JCPO-Wait-A-Minute: How New Talks Between the U.S. and Iran Could Revive the Iran Nuclear Deal
Since President Biden took office and put his national security team in place, we have wondered about the future of the Iran Nuclear Deal. In the past weeks, the Biden Administration has taken formal steps to possibly restore the Joint Comprehensive Plan of Action (i.e., JCPOA or Iran Nuclear Deal).
In 2015, the JCPOA lifted many of the secondary sanctions on Iran (i.e., sanctions that could be imposed on non-U.S. activities involving Iran) as part of the agreement reached between Iran and the P5 + 1 (five permanent member nations of the U.N. Security Council – the United States, UK, China, Russia, France plus Germany). In exchange, Iran agreed to dismantle a large part of its nuclear program and allow for monitoring and inspection of its nuclear facilities by international inspectors. Also in exchange of these commitments, Iran would be for relieved from certain U.N. sanctions.
In 2018, however, former President Trump withdrew the United States from the JCPOA, and embarked on a “maximum pressure campaign” (see our post here). As a result, the following actions were taken:
All sanctions on Iran that were in place before January 2016 were re-imposed no later than November, 4 2018;
Secondary sanctions that penalized non-U.S. persons doing business with Iran were reinstated; and
General License H, allowing non-U.S. subsidiaries of U.S. companies to do business in Iran, was revoked.
As we detailed in our prior post, we anticipated that President Biden would act on one of his campaign promises and attempt to revive the JCPOA.
Below, we provide our main takeaways on the Biden Administration’s recent announcement on Iran, and its potential effect on the Iranian sanctions regime.
As hopeful as we may be, this is going to take some time…We don’t expect an agreement in the immediate future, so the current sanctions will likely remain in place for the near term.
Although the Biden Administration announced that it was “ready” to begin nuclear talks with Iran, it will take time to reach an agreement given that the U.S. and Iran are currently at odds (and possibly other stakeholders as well, such as China and the EU). On the one hand, Iranian President Hassan Rouhani said recently that the country was prepared to take steps to comply with the JCPOA as soon as the U.S. lifted its economic sanctions, which Iran characterizes as illegal and a policy of threat and pressure.
On the other hand, the Biden Administration has indicated that it will not lift the current sanctions unless Iran comes back into compliance with the JCPOA. The Biden Administration has also indicated that any agreement should require greater commitments by Iran, which will likely receive pushback. This idea of a more comprehensive deal has received bipartisanship support from democratic and republican lawmakers in the past few days (see the bipartisan letter from 70 Democrats and 70 Republicans), urging the Biden Administration to not only reinstate limits to Iran’s Nuclear program, but to also address its “malign behavior throughout the Middle East.”
Because there does not appear to be common ground yet between the United States and Iran, companies and other stakeholders with business dealings in Iran, or those have a potential interest in Iran, should not expect major changes to the Iran sanctions regime in the near future. The process of reaching any type of agreement could span over several months, if not longer.
The Biden Administration can walk and chew gum at the same time – regulators will likely continue to punish bad behavior while it attempts to reach an agreement with Iran.
We believe that the Biden Administration will continue to use its different legal authorities to sanction malign actors – including individuals, entities, and groups. For example, just this week on March 9, 2021, the Department of State announced the designation of Iranian officials for their involvement in gross violations of human right, namely the torture and/or cruel, inhuman, or degrading treatment or punishment (CIDTP) of political prisoners and persons detained during protests in 2019 and 2020 in Iran.
If an agreement is reached, we expect the lifting of some sanctions, but broad restrictions for U.S. persons to continue.
If agreement can be reached between the parties, this would likely be accompanied by easing sanctions on Iran commensurate with what we saw from the JCPOA. Namely, there would still be broad prohibitions for U.S. persons conducting business with Iran but easing of secondary sanctions, which currently target Iran’s energy, shipping, and financial sectors. We cannot yet predict whether the General License that permitted some activities by non-U.S. subsidiaries of U.S. companies would be reinstated. While the sanctions relief would primarily benefit companies in Europe and Asia – not U.S. companies, there would likely be a sigh of relief from large non-U.S. banks which have struggled with how to comply with U.S. sanctions given the broad range of U.S. and non-U.S. customers they service. We will continue to monitor and update you on the critical issue of Iran sanctions and how to stay compliant while remaining hopeful.