From asset freezes and insurance blockades, to bans on SOLAS renewals and even the sale of compasses: the sanctions imposed by the EU and US since 2010 have had a significant impact upon the shipping sector for many years now. Following the JCPOA “Implementation Day” on 16 January 2016, both Iranian and international companies in the shipping sector are now looking to take advantage of the opening up of Iran.

For some significant Iranian shipowners such as NITC and IRISL the sanctions meant that they were placed completely off limits to charterers, cargo interests, and – crucially - insurers by asset freezes.  Besides those shipowners subject to asset freezes, any Iranian owned (or even chartered) vessel was prevented from obtaining the services of EU based surveyors, flags or classification societies.   EU oil and chemical tankers were off limits to Iranian charterers.  Sales of key equipment and technology for the maritime industry, including marine propulsion engines, propellers and, indeed, compasses, were all banned from export to Iran.

The so called US secondary sanctions (which apply to non-US persons) added to woes, potentially making anyone anywhere who provided “significant” support to the Iranian shipping or shipbuilding sectors the subject of US penalties that could cut them off from the US banking system.  OFAC confirmed that even the provision of bunkers to vessels flying the Iranian flag or owned or chartered by an Iranian person could be sufficient to attract such penalties.  The US designations of NITC, IRISL and their fleets as "specially designated nationals" (or SDNs) further hindered Iran's shipping sector.

The international shipping community has had its share of concerns too.  For some time it was feared that the EU restrictions on the insurance of vessels carrying Iranian petroleum products prevented any vessel entered with the International Group from carrying bunker fuel of Iranian origin.  With anecdotal evidence that significant quantities of fuel oil derived from Iranian crude were in circulation in major bunkering ports around the world, that caused a good deal of concern.  The EU later clarified that the restrictions only applied to the carriage of cargoes of Iranian origin fuel oil, and not fuel oil carried as bunkers.  But the fuel oil still had to have been “produced” outside Iran and there were lingering concerns that some bunkering ports were awash with bunkers produced in Iran, theoretically threatening a vessel’s P&I or hull cover if it bunkered there.  And bunkering in Iranian waters still exposed an owner to a loss of cover.

Shipowners who nonetheless decided to trade their vessels in Iranian waters ran other risks too, the most significant being following an arrest.  Even if an Iranian cargo claimant was not a designated person and a club was able to provide security, a club letter may not have been accepted.  Without any functioning banking relationships to put in place back to back bank guarantees, owners were left in the difficult position of having to make cash payments into court or finding middle men to engineer a risky and complex security system with monies held in third party accounts in the region.

More generally, the cost of compliance with complex, often misunderstood and overlapping sanctions regimes drove up costs for everyone associated with the shipping industry.  Many businesses – including those with few or no connections to the US or EU – simply decided that anything connected with trade with Iran was too difficult to comply with, and chose not to do business instead.

The good news for the shipping industry generally is that (all going well) this is set to change.

"Implementation Day" was announced on 16 January 2016 after verification by the International Atomic Energy Agency, and as a result, most (but not all) of the EU and US sanctions affecting Iran's shipping sector have now been lifted.

Shipowners such as NITC and IRISL have been removed from the EU list of designated persons subject to asset freezes, as have their fleets of vessels (although some IRISL subsidiaries remain listed).  They are once again free to access the EU insurance markets, including the International Group of Protection & Indemnity (P&I) clubs, as well as to source European cargoes and charterers.  Iranian owned vessels will be able to carry some previously prohibited goods from EU suppliers.

The wide ranging US secondary sanctions that targeted anyone providing significant support to the Iranian shipping or shipbuilding sector will also be lifted on implementation day, allowing non-US persons to provide goods and services to Iranian owned ships again without fear of being shut out of the US economy.  NITC, IRISL and their fleets have been removed from the list of SDNs.

Quite what immediate effect all this will have on the shipping industry remains to be seen.  There may, in the medium term, be a reduction in VLCC rates; some reports indicate that the majority of NITC's fleet of over 40 VLCCs are less than 10 years' old.

But not all restrictions have been removed.  Some major shipping sector companies remain listed, such as SADRA (an Iranian shipyard).  Furthermore, the historic US sanctions against Iran that pre-dated the more recent nuclear concerns, will remain in place, casting a long shadow over the JCPOA.  US persons will still be prohibited from carrying out almost all ordinary economic activities with Iran.

That means that US banks will continue to refuse to clear dollar transactions connected with Iran notwithstanding the JCPOA deal.  It remains to be seen how willing non-US banks will be to process non-US dollar transactions connected with Iranian trade given concerns by their US respondent banks about the potential "contamination" from that trade.  It is likely that there will be some residual institutional resistance in the banking community to processing even non-US dollar payments where bills of lading and other commercial documents reference Iran.  Whether other branches of the financial services sector, such as the insurance industry, will rush to resume business with the Iranian shipping sector, also remains to be seen.

One particular area of concern in the shipping sector is the provision of P&I insurance to vessels calling at Iranian ports, loading Iranian sourced cargoes, or which are owned by Iranian persons.  The vast majority of P&I policies contain some form of Sanctions Clause which excludes coverage for any part of a claim which cannot be passed up to pooling arrangements or reinsurers due to sanctions.  As it is common for US based reinsurers to provide at least some excess cover to many P&I clubs (including the International Group), this may in practice mean that members whose vessels are calling at Iranian ports, loading Iranian cargo or are owned by Iranian persons, are effectively self-insured for the US reinsured proportion.

There is also the ever present issue of the JCPOA "snap-back" provisions, which allow for the sanctions prior to Implementation Day to be reinstated in the event that Iran defaults on its nuclear obligations.  This will not be a without advance warning as the JCPOA has a dispute resolution procedure which must first be followed.  However, those companies considering entering into new contracts with Iranian entities should be mindful of the snap-back possibility and provide for such an occurrence.

Nevertheless, despite these ongoing risks, this is at long last a light at the end of the tunnel for one of the industries that has been hardest hit by the most comprehensive set of economic sanctions the world has yet seen.