Iran Sanctions - Update

Following the conclusion on 24 November 2013 of negotiations between Iran and P5+1 (the United States, China, Russia, Germany, France and the United Kingdom) in respect of sanctions imposed on Iran in relation to its nuclear industry, the United States Government has published a Fact Sheet setting out changes to the sanctions regime. The other participating states have not issued any detailed statements yet. The full text of the The White House Fact Sheet can be found at here.

It appears that, while existing sanctions will remain in place for the time being, there will be a suspension of sanctions on gold and precious metals, Iran’s auto sector, and Iran’s petrochemical exports.

An extract from the Fact Sheet commenting on specific sanctions is set out in full below:

“Limited, Temporary, Reversible Relief

In return for these steps, the P5+1 is to provide limited, temporary, targeted, and reversible relief while maintaining the vast bulk of our sanctions, including the oil, finance, and banking sanctions architecture.  If Iran fails to meet its commitments, we will revoke the relief.  Specifically the P5+1 has committed to:

·         Not impose new nuclear-related sanctions for six months, if Iran abides by its commitments under this deal, to the extent permissible within their political systems. 

·         Suspend certain sanctions on gold and precious metals, Iran’s auto sector, and Iran’s petrochemical exports, potentially providing Iran approximately $1.5 billion in revenue. 

·         License safety-related repairs and inspections inside Iran for certain Iranian airlines.

·         Allow purchases of Iranian oil to remain at their currently significantly 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.

·         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.

Humanitarian Transaction

Facilitate humanitarian transactions that are already allowed by U.S. law.  Humanitarian transactions have been explicitly exempted from sanctions by Congress so this channel will not provide Iran access to any new source of funds.  Humanitarian transactions are those related to Iran’s purchase of food, agricultural commodities, medicine, medical devices; we would also facilitate transactions for medical expenses incurred abroad.  We will establish this channel for the benefit of the Iranian people. 

Putting Limited Relief in Perspective

In total, the approximately $7 billion in relief is a fraction of the costs that Iran will continue to incur during this first phase under the sanctions that will remain in place.  The vast majority of Iran’s approximately $100 billion in foreign exchange holdings are inaccessible or restricted by sanctions. 

In the next six months, Iran’s crude oil sales cannot increase.  Oil sanctions alone will result in approximately $30 billion in lost revenues to Iran – or roughly $5 billion per month – compared to what Iran earned in a six month period in 2011, before these sanctions took effect.  While Iran will be allowed access to $4.2 billion of its oil sales, nearly $15 billion of its revenues during this period will go into restricted overseas accounts.  In summary, we expect the balance of Iran’s money in restricted accounts overseas will actually increase, notdecrease, under the terms of this deal. 

Maintaining Economic Pressure on Iran and Preserving Our Sanctions Architecture

During the first phase, we will continue to vigorously enforce our sanctions against Iran, including by taking action against those who seek to evade or circumvent our sanctions. 

·         Sanctions affecting crude oil sales will continue to impose pressure on Iran’s government.  Working with our international partners, we have cut Iran’s oil sales from 2.5 million barrels per day (bpd) in early 2012 to 1 million bpd today, denying Iran the ability to sell almost 1.5 million bpd.  That’s a loss of more than $80 billion since the beginning of 2012 that Iran will never be able to recoup.  Under this first step, the EU crude oil ban will remain in effect and Iran will be held to approximately 1 million bpd in sales, resulting in continuing lost sales worth an additional $4 billion per month, every month, going forward.

·         Sanctions affecting petroleum product exports to Iran, which result in billions of dollars of lost revenue, will remain in effect.

·         The vast majority of Iran’s approximately $100 billion in foreign exchange holdings remain inaccessible or restricted by our sanctions. 

·         Other significant parts of our sanctions regime remain intact, including:

o   Sanctions against the Central Bank of Iran and approximately two dozen other major Iranian banks and financial actors;

o   Secondary sanctions, pursuant to the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) as amended and other laws, on banks that do business with U.S.-designated individuals and entities;

o   Sanctions on those who provide a broad range of other financial services to Iran, such as many types of insurance; and,

o   Restricted access to the U.S. financial system.”

It is anticipated that the next phase in implementation of the 24 November 2013 agreement so far as sanctions are concerned will be the publications of legislation by states, particularly the United States and the European Union, which will set out in detail how  and when sanctions may be modified. 

We shall provide Members with an update as and when further information about the changes to the sanctions regimes becomes available. In the meantime any questions about sanctions can continue to be addressed to Tony Paulson tony.paulson@westpandi.com or Robert Searle Robert.searle@westpandi.com.