Briefings

Iran: no immediate lifting of sanctions; but negotiations under way, April 2015

The five permanent members of the United Nations Security Council (China, France, Russia, UK, US) and Germany, met with Iranian officials on 2 April 2015.

Background

An initial statement of intent has been produced by each of the US and Iranian governments which summarises the framework for an agreement but with some significant differences. There is no immediate relief from sanctions. The purpose of this statement is to provide a path for the sanctions on Iran to be suspended and eventually terminated.

This framework, or JCPOA (Joint Comprehensive Plan of Action), relies on Iran:

• Committing to reducing its centrifuges by two-thirds.
• Repurposing its nuclear facilities so that it can no longer enrich uranium.
• Submitting to inspections by the International Atomic Energy Agency (IAEA).

However, there are some contradictions between the US and Iranian statements relating to the pace at which sanctions will be relieved. The US has indicated that the sanctions will be removed gradually whereas the Iranians have insisted that the sanctions will be removed as soon as a detailed agreement has been signed. Moreover, the US and EU have made clear that they will only suspend the nuclear-related sanctions after the IAEA has verified that Iran has taken all of the key nuclear-related steps. They have also clarified that there will not be a removal of the sanctions but rather a suspension so that the sanctions can snap back into place if Iran fails to uphold its side of the agreement.

The JCPOA in its final form is due to be fully negotiated by 30 June 2015.

Impact

Currently there are no changes to the sanctions regimes affecting Iran. Indeed, the US representatives have been quick to point out that "nothing is agreed until everything is agreed". It is unlikely that there will be any changes to the sanctions regimes until the IAEA has verified that Iran has met its commitments which is likely to be some time after 30 June 2015 deadline. However, if the agreement is finalised by both parties then there should be an easing up of the current sanctions regime. In particular, it should make dealing with Iranian banks and financial institutions easier and these would no longer fall foul of restrictions. Furthermore, it would loosen the controls on the movement of Iranian crude oil and natural gas making exportation from Iran possible.

Updates

On 14 April 2015, an amended version of the Iran Nuclear Agreement Review Act 2015 was placed on the US legislative calendar. This bill seeks to change the effect of the 2010 Comprehensive Iran Sanctions, Accountability and Divestment Act by amending the Atomic Energy Act 1954. The 2010 Act enables the US President temporarily to waive sanctions that have been imposed by Congress for a limited period of time. The new bill (Senate Bill 615) would remove that capability and would require up to 52 days for a Congressional review. During this time the President would be unable to waive, suspend or provide relief from the statutory sanctions. This bill has received cross-party support, although it is debateable whether this will continue if the measures are amended to become more stringent.

This bill has not yet been passed into law and it is unclear whether it will be. If it does become law it could greatly affect the ability of President Obama to negotiate the precise terms of the JCPOA and it would call into question his ability to follow through on his intentions. Indeed, the need for Congressional approval of any agreement made could essentially negate its effect. On the other hand, if Congress rejected the agreement then the President could use his veto to overturn the objections. A two-thirds majority vote from Congress (the House and the Senate) is needed to overturn a Presidential veto and this may be unlikely to be forthcoming. Furthermore, US Presidential primaries begin from January 2016 with the election being held in November 2016. This may mean that if there are delays in finalising a timescale for the agreement and inspections by IAEA, the relaxation of sanctions may be delayed further.

For more information, please contact Anthony Woolich, Partner on +44 207 264 8033 or anthony.woolich@hfw.com, or Daniel Martin, Partner, on +44 207 264 8189 or daniel.martin@hfw.com, or your usual contact at HFW.