Easing of Iranian Sanctions - New EU Regulation and U.S. Developments
UPDATE 21 January 2014 - New EU Regulation and US Developments
The EU and US have taken steps to relax certain restrictive measures against Iran as set out in the Joint Plan of Action (“JPA”) concluded in November 2013.
UNITED STATES
The US Treasury and State Departments have published the following key documents relating to the limited and temporary lifting of sanctions against Iran further to the JPA. Links to these documents appear below.
- Joint Plan of Action (“JPA”) between the P5 + 1 and the Islamic Republic of Iran
- Guidance Relating to the Provision Of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached On November 24, 2013 Between The P5+1 and The Islamic Republic Of Iran
- Frequently Asked Questions Relating to the Sanctions Relief Provided for in the Joint Plan of Action (JPOA) between the P5 + 1 and the Islamic Republic of Iran
- Statement of Licensing Policy on Activities Related to the Safety Of Iran's Civil Aviation Industry
In summary for the period from 20 January 2014 until 20 July 2014 (the “JPA period”) the U.S will take steps to :
- suspend the implementation of sanctions on Iran’s petrochemical exports;
- suspend the implementation of sanctions on Iran’s imports of goods and services for its automotive manufacturing sector;
- suspend the implementation of sanctions on the sale of gold and other precious metals to or from Iran;
- pause efforts to reduce Iran’s exports of crude oil to the six countries (China, India, Japan, Republic of Korea, Taiwan and Turkey) still purchasing from Iran and for such oil sales suspend US sanctions on associated insurance and transportation services;
- begin to process expeditiously licence applications for the supply of spare parts and services, including inspection services, related to the safety of Iran’s civil aviation sector;
- facilitate the establishment of a financial channel to support humanitarian trade to Iran and to facilitate payments of UN obligations and tuition payments for Iranian students studying abroad.
In relation to Iran’s exports of crude oil, the US Government (USG) will take steps to allow for China, India, Japan, the Republic of Korea, Taiwan and Turkey to maintain their current average level of imports from Iran during the JPA period, and to render non-sanctionable a limited number of transactions for the release of instalments of an agreed amount of revenue to Iran for receipt at participating foreign financial institutions in selected jurisdictions. The Guidance jointly published by the US State and Treasury Departments on 20 January 2014 uses internally inconsistent language, making references to crude oil in some sections, and to petroleum and petroleum products in others, whilst the text of the JPA refers only to Iran's crude oil sales. Clarification of the exact scope of the US relaxation measures is currently awaited, but in the meantime it is safer to assume that the relaxation measures apply only to maintaining existing levels of crude oil sales, and not to other petroleum products.
The USG will not impose sanctions on non-US persons who engage in transactions exclusively within the JPA period for, or who materially assist, sponsor or provide financial, material, or technological support for, or goods or services in support of, exports of petroleum and petroleum products from Iran to China, India, Japan, the Republic of Korea, Taiwan and Turkey and associated insurance and transportation services, including transactions/activities involving National Iranian Oil Company (NIOC) and National Iranian Tanker Company (NITC), provided such activities are initiated and completed entirely within the JPA period and further provided that such activities do not involve persons on the SDN list other than NIOC, NITC or any Iranian depository institutions listed solely pursuant to EO 13599.
In relation to petrochemicals (as defined in EO 13622) the USG is suspending sanctions on purchases during the JPA period by non-US persons of petrochemical products exported from Iran as well as associated services required to facilitate such transactions. Such transactions may not involve persons on the SDN list other than Iranian depository institutions listed solely pursuant to EO 13599 and fourteen specified Iranian entities: Bandar Imam Petrochemical Company; Bou Ali Sina Petrochemical Company; Ghaed Bassir Petrochemical Products Company; Iran Petrochemical Commercial Company; Jam Petrochemical Company; Marjan Petrochemical Company; Mobin Petrochemical Company; National Petrochemical Company; Nouri Petrochemical Company; Pars Petrochemical Company; Sadaf Petrochemical Assaluyeh Company; Shahid Tondgooyan Petrochemical Company; Shazand Petrochemical Company; Tabriz Petrochemical Company.
It is important to note that unless otherwise provided, no transaction may take place with persons identified on the OFAC SDN list.
Transactions with Tidewater Middle East Co remain sanctionable even if related to activities for which a temporary suspension of sanctions has otherwise been provided pursuant to the JPA.
The sanctions relief provided only pertains to conduct and transactions fully completed during the JPA period (i.e. between 20 January and 20 July 2014).
US persons and US -owned or controlled foreign entities continue to be generally prohibited from conducting transactions with Iran, including any transactions permitted by the JPA, unless licensed to do so by OFAC.
More details of the US measures may be found in the Economic Sanctions Update published on 21 January 2014 by the Eren law firm, a copy of which can be accessed from the link below.
EUROPEAN UNION
On 20 January 2014 the EU published Council Decision 2014/21/CFSP and Regulation 2014/42 (“the Amending Regulation”). The Amending Regulation amends EU Regulation 267/2012 ( as supplemented by EU Reg 1263/2012), being the principal EU regulation outlining EU sanctions measures in respect of Iran. The Amending Regulation is materially identical to the wording of the draft proposal published by the European Commission on 7 January 2014. In summary, for the period from 20 January 2014 until 20 July 2014 (the “JPA period”) the temporary suspension of the following restrictive measures will take effect:
- The prohibition on the transport (but not the prohibitions on purchase or import into the EU) of Iranian crude oil and certain petroleum products with HS Code 2709 00 (“petroleum oils and oils obtained from bituminous mineral, crude”) as set out in new Annex XI, if they originate in Iran or are being exported from Iran to any other (i.e. non-EU) country. Transportation of petroleum products listed in Annex IV of Regulation 267/2012 with HS Codes 2710, 2712, 2713, 2714, and 2715 00 00 remains prohibited. (Article 11.1 (c) of Reg 267/2012);
- The prohibition on the provision of insurance and reinsurance related to the import, purchase or transport of crude oil and certain petroleum products (with HS Code 2709 00 as set out in new Annex XI) of Iranian origin or that have been imported from Iran (Article 11.1 (d) of Reg 267/2012);
- The prohibition on the import, purchase or transport of Iranian petrochemical products and on the provision of related financial services, including insurance and reinsurance (Article 13.1 ( a)-(d) of Reg 267/2012);
- The prohibition on trade in gold and precious metals, but not diamonds, with the Government of Iran, its public bodies and the Central Bank of Iran, or persons and entities acting on their behalf (Article 15.1 ( a) – (c) of Reg 267/2012;)
- The prohibition on making available vessels designed for the storage of oil and petrochemical products to any Iranian person entity or body, or to others where the vessel is used to carry or store oil or petrochemical products that originate in Iran or which have been exported from Iran (Article 37 (b) set out in EU Regulation 1263/2012);
- A derogation from the asset freezing provisions in Article 23 ( 2) and (3) of Reg 267/2012 in favour of the Iranian Ministry of Petroleum, to enable funds and economic resources to be made available where necessary for the execution of contracts for import, purchase or transport of petrochemical products that originate in Iran or which have been imported from Iran;
- The increase by tenfold of the authorisation thresholds for personal remittances from Euro 40,000 to Euro 400,000; for transactions regarding foodstuffs, healthcare, medical equipment or for agricultural or humanitarian purposes from 100,000 to Euro 1 million; and for all other transfers of funds to and from Iran from Euro 10,000 to Euro 100,000. (Article 30 set out in Reg 1263/2012).
What will EU implementation of the JPA mean for Ship owners/operators and Clubs?
(a) Oil and Petroleum products
(i) Import and Purchase
The measures adopted do not include any suspension of the current prohibition on purchase by EU regulated entities and/or import into the EU of crude oil and petroleum products. However, those non-EU states which currently benefit from U.S. National Defence Authorisation Act (NDAA) waivers (China, India, Japan, Republic of Korea, Taiwan and Turkey) will continue to be able to purchase and import crude oil and certain petroleum products consistent with the terms of their waivers and not exceeding current permitted purchase and import levels.
(ii) Transportation
From 20 January, by virtue of the suspension of Council Regulation 267/2012 article 11.1(c), EU owned or registered vessels will be permitted to transport crude oil and certain petroleum cargoes from Iran, or that originate in Iran, always consistent with the import and purchase restrictions identified above. As is currently the case, non-EU owned or registered vessels will continue to be able to lift such cargoes.
(iii) Insurance
From 20 January, by virtue of the suspension of Council Regulation 267/2012 article 11.1(d), clubs will be able to provide cover to both EU and non-EU owned or registered vessels undertaking transportation of crude oil and certain petroleum products, consistent with the import and purchase and transportation restrictions identified above.
The suspension of article 11.1(c) and (d) does not reinstate, or make permissible, the transport and related insurance activities of crude oil and petroleum cargoes that are not destined for the NDAA waiver countries. A shipowner transporting and an insurer providing insurance cover for an oil or petroleum cargo e.g. from Iran to a non-NDAA waiver country will be in breach of both EU and U.S. sanctions.
(b) Petrochemical products
The prohibitions in Council Regulation 267/2012 article 13 will be suspended in full, resulting in relief from the current prohibition on import, purchase, transport and insurance of petrochemical products. Petrochemical products means the products listed in Annex V of Regulation 267/2012.
Consequently, EU (and non-EU) vessels will be able to transport petrochemical products from Iran for delivery within/outside the EU and clubs will be able to provide cover for such transport, subject always to any other applicable non-EU non-US sanctions or prohibitions.
The suspension of Council Regulation 267/2012 article 13 does not apply to the existing prohibitions on purchase, import and transport of natural gas which originates in Iran or has been exported from Iran and related insurance and reinsurance activities. Similarly the prohibitions remain in place for products such as graphite and raw or semi-finished metals.
(c) Financial Transactions
The current financial thresholds in Council Regulation 267/2012 article 30(3)(a)(b) and (c) will be increased tenfold, meaning that parties may make payments to Iran up to the specified amounts without having to seek prior authorisation from their competent authority. Financial transactions involving entities or persons designated by the EU will however remain subject to sanctions.
(d) Vessels designed for the storage or transport of oil and petrochemicals
The prohibition in Council Regulation 267/2012 amended by Regulation 1263/2012 (article 37b) on making available vessels “designed for the transport or storage of oil and petrochemical products” will be suspended.
As with the US measures, the temporary suspension of EU sanctions applies only to activities that are initiated and completed entirely within the JPA Period, and not to activities undertaken before or after that period, even if they are undertaken pursuant to contracts entered into during the JPA Period. Regulators have not been able to confirm whether, in the event that the suspension of sanctions measures is not extended after six months, there would be any grace periods for run-off, similar to the grace periods contained in Regulation 267/2012.
The JPA specifically states that sanctions relief is reversible, so there is a risk that if Iran does not meet its commitments under the JPA, then the sanctions could be reinstated, and new ones imposed. If Members are intending to take advantage of the relaxation measures, then they should (i) include appropriate sanctions clauses in their contracts so that they are not obliged to perform contracts if the relaxation measures are revoked sooner such that they/their insurers are exposed to the risk of sanctions and (ii) not enter into contractual obligations which would entail performance beyond 20 July 2014.
The suspension of EU sanctions will not provide relief from the current prohibitions concerning designated persons or entities. So by way of example, it appears that the suspension of EU Regulation 267/2012 Article 37b does not permit the chartering of vessels to NITC or other Iranian designated persons or entities, however the relaxation of US sanctions measures would appear to permit chartering of vessels to NITC for the export (within current levels) of Iranian crude oil to China, India, Japan, the Republic of Korea, Taiwan and Turkey. The European Commission has advised that if International Group Clubs are obliged to have dealings with designated entities or persons (e.g. port agents or operators), they should consult with their Competent Authorities before entering into transactions.
UPDATE 17 January 2014 - Easing of EU and US Iranian Sanctions
Following a meeting held on 15 January between the IG Secretariat and officials from the European Union, it has been confirmed that an EU Council Decision and Regulation are to be issued simultaneously on 20 January 2014 to give effect to the sanctions relief measures set out in the EU Commission Proposal published on 7 January 2014. It is understood that the United States is preparing to implement its own sanctions relief programme at the same time to align with the EU measures. The US has enacted sanctions measures by means of a combination of legislation enacted by Congress, and executive orders issued by the President. It is believed that the US sanctions relief measures will be implemented by the President by means of reversing or modifying certain sanctions imposed by way of executive orders, and by exercising waiver authorities granted in the legislative sanctions.
It is important to note that the proposed relaxation measures would be for a defined period of six months, to run from 20 January 2014 to 20 July 2014. However, the Joint Plan of Action ("JPOA") specifically states that sanctions relief is reversible, so there is a risk that if Iran does not meet its commitments under the JPOA, then the sanctions could be reinstated, and new ones imposed.
The texts of the relevant EU and US relaxation measures are expected to be published on 20 January.
