Strait of Hormuz: Sanctions Considerations

The Memorandum of Understanding (“MOU”) signed between the United States and Iran on 17 June 2026 has introduced a limited and temporary easing of U.S. sanctions through the issuance of General License X (“GL X”). Members will be interested to understand the implications for energy trades involving Iran, particularly given the apparent breadth of activities now authorised under U.S. law. However, the practical effect of GL X is constrained by its short duration, its limited legal scope, and the continued divergence between U.S., UK and EU sanctions regimes.

General License X

Issued by the U.S. Office of Foreign Assets Control (“OFAC”) on 22 June 2026, GL X authorises transactions “ordinarily incident and necessary” to the production, sale, delivery and offloading of Iranian-origin crude oil, petroleum products and petrochemicals for a 60-day period, expiring on 21 August 2026. The authorisation is wide-ranging, extending not only to cargo interests but to core maritime services including vessel management, crewing, bunkering, pilotage, registration, flagging, classification, salvage and insurance. It also permits dealings with vessels previously designated under multiple U.S. sanctions programmes, and allows certain payments to Iranian parties, including in U.S. dollars. 

Notwithstanding this breadth, GL X does not represent a lifting of the wider sanctions’ framework. Rather, it is a temporary waiver layered onto a complex and still operative regime. A number of U.S. sanctions remain in force, including those imposed under authorities not covered by the licence, and designations of specific persons, entities and vessels continue to apply. In particular, the continued designation of the Islamic Revolutionary Guard Corps (“IRGC”) and the Persian Gulf Strait Authority (“PGSA”), together with sanctions maintained under other executive orders, mean that transactions may still give rise to primary or secondary sanctions exposure depending on counterparties and payment structures. 

PGSA transit conditions

On the 19 June the PGSA issued their “General and Specific Terms and Conditions for Vessel Passage through the Strait of Hormuz”. The conditions assert that “No vessel is permitted to pass through the Strait of Hormuz without a valid passage permit issued by the PGSA” and require vessels to maintain insurance approved by the PGSA.

Although reports suggest that no “toll” or “premium” will be charged during the 60-day MoU period, the requirement to apply for a permit, and potentially to submit vessel, ownership, insurance and voyage information, raises material sanctions considerations. In particular, engagement with the PGSA, whether direct or indirect, may constitute a dealing with a designated entity. This creates a clear tension with the current framework. 

As highlighted in our previous article, the uncertainty surrounding Iranian transit requirements in the Strait of Hormuz and the potential need to engage with local authorities, such as submitting vessel information, complying with routing instructions, or otherwise interacting with the scheme, may create additional sanctions exposure where such authorities remain designated or are linked to sanctioned entities. These issues may arise independently of the U.S. licensing position and require careful consideration. 

EU & UK Sanctions Exposure

Critically, GL X has no effect on sanctions imposed by other jurisdictions. EU and UK sanctions regimes remain unchanged and continue to impose extensive restrictions on Iranian trade, particularly in the energy, financial and technology sectors. These include asset freezes, financial restrictions, and prohibitions on dealings with designated persons and entities. In addition, EU measures targeting the IRGC and Iran’s activities in the Strait of Hormuz, together with broader restrictions linked to Iran’s nuclear programme and regional activities, remain fully applicable. 

This divergence creates a fragmented and potentially conflicting compliance environment. While certain transactions may now be permissible under U.S. law for the duration of GL X, they may simultaneously remain prohibited or restricted under UK or EU regimes. Members must therefore assess not only the applicability of U.S. licences but also the continuing constraints imposed by other applicable sanctions frameworks.

Club Cover

The availability of insurance remains a key area of uncertainty. Although GL X expressly authorises insurance and related maritime services under U.S. law, this does not automatically enable the provision of P&I cover in practice. Cover may still be restricted where the underlying trade, counterparties or associated payments expose the Club or its reinsurers to sanctions risk under UK, EU or other applicable regimes. 

The temporary nature of GL X also raises important considerations for both Members and insurers in terms of what comes next. The licence is subject to the evolution of the broader MoU negotiations, meaning should the licence expire or not be extended, activities initiated during the waiver period may give rise to ongoing exposures, including in relation to claims handling, payments or contractual obligations continuing beyond the permitted window. 

Conclusion 

In summary, while General License X represents a significant relaxation of U.S. sanctions on Iranian oil-related trade, it does not create a harmonised or risk-free environment for Members. Furthermore, tensions in the region remain high, with reports emerging over the weekend that the IRGC had re-closed the Strait. 

Whilst we hope that further clarity will be provided in the coming days, the continuing application of UK and EU sanctions, the persistence of designations and secondary sanctions risks, and the conditional and time-limited nature of the U.S. relief mean that the sanctions risk remains elevated. Members should therefore continue to exercise caution, conduct thorough due diligence on counterparties and transactions, and seek specific guidance from specialist sanctions lawyers before engaging in trades with an Iranian nexus.