Impact of Iran Sanctions on EU Businesses

On May 8th 2018 President Trump announced the withdrawal of the United States from the Joint Comprehensive Plan of Action (JCPOA) (i.e Iran Nuclear Deal) signed in July 2015. Grounds for the withdrawal are national security interests.

President Trump also announced a return to the existing sanctions (prior JCPOA), along with additional measures. These sanctions have an extra-territorial component restricting businesses who carry out business with the US, use US parts, US labour and/or US dollars.

They may also impact on EU businesses doing business with Iran. Indeed President Trump at the recently warned European Businesses that they would face secondary sanctions if they violated US restrictions.

Implementation of the measures

The measures should be implemented in several phases and termination of existing contracts and wind down of activities should be done within 90 or 180 days (depending on the sector). The US government targets the 4th of November 2018 for all sanctions to be re-imposed.

Licensing

US Licences applications under the JCPOA allowing the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services, will no longer be considered.  Specific existing licences will be revoked by August 6th 2018. The current licences application that have been submitted and are pending approval, will not be granted.

Impact on European Markets

Some Billions of euros deals have been announced with some of the biggest European multinational businesses such as Total, BP or Airbus since the Nuclear deal has been in force (2016) and particularly in the oil, aircraft and automotive sector

Impact on Aviation Sector

The US is giving commercial aircraft and aircraft part manufacturers 90 days to end all business with Iran. All licences to export to Iran will be revoked. Non-compliance by this date would lead to secondary sanctions imposed by the US.

As most international aircraft manufacturers rely on American aircraft parts, businesses in the EU might be pushed towards compliance with US measures to avoid sanctions. Indeed, looking at the 15 CFR Appendix Supplement No 1 to Part 740, if the destination is Iran the product will be subject to an US export licence if over 10% of the product comes from the US.

Non-US Airlines operating routes to Iran might also be impacted considering the involvement of banks and insurance businesses mostly based in the US.

EU response 

The EU has not withdrawn from the JCPOA and in particular the UK, France, and Germany are reaffirming their “continuing commitment to the JCPOA” (Joint statement from Prime Minister Theresa May, Chancellor Angela Merkel and President Emmanuel Macron).

The EU is asking for exemptions (or extensions of licenses) for the EU businesses that have been doing business with Iran since 2016, in order to ensure continuity of their economic activities and protect the sectors of energy, automotive, civil aviation and infrastructure.

However, most European Businesses and particularly those with operations in the US would want to avoid additional sanctions imposed by the US and would tend to comply with the US requirements and cease business with Iran if exemptions are not granted by the US government.

Reluctance by European banks to clear transactions involving Iran would also incentivise businesses towards compliance with the sanctions. Businesses need to consider US involvement and in particular US made parts in their operations when engaging in Iran related business.

For further information or to arrange a meeting please contact Carol Lynch on [email protected], or any member of the Customs and Trade Team at your local BDO office.

 

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