Is It Possible To Keep The Benefits Of The Iran Nuclear Deal Even With US Sanctions?

Amending the EU's Blocking Regulation to counter the re-imposition of sanctions by the United States is ineffective and does not ensure that EU enterprises will invest in, or do business with, Iran. The problem this note shows is that more effective measures to protect individual EU enterprises doing business with Iran may not be available. It also shows that action in international law would be difficult and its outcome could weaken the international legal order.

The Iran nuclear deal

The Government of the United States of America has withdrawn from the 2015 Iran nuclear agreement known as the Joint Comprehensive Plan of Action (JCPOA). On 6 August next, it will re-impose one tranche of the sanctions that were lifted pursuant to that deal. This date marks the expiry of a 90 day wind-down period that started on 8 May 2018. The remaining sanctions will be re-imposed after a wind-down period of 180 days which ends on 4 November 2018.

The EU has not withdrawn from the deal and has, along with the signatories other than the US, (China, France, Russia, United Kingdom and Germany), reaffirmed its commitment to its full implementation. The EU will not therefore re-impose the economic sanctions against Iran that were lifted on the signing of the deal. The EU considers the agreement part of public international law as it was endorsed by the UN Security Council.

Iran signed on to the deal to limit its production and use of nuclear materials and to subject itself to inspections by the International Atomic Energy Agency so as to have the sanctions lifted and to allow enterprises and financial institutions to invest and do business in Iran so as to stimulate the local economy.

Many consider JCPOA the most comprehensive nuclear containment agreement ever concluded as it has strict compliance criteria, a dispute settlement provision and the automatic re-instatement of sanctions should Iran not comply with its terms. It is also seen as a success for the very idea of sanctions. Iran's economy had become isolated and starved of investment and had suffered as a consequence.

The chilling effect of US sanctions

Even though remaining signatories including Iran have declared their intention to stick to the terms of JCPOA the re-imposition of sanctions by the United States causes severe problems for EU entities wishing to take advantage of the lifting of sanctions by doing business in Iran.

The United States considers that their sanctions also apply to non-US persons (so called "secondary sanctions"). Therefore, a non-US person (or entity), acting in breach of the US sanctions against Iran, could be sanctioned under US law for such a breach just like a US entity. In addition, secondary sanctions may be enforced if the sanctioned party has business in the US and/or against US persons doing business with the sanctioned person/entity. Examples of the application of US secondary sanctions include the December 2012 fining of HSBC bank of US$ 1.9b, the fining of Standard Chartered of US$ 327m and in July 2014, the fining of BNP Paribas of US$ 8.97b.

Given that many EU enterprises doing business with Iran have investments in, or at a minimum, have business relations with, the US they can be subject to US sanctions. This will most likely cause these entities to stop doing business with Iran (unless, in an unlikely scenario, they obtain a waiver from the US government).

In this scenario how can the EU and the other signatories maintain their side of the bargain.

The EU...