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EghtesadOnline: It has been more than a year since the Joint Comprehensive Plan of Action, the formal name of the nuclear deal Iran signed with world powers, was implemented and already the world looks very different to the one in which the deal was agreed.

UK-based international law firm Clyde & Co., in a report recently published on its website has looked back at progress made, tribulations suffered and what businesses need to think about now in order to take advantage of future opportunities. According to Financial Tribune, excerpts of the report follow:

There have been some definitive positives for Iran. Key achievements include:

- The IMF has forecast the Iranian economy will grow at an impressive rate of 6.6%

- Total became the first foreign oil major to sign a deal with Iran for a $2 billion South Pars 11 gas field development

- Oil cargoes exported from Iran rose to 563 in 2016, up from 66 in 2012

- In February 2017, Iran’s oil exports touched 3 million barrels per day for the first time since the 1979 Islamic Revolution

- Iran has signed with Airbus and Boeing to purchase up to 180 passenger aircraft to support its ailing civil aviation sector

- The value of planned but un-awarded non-hydrocarbon projects in Iran is $65.7 billion

- On the political side, Iran’s reformist president, Hassan Rouhani, who negotiated the JCPOA, has indicated that he will run in the presidential election later this year.

 Persistent Dampener

Yet frustration remains at the lack of investment. While a few foreign investors have looked to gain first mover advantage, the volume of foreign investors has simply not materialized in the numbers hoped for. Even Total is reported to have delayed the final decision on its investment until after summer 2017, whilst it waits to see whether US sanction waivers are renewed.

One cause of the relatively slow influx of investors has been reluctance within most tier one financial institutions to support any business with Iran. US financial institutions were, of course, still prohibited from facilitating business with Iran under the US primary sanctions that remained in force.

But foreign financial institutions were, in theory, able to clear (non-US dollar) funds, lend money and support investment and business with Iran. The failure to do so, outside of a few small regional European and Asian banks, has been a persistent dampener on trade and investment.

The Obama administration was well aware of this limitation. Former US secretary of state, John Kerry, was at pains last year to assure top European banks that they had nothing to fear from pursuing “legitimate business” with Iran. Former UK prime minister, David Cameron, publicly rebuked a British bank for refusing to process payments connected with Iranian business.

But the problems persisted, hampered by concern among foreign financial institutions about the attitude of US regulators and US banks themselves. Indeed, in many instances, US clearing banks have sought to restrict their correspondent counterparts from engaging in Iran-related business, fearing the consequences of clearing US dollar sums for correspondents who might be undertaking significant volumes of Iran-related business.

Adding to the cautious mood were the two major political events looming on the horizon: the US and Iranian elections. The first of those has, of course, produced a further complication.

  Limited Action Against Iran

If Donald Trump is judged on his actions, then his position appears to be closer to that of his predecessor. The only new sanctions imposed by the US on Iran since President Trump’s inauguration was following Iran’s ballistic missile tests. Here, the US imposed sanctions in the form of new designations of specially designated nationals.

The effect of these sanctions has been limited. Indeed, President Trump’s designation of just 13 individuals and 12 (relatively small) entities as SDNs was much closer in character to the designations made by the Obama administration. Thus far, therefore, Trump’s actions on Iran appear to be fairly limited.

It would be difficult for the US to completely revoke the sanctions relief it has provided under the JCPOA. For one thing, the JCPOA is not a simple bilateral agreement between the US and Iran—Britain, France, Russia, China and Germany—are also parties to it. The EU provides its own sanctions relief as part of the deal.

It is unlikely that the EU will follow any unilateral repudiation of the deal by the US. This would mean that the EU and the US would, for the first time in respect of sanctions against Iran, be taking diverging positions. This could lead to a situation where US targeted investments by European firms in Iran are legal as a matter of EU law.

This harks back to previous transatlantic trade disputes, including the Helms-Burton Cuba sanctions in 1996 or the Polish pipeline sanctions in the 1980s.

If the US is intent on imposing new sanctions against Iran, it is more likely to do so in respect of non-nuclear issues.

  Mitigating Effect of Possible New Sanctions

The key to mitigating any effects of new sanctions is to identify and quantify the potential risks involved. A firm investing significant capital sums into Iran in the form of FDI is likely to face greater risks than a trading firm selling directly into Iran or appointing distributors or agents in Iran.

The latter’s risk is ultimately a credit risk: In the event of a reimposition of sanctions, which either designates a trading partner, forcing the foreign business to cease dealing with them, or shuts down an existing payment route, the risk is ultimately the credit exposure at the time of sanctions.

Presuming that satisfactory terms, in the form of a force majeure style “snapback” clause, can be agreed at the outset allowing the foreign company to cease dealing in those circumstances that can be managed by prudent credit control.

However, a significant capital investment in, say, a joint venture for an infrastructure project presents greater difficulties. Even if a “snapback” clause can be negotiated at the outset, allowing the foreign partner to immediately cease dealing with an Iranian partner in the event of a designation, significant capital will be tied up in Iran without any means to lawfully repatriate it or receive dividend income.

Thought should, therefore, be given at the outset to issues such as to how to allow the foreign partner to reengage at a later date if/when sanctions are eased again and for the payment of any accrued dividends.

JCPOA Iran deal Iran business Iran Business Climate