Economic sanctions Iran : Historical

Background. Following the 1979 Islamic Revolution in Iran, having caused the fall of the Shah regime, the United States of America and then international community have decided to impose economic sanctions to this country. Aim was to block oil, gas and petrochemical sectors’ investments, but also exports of refined petroleum products, as well as entities trading with the Revolutionary Guards. These measures were extended in 1995 to all companies working in relation to the Iranian government. Then in 2006, the Security Council of the United Nations has adopted Resolution 1696 to impose new economic sanctions. These various measures also included restrictions on maritime transportation, banking and insurance sectors.

Over the years, sanctions against Iran were becoming a major brake to its economy. The goal was to counter Iran’s nuclear program and to avoid it from accessing nuclear weapons. Iran, for its part, is arguing that purpose of its nuclear program is only civil, especially for the production of electricity and medicine.

Warming of relations. Following the election of Mr. Hassan ROHANI on June 14th, 2013 as President of the Islamic Republic of Iran, discussions were resumed on the Iranian nuclear issue between the European Union (France, Germany, United Kingdom), the United States of America, China, Russia and the High Representative of the European Union. This is referred to as the P5+1 group.

On November 24th, 2014, a meeting took place in Geneva with these countries, which have reached a compromise with Iran in order to find a diplomatic solution on the Iranian nuclear program. This is only the continuation of the desired process by the international community to achieve end of Iranian nuclear program. In this regard, the P5+1 group had held a meeting at the General Assembly of the United Nations to urge Iran to continue to collaborate with the Security Council and the International Atomic Energy Agency. The Iranian nuclear program remained at that time a source of discord for the international community. While resolutions 1696, 1737, 1747, 1803 and 1835 were still maintained, the resolutions 1929 and 2224 had been adopted some months after this meeting.

Vienna Agreement. Following Iran’s efforts to limit its nuclear activities and its willingness to reintegrate the international community, all these actors have reached an agreement (the Joint Comprehensive Plan of Action) on July 14th, 2015 in Vienna (Austria) for a gradual lifting of the different sanctions against Iran.

Framed by resolution 2231 dated on July 20th, 2015, the aim of this agreement is to find a solution to a so long international political and economic crisis and to ensure peace in the Middle East. It is focused on gradual lifting of sanctions, by limiting Iranian nuclear capacities and granting to International Atomic Energy Agency’s inspectors right of verification in full transparency.

The UN resolution was becoming effective as from October 18th, 2015, its full implementation being on January 16th, 2016 following the verification by the International Atomic Energy Agency that Iran had respected its commitments. In the event of non-compliance, all the aforementioned UN resolutions would became applicable again to Iran.

However, we should keep in mind that all the sanctions imposed to Iran have now not been totally lifted. Indeed, the European Union has withdrawn its energy and banking sanctions and the United States, these relating to the capacity for domestic and foreign companies to carry out commercial activities with Iran. All UN sanctions were however lifted. All European sanctions will be lifted eight years after the date of adoption of resolution 2231 or the submission of the report from the International Atomic Energy Agency stating that the Iranian nuclear is used only for peaceful purposes. Two years after this date, resolution 2231 will cease to be applied and the United Nations shall no more working on the Iranian nuclear issue. The International Atomic Energy Agency will be nevertheless responsible for the verification of the application of the provisions of the Vienna Agreement until 2040.

Consequently, restrictions related to military goods, nuclear and ballistic technologies, dual-use goods, software, and raw and semi-finished metals are still remaining in force under the Joint Comprehensive Plan of Action.

Banking problems. On their side, the United States of America have not implemented this agreement, and U.S. banking legislation has unfortunately not been relaxed. U.S. Congress has indeed renewed in December 2016 the Iran Sanctions Act, which is providing U.S. sanctions against Iran, for ten years. Any banking transfer to a person or an entity in Iran is remaining prohibited. Nevertheless, transfers with other currencies are now allowed and SWIFT in Iran has been reintroduced beginning of February 2017.

We can also ask why major banks, such as French banks, do not want to proceed with Euros bank transfers. But the role of the SDN (Specially Designated Nationals) List from OFAC (Office of Foreign Assets Control), being an agency of U.S. Treasury Department, is quite important. Belonging 5517 names (dated on February 26th, 2017), any transaction with an entity listed on this document is prohibited.

Having the most of time link with U.S. financial system, banks would need to do long and expensive controls to verify whether one of the parties to banking transfers is not directly or indirectly listed on SDN List. The Iranian market being not so interesting for major banks, they have decided to not take any risks.

Furthermore, the structural weakness of the Iranian banking market, first divided in several entities, and secondly undercapitalized (with lack of liquidities) is also increasing the mistrust of foreign banks. On another side, Donald TRUMP’s election to head of United States and his threat to denounce the Vienna Agreement, as well as the risk of new U.S. sanctions, are really not in favor of relaxing banks’ attitude.

We should however note that only some small European banks with no links with United States of America are allowing bank transfers with Iran, such as some regional German, Italian and Spanish banks. On the other side, only three small French banks are accepted to proceed with bank transfers with Iran. But fees are naturally more expansive than common market fees.

This is why French Minister of Economy and Finances, Michel SAPIN, has visited Iran in March 2017 to strengthen industrial, economic and commercial cooperation between bot countries. He sought to encourage European banks, especially French ones, to work again with Iran. According to risks related to U.S. sanctions still in force, France cannot compel its banks o work again in Iran. Nevertheless, the normalization of banking relations is a sine qua non condition for the economic development of Iran.

Legal Counsel – Iran & Compliance matters

About SRDB Law Firm

Having international expertise and specialized teams in Paris, Marseille, Beirut, Tehran, Damascus, Algiers and through its vast network of local experts speaking French, English, German, Arab, Persian and Turkish, SRDB Law Firm is providing legal support to companies in France, Middle East and North Africa and beyond. SRDB Law Firm is specializing in Business Law, with extensive expertise in Mergers and Acquisitions, in Corporate Law, in Contracts Law, in Maritime Law, in Commercial Litigation and Arbitration.

SRDB Paris : 122, Rue du Faubourg Saint-Honoré, 75008 Paris – +33 1 53 83 85 30 –
SRDB Marseille : 27, Cours Pierre Puget, 13006 Marseille – +33 4 84 25 63 59 –
SRDB Tehran : 5, Bidar Alley, Fereshteh Avenue, Tehran, Iran – + 98 21 22 666 124 –

Download this article in PDF version

Economic sanctions Iran

Economic sanctions Iran

Copyright © 2018 SRDB LAW FIRM. All rights reserved.