On November 23, 2013 the White House announced the outlines of a six-month deal reached between Iran and the five permanent members of the UN Security Council and Germany (“P5+1”) intended to curb certain aspects of the Iranian nuclear program in exchange for limited sanctions relief. This diplomatic track opens some very narrow, near-term economic opportunities for companies currently subject to US and EU sanctions. Along with opportunity, however, come the challenges of ensuring continued compliance with the remaining prohibitions and the risk that the suspended measures could be re-imposed should Iran fail to follow through on its commitments.
The initial six-month step encompasses three prongs to address Iran’s nuclear program:
- Halting and rolling back some elements of Iran’s nuclear program, including the enrichment of uranium over 5 percent, eliminating stockpiles near 20 percent, and freezing further advances in the construction of the Arak reactor.
- Building up additional transparency and intrusive monitoring of Iran’s nuclear program by the International Atomic Energy Agency (IAEA), including review of surveillance camera footage, access to facilities, and improved information access.
- Establishment of verification mechanisms by the IAEA and a Joint Commission to be established by the P5+1 and Iran.
In return, the P5+1 have committed to providing limited, temporary, targeted, and reversible relief while maintaining most of the existing sanctions, including those directed at Iran’s oil, finance, and banking sectors. Specifically, the P5+1 have committed to:
- Suspend certain sanctions on gold and precious metals, Iran’s automotive sector, and Iran’s petrochemical exports, potentially providing Iran approximately $1.5 billion in revenue.
- Suspend plans to impose new nuclear-related sanctions during the initial six-month period, if Iran abides by its commitments under this deal, to the extent permissible within each country’s political systems.
- License aircraft safety-related parts, repairs and inspections inside Iran for certain Iranian airlines.
- Allow purchases of Iranian oil to remain at their currently reduced levels - levels that are 60% less than two years ago. $4.2 billion from these sales will be allowed to be transferred in installments if, and as, Iran fulfills its commitments. The level of Iranian crude oil sales, however, may not increase in the initial six-month period.
- Allow $400 million in governmental tuition assistance to be transferred from restricted Iranian funds directly to recognized educational institutions in third countries to defray the tuition costs of Iranian students.
The vast majority of United States-based Iranian sanctions (including those implemented under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and the Iran Threat Reduction and Syria Human Rights Act of 2012) will continue to exist and be enforced, with relief limited only to the above enumerated items.
From an EU perspective, the European Commission views the achievement of the E3/EU+3 nuclear talks in Geneva and the mutually-agreed long-term comprehensive solution initiated by the Joint Plan of Action as a testimony of the European Union’s attachment to regional and global stability.
In order to ease the EU sanctions on Iran, the EU must adopt a Decision under the Common Foreign and Security Policy and amend Regulation 267/2012. A meeting between the EU foreign ministers has been scheduled in the following weeks to discuss the details, and the French Foreign Minister Laurent Fabius has declared that a partial lifting of the economic sanctions could be expected in December 2013 or January 2014. Similar to the U.S., it is assumed that the relaxation of the sanctions will be done in a limited, targeted and reversible manner. It has been indicated that the EU intends to raise threshold amount for payments to and from Iran that do not require prior authorization, which will ease legitimate dealings with Iran.
The nature and success of diplomatic engagement to date with Iran has been erratic and typically difficult to implement. The likelihood of reversals remains high, and pressure, particularly within the United States Congress, for a swift re-imposition of sanctions will remain strong. Companies subject to U.S. and EU sanctions, who may be interested in pursuing opportunities in Iran for activities that may be permissible under the proposed suspension measures, should proceed cautiously and with contingency plans to swiftly curtail these activities in the event that this diplomatic track stumbles or fails.