On July 14, 2015, representatives of the P5+1 countries reached an agreement with Iran on a “Joint Comprehensive Plan of Action” (JCPOA) regarding Iran’s Nuclear Program. Subject to review by several of the parties’ legislatures and after verification by the International Atomic Energy Agency (IAEA) of steps to be taken by Iran, the United States and the EU committed to provide sanctions relief, although the U.S. commitments are not as extensive.

The agreement is complex and some hurdles remain, particularly a vote by the U.S. Congress and a review by IAEA of Iran’s past activities and its implementation of the commitments. If there is full implementation as described below, sanctions reforms would substantially open the Iranian market to EU and other non-U.S. companies. Substantial restrictions would remain at least initially for U.S. companies and non-U.S. companies that they own or control, although U.S. policy would permit some trade and market participation in limited sectors.

This blog post provides a broad overview of the July 14 agreement. We will provide more detailed commentary in the coming days.

Timeline for Implementation

Although the headlines have been dramatic, in the immediate future the U.S. and EU sanctions remain in place and are expected to continue unchanged until the end of 2015 and possibly into 2016, depending on the pace of IAEA verification. The limited, temporary sanctions relief implemented during the negotiating period by the United States and EU will continue in the meantime. Key dates are:

July 14, 2015: 

Finalization Day

July/Aug. 2015: 

UN Security Council resolution consistent with JCPOA (provisional and pending later IAEA verifications)

Mid-Sept. 2015:

U.S. Congress votes to approve/reject (implementation of deal if no action or Presidential veto and override vote if rejection )

Oct. 2015:

Adoption Day (90 days after UN resolution) – U.S. and EU to take advance actions to direct sanctions relief after IAEA verification

Dec. 15, 2015:

IAEA Director General’s final assessment of past military dimensions of Iran’s nuclear program (See JCPOA para. 14)

Dec. 15, 2015–Early 2016:

IAEA verifies Iran’s implementation of initial nuclear obligations

Dec. 15, 2015–Early 2016:

Implementation Day: Upon IAEA verification, U.S. and EU sanctions reforms to take effect

Although faster Iranian compliance and IAEA verification could conceivably accelerate the timeline, this appears unlikely and delays are possible.

U.S. Sanctions Relief Under the JCPOA

The U.S. Executive Branch has agreed to a broad range of changes to its sanctions under the JCPOA, but that relief is only partial. The key elements are:

  • The United States has committed to remove secondary sanctions applied to non-U.S. persons outside of the United States in the financial and banking, energy/extractive, petroleum/petrochemical, gold and precious metals, raw and semi-finished metals, automotive, shipping and port, insurance and certain other sectors.
  • Current sanctions relating to Iran generally will remain for U.S. persons.
  • U.S. export controls for dual use and military items generally will remain in place for Iran, including reexport of such items to Iran by parties outside the United States. The United States, however, has committed to issue licenses to allow the sale of commercial passenger aircraft to Iran, as well as spare parts and related maintenance and repair services.
  • Although restrictions will remain for non-U.S. companies owned or controlled by U.S. persons, the United States also committed to issue licenses to allow non-U.S. subsidiaries of U.S. companies “to engage in activities with Iran that are consistent with this JCPOA.” The precise scope of activities that will be licensed is unclear.
  • The United States committed to allow imports into the United States of Iranian-origin carpets and foodstuffs (e.g., caviar and pistachios).
  • The United States also committed to remove a number of Iranian entities from the List of Specially Designated Nationals, which among other things would make them eligible to be approved for transactions under U.S. licenses.

Among the questions that will need to be addressed is whether the U.S. government will continue to prohibit the use of U.S. banks to clear dollar transactions involving Iran. Clarification will also be needed as to whether the current prohibition on “facilitation” by U.S. persons of transactions involving Iran will be maintained, in light of the JCPOA commitment to issue licenses permitting foreign subsidiaries of U.S. companies to engage in transactions with Iran.

The changes to U.S. sanctions will initially (and potentially going forward) be implemented by the President issuing general and specific licenses, making discretionary waivers of existing statutory provisions and otherwise directing forbearance by regulators. However, the U.S. Congress would need to take action to amend or repeal statutes in order to provide a sounder long-term basis for U.S. implementation of these sanctions policy changes. Companies considering larger and long-term investments in Iran will need to carefully assess the mechanics of U.S. implementation and political leanings of Congress and future U.S. Presidential administrations.

EU Sanctions Terminations Under the JCPOA

The EU has committed to terminate on Implementation Day all provisions of Council Regulation 267/2012 (as amended), Council Decision 2010/413/CFSP (as amended) and all national legislation as required, implementing all nuclear-related economic and financial sanctions, including designations. Several Iranian parties will remain subject to EU asset freezes under other measures which will remain in force.

This broad termination of measures contrasts with the partial U.S. reforms described above. Combined with the removal of U.S. secondary sanctions, however, EU companies, banks and investors will have substantially more access to the opening Iranian market than U.S. companies and their foreign subsidiaries. The EU terminations, specifically, would remove restrictions on the following areas:

  • Transfers of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions.
  • Banking activities, including the establishment of new correspondent banking relationships and the opening of new branches and subsidiaries of Iranian banks in the territories of EU Member States.
  • Provision of insurance and reinsurance.
  • Supply of specialized financial messaging services, including SWIFT, for persons and entities set out in Attachment 1 to Annex II, including the Central Bank of Iran and Iranian financial institutions.
  • Financial support for trade with Iran (export credit, guarantees or insurance). ]
  • Commitments for grants, financial assistance and concessional loans to the Government of Iran.
  • Transactions in public or public-guaranteed bonds.
  • Import and transport of Iranian oil, petroleum products, gas and petrochemical products.
  • Export of key equipment or technology for the oil, gas and petrochemical sectors.
  • Investment in the oil, gas and petrochemical sectors.
  • Export of key naval equipment and technology.
  • Design and construction of cargo vessels and oil tankers.
  • Provision of flagging and classification services.
  • Access to EU airports of Iranian cargo flights.
  • Export of gold, precious metals and diamonds.
  • Delivery of Iranian banknotes and coinage.
  • Export of graphite, raw or semi-finished metals such as aluminum and steel, and export or software for integrating industrial processes.
  • Designation of persons, entities and bodies (asset freeze and visa ban) set out in Attachment 1 to Annex II.
  • Associated services for each of the categories above.

The EU has committed to refraining from re-introducing or re-imposing the sanctions that it terminates without prejudice to the dispute resolution process provided for under the JCPOA and is committed to issuing relevant guidelines and further statements on the details of sanctions or restrictive measures which have been lifted under the JCPOA, consulting with Iran on the content of such guidelines and statements whenever appropriate.

Snap-Back Mechanism

The JCPOA creates a special Joint Commission, made up of the United States, Britain, China, France, Germany, the European Union, Russia, and Iran to support implementation and to address challenges that arise.  Of particular importance, in the event Iran fails to implement its commitments under the JCPOA, or is caught violating the agreement, the sanctions removed under the JCPOA can be re-imposed by a simple majority vote of the Joint Commission following a review period of approximately 65 days by each country’s Ministry of Foreign Affairs and an Advisory Board.

Ultimately, however, the UN Security Council will be responsible for determining whether to waive the violation or to re-impose sanctions, and the UN Security Council gives veto rights to the five permanent members, including Russia and China. If the authority to re-impose sanctions rests with the UN Security Council rather than the Joint Commission, the sanctions would not “snap-back” as long as Russia or China object.

Remaining Hurdles – U.S. Congress and IAEA Verification

Although the parties appear committed to proceeding with the negotiated agreement, implementing the JCPOA will require continued political will. Two hurdles in particular deserve watching:

  1. Vote by U.S. Congress on JCPOA

In May, the U.S. Congress approved the Iran Nuclear Agreement Review Act. Under the legislation, Congress will have 60 calendar days to review the agreement, related information, and the President’s plan for sanctions relief.  The President has pledged to not change the current sanctions status quo through executive action during this review period.

At the end of the 60 days, which will likely be sometime in mid-September – depending on when President Obama submits the agreement and the other required materials – Congress can enact a joint resolution in favor of the agreement, enact a joint resolution opposing the agreement, or take no action.  If Congress approves the agreement or takes no action, the President may then grant sanctions relief in line with the authority he already has under the relevant laws.

In the event Congress enacts a joint resolution opposing the agreement, President Obama has promised to veto this legislation.  If Congress fails to override the veto, the President can still move forward with sanctions relief.  However, if the veto is overridden by a 2/3 vote of both houses of Congress, then the President would be prohibited from lifting sanctions.  This prohibition, however, does not restrict the President’s ability to instruct the U.S. Ambassador to the UN to approve the removal of UN-imposed sanctions as agreed to in the JCPOA.

A future blog post will address the Congressional review process in more detail.

  1. IAEA verification

Implementation can begin only after IAEA verification of Iranian commitments. Iran has so far satisfied the IAEA in meeting benchmarks during the negotiation period. However, there is a parallel process to review “Outstanding Issues” relating to Iran’s past activities and potential military and nuclear-weapon elements of its prior (or present) nuclear program. It is not clear in the JCPOA how the two relate, but the IAEA may decide not to sign off on verification, which would trigger Implementation Day, if it is not satisfied with full Iranian cooperation in this parallel review. Iran has been extremely hesitant to admit that it has been engaged in any past nuclear weapons-related activities, which could cause a delay or present a problem for implementation.