The re-imposition of US sanctions against Iran and the future of the JCPOA

On 8 May 2018, President Trump announced his decision to cease the United States' participation in the Joint Comprehensive Plan of Action (JCPOA) and to begin the process of re-imposing the US nuclear-related sanctions that were lifted to effectuate JCPOA sanctions relief. So what does this mean for future trade with Iran?

Which sanctions are being re-imposed?

As we reported in our previous article, whilst the majority of EU sanctions were lifted following the JCPOA, in the US, only so-called "secondary sanctions" were lifted, with primary sanctions (those applying to US persons and entities) remaining in place. It is these "secondary sanctions" that are being re-imposed. As before, US persons will continue to be unable to trade with Iran. OFAC (the Office of Foreign Asset Control in the US) expects that all US nuclear related sanctions that had been lifted under the JCPOA will be re-imposed and in full effect from 4 November 2018.

What impact does this have on EU individuals and entities?

By re-imposing secondary sanctions, EU individuals and entities are once again subject to the extra-territorial reach of the US sanctions regime, even if they have no US presence.

What is the EU's position on the JCPOA?

The EU continues to demonstrate its commitment to the JCPOA.

Most significantly, the European Commission has taken steps to preserve the interests of European companies investing in Iran by launching a formal process to activate the EU blocking statute (EC 2271/96) by updating the list of US sanctions on Iran falling within its scope. This was explained in a press release of the European Commission:

"The Blocking Statute forbids EU companies from complying with the extraterritorial effects of US sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgments based on them."

However, it is unclear how the implementation of the blocking statute will operate in practice or whether it will be sufficient comfort to those EU companies who have invested in Iran but who continue to also have trade relations with the US. For those companies, the risk of significant enforcement action being taken by the US, may be too much of a risk to take. In recent weeks, we have already seen announcements of large corporates such as Total and Maersk indicating their intention to pull out of Iran to avoid the risk of US enforcement action.

Will anything change?

The re-imposition of US secondary sanctions is a huge step backwards in the process. EU companies were already cautious about moving into Iran in light of the reluctance of the US to lift primary sanctions and are unlikely to be persuaded that now is the time to invest, notwithstanding the intention of the European Commission to activate the blocking statute. The compliance 'risk' may well be simply too great for many. For those companies already in Iran, they will have to give serious consideration to the risks vs reward of staying in Iran in light of the US's shift in foreign policy.