Still Certain about Uncertainty − Waiting on the Details in the New Iran Nuclear Deal

July 15, 2015

On July 14, the White House and the U.S. State Department announced that they had reached an agreement with their diplomatic partners and Iran to curtail Iran’s further development of its nuclear program. In exchange for assurances that should limit Iran’s ability to develop a nuclear weapon, the U.S. and its negotiating partners − the so-called P5+1 − will roll back some sanctions against Iran. But, while Western diplomats and journalists have focused most of their attention since the announcement on describing the deal’s anticipated effects on curbing Iranian weapons development, it will take time to fully understand how and to what extent the sanctions against Iran will be rolled back, and what that will mean to U.S. and non-U.S. businesses interested in the Iranian market.

At this point, our understanding of how Iranian sanctions relief will work is still developing. The U.S. Department of Treasury’s Office of Foreign Asset Control (OFAC) has announced that for the moment, the sanctions relief initially provided in the 2013 Joint Plan of Action will remain in effect until the new agreement’s implementation. We also know that even after implementation, at least some U.S. sanctions will remain in place. In announcing the deal, President Obama declared that sanctions related to Iran’s support for terrorism, its ballistic missile program and its human rights violations would remain in force. So while the agreement will eventually require the termination of the United States’ nuclear-related secondary sanctions in a phased fashion over time as it is confirmed Iran is meeting its nuclear commitments, substantial limitations on U.S. persons’ and companies’ dealings with Iran will remain in place.

There may be an important change in the limitations imposed on foreign businesses owned by U.S. persons. The agreement includes an annex indicating that the United States would issue trading licenses to the foreign subsidiaries of U.S. corporations to allow them “to engage in activities with Iran that are consistent with” the nuclear agreement. It will likely take time for the U.S. to explain how and when these trading licenses will be granted, but it is conceivable that many U.S. companies will want to take advantage of this provision.

For those non-U.S. persons and companies who will be impacted by rollback of the U.S. secondary sanctions, as well as U.N. and EU sanctions relating to Iran, there remains the specter of the rolled-back sanctions “snapping back” under the deal if Iran fails to uphold its end of the bargain. The White House’s primer on the deal notes that the U.N.’s sanctions against Iran will “automatically” snap back into place for at least a decade if Iran breaches the agreement. The Administration further notes that both the United States and EU “can snap sanctions back into place” if Iran breaches − language that suggests the United States and EU will be able to exercise at least some discretion over whether their sanctions should be reintroduced.

The snap-back procedure will reportedly involve review by an eight-member panel consisting of Britain, China, France, Germany, Russia, the United States, the European Union and Iran. If, following a 65-day investigation and referral period, the panel confirms by majority vote that Iran is violating the agreement, sanctions can then snap back into place. The majority voting procedure precludes blocking by Iran or its allies on the panel. Given the relatively short window this 65-day snap-back procedure would offer, companies considering dealings with Iran following sanctions rollback will need to carefully weigh the risk of snap-back when looking at longer-term business activities in or with Iran, even though it may be a promising market for their goods and services.

The domestic politics surrounding the deal contribute further uncertainty, though it is unlikely that Congress will be able to stop the deal’s implementation. In April, Congress and the White House reached a compromise providing a 60-day legislative review of the President’s executive agreement with Iran. Following Tuesday’s announcement of the Iran deal, House Speaker John Boehner signaled that it could encounter stiff resistance in Congress, declaring that he “won’t support any agreement that jeopardizes the safety of the American people and all who value freedom and security.” The earlier legislative agreement, however, gives President Obama the authority to veto congressional attempts to scuttle the deal, and he has publicly threatened to do so. The Republican presidential candidates, meanwhile, have so far universally decried the agreement, which some have pledged to rescind if elected. In other words, the only thing certain about the Iran deal remains that it comes with a healthy dose of uncertainty.