Does the New Year Herald a Change in U.S. Sanctions on Iran?

Signaling a thaw in diplomatic relations, Iran and the P5+1 countries (the U.S., China, France, Germany, Russia and the UK) signed an interim agreement on November 24, 2013, to limit Iran's nuclear program in exchange for reduced economic sanctions (the "interim agreement"). As a result, U.S. companies are left to wonder whether the interim agreement will permit greater access to the Iranian market and eliminate export and transaction licensing in 2014.

The short answer is that immediate change, if any, will be limited. The interim agreement is only intended to last six months until a more complete agreement can be reached. In addition, the interim agreement must be implemented by each country's local laws, which has not occurred to date.

Under the interim agreement, the U.S. is required to suspend sanctions on Iran's petrochemical, precious metal, automotive and aviation industries and establish financial channels to facilitate trade for Iran's humanitarian needs, including food and agricultural products, medicine and medical devices. The interim agreement does not relax U.S. sanctions on Iran for any other industries or products, although the ultimate goal is to do so under a final agreement.

However, in mid-December 2013, the U.S. Departments of Treasury and State announced that they would continue to aggressively pursue violations of the existing Iranian sanctions programs. The two departments also recently blacklisted several Iranian companies, drawing a hostile reaction from Iran and nearly scuttling the negotiations.

The interim agreement also received mixed reactions from U.S. lawmakers, with 26 Senators proposing a bill to increase sanctions on Iran if it fails to comply with the interim agreement or reach a final agreement. The Nuclear Weapons Free Iran Act of 2013, as the bill is known, would result in additional financial sanctions on countries purchasing Iranian petroleum products, as well as the imposition of economic sanctions on Iran's strategic sectors, including shipbuilding, engineering, mining and construction. In response, President Obama threatened to veto the bill if passed, and Iran threatened to walk away from the negotiations if further sanctions are imposed.

Following extensive meetings at the end of 2013, Iran and the P5+1 countries may begin implementing their obligations under the interim agreement as soon as late January 2014. Nevertheless, U.S. companies are strongly advised to comply with the existing U.S. sanctions programs and refrain from engaging in transactions with Iran or Iranian parties until a final agreement, if any, is reached.