Europe and trade relations with Iran: overview

It must be acknowledged that EU trade relations with Iran depend on the development of the political scenery.

With 80 million inhabitants, Iran is one of the most important producers of hydrocarbons. Its oil stocks are the fourth largest in the world, while its natural gas stocks are the second.

Since economy is closely related to oil prices – oil still tops the list of imports and public funding – it must be acknowledged that Iran occupies an important place in the global market

Over the last few years, Iran's trade relations with western countries have not been very good, because of the aggressive policy carried out by this country, as well as because of its activity in the nuclear sector, which led to international sanctions aimed at discouraging it.

Iran seemed to be in the process of recovery with the suspension of the above mentioned sanctions, following the subscription of the JCPoA, an agreement on Iranian nuclear programme, signed on 14th July 2015 by a number of countries, such as United Stated, France, United Kingdom, Germany, Russia, China, and several other members of the EU, and entered into force in October 2015.

Thanks to a positive report by the International Atomic Energy Agency, some of the sanctions against Iran were indeed suspended, with the intention to suspend further limitations by 2023 and to eventually interrupt sanctions in 2025.

As a result, the United States had suspended the ancillary sanctions relating to Iran's nuclear programme, while both main and ancillary sanctions relating to other subjects were still into force.

However, these expectations have been totally overthrown by Donald Trump's policy, as we will see in what follows.

Europe and trade relations with Iran: what happens in 2019, after Trump's sanctions?                 

As anticipated in the previous paragraphs, the lifting of sanctions against Iran and its nuclear programme, planned with the signing of the JCPoA, has been stopped by Donald Trump, who decided to withdraw the United States from the international agreement and to reintroduce the sanctions against Iran, in order to discourage its aggressive foreign policy.

Trump's decision, therefore, was not made upon a violation of the agreements by Iran, but was based upon a strategy of the White House, aimed at convincing Iran to renegotiate the agreements on nuclear power and other issues left undealt with, such as the development of Iran's missile programme and its foreign policy.

The sanctions which were reintroduced by the US against Iran are the following:

- prohibition of using and purchasing US dollars in transactions;

- prohibition of trading in he US precious metals, gold and machines made in Iran;

- prohibition of directly or indirectly trading, supplying and transferring graphite and other raw or semi-finished materials, such as aluminium, steel, coal, as well as industrial integration software from and to Iran;

- prohibition of exporting Iranian carpets and foods, such as pistachio nuts;

- prohibition of selling to Iran US and European airplanes or parts of airplanes;

- limitations on Iranian automotive sector.

Moreover, Washington is going to impose further sanctions on oil, oil products, and petrochemical products, as well as on transactions between foreign financial institutions and the Iranian Central Bank or other financial institutions indicated in the National Defense Authorization Act (Ndaa). Other limitations will be introduced on financial payment messaging services and on insurance and risk management services, as well as on energy.

The US Government will also revoke the General License H, which allowed US-owned o US-controlled foreign entities to enter into transactions with the Iranian Government. Finally, persons who after the signing of JCPoA had been removed from the List of Specially Designated Nationals and Blocked Persons will be put back on it.

While Iran did not comment about US decisions, the European Union expressed its disagreement, since Trump's policy could endanger the international agreements, as well as affect Europe's credibility in the eyes of third countries and damage European companies which were investing in Iran after the subscription of the nuclear agreement.

For these reasons, the European Commission has expressed its intention to reactivate the so called "Blocking statute," a regulation from the '90s amended by the delegated regulation of 6th June 2018, allowing European companies to ignore US sanction and, at the same time, not to incur penalties for that.

Europe and trade relations with Iran: impact on Europe 

Trump's sanctions against Iran have an impact also on trade relations between European countries and Iran. Even though some of the sanctions have a direct impact only on US companies and citizens, other sanctions have even extra-territorial effects, since they extend the ban on transactions (both in US dollars and in other currencies) to any company, wherever established, if said company has branches in the US.

In practise, the whole world is compelled to comply with Us sanctions.

Over the past years, the European Union has tried to revise the extra-territorial nature of the sanctions, in such a way that European companies are not forced to respect US sanctions against Iran, but up to now all its efforts have not resulted yet in national laws.

Europe and trade relations with Iran: what to do? 

Do you whish to do business in Iran or are you looking for an Iranian business partner? Do you need advice on how to avoid legal consequences?

Arnone&Sicomo International Law Firm gives personalized legal advice to all European entities and companies who are interested in foreign markets that are subject to restrictions, such as Iran.

In particular, our firm has considerable experience in the subjective and objective due diligence process, that is, respectively, reviewing the parties involved in the transactions and determining the product's technical characteristics and comparing them to lists of products that are subject to restrictions.

Our experienced professionals will give you advice whether or not to enter in a transaction.

Thanks to our international network of consultants and contact persons, our Law Firm can give you a complete overview on entities, companies and physical persons whose assets are frozen or blacklisted.

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.