On July 14, 2015, after months of negotiations, China, France, Germany, Russia, the United Kingdom and the United States (US) reached an agreement with Iran with a grand title of "the Joint Comprehensive Plan of Action" (برنامه جامع اقدام مشترک‎ in Persian) (the "JCPOA" or "برجام") which ensures Iran's nuclear disarmament in consideration for gradual lifting of a variety of international sanctions and their ultimate repeal. The JCPOA is a very detailed document with five annexes and four attachments creating a detailed and complex process by which Iran must take certain steps to ensure the peaceful nature of its nuclear program while the Security Council, the US and the European Union (EU) cease the application of nuclear-related sanctions and ultimately repeal them.

The only political comment appropriate in this briefing is that execution of the JCPOA was met with overwhelmingly positive reaction of its participants and international community. The only opposition came as expected from some Middle Eastern countries, policy analysts and certain members of the US Congress.

The JCPOA does not provide any immediate effect on Iran sanctions. It is likely to be several months before any sanctions are lifted. This because verification by the International Atomic Energy Agency (IAEA) that Iran has implemented key nuclear-related measures described in the JCPOA is a condition precedent to suspension of the first batch of sanctions. Furthermore, suspension of sanctions related to Iranian hydrocarbon extraction sector has been delayed by six months and their review will take place on 14 January 2016. Provided the IAEA confirms that Iran has complied with the initial set of JCPOA conditions (the "Implementation Day"), the United Nations (UN), the US and the EU will suspend operation of certain sanctions described below.

The sanctions relief, if implemented, represents a significant opportunity for Ukrainian and other European companies, but the exact impact on US companies and their non-US subsidiaries remains uncertain, given the JCPOA's limited impact on US primary sanctions. Ukraine did not introduce any direct anti-Iranian sanctions. However, ability of Ukrainian and EU companies to conduct business with Iran was severely restricted because of the far reaching nature of the US and EU sanctions which could restrict the ability of business based in the US and the EU to deal with companies having a business relationship with Iran (see below). Moreover, Ukraine was, as other UN Members, obliged to comply with Security Council restrictive measures, envisaged in seven Security Council's resolutions. 

Overview of US obligations to lift sanctions

The US has a long standoff with Iran. During that time, it had introduced wide-ranging sanctions, which broadly could be divided into primary and secondary. The Iranian delegation at the 6+1 negotiations failed to persuade the US to commit to any substantial easing of primary sanctions (see below); however, the negotiators were able to reach US concessions on lifting of the bulk of secondary sanctions on the Implementation Day.

With respect to secondary sanctions, US sanctions relief will occur in a number of sectors:

  • Financial and Banking Measures: certain secondary sanctions, including those related to the Central Bank of Iran and other Iranian financial institutions, the National Iranian Tanker Company and National Iranian Oil Company, along with several other Specially Designated Nationals (SDNs), transactions involving Iranian Rials and government bonds, would be suspended and eventually terminated.
  • Insurance Measures: the JCPOA specifically addresses certain secondary sanctions measures related to the insurance industry and indicates that the US will lift "sanctions on the provision of underwriting services, insurance, or reinsurance in connection with activities consistent with this JCPOA, including activities with individuals and entities set forth in Attachment 3 to this Annex".
  • Energy and Petrochemical Sectors: the JCPOA anticipates that the US would cease efforts to reduce Iran's crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations that can purchase Iranian crude oil. In addition, many secondary sanctions restrictions would be permanently removed, including sanctions on investment, including participation in joint ventures, goods, services, information, technology, and technical expertise and support for Iran's oil, gas, and petrochemical sectors; sanctions on the purchase, acquisition, sale, transportation or marketing of petroleum, petrochemical products and natural gas from Iran; sanctions on the export, sale or provision of refined petroleum products and petrochemical products to Iran; and sanctions on transactions with Iran's energy sector, including with the National Iranian Oil Company and Naftiran Intertrade Company. Surprisingly none of Iranian private oil companies is mentioned in the JCPOA, which may be interpreted as continuation of the sanctions against them even after the Implementation Day.
  • Shipping, Shipbuilding, and Port Sectors: "برجام" the US would permanently remove secondary sanctions which impose restrictions on persons found to have knowingly engaged in transactions with Iran's shipping and shipbuilding sectors and port operators, including IRISL, South Shipping Line and the National Iranian Tanker Company, as well as the port operators of Bandar Abbas.
  • Automotive Sector: the JCPOA provides for the US obligation to lift "sanctions on the sale, supply or transfer of good and services used in connection with Iran's automotive sector".

The impact on primary sanctions under the Iranian Transactions and Sanctions Regulations (ITSR) is more limited. The US government has made a commitment in the JCPOA to issue licenses for activities related to certain otherwise sanctioned sectors. OFAC has advised that more detailed guidance will be provided in the future. These areas include, but are not limited to:

  • Non-US Subsidiaries of US Companies: the JCPOA may ease primary sanctions measures relevant to subsidiaries of US entities located outside the United States, as the wording states that the US will "license non-US entities that are owned or controlled by a US person to engage in activities with Iran that are consistent with this JCPOA". The JCPOA defines an entity as owned or controlled by a US person "if the US person: (i) holds a 50 percent or greater equity interest by vote or value in the entity; (ii) holds a majority of seats on the board of directors of the entity; or (iii) otherwise controls the actions, policies, or personnel decisions of the entity". The JCPOA further clarifies that "US persons and US-owned or -controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to this JCPOA, unless authorized to do so by the US Department of the Treasury's Office of Foreign Asset Control (OFAC)". This, in theory, would allow Ukrainian subsidiaries of US companies to conduct business with Iran, which their parent companies would still be restricted to do. It seems that OFAC understands this loophole and it remains to be seen how this licensing commitment will be implemented by OFAC.
  • Civil Aviation: the JCPOA commits the US to allow licenses for activities covered by the primary sanctions. Specifically, the US is committed to "allow for the sale of commercial passenger aircraft and related parts and services to Iran by licensing the (i) export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end-use, (ii) export, re-export, sale, lease or transfer to Iran of spare parts and components for commercial passenger aircraft, and (iii) provision of associated serviced, including warranty, maintenance, and repair services and safety-related inspections, for all the foregoing, provided that licensed items and services are used exclusively for commercial passenger aviation". But if the US determines that "licensed aircraft, goods, or services have been used for purposes other than exclusively civil aviation end-use, or have been re-sold or re-transferred to persons on the SDN List, the US would view this as grounds to cease performing" its civil aviation commitments in the JCPOA.
  • Imports of Food: the general license for foodstuff imports under the ITSR was revoked in 2010, but the JCPOA commits the US to provide licenses for the importation into the United States of Iranian-origin foodstuffs, specifically including pistachios and caviar. The foodstuff provision bizarrely includes Iranian made carpets and rugs.
  • Education: the JCPOA anticipates that the US would end the exclusion of Iranian citizens from higher education coursework related to careers in nuclear science, nuclear engineering, or the energy sector. The ITSR already provides a general license for certain educational services, such as academic exchanges, Iranian applicants to be students or teachers in the US, and US persons supporting not-for-profit educational activities such as combating illiteracy in Iran. Iran was traditionally sending students to Ukrainian higher education institutions for many years in the 50s-80s. This could now resume.
  • Finally, the JCPOA provides for the removal of certain individuals and entities on the SDN List, the Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions List with connections to Iran's nuclear program.

EU Sanctions Overview

In accordance with the JCPOA the EU has committed to gradually lift all sanctions imposed by Council Decision 2010/413/CFSP and Council Regulation 267/2012 (as subsequently amended). When Iran will implement certain nuclear-related measures prescribed by the JCPOA under supervision of the IAEA the following will again become possible:

  • Reestablishment of banking activities between Iran and the EU;
  • Financial support for trade with Iran (export credit, guarantees or insurance);
  • Provision of grants, financial assistance and concessional loans;
  • Import and transport of Iranian oil, petroleum products, gas and petrochemical products;
  • Export of key equipment or technology for the oil, gas and petrochemical sectors;
  • Investment in the oil, gas and petrochemical sectors;
  • Export of key naval equipment and technology;
  • Design and construction of cargo vessels and oil tankers;
  • Provision of flagging and classification services;
  • Export of graphite, raw or semi-finished metals such as aluminium and steel, and export or software for integrating industrial processes;
  • Transfers of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions;
  • Provision of insurance and reinsurance.

The EU will also terminate the designation of a number of Iranian persons, entities and bodies who have been subject to asset freezes and visa bans under Council Decision 2010/413/CFSP and Council Regulation 267/2012. This will free up trade with Iran and see shipping companies such as IRISL, NIOC, and others returning to unrestricted international trade.

Eight years upon the adoption of the Security Council Resolution the EU will lift provisions of Council Decision 2010/413/CFSP and Council Regulation 267/2012 relating to software, metals, proliferation-sensitive nuclear activities, financial-messaging services and transport sector.

Ten years upon the adoption of the Security Council Resolution the EU will remove Council Decision 2010/413/CFSP and Council Regulation 267/2012 in their entirety.

However, restrictive measure (including admission ban and freezing of economic resources) on persons responsible for serious human rights violation in Iran envisaged by Council Decision 2011/235/CFSP and Council Regulation 359/2011 will remain in place.

While the main EU restrictions will be lifted, those wishing to recommence trade with Iran will still have to overcome a number of hurdles as follows:

  • Even after the Implementation Day the majority of the US sanctions described above will remain in force for the US companies doing business directly or indirectly with Iran and Iranian entities. Initially the US will only suspend most of the sanctions imposed on non-US owned or controlled companies such as those relating to the carriage of oil, petrochemicals and most other cargoes to and from Iran. Equally, the restrictions imposed on non-US owned or controlled companies related to engaging in transactions with the energy, shipping, shipbuilding and port sectors of Iran will be lifted.
  • US dollar clearing transactions relating to Iran will remain prohibited.
  • The JCPOA has "snap back" provisions that will allow the EU and/or US to re-impose the sanctions restrictions if Iran fails to implement its side of the deal.
  • Insurers, banks and others may continue to have stringent sanctions policies in place to guard against the risk of the re-introduction of sanctions and to address risk management issues where there are still concerns arising from the continuing existence of some sanctions restrictions.
  • Many contracts will still be required to include sanctions clauses and/or exclusions clauses preventing trade with Iran.

In addition, ongoing investigations on sanctions infringements may be reviewed in accordance with applicable national laws. UK Department for Business, Innovation and Skills has published a Notice to Exporters 2015/20, which states that "While sanctions remain in place they will continue to be enforced robustly".

Opportunities for European companies

Immediate business opportunities, which are obvious, include in our view the following:

  • Civil nuclear cooperation – the Group of six has proposed several areas of cooperation with Iran in the civil nuclear sector particularly in activities relating to the operation of civilian nuclear facilities.
  • Export credit support – the EU has also committed to further explore possible areas for cooperation between the EU, its Member States and Iran. In particular, the EU will consider the use of available instruments, such as export credits to facilitate trade, project financing and investment in Iran. The EU provides an overarching framework for export credit principles, but export credit agencies are run at a Member State level, potentially providing a range of different opportunities for EU investors.
  • Civil Aviation – Iranian civil aviation is desperate for new aircraft, particularly regional passenger transport.

Opportunities for Ukraine and Ukrainian companies

Iran is currently small but potentially important trading partner of Ukraine. It is one of a few countries, with which Ukraine has a positive trading balance. In addition it could become an alternative to Ukraine trade with the CIS as it has an abundant supply of hydrocarbons and needs products and services which traditionally were sold to the CIS.

Another positive (albeit side) effect of widely anticipated suspension of the UN, US and EU sanctions is downward pressure on world hydrocarbon prices which should result in much lower gas and petroleum prices for the years to come which would be a long term benefit for Ukraine's economy.

Lift of the Security Council sanctions, which were directly binding for Ukraine, open numerous opportunities, even prior to removal of the US and EU sanctions, including:

  • Aviation  – having lost the Russian market, State Enterprise Antonov could find a substitution market in Iran, which has a strong demand for new aircrafts. Moreover, JSC "Motor Sich" has a good track of exports of helicopters' and aircrafts' engines, which may also meet high demand in Iran.
  • Electricity Generating Equipment  – one of the reasons for Iran turning to nuclear energy was shortage of energy generating plants. Ukraine is one of the leading manufacturers of electricity generating equipment which can operate on fossil fuels, which Iran has in abundance.
  • Military Exports– recently Ukraine has significantly increased production of battle tanks, light and armoured combat vehicles in connection with on-going conflict in Eastern Ukraine.  Capacities of Ukrainian Military sector could satisfy some of Iran's demand for new military equipment and technologies.
  • Shipping, Shipbuilding and Port Sectors– since secondary sanctions which impose restrictions on persons found to have knowingly engaged in transactions with Iran's shipping and shipbuilding sectors and port operators, including IRISL, South Shipping Line and the National Iranian Tanker Company, as well as the port operators of Bandar Abbas would be permanently removed, this will, inter alia, open Iranian ports for Ukrainian vessels and would allow not only technological stops (water, fuel and supplies) but actually carry cargoes between Iranian Persian Gulf ports and Ukraine.

However, prior to the Implementation Day Ukraine will still be indirectly limited by sanctions imposed by the US and EU. This is especially so in light of political dependence of Ukraine on the US and EU financial support, therefore, it is unlikely that Ukraine will try to circumvent restrictive measures of its western partners.

Next Steps

The UN Security Council endorsed the JCPOA on 20 July 2015 by its Resolution 2231 (2015). The resolution terminated seven current UN resolutions on Iran, and replaced these with specific restrictions on an arms embargo and missile technology. The resolution has the end date of 10 years after its adoption, by which point the Group of six and Iran parties aspire to the conclusion of Iran nuclear issue by the UN Security Council.

Under US law, the Congress has sixty days to review the JCPOA from the date the President submits it to the Congress. In theory, the Congress could attempt to disapprove the JCPOA and interrupt the progression of the terms agreed. President Obama has indicated he would veto any such legislation, requiring a veto-proof majority, two-thirds of the House and Senate, to override the President's veto.

Within ninety days of the UN Security Council Resolution, the JCPOA comes into effect, and the parties become legally obligated to commence preparations to implement their JCPOA commitments. On the Implementation Day, the day that the IAEA verifies that Iran has implemented key nuclear-related measures described in the JCPOA, expected to occur in six to nine months, the EU will terminate specified provisions of Council Regulation 267/2012 and suspend Council Decision 2010/413/CFSP, while the United States will cease the application of specified sanctions. That said, it remains to be seen how the agreement will be implemented in practice given the complexities of the various provisions. On Implementation Day, eight years from the adoption of the Security Council Resolution, the EU and US will take further steps to terminate the sanctions specified. And upon ten years from the adoption of the Security Council Resolution the US and EU have committed to terminate most of the restrictive measure related to Iranian nuclear programme.

On 20 July 2015 the EUCouncil has published a conclusion, endorsing the JCPOA and committing to take further steps for its implementation.

On 31 July 2015 the Council adopted Regulation 2015/1327 which in accordance with Security Council Resolution 2231 (2015) authorises certain measures to the extent necessary to carry out, under certain conditions, transfers and activities that are related to the implementation of certain nuclear-related commitments specified in the JCPOA.

In the US JCPOA is currently under scrutiny of the House Committee on Foreign Affairs. Being not satisfied with the details of the deal and lifting of the major US sanctions, Ed Royce, Chairman of the House Committee on Foreign Affairs introduced on 4 August 2015 the legislation that would prevent the implementation of the JCPOA.

In spite of polls that show that the majority of the American people and membership of Congress oppose President Obama's JCPOA fearing that it is far more in Teheran's interest than in the US's, it looks like it will pass. Based on what is known at this point, it appears that Obama will get his way, there are not enough no-Democratic Senate votes to override Obama's veto. 

The JCPOA also contemplates the "snap-back" of Iran sanctions in the event that Iran fails to comply with the agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.