News

End of Iran sanctions

19.01.2016

Background

The sixteenth of January 2016 can certainly be considered a watershed in economic relations with Iran. On that day, the long-awaited phased lifting of the embargo on Iran began.
As the International Atomic Energy Agency (IAEA) has now confirmed in its verification report that Iran has met its obligations under the Joint Comprehensive Plan of Action (JCPOA), the US and EU are obliged to lift a specific set of sanctions.
The EU Council has met this obligation with its Decision (CFSP) 2016/37 of 16 January 2016 and thereby specified the date of application of Regulation (EU) 2015/1861, which implements the lifting of sanctions accordingly and amends the previously applicable Regulation (EU) No 267/2012. 

 

What exactly does this mean for EU sanctions?

Many restrictive measures in the EU sanctions against Iran have been lifted as of Implementation Day. These include:

  • Restrictions on insurance, the movement of capital and payments as well as notification and approval requirements;
  • Blacklisting of a large number of key individuals and institutions (these therefore no longer come under the supply ban);
  • Restrictions on the transport sector;
  • Restrictions on gold, other precious metals, banknotes and coins;
  • Restrictions on the oil, gas and petrochemicals sector;
  • Restrictions on software (as long as there is no nuclear or military connection or benefit);
  • Removal of certain Iranian individuals and companies from the sanctions blacklist.

 

Which industries will benefit?

Aside from the few sanctions which will remain in place, such as those on proliferation-related goods or technology or armaments or connected to the individuals still currently blacklisted, trade with Iran is now largely legal. The following industries in particular will benefit from this:

Banks
One key easing measure is that non-blacklisted Iranian banks can be reconnected to the SWIFT system and payments are basically allowed once again. The banks can and will carry out payments. Payment transfers between EU companies and non-blacklisted Iranian individuals and companies are possible again. The rules to date on notification and approval of payments no longer apply. In practice, this means:

  • Iranian banks which are no longer blacklisted are allowed to set up branch offices in the EU and acquire shareholdings in EU credit and financial institutions;
  • Export financing is permitted once again;
  • German companies can again use the services of Iranian banks in Iran (as long as they are not blacklisted);
  • Bonds from Iranian banks or Iranian government securities can again be offered and bought;
  • Loans can in principle be granted by German banks again, although this depends on how the rules for repayment of the substantial old debts are defined.

Individuals who are no longer blacklisted as of Implementation Day will have immediate access to any frozen assets. This primarily concerns a group of Iranian banks which were previously blacklisted. Tehran will thus gain access to frozen funds of at least 100 billion dollars.
However, some banks remain blacklisted (including Ansar Bank, Bank Saderat Iran, Bank Sepa and Mehr Bank).

Insurance/reinsurance
The effects on the insurance and reinsurance sector are very significant. Through the lifting of the initial sanctions, it is once again possible to offer insurance and reinsurance services to the Iranian government and non-blacklisted individuals and companies.

Energy
The energy industry will also benefit. Deals with Iran’s energy sector are permitted again. Equipment for oil and gas extraction is again allowed to be supplied to Iran by German companies. Investment in the Iranian oil and gas sector is permitted from now on. There is also growing demand in Iran for renewable energy.

Engineering and plant construction
The developments will give a boost to engineering firms and plant manufacturers. Significant investment is likely in this area.

Aviation/automotive
Deliveries of civilian aircraft and spare parts as well as trade in the car industry are now allowed again after the lifting of sanctions.

Logistics The bolstering of the above industries will also have a positive influence on the logistics sector and boost demand for related services.

 

Which embargos are still in place?

However, not all sanctions have been lifted completely. Embargos against Iran by the EU and US with relation to terrorism and human rights violations are still in place. The easing of other embargos is tied to special approval procedures: for example, a special approval procedure involving the UN Security Council is required for the supply of nuclear-related materials. This will have the effect of channelling the purchasing and sale of nuclear material.

The sanctions on weapons and launcher systems (missile technology) also remain in place. An advance export permit will be required in future for certain metals and software.

The other standard export control regulations (such as dual-use regulations) must also be observed.

 

Impact on US sanctions against Iran

However, the enthusiasm about the lifting of sanctions is somewhat tempered by the fact that the lifting of US sanctions is proving much more complicated and difficult than the elimination of most EU sanctions. This may well lead to the existing hurdles to trade with Iran remaining at least partly in place.

The US sanctions contain rules which can be distinguished as follows:

  • Those applicable to US persons;
  • Those for subsidiaries of US companies; and
  • Those that apply to non-US persons too.

The following now applies in this respect: for US persons, the main impact will be that around 400 individuals and institutions have been removed from the US sanction list. But it is worth remembering that US persons still may not engage in business with individuals or institutions classified under the terms Government of Iran or Iranian Financial Institution.

Importing rugs, pistachios and caviar from Iran into the US is also allowed. Special rules apply to subsidiaries of US individuals covered by the exemptions in General License H, which however only allows certain types of transaction on a very restricted basis.

Most bans aimed at non-US individuals have been lifted, including:

  • Bans on investing in the energy and petrochemicals sector;
  • Restrictions on shipbuilding and port operators;
  • Bans covering the insurance sector, and finally
  • Restrictions in the automotive industry, which are of great importance to German companies.

 

Outlook

The biggest trade barrier to date, specifically the reluctance of EU banks to finance trade with Iran and carry out payments, will probably only change slowly since the regulations, which ultimately led to EU banks paying high fines time and again, will largely remain in place. In particular, payments in US dollars are still prohibited. The US financial system thus remains decoupled from trade with Iran.

The fact that Iran has not yet implemented the US Foreign Account Tax Compliance Act (FATCA) also has practical implications. FATCA is a law concerning US tax reporting by foreign financial institutions.

 

Conclusion

In summary, it can be said that many things will become legal, and certain major restrictions will be eliminated, especially with regard to payments, but the situation will remain complex. Risks connected with retaining business, continuing negotiations or starting up new trade should therefore still be weighed up carefully.

 

Further reading: End to sanctions against Iran in sightSignificant tightening of EU economic sanctions against Russia