Effective January 23, 2012, the European Union (EU) implemented significantly expanded sanctions against Iran. Adopted by Council Decision 2012/35/CFSP, Council Regulation (EU) No. 56/2012, and Council Implementing Regulation (EU) No. 54/2012, the new measures: (1) ban imports of Iranian petroleum resource-related products; (2) take additional actions against energy, financial, and transport sectors dealing with and providing assistance to Iran's petroleum resource-related sector; (3) prohibit certain business involving precious metals and stones with the Government of Iran (GOI); and (4) freeze the assets of the Central Bank of Iran (CBI) and several other persons. The sanctions follow similar multilateral sanctions imposed by the United States, the United Kingdom, and Canada (see our previous advisory) in the past several months. The sanctions amend Council Decision 2010/413/CFSP, and cover EU Member States, as well as persons or entities within the territories of Member States or under their jurisdiction (collectively, "EU Persons").  Below is a summary.  

Petroleum-based Sanctions

  • Scope: The new petroleum resource-based sanctions prohibit the import, purchase, or transport of Iranian crude oil, petroleum, and petrochemical products into the EU. Further, they prohibit EU Persons from furnishing any financial assistance related to the items above, whether directly or indirectly. This financial assistance prohibition covers insurance and re-insurance services, as well as financial derivatives. Finally, EU Persons are prohibited from participating, knowingly or intentionally, in activities to circumvent these restrictions.
  • Transition period: The sanctions provide a transition period to phase out contracts that commenced prior to publication of the Council Decision. Contracts for crude oil and petroleum products executed before January 23, 2012 are excluded from the sanctions until July 1, 2012. Pre-existing contracts for petrochemical products are excluded until May 1, 2012.  These exclusions also apply to contracts that are ancillary to the execution of valid contractual obligations, as well as reimbursements of outstanding amounts for such contracts.  
  • Review mechanism: The expanded sanctions include a review clause, acknowledging certain Member States' reliance on Iranian exports for energy requirements. The Council Decision mandates that the new sanctions on Iranian petroleum resource-products will be reviewed no later than May 1, 2012. The review will focus on whether other sources of crude oil and petroleum products are available, and the financial conditions for obtaining such sources, with a goal of assuring that Member States' energy needs are not disrupted.

Sanctions on the Petrochemical Industry

  • Scope: The new sanctions target the sale, supply, or transfer of "key equipment and technology" by EU Persons for the Iranian petrochemical industry, whether located in or outside Iran.  Reportedly, the European Commission is preparing a list of the key equipment and technology that will be banned. Training and technical assistance furnished by EU Persons to any enterprise engaged with the Iranian petrochemical industry is likewise prohibited.  Certain forms of financial assistance and investment also are restricted, prohibiting EU Persons from granting any financial loan or credit to, or acquiring or extending an ownership stake in, enterprises in Iran that are engaged in the petrochemical industry or outside of Iran owned by Iranian petrochemical enterprises.  Additionally, EU Persons are restricted from creating joint ventures with Iranian enterprises engaged in the petrochemical sector, and with other subsidiaries or affiliates under their Iranian control.  The EU adopted similar sanctions in 2010 targeting financial services, sales, and supplies for the Iranian crude oil and petroleum sector. The prohibition of these services and undertakings extends to any person under the jurisdiction of Member States, regardless of where the services originated or the mode of transportation. As above, EU persons are prohibited from participating, knowingly or intentionally, in activities to circumvent these restrictions.
  • Transition period: The EU has provided a transition period for obligations relating to the delivery of goods or investments under the contracts described above. For oil- and petroleum-related services, contracts executed before July 26, 2010 are excluded from the sanctions (reflecting the earlier sanctions). For petrochemical-related delivery of goods or investment obligations, the exclusion date of concluded contracts is before January 23, 2012. The exceptions apply to the execution of obligations arising directly out of contracts, but it does not appear from the language of the Council Decision that such exceptions will apply to ancillary contracts.

Other Iranian Sanctions

  • Other Services: The Council Decision also prohibits EU Persons from engaging in any direct or indirect sale, purchase, transportation or brokering of gold, diamonds, and other precious metals with the GOI or its agencies and instrumentalities.  In addition, the sanctions prohibit the delivery by EU Persons of new Iranian denominated banknotes and coinage to or for the benefit of the CBI.  Member States will need to undertake the necessary measures to implement and administer these sanctions.

Freezing of Assets of Iranian Financial Institutions

  • Scope: For the first time, the EU Council Decision and Council Regulation targets the CBI. Effective January 23, 2012 , all funds and economic resources which belong to, are owned, held, or controlled, directly or indirectly, by the CBI in the EU are frozen. Further, no EU Person can make funds or economic resources available for the benefit of CBI. The EU also added Bank Tejarat (an Iranian state-owned bank) to the sanctioned entities list, as well as approximately 12 other persons or entities that provide certain support to the GOI, including the Iranian Revolutionary Guards Corp (IRGC), against whom asset freezes and/or travel bans now apply.  Annexes I and II set forth the specific persons sanctioned under the Council Decision.  The Council Implementing Regulation amends the list of persons and entities sanctioned for involvement with nuclear or ballistic missile activities, the IRGC, or the Islamic Republic of Iran Shipping Lines.
  • Exceptions: Pursuant to the Council Decision and Council Regulation, the above economic sanctions do not apply to transfer of funds by or through the CBI, or economic resources received and frozen from the CBI, when either of two requirements are met: (1) other financial institutions are not identified on the EU sanctioned list and are transferring payments owed under a specific trade contract, provided that no designated person will benefit, or (2) the relevant Member State has authorized, on a case-by-case basis, that the EU Person's payment will provide trade financing liquidity that is in accord with the EU policy.

Conclusion

The additional EU sanctions, along with the recent US, UK, and Canada actions, create a tighter net around the Iranian petroleum- and petrochemical-based sector. However, given certain Member States' greater reliance on Iranian petroleum-based exports, the EU sanctions do not impose a complete severance of trade relations with Iran, at least for the next several months. Instead, the expanded sanctions are more targeted, and provide a transition period for certain pre-existing contracts. The review clause also allows for amending these sanctions to reflect the EU's need for uninterrupted energy supply.  

We will continue to keep you apprised of developments regarding sanctions against Iran.

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