On January 30, 2014, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") published its Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action ("JPOA") Reached on November 24, 2013, Between the P5+1 and the Islamic Republic of Iran ("Guidance"). The P5+1 countries (United States, China, France, Russia, UK, and Germany) committed to provide Tehran with limited, targeted, and reversible sanctions relief for a six-month period, beginning on January 20, 2014, and ending on July 20, 2014 (the "JPOA Period"), in return for Iran's commitment to place meaningful limits on its nuclear program.

A Temporary, Limited, Specific Sanctions Reprieve

The U.S. government agreed not to impose sanctions on non-U.S. persons for involvement in certain activities and associated services that occur exclusively during the JPOA Period with specified industries in Iran, including the oil industry. Hence, a contract signed during the JPOA Period but performed after July 20, 2014, would fall outside the JPOA Period and, thus, subject to sanctions. Complications might also arise if Iranian counterparts fail to make required payments within the JPOA Period, as such payments made outside the JPOA Period would be impermissible without authorizations from the U.S. and other governments.

With respect to Iran's crude oil industry, the U.S. government committed to "pause" certain sanctions intended to reduce crude oil exports from Iran to specific countries. During the six-month JPOA Period, the U.S. government will allow for China, India, Japan, South Korea, Taiwan, and Turkey ("JPOA Approved Countries") to maintain their current average level of imports from Iran and will render non-sanctionable a limited number of transactions for the release, in installments, of an agreed amount of revenue to Iran for receipt at participating foreign financial institutions in selected jurisdictions. This relief will lead to the transfer of $4.2 billion to Iran during the JPOA Period.

Enabling Iranian Crude Oil Exports

Under the terms of the JPOA, the U.S. government agreed to waive temporarily specific sanctions to allow for exports of crude oil from Iran to the JPOA Approved Countries. To this end, the U.S. government will not impose the following sanctions to allow for exports by non-U.S. persons of crude oil from Iran to these countries, as well as associated insurance and transportation services:

  1. Correspondent or payable-through account sanctions on foreign financial institutions that conduct or facilitate transactions by non-U.S. persons involving exports of petroleum and petroleum products from Iran to the JPOA Approved Countries;
  2. Blocking sanctions on non-U.S. persons that materially assist, sponsor, or provide financial, material, or technological support for, or goods or services in support of, export of petroleum and petroleum products from Iran to the JPOA Approved Countries; and
  3. Sanctions on non-U.S. persons who engage in transactions for exports of petroleum and petroleum products from Iran to the JPOA Approved Countries.

It should be noted that these transactions cannot involve persons on OFAC's Specially Designated Nationals List ("SDN List") other than the National Iranian Oil Company, National Iranian Tanker Company, or any Iranian depository institutions listed solely pursuant to Executive Order 13599.

Current Status of U.S. Sanctions

For U.S. persons, little has changed. OFAC's Guidance specifies that sanctions continue to apply to transactions involving parties listed on the SDN List and that restrictions will continue to apply to foreign subsidiaries of U.S. companies and other non-U.S. entities owned or controlled by U.S. persons. Therefore, U.S. companies or entities owned or controlled by U.S. companies that engage in transactions with Iran continue to be subject to all applicable U.S. sanctions.

The Guidance also specifies that the U.S. government has explicitly retained the authority to impose sanctions against Iran during the JPOA Period for activities that occurred (1) prior to January 20, 2014, (2) during the JPOA Period to the extent such activities are materially inconsistent with sanctions relief, or (3) before and during the JPOA Period in order to combat terrorism and the proliferation of weapons of mass destruction.

Notwithstanding OFAC's Guidance, State Department explanations, and White House fact sheets, the JPOA is widely misunderstood. Many have interpreted it to mean that Iran is now open for business. For example, on February 3, 2014, a trade delegation from France arrived in Iran representing many French companies, including Airbus, Alcatel, L'Oréal, Renault, Total, and Safran, in the hopes of renewing old ties. The Obama administration called this trip "unproductive" and during a joint press conference with France's President Hollande, President Obama reiterated that existing sanctions will continue to be enforced and that the United States "will come down on [violators] like a ton of bricks."

Early Crude Export Volume Raising Concerns

Preliminary reports on the impact of the JPOA indicate that the Iranian oil industry has already benefited from the sanctions relief. The International Energy Agency said that Iran exported a daily average of 1.32 million barrels of crude oil in January 2014. This number is far higher than the agreed-upon daily limit of 1 million barrels. This significant volume has also caused some experts to suggest that Iran already is not complying with the JPOA. When asked about this issue, a State Department spokeswoman stated that the matter is under review.