On January 23, the European Union imposed the most significant set of trade and financial sanctions on Iran since October 2010. Most notably, the new sanctions encompass a phased-in embargo on importation into the EU of Iranian crude oil. These new sanctions represent a significant increase in the nature and extent of EU restrictions on Iranian commerce, striking at the very heart of Iran’s economy. The EU sanctions also mark a major political decision by the EU to find alternative sources of crude oil, and to more fully align European restrictions on Iran with United States sanctions on that country.
Set forth below is a summary of key aspects of the new EU sanctions, which have particular effect on the energy and financial services sectors. The sanctions consist of a Decision (effective January 23, 2012) and Regulations (effective January 24, 2012).
Embargo on Iranian Crude, Petroleum and Petroleum Products
The EU sanctions ban the import, purchase or transport of Iranian crude oil, petroleum and petrochemical products. The sanctions also ban the provision (direct or indirect) of financing or financial assistance, including financial derivatives, insurance and reinsurance, related to the import, purchase, or transport of Iranian crude oil, petroleum and petrochemical products. This embargo is subject to "phase-in" provisions as follows:
- For specific types of crude oil and refined petroleum supply agreements entered into prior to January 23, contracts may be executed through July 1, 2012;
- For petrochemical agreements entered into prior to January 23, contract extensions are permitted until May 1, 2012.
In addition, the sanctions also allow for the continued supply of Iranian crude oil, petroleum or petrochemical products (or the proceeds derived from such supply) for the reimbursement of outstanding amounts due under contracts entered into prior to January 23, 2012, where those contracts specifically provide for such reimbursements.
Restrictions on Assistance to Iranian Petrochemical Sector
The EU sanctions broadly prohibit the provision of financing or financial assistance to the Iranian petrochemical sector, including Iranian-owned firms operating outside of Iran. The sanctions ban the sale, supply or transfer of key equipment and technology for the petrochemical industry in Iran, or to Iranian or Iranian-owned enterprises. Also banned is the provision of any technical assistance, training or other services related to key equipment and technology with respect to Iran’s petrochemicals sector. Similarly, the sanctions prohibit providing financing or financial assistance for any sale, supply, transfer or export of key equipment and technology, or for the provision of related technical assistance or training, for Iran’s petrochemicals sector.
Expanded Export Restrictions
The sanctions also expand existing European export controls regarding Iran, including those with respect to items with both commercial and military applications (so-called "dual-use" items). The EU also imposed restrictions on the export to Iran of gold, diamonds, and precious metals, as well as exports to the Central Bank of Iran of Iranian denominated banknotes or coinage.
Additional Sanctions Designations
Several additional Iranian persons have been designated for inclusion on EU asset freezing lists, which generally require both the rejection of transactions with these persons as well as the blocking of their property and interests in property. Among the designated persons are entities controlled by the Islamic Revolutionary Guards Corps and two banks. The sanctions provide limited authority - subject to the approval of the appropriate EU Member State - for the continuation of certain trade-related transactions involving the Central Bank of Iran or Iran’s Bank Tejarat.
The EU’s new sanctions substantially expand the scope of European restrictions on doing business with Iran, as well as increase the intensity of the international architecture of United Nations, United States, and other national sanctions regimes affecting that country. Indeed, in the wake of the EU action, Australia said it would follow suit with its own prohibition on the importation of Iranian crude. Other countries—including Japan and South Korea—are also reported to be considering expansions of their sanctions on Iran, including measures to reduce their importation of Iranian crude.
As the global sanctions framework expands, it is likely that, alongside these new sanctions, there will be a heightened focus by governmental authorities, business counterparties, media, and other stakeholders on compliance with the new restrictions. This dynamic policy landscape requires active monitoring and counsels heavily in favor of enhanced due diligence and risk mitigation strategies.