Iran Sanctions—Implementation of P5+1/Iran Nuclear Non-Proliferation Agreement

Overview


The United States and the European Union have begun relieving Iran of some limited sanctions in exchange for Iran’s curtailing its nuclear proliferation activities.

In Depth


Introduction

Following months of intense and difficult discussions, on November 24, 2013, the P5+1 (China, France, Germany, Russia, the United Kingdom and the United States) concluded a landmark six-month Joint Plan of Action (JPA) with Iran. The JPA marks an interim first step towards a comprehensive solution to address concerns about the Iranian nuclear program. In seeking to reach a full-fledged and comprehensive solution to the international community’s concerns, the JPA outlines a preliminary set of voluntary measures to be implemented by the P5+1 and by Iran, respectively. The P5+1 have agreed to extend limited, reversible relief from current sanctions imposed on Iran. In return, Iran has agreed to a series of specific measures aimed at assuaging the international community’s requirements regarding Iran’s nuclear activities. Implementation of the measures began on 20 January, 2014.

Iran’s Voluntary Measures

As part of the JPA, Iran has agreed to implement the following core measures:

  • Suspend enrichment of uranium above five-percent purity throughout Iran;
  • Bring to a standstill any expansion of enrichment capacity (i.e., no installation of new centrifuges);
  • Reduce significantly its stockpile of enriched uranium (all of the 20-percent enriched uranium stockpile must be converted or diluted to uranium of no more than five-percent purity);
  • Make no further advances in activities at the Natanz Fuel Enrichment Plant, Fordow, Iran, or the Arak reactor;
  • Undertake no reprocessing or construction of any facility capable of reprocessing uranium; and
  • Permit enhanced monitoring and verification measures that go beyond the previous level of cooperation with the International Atomic Energy Agency (IAEA) (i.e., Iran must provide information about its nuclear facilities to the IAEA and provide IAEA inspectors with more access to key nuclear sites). Notably, the IAEA has already begun daily inspections at the Natanz and Fordow enrichment facilities.

The U.S. and EU Voluntary Relief from Sanctions

The P5+1 have agreed that economic sanctions imposed by the United States and the European Union on Iran will be eased to a limited extent.

United States

The United States has agreed to the following as a quid pro quo for Iran’s agreement to adhere to its side of the bargain:

  • Suspend efforts to further reduce Iran’s crude oil sales and suspend sanctions on associated insurance and transportation services;
  • Not pursue new nuclear-related sanctions against Iran;
  • Suspend sanctions on Iran’s petrochemical exports and associated services;
  • Suspend sanctions imposed on Iran relating to gold and precious metals, as well as sanctions on associated services;
  • Suspend sanctions on Iran’s auto industry and associated services;
  • License the supply and installation in Iran of spare parts relating to flight safety for Iranian civil aviation and associated services, as well as safety-related inspections and repairs in Iran and associated services; and
  • Facilitate humanitarian trade—i.e., sales of food and agricultural products, medicine, medical devices and medical services—via a new “financial channel.”

The recently promulgated U.S. government guidance and FAQs (January 20, 2014) make clear that, with the exception of civil aviation activities and the humanitarian financing channel, the relaxation of the specified sanctions by the United States applies only to conduct and transactions fully completed during the initial agreement period (January 20 – June 20, 2014) and only to sanctions on non-U.S. persons. U.S. persons and U.S.-owned or
-controlled foreign entities continue to be generally prohibited from conducting transactions with Iran unless licensed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).

OFAC also issued a new Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry (Policy Statement). Pursuant to the Policy Statement, OFAC will favorably consider applications for specific licenses for U.S. persons and U.S.-owned or -controlled foreign entities interested in providing civil aviation parts and services to Iran. Further, sanctions on the conduct of activities of a type covered by the Policy Statement by non-U.S. persons not otherwise subject to the Iran transaction sanctions regulations are temporarily suspended.

Under the JPA, as noted above, the P5+1 are establishing a financial channel to further facilitate the purchase of and payment for exports to Iran of food, agricultural commodities, medicine and medical devices, as well as medical expenses incurred abroad by Iranians. The guidance and FAQs provide that the U.S. government will provide specific direction on this to foreign (i.e., non-U.S.) financial institutions whose involvement is sought by Iran in hosting this new financial channel. The guidance also notes that authorized food, agricultural and medical transactions are not required to be processed through this new mechanism; currently available financing options may continue to be used.

European Union

The European Union has also agreed to the following specific forms of relief as a quid pro quo for Iran’s agreement to adhere to its side of the bargain:

  • Not to pursue new nuclear-related sanctions against Iran;
  • To suspend certain nuclear-related sanctions targeting petrochemicals, gold and precious metals from Iran. In particular, the European Union has agreed to suspend the prohibition on the import, purchase or transport of Iranian petrochemical products. The suspension also covers the provision of all related services, such as financing, insurance and reinsurance. The European Union has, in addition, agreed to suspend the prohibition on trade in gold and precious metals with the government of Iran, its public bodies and the Central Bank of Iran or persons and entities acting on their behalf;
  • To facilitate financial transfers for nonsanctioned trade with Iran, including humanitarian purposes, such as food and medicines via a new financial channel. The European Union has also agreed to allow more financial transfers (below an increased threshold) to be processed without authorization; and
  • To suspend the prohibition on the provision of transportation and insurance services to third states importing Iranian oil.

Conclusion

The JPA is an important stepping stone to achieving a definitive agreement on and long-term solution to Iran’s nuclear proliferation program. It provides a period of breathing space to flesh out a permanent, mutually agreeable consensus on how to address concerns pertaining to Iran’s nuclear activities. Both sides to the JPA stand to benefit. The P5+1 will benefit from verifiable evidence that Iran is not engaging in proliferation activities, lest Iran be faced with renewed—and possibly harsher—sanctions. The people of Iran will benefit from a reduced stranglehold on the country’s economic activities.

The ultimate goal of the parties is to have the Iranian nuclear program treated in the same manner as that of any non-nuclear weapon state party to the Non-Proliferation Treaty. In the interim, however, the core sanctions architecture on the Iranian financial sector and oil industry, among other things, will continue to bite. Furthermore, the P5+1 interim commitments are reversible at any time should Iran not meet its obligations under the JPA or should no final comprehensive agreement be reached.

The McDermott Difference
Please contact any of the following McDermott attorneys with questions about this or other trade controls issues.