of potential to whet the appetite of investors. Newspapers this week have been reporting a flood of business executives rushing to Tehran in the quest for early-mover advantage, and at least one London firm is reported to have established an Iran Fund on the back of the “deal” announced.

However the sanctions remain in place for now, and every indication is that the EU and US approach to them will not soften, at least until a JCPOA is agreed. Everything that was prohibited in March is still prohibited, and as Ayatollah Khamenei has reminded us clearly this week, there may be no deal in June, or at all. There is clearly much ground still to cover, and the rhetoric is not currently entirely encouraging on either side.

Assuming a final JCPOA is agreed, the question then arises as to how, in what order and to what timescale, the lifting of sanctions will take place under it? Some symbolic concessions to Iran are to be expected at the point of adopting the JCPOA, but it would seem likely that the core of the current sanctions regime would remain in place pending verification of Iran’s compliance, which in practice would probably mean until at least the start of 2016. Even then, the phasing out of the sanctions is likely to be spread over several phases.

So while the direction of travel with Iran seems positive for now, it is a road full of uncertainty. Firms will inevitably be thinking already what opportunities the prospect of the lifting of Iranian sanctions might present to them, and may even want to embark on relevant due diligence and other preparatory steps. But with such uncertainty as to the pace and nature of any sanctions softening, firms should ensure that any dealings relating to Iran contain full protections to allow for a range of different possible future developments.

Dechert stands ready to advise on what can be done within the current sanctions framework, on identifying and preparing for prospective sanctions developments, on applying for authorisations and licences where necessary, and on all related contractual and transactional issues. Our team advises on both EU and US sanctions, and covers the full range of sanctions regimes.