Contrary to most expectations – particularly outside of the United States, where suspicions about U.S. motives abound – the nuclear agreement reached between Iran and members of the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States, with the coordination of the European Union) will not offer many benefits to U.S. companies.
Even when the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement is formally implemented (expected in early Spring 2016 though the Iranians maintain that they can fulfill their commitments before the end of 2015), the U.S. national embargo against Iran will remain intact. This severely limits the business U.S. companies can do with Iran and Iranian companies. Non-U.S. companies are not bound by these sanctions.
The core focus of sanctions relief in the JCPOA deal is the set of sanctions normally referred to by U.S. officials as “secondary sanctions,” so named because they seek to expand the impact of the U.S. embargo to have secondary effects on foreign trade and business with Iran. As a result, the deal will remove impediments to global trade with Iran, so long as U.S. persons are not involved. Foreign companies will be able to invest in Iran’s oil and gas sector, trade in oil and gas products, conduct transportation and financial services on Iran’s behalf, and generally speaking, conduct business with Iran as a normal matter. U.S. officials have explained that the rationale for this division lies in the rationale for the specific sanctions. The sanctions affecting foreign trade were imposed to apply pressure on Iran for its nuclear program, whereas U.S. sanctions on U.S. business interests stem from concerns about Iranian acts of terrorism and regional misbehavior. Leaving such sanctions intact creates another point of leverage with Iran to press it to modify its behavior in these other areas, if it wishes to eventually gain access to the U.S. market.
It is also important to note that, even with sanctions relief for foreign companies, banks, and individuals, sanctions will continue to be enforced with respect to Iran’s support for terrorism, violations of human rights, and regional adventurism. For this reason, companies and their executives should continue to insist on effective, well-supported, and closely integrated compliance departments that have the authority to review transactions and vet them against lists of sanctioned entities and individuals. Such departments also need to guard against the transfer of items that remain controlled with Iran to ensure that they can overcome a standard of not only “knowingly” providing illicit support to Tehran, but also any support that they “should have known” could contribute to illicit Iranian activities.
That said, there are some benefits to U.S. industry from the JCPOA deal.
- U.S. persons will be able to import Iranian carpets and foodstuffs, including caviar and pistachios, for the first time since 2010.
- U.S. companies will be able to sell aircraft and aircraft support (including spare parts) to Iran to support civil aviation.
- Some foreign-incorporated subsidiaries of U.S. companies will be able to do business in Iran in certain defined areas. The precise nature of this exception to sanctions has yet to be defined, though regulations are due to be promulgated in this regard between now and whenever Implementation Day is triggered.
Also, U.S. companies can continue to apply for specific licenses from the Office of Foreign Assets Control (OFAC) at the Treasury Department to transfer items or conduct services for business with Iran, or to take advantage of general licenses that already exist with respect to business in humanitarian industries or telecommunications.
U.S. companies will only see marginal benefits from direct business with Iran – something that they might raise with their elected representatives at the federal, state, and local levels who have insisted that they will maintain sanctions governing U.S. trade with Iran. The overall security benefits of the JCPOA will improve the business climate of the Persian Gulf and beyond, however, and through this, the United States will find some measure of economic benefit from the JCPOA. Other countries will reap the direct rewards.
Richard Nephew is a Fellow at the Center on Global Energy Policy at Columbia University’s School for International and Public Affairs. He served as Principal Deputy Coordinator for Sanctions Policy at the Department of State, a position he held since February 2013 and in which he served as the lead sanctions expert for the U.S. team negotiating with Iran, starting with the private channel talks in August 2013. From May 2011 to January 2013, Nephew served as the Director for Iran on the National Security Council staff. Earlier in his career he served in the Bureau of International Security and Nonproliferation at the State Department and in the Office of Nonproliferation and International Security at the Department of Energy.
