The various international and national sanctions that make up the Iran sanctions framework have differing geographic reach and substantive provisions, but operate as a whole to more closely restrict and confine Iran’s access to capital, credit and resources for development of its petroleum and natural gas reserves. All of the sanctions programs also include designations of certain Iranian individuals and entities (and often their non-Iranian affiliates) who are subject to asset freezing and blocking, as well as restrictions on visa issuance and international travel. Below are key highlights of the current sanctions regimes, as well as trends relevant to the energy sector.
United Nations sanctions
- New prohibitions exist on overseas investment by Iran in uranium mining and related nuclear technologies, though there are no other mandatory energy sector sanctions.
- The export to Iran of almost all items that can have both civilian and military applications (so-called “dual-use” items) is prohibited.
- Countries are required to insist that their companies refrain from transacting business with Iran if there is reason to believe that such business could support Iran’s weapons of mass destruction programs.
- There is a non-binding call for voluntary restraint from providing international lending and trade finance to Iran and with respect to dealing with Iranian banks.
European Union sanctions
- The current EU restrictions of October 2010 update previous sanctions and apply (among other things) to the export to Iran of equipment or services related to the exploration and production of crude oil and natural gas, refining, and liquefaction of natural gas, although these sanctions do not extend to general trade in civilian goods
- Medium and long-term trade financing and financing guarantees are prohibited, and EU member states and their nationals are called upon to exercise restraint in the provision of short-term financing.
- Iranian persons’ access to EU insurance and reinsurance markets is restricted.
- EU companies may not finance energy sector projects in Iran and sales to Iran of equipment or services for its energy sector (including for projects outside Iran).
- Prior authorization by EU bank regulators is required for transfers of funds to or from any Iranian person, entity or body exceeding 40,000 euros.
- In the United Kingdom, the current legislation:
- Requires freezing of any funds or economic resources belonging to, owned, held or controlled by a person designated under the EU lists.
- Prohibits making funds or economic resources available to or for the benefit of a designated person. - Allows for general or specific licenses to carry on activities otherwise prohibited in certain conditions.
- Requires advance notification of most transfers involving any Iranian person of between €10,000 and €40,000 and prior authorization from HM Treasury for transfers of €40,000 or more. -
- n principle prohibits dealings with any Iranian financial institution.
- Through the Export Control Organisation within the Department for Business, Innovation and Skills, requires businesses to apply for licenses (which may not be granted) to deal with specific Iranian end-users. This list includes names not on the EU or Treasury lists.
- Has extraterritorial effect so that it applies to acts of UK nationals or UK incorporated bodies even where they happen outside the UK. Any such individual or business must therefore comply with UK sanctions regardless of where the individual or business happens to be. So the UK regime will catch overseas branches or representative offices of UK businesses and their staff when they travel on business, but will not apply to subsidiaries operating wholly outside the UK and those that do not have legal personality under UK law.
- Breach of sanctions may result in imprisonment and an unlimited fine.
United States sanctions
- Extraterritorial sanctions trigger penalties on any person, regardless of nationality, that invests threshold amounts in Iran’s energy sector ((1) investing $20 million or more annually in Iran’s ability to develop petroleum resources; (2) providing support of $5 million or more annually that facilitates the maintenance or expansion of Iran’s domestic production of refined petroleum products; or (3) providing support of $5 million or more annually that contributes to Iran’s ability to import refined petroleum products).
- Exports by US persons to Iran are generally prohibited, as are imports from Iran to the US. This has been expanded to restrict even those items that were approved for import under a general license, but it does not impact humanitarian aid.
- US sanctions generally do not prohibit the use by foreign persons of US origin technology, such as laptops, in Iran unless the technology is being used both for one of the purposes in support of Iran’s energy sector noted above and is of the threshold value noted above. With that said, there may be specific license or contract terms prohibiting such use, or US export licenses related to the technology, that require analysis of the specific documentation.
- There are new strict regulations on (and authority for US regulators to order the termination of) banking relationships between US banks and any foreign banks that conduct business with the Iranian Revolutionary Guard Corps (IRGC) or with Iranian entities subject to UN sanctions.
- US Treasury Department officials continue a vigorous, if often confidential, campaign to persuade US and global financial institutions and commercial firms not to do business with Iranian entities.
- In recent weeks, a substantial number of new designations have been issued by the US government, primarily focused on trade finance entities, shipping entities, and energy sector businesses with asserted ties to the IRGC.
- The current approach of US authorities appears to be to allow existing investments and contracts in or with Iran to run their course, not to insist upon an immediate shutdown and withdrawal.
Other national sanctions regimes
- Australia – There is an expanded list of designated parties subject to asset freezing and blocking, along with travel bans for designated parties. Australia has not implemented broader transaction restrictions similar to the US or EU.
- Canada – New investments in the Iranian oil and gas sector are prohibited. There is also a prohibition on the export to Iran of goods used in the refining of oil or liquefaction of natural gas, as well as any technical data related to such goods or to the processing, storing or handling of liquefied natural gas.
- Japan – A new financial authorization system has been established for all transactions with Iran. There are also prohibitions on new investments in, or sales of goods, services and technology to, Iran’s energy sector.
- South Korea – Special authorization is required for all transactions with Iranian parties that exceed €40,000. There are also new limitations on investments in Iran’s oil and gas refinery industries.
Countries that continue to do business with Iran
- China – Commercial ties continue, with conflicting reports about the nature and extent of China’s implementation of sanctions and whether Chinese companies are backfilling as other companies withdraw from the Iranian market. The US Government recently praised China’s commitment to implementing enhanced sanctions, asserting that Chinese firms are not backfilling to a great extent as European or US firms exit the market.
- The Gulf States – Longstanding, broad and deep banking, finance and trade relations continue amid inconsistent and relatively opaque implementation of UN sanctions.
- India – India recently prohibited the use of its central bank’s clearing facilities for oil transactions with Iran, limiting trade finance pathways for such transactions. Co-development of energy resources and commercial flows continue through other private sector channels.
- Turkey – Turkey has expressed its commitment to enforce UN sanctions, though official policy remains that the Turkish private sector is not bound by US or other national sanctions regimes.
- Venezuela – There are burgeoning trade relations between Venezuela and Iran, particularly in the oil sector.
Key energy-sector commercial impacts
- Financing arrangements are likely to undergo heightened counterparty and institutional due diligence to screen for any Iranian nexus, potentially lengthening the time required to obtain funds and raising the cost of capital.
- Transactional due diligence procedures are being enhanced to identify and screen for any connections with designated Iranian individuals and entities, likely resulting in requests for stronger representations and warranties and for fuller information about downstream matters, supply chains and payment chains.
- Enhanced regulatory scrutiny by the US and other governments on multinational energy-sector companies will likely require enhanced internal controls and compliance programs.
- There may be increased difficulty—and cost—in sourcing, obtaining, and transferring spare parts in light of the new restrictions on energy-sector exports to Iran.
- US sanctions apply irrespective of the particular currency used, but US dollar denominated transactions will likely trigger even greater scrutiny because of the need to clear the dollars through a US bank at some point upstream or downstream from the specific transaction