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Economic warfare – making sense of the latest sanctions against Iran

The United States (“US”) has continued to strengthen its sanctions against Iran. This post provides a synopsis of the latest developments, including the ongoing push to keep channels open for humanitarian goods and services.

Overview

The US has imposed sanctions against Iran for a number of years under various statutes and regulations (collectively, the “Iran Sanctions Regime”).

The Iran Sanctions Regime imposes:

  • primary sanctions – sanctions targeting US persons and foreign entities owned or controlled by a US person; and
  • secondary sanctions – sanctions targeting non-US entities.

On 16 January 2016, the US lifted secondary sanctions in relation to Iran following verification from the International Atomic Energy Agency (“IAEA”) that Iran had implemented nuclear related measures in accordance with the Joint Comprehensive Plan of Action (“JCPOA”).[1] To lift the secondary sanctions, the US government issued a number of sanctions waivers.

However, on 8 May 2018, President Trump stated that no further waivers would be issued and that secondary sanctions would be re-imposed. Despite IAEA verification that Iran has complied with the measures contained in the JCPOA, President Trump announced his decision on the grounds that Iran had “failed to achieve the fundamental objective of blocking all paths to an Iranian nuclear bomb”.[2]

What do the re-imposed secondary sanctions entail?

The secondary sanctions target specific sectors and activities. On 6 August 2018 sanctions in relation to the below were reimposed:

In addition, certain licences were revoked including those related to the supply of aircraft and related parts and services.

The following additional sectoral sanctions will be re-imposed following a wind-down period that will end on 4 November 2018:[3]

General Licence H will also be revoked. General Licence H authorised US owned or controlled foreign entities to conduct transactions with Iran.

Accordingly, the US has publically advised that non-US persons should use the relevant time periods to wind down their activities with or involving Iran that will become sanctionable at the end of the applicable wind-down periods.

Which licences remain?

Of relevance to a current dispute (see below), there are licences in place that will not be revoked that permit transactions in relation to the provision of humanitarian aid and consumer goods (eg food, medicine, and medical devices), amongst other specific licences. Such transactions are permitted provided they do not involve persons on the List of Specially Designated Nationals and Blocked Persons maintained by the US Treasury’s Office of Foreign Assets Control.

What was the International Court of Justice’s decision?

Following President Trump’s announcement, Iran lodged its case at the International Court of Justice (“ICJ”), the UN’s dispute resolution venue, arguing that the re-imposed sanctions would contravene the 1955 Treaty of Amity, Economic Relations and Consular Rights between Iran and the US (“Treaty”).

The US responded by challenging the jurisdiction of the ICJ over the dispute. It maintained that provisions of the Treaty permit the US to take action related to essential security interests. On 3 October 2018 the ICJ ruled against the US, stating that the extent to which such exemptions can be utilised is “subject to judicial examination and, hence, forms an integral part of the material scope of the court’s jurisdiction”.[4]

In its judgement, the ICJ expressed understanding that the US might be reasonable in taking protective steps to restrict Iranian activities concerning “fissionable materials” (ie related to the development of nuclear weapons). However, it also expressed the importance of freedom of trade and commerce. Specifically, the ICJ highlighted the right to seek protection in relation to humanitarian goods and services, including:

  • medicines, medical devices, foodstuffs and agricultural commodities; and
  • equipment, spare parts and services linked to the safety of civil aviation.

Accordingly, the ICJ ruled that the US had to remove “any impediments” to the export of humanitarian goods and services in Iran. The US rejected the idea that this was a victory for Iran, stating that such exemptions were already in place through licences. Notably however, the licences do not replace those revoked in relation to the supply of aircraft and related parts and services.

While the ICJ’s ruling is theoretically binding, there is no clear manner of enforcement. In this respect, John Bolton, US National Security Advisor, has stated that the US would abandon the “optional protocol” under the UN’s Vienna Convention on Diplomatic Relations and the Treaty. As a result, Iran may still find it challenging to encourage potential international trading partners to collaborate and trade with.

This post was written by Leonie Tear and Nikita Ajwani. It is not legal advice. Sanctions matters are complex and require appropriate professional advice.

 

[1]     The JCPOA is an agreement on the nuclear program of Iran. It was reached in July 2015 between Iran, the five permanent members of the United Nations Security Council (including China, France, Russia, United Kingdom, United States — plus Germany), and the European Union.

[2]     See https://www.bbc.com/news/world-middle-east-45729397?intlink_from_url=https://www.bbc.com/news/topics/cn89k4z6lyyt/iran-nuclear-deal&link_location=live-reporting-story

[3]     See https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf

[4]    See https://www.forbes.com/sites/dominicdudley/2018/10/03/international-court-of-justice-orders-u-s-to-lift-sanctions-on-iran-in-symbolic-victory-for-tehran/#60b4b55a6a40

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