Lifting of trade sanctions against Iran - possibilities and risks

On 16 January 2016, the International Atomic Energy Agency (IAEA) stated that Iran had met the requirements for lifting of EU and US trade sanctions against the country. This opens the way for new trade possibilities with Iranian players; however, still subject to certain risks. This is due to the fact that the parties' plan to solve the conflict involves a so-called "snap back mechanism".

The IAEA's announcement comes after long-term negotiations with the UN Security Council and Germany on one side and Iran concerning Iran's nuclear programme on the other. In July 2015, the parties agreed on a plan - the Joint Comprehensive Plan of Action (JCPOA) – to solve the conflict concerning Iran's nuclear programme and the EU and US trade sanctions against Iran. According to the JCPOA, Iran's nuclear programme may only be used for peaceful purposes and, in return, some of the EU and US trade sanctions will be lifted.

THE MOST IMPORTANT CONSEQUENCES OF THE LIFTING OF THE TRADE SANCTIONS

The lifting of the trade sanctions opens the way for new trade possibilities with Iranian players. According to the Danish Ministry of Foreign Affairs, Danish export will increase by DKK 0.5 billion as a consequence of the lifting of the trade sanctions.

The lifting implies, for instance:

  • Lifting of the freezing of the Iranian oil, gas, shipping and financial sectors
  • Lifting of the registration and permission requirements for money transfers
  • Total lifting of the export ban against key equipment for the oil and gas and petrochemical industries
  • Partial lifting of the general export ban against dual-use products (products, software and technology used for both civilian and military purposes)

COMMENCEMENT OF THE LIFTING OF THE TRADE SANCTIONS AND THE FUTURE

The trade sanctions were lifted immediately after the IAEA's notification on 16 January 2016, and the lifting became effective the same day.

The IAEA will publish a report concerning Iran's fulfilment of the conditions in the JCPOA no later than 18 October 2023. If the IAEA concludes that Iran still fulfils the conditions in the JCPOA, the remaining trade sanctions against Iran will also be lifted.

All trade sanctions against Iran must be lifted no later than 18 October 2025.

THE RISKS OF TRADING WITH IRANIAN PLAYERS - THE SNAP BACK MECHANISM

However, trading with Iranian players is still subject to some risks due to the fact that the JCPOA contains a so-called snap back mechanism.   

This means that all trade sanctions may be re-introduced with immediate effect if Iran does not continue to fulfil the conditions in the JCPOA. If the IAEA finds out that Iran no longer fulfils the conditions, it will impact all ongoing trade with Iranian players.

Taking into consideration that the JCPOA procedure will not be finally concluded until 18 October 2025, the snap back mechanism will until then constitute a substantial risk when trading with Iranian players.

CONTINUED RESTRICTIONS WHEN TRADING WITH IRAN

Despite the lifting of the trade sanctions, two primary restrictions still remain when trading with Iran.

First of all, the lifting of the trade sanctions does not affect the still effective ban against trade with Iranians or companies suspected of terrorism or violation of human rights. This includes companies owned by the Iranian revolution guard corps.

Secondly, you must be aware that according to the appendices to the JCPOA, there are certain differences as to which sanctions are lifted by the EU and the US. While the EU will lift most of the nuclear-related trade sanctions against Iran, the US will only lift trade sanctions that are related to non-US persons and companies. This means that the trade between, for example, a Danish company and an Iranian company may be contrary to the US' trade sanctions, which will affect the Danish company's possibilities of doing business in the US.

RELEVANT EU LEGISLATIVE ACTS

The below EU legislative acts will lift and change the present trade sanctions against Iran:

COUNCIL REGULATION (EU) 2015/1861 of 18 October 2015 amending Regulation (EU) No 267/2012 concerning restrictive measures against Iran.

COUNCIL DECISION (CFSP) 2015/1863 of 18 October 2015 amending Decision 2010/413/CFSP concerning restrictive measures against Iran.

Regulation (EU) No 2015/1862 of 18 October 2015 concerning implementation of restrictive measures against Iran.


contacts

Søren Hornbæk Svendsen

Partner

Christian Tullberg

Partner