On Saturday, January 16, 2016, the Vienna based International Atomic Energy Agency (“IAEA”) certified that Iran had fulfilled its nuclear-related commitments under the Joint Comprehensive Plan of Action (“JCPOA”) in order for the JCPOA’s “Implementation Day” to take effect.
As a result, United Nations sanctions on Iran have been lifted, as have most European restrictions, including an embargo on oil imports. The US withdrew its nuclear sanctions on Iran, which included penalties on companies and banks from other countries doing business with Iran. What this means is that foreign companies dealing with Iran will no longer be punished by the US. The US Treasury Department has issued a general license authorizing non-US subsidiaries of US companies to engage in certain transactions with Iran or the Government of Iran. It is important to note that this applies only to non US citizens and companies.
Iran’s President Hassan Rouhani said the lifting of the sanctions ‘has opened a new chapter in its ties with the world’. Indeed, the lifting of sanctions will unfreeze billions of dollars’ worth of assets and allow Iran to sell its oil internationally. Losses in oil revenue since 2012 alone are thought to have cost Iran more than US$ 150bn and with the lifting of sanctions, Iran will be able to resume selling oil on the international markets. The financial markets have already reacted to this news with Stock markets across the Middle East collapsing with the expectation of a fresh wave of oil onto global markets that are already drowning in excess supply. Conversely, the Iranian stock index gained 1pc, making it one of the best performing markets in the world with gains of 6pc since the start of the year.
Essentially, the relief from sanctions will mean Iran will receive a massive boost in their economy, with the banking, oil and energy sectors all expected to profit immensely. Iran will be able to start to utilize the global financial system for trade and it is expected that the banking sector, previously cut off from the outside world, will now gain access to Swift services, which facilitate international transactions. It is estimated that around $30bn of the total $100bn in frozen assets will be released to Iran.
The West has already put in place the legislation for lifting sanctions and Iranian banks will, no doubt, re-establish connections with the European financial system. Thus private firms will be able to pursue business opportunities without fear of western punishment.
As regards implications for the shipping community it is believed that Iranian owned and controlled vessels will now be available to charter to the international community. By way of caution, as regards the adequacy of liability insurance, it is likely that the vessels may well be underinsured, certainly in comparison to International tonnage, as they will continue to be insured by the Iranian domestic insurance market. Whilst this is likely to change in the future it is certainly a factor that needs to be carefully considered by the Charterers.
One further word of caution is that the JCPOA contains “snapback provisions” which means that should Iran breach the conditions placed upon it, under the Agreement, that the sanctions are capable of being reinstated.
Even though international companies were keen to see the end of sanctions, it is important to consider and assess re-entering the Iranian market as not all sanctions against Iran have been lifted and therefore still careful measures and considerations should be taken with regards to transactions with Iran. In order to address such issues, Fichte & Co invites you to a special Breakfast Seminar on 02 March 2016 exploring the implications of the lifting of the sanctions against Iran with key industry leaders discussing the new business opportunities in Iran post-sanctions.
Author: Atoussa Mahmoudpour