Parameters for sanctions relief on Iran: what has been agreed?

Joint Comprehensive Plan of Action

On 2 April 2015 the P5+1, the European Union and the Islamic Republic of Iran agreed key parameters of a Joint Comprehensive Plan of Action (the "JCPOA") regarding Iran's nuclear programme. This marks the latest milestone in extensive negotiations, which began in February 2013.

The final text of the JCPOA is unlikely to be agreed before 30 June 2015 and some important implementation details still remain unknown. That being so, while some have heralded the JCPOA as foreshadowing the opening up of the Iranian economy to international investment, much uncertainty remains.

Sanctions regimes on Iran

Successive sanctions have been imposed on Iran over a number of years. These sanctions include those imposed by the United Nations, and additional sanctions imposed by the United States and the European Union for various reasons. The most extensive sanctions have been imposed by the United States and the European Union so as to prevent development of Iran's nuclear capability.

What has been agreed?

It is not clear what has been agreed. A joint statement of all parties to the JCPOA has not been published. The most useful indicators of the outline deal are the US State Department's "Parameters for a Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran's Nuclear Program" and the Joint Statement by European Union High Representative Federica Mogherini and Iranian Foreign Minister Javad Zarif (the "Statements"). Less helpfully, the two documents are not fully consistent, and to some extent are at odds with remarks made by participants in the negotiations since 2 April 2015.

However, the basic thrust of the outline deal is that Iran agrees to limit its nuclear programme in a way that can be verified by the International Atomic Energy Agency ("IAEA"). In return, the European Union, the United States and the United Nations will decrease the economic sanctions that are currently imposed on Iran.

What sanctions will be lifted?

According to the Statements, if Iran complies with the terms of the final version of the JCPOA², and its compliance is verified by the IAEA:

1. Iran will receive relief from European Union sanctions, with the European Union lifting its sanctions in relation to Iran's nuclear programme immediately on IAEA verification. However, the European Union sanctions will be re-imposed if Iran breaches the terms of the JCPOA.
2. The United States will suspend sanctions related to Iran's nuclear programme on IAEA verification. The United States has also stated that, if Iran fails to comply with any of the provisions of the JCPOA, the sanctions will immediately 'snap back' into place again. This means that the sanctions' "architecture" will remain in place, although the regime will not be enforced provided that Iran complies.
3. The UN Security Council's resolutions related to the Iranian nuclear programme will also be lifted upon verification of Iranian compliance with the obligations imposed on Iran under the JCPOA. Again, the United Nations sanctions may be re-imposed if an issue of non-performance cannot be resolved through a new dispute resolution procedure to be agreed as part of the JCPOA. In addition, core provisions of the UN Security Council resolutions which deal with transfer of sensitive technologies and activities will be re-established by a new UN Security Council resolution, which will endorse the JCPOA.

US Secretary of State John Kerry has estimated that, if Iran is compliant with the JCPOA, the above measures can be implemented within four months to a year of 30 June 2015, which is the deadline for final agreement of the JCPOA.³

Despite the Statements, there appears to be a fundamental point of disagreement with regard to whether sanctions relief will occur immediately upon final agreement of the JCPOA and its implementation or upon verification of Iran's compliance. The Statements suggest the former; however, Iran has stated that sanctions relief must be immediate. Iranian President Hassan Rouhani has been quoted as stating that "We will sign no agreement but the one that immediately abolishes all the economic sanctions on the first day of the implementation of the agreement".⁴ This stance has been endorsed by Iran's Supreme Leader Ayatollah Ali Khamenei.

It remains to be seen whether the parties can resolve this disagreement, and what they each take "implementation" to mean.

What does this mean for potential investors in Iran?

1. Wait and see: until further information is available, investors should be cautious with regard to engaging further with Iran. Although the JCPOA has been hailed as a major breakthrough in relations with Iran, there appears to be scope for the deal to collapse. Unfortunately, investors are unlikely to have a clearer picture until the summer at the earliest.
2. In the meantime, proceed cautiously: the indications are that investors are already starting to scope out potential opportunities should the JCPOA be entered into. While this gives early movers the chance to set in place outline deals pending the lifting of sanctions, great care must be taken to ensure that no line is crossed and existing sanctions breached.
3. Keep an eye on the political mood in Iran and the United States: it is known that there are hard-line factions on both sides who are opposed to any deal. Winning them over, or at least limiting their influence, will be fundamental to long-term rapprochement between Iran and the other countries.
4. Recognise the distinction between nuclear programme-related sanctions and other sanctions: both the European Union and the United States have said that the JCPOA envisages the lifting of "nuclear-related" sanctions. Other sanctions on Iran exist, and investors should check which, if any, sanctions are likely to be lifted if the JCPOA is agreed, and which will remain. For instance, United States' sanctions on Iran for terrorism, human rights abuses, and ballistic missiles will remain in place in any event.

<sub>Notes
1. China, France, Russia, the UK, the United States and Germany.
2. Which include, but are not limited to, limiting the enrichment of uranium, restricting the use of the Fordow and Arak facilities and permitting IAEA inspections.
3. Amir Paivar, "Iran nuclear deal has hungry investors circling" BBC (London, 6 April 2015) .
4. BBC, "Iran nuclear: No guarantee of final deal, Khamenei says" BBC (London, 9 April 2015) ..</sub>