Companies studying an entrance into the Iranian market cite the continuing sanctions regime as their top concern.

While EU, UN and US secondary sanctions are expected to be lifted in early 2016, US primary sanctions will remain in place indefinitely, according to lawyers at MEED’s Opportunity Iran Breakfast Briefing on 29 September.

The US primary sanctions, related to human rights and support of terrorism, prevent any US person, including companies, from dealing or facilitating business with Iran. This also covers the financial sector, meaning US dollar transactions cannot be processed at all.

Some licences may be granted, and food and pharmaceutical companies have always been exempted.

Banks limited

This will hamper the efforts of other companies to conduct business in Iran, despite the lucrative opportunities. It is also having a chilling effect on banks based outside the US with subsidiaries there as well as banks that rely on relationships with US banks for certain transactions.

“Banks are interested, but they cannot make any commitments at all,” says a representative of an European-based oil and gas company on the sidelines of the briefing. “US banks – no way – but a few European banks are interested and we will probably use a regional bank.”

The interconnected nature of the financial system, including banks, insurers and suppliers, means many companies will find sanctions prevent them from entering the Iranian market even after sanctions are lifted, due to the facilitation clause.

Sanctions snapback is also a major concern. Any disagreement between the P5+1 countries (the US, Russia, China, France, the UK and Germany) and Iran will cause UN sanctions to snap back. The EU could also reimpose its own sanctions at any time, lawyers say.

Yearly waivers

The US president will also have to grant yearly waivers on secondary sanctions for the first eight years of the agreement, a process thrown into question by the current US political climate and 2016 presidential elections.

Secondary sanctions apply to all businesses and individuals. They target oil and gas, petrochemicals, shipping, the financial sector, information technology and joint ventures. Companies in violation are cut off from any business with the US dollar economy.

“We don’t want a situation where we have long-term debt and short-term risk,” says a UAE-based banker. “But there are short-term transactions we may be able to do in the future, such as trade and export finance.”

The situation will become more clear when the US government issues sanctions waivers on 18 October.

Many companies will navigate a path through sanctions and other challenges to take advantage of the massive opportunities as Iran opens up.

“It’s a headache not a risk,” says a UAE-based businessman. “And the returns outweigh the headaches.”