- US Congress will have 60-day period to vote on Vienna deal
- UN nuclear watchdog could give green light by year-end
- Overseas companies wait for go-ahead to re-enter market
The historic deal between world powers in Vienna on 14 July has set in motion the process of removing all major economic sanctions against Iran.
Although some sanctions such as restrictions on ballistic missiles and assets freezes on certain individuals will remain in place, the removal of UN, US and EU-imposed economic barriers will allow international companies to re-enter Iran and invest across its economic sectors.
Global companies have been buzzing around Tehran since the interim agreement was signed in Geneva in November 2013, looking to invest in Iran if sanctions are eventually removed.
This activity will only increase as business leaders await the date when sanctions are lifted, but there are still potential pitfalls before this landmark date is reached.
Sanctions removal timeline
The first step towards the removal of sanctions is the adoption of the UN resolution underpinning the deal.
Late July 2015: Adoption of UN resolution
September 2015: Deadline of US Congress vote on approving Vienna agreement
Late October 2015: 90 days after UN resolution is adopted, Vienna agreement comes into effect
December 2015 early 2016: Deadline of IAEA report on Irans compliance with nuclear activity restrictions. Suspension of nuclear-related UN, US and EU sanctions.
2021: Ban on selling conventional weapons expires
2024: UN ban on ballistic missile programme expires
2030: Iran can start to expand its nuclear programme and enrich uranium above 3.67-per-cent level
This process is a formality as the five permanent members of the UN Security Council the US, France, the UK, China and Russia were all part of the group signing the agreement in Vienna and is likely to be adopted in the coming week.
The terms of the deal in Vienna officially called the Joint Comprehensive Plan of Action (JCPOA) cannot be implemented for 90 days after the adoption of the UN resolution. Based on this, the agreement is likely to come into effect in late October.
The US Congress hurdle
Following the adoption of the UN resolution, the US Congress will then have 60 days to review the terms of the agreement and vote on whether or not to approve it.
If Congress disapproves the deal, President Barack Obama will be able to attempt to veto the decision.
I am confident that this deal will meet the national security needs of the US and our allies, so I will veto any legislation that prevents the successful implementation of this deal, said in a statement after the Vienna announcement.
Obamas critics, largely within the Republican Party would then have to override the veto with a two-thirds majority vote within both houses. This is seen as unlikely by analysts in Washington as it would require significant support from Democrat Party representatives and senators, who are thought to largely to support Obama on the issue.
Before the main US and EU sanctions are removed the UNs nuclear watchdog, the International Atomic Energy Agency (IAEA) has to submit a report to green light Irans compliance with its efforts to investigate the countrys past nuclear activities.
After this report is submitted and approved, the US and EU will suspend the majority of economic sanctions against Iran. Based on the deadlines for the various approvals, this date is expected to be early in 2016.
Despite the JCPOA deal, Iran will remain under sanctions until IAEA verification of Irans compliance with its nuclear obligations has been made and the necessary legislation passed in the relevant jurisdictions, says Patrick Murphy, a Dubai-based partner of law firm Clyde & Co.
Even after the necessary legislation has been passed there will be residual sanctions that apply to Iran notably to US persons, Murphy adds.
Sarosh Zaiwalla, Iran sanctions expert and senior partner at London law firm Zaiwalla and Co., says that sanctions can be removed quickly after approval from the UN.
Once the UN Security Council passes a resolution the sanctions can be removed, if the countries want to, very quickly and the individual countries can remove it through their legal processes. The EU Council meets regularly and, it can be done pretty fast, Zaiwalla told MEED.
Zaiwalla says that countries have an incentive to remove the sanctions domestically as quickly as possible to give their business communities an advantage operating in Iran.
In France, Germany and the UK, the business houses are very hungry to get into Iran as fast as possible. From my personal experience [in visiting Tehran recently], deals between international companies and Iran can be done very quickly, he added.
Clyde & Co. highlighted that while the re-emergence of Iran is an exciting opportunity for companies, the business environment can also be challenging and complex.
The law firm warned potential investors to identify and comply with any sanctions obligations that are still applicable to them after the Vienna legislation has been enacted.
As the next step, investors will need to make an assessment as to how any of the recent developments in the local Iranian legal and regulatory environment would affect their business in Iran, says Murphy.
Another important issue to consider is whether pre-sanctions relationships are still valid. Investors should carefully consider the terms of pre-sanctions contracts to determine whether those contacts have expired or been duly terminated, adds Murphy.
Snap back risk
One of the major concessions by Iranian negotiators in Vienna appeared to be the snap back clause on the removal of sanctions.
Under the agreement, sanctions can be reinstated within 65 days Iran is judged to have violated the terms of the deal, which would likely be related the access of IAEA inspectors to its facilities.
This provides an element of risk for companies with investments in Iran should a snap back come into force.
The snap back is a commercial risk that every company has to take [but] I think the snap back after such a long discussion is not going to be a reality, says Zaiwalla.
Zaiwalla believes that when companies from Europe and the US begin to invest in Iran, the governments of these states will have too much of a vested interest in business operations in Iran to pull the plug and reinstate sanctions.
Analysts at UK-based bank Barclays are not as bullish as Zaiwalla on the speed of investment into Iran after sanctions are lifted, saying the process will be slower due to legal and financial complications.
There is a long road of sanctions relief steps, compliance, and verification ahead, but the geopolitical, economic, and energy market significance of an Iran that has re-entered the global financial system should not be understated. It will just take time, said Barclays in research note led by head of commodities research Michael Cohen.
With the possibility of a re-imposition of sanctions, legal complications with investing, risks of association with still-sanctioned entities, and problems with implementing monetary transfers, initial foreign investment is likely to be slow going, the banks said on the potential for international oil companies (IOCs) re-entering Iran.
Barclays also warned that sanctions against key entities in Irans energy industry such as affiliates of the Iranian Republican Guard Corps (IRGC) due to terrorism links could make initial work in the Iranian energy sector challenging.