BGA Cable: U.S. Iran Sanctions – What Investors Can Do Now

New US sanctions threat increases business uncertainty for Iran

Iran has become an important investment destination for many European companies that now face major uncertainty because of President Trump’s decision to back out of the Iran nuclear agreement (Joint Comprehensive Plan of Action – JCPOA) and to re-impose US sanctions against Iran:

  • The U.S. Departments of State and Treasury jointly established 90-and 180-day deadlines to stop all trade activities allowed under the JCPOA.
  • The US administration expects companies to wind down their activities in Iran by either August 6th or November 4th depending on the specific sector of the economy.
  • U.S. National Security Advisor John Bolton said that during the wind-down period no new contracts within the scope of the sanctions could begin, and that it was “possible there [would] be secondary sanctions imposed on European companies as a result of the US withdrawal from the Iran nuclear deal”.
  • On his first day in office, the new US Ambassador to Germany, Richard Grenell, tweeted that German companies should withdraw immediately from the Iranian market.

Chances for diplomacy still exist

  • The remaining signatories of the JCPOA, China, France, Russia, the UK and Germany have expressed their willingness to continue with the agreement and not to isolate Iran.
  • Like Europe, Russia and China will want to keep the agreement intact. Russia has good relations with Iran and no interest in an additional military confrontation in the Middle East. The withdrawal of the US from the JCPOA might even result in closer relations between Russia and Iran.
  • China has an equal stake in keeping the Middle East stable given that it will need safe transit routes to Europe for its “Silk Road Economic Belt” project.

Key Issues to watch for companies and investors

On the U.S. side:

  • How flexibly, if at all, will the Office of Foreign Assets Control (OFAC) deal with requests for licenses? Is there a possibility for existing projects, especially those that have involved large-scale investments, to be grandfathered?
  • How aggressive will the US Treasury be in pursuing companies that do not have assets in the US? Will the processing of US Dollars outside of the US trigger penalties for foreign banks?
  • Is the US Administration serious about negotiating a better deal with Iran? Would this offer room for Europe to engage with US authorities?
  • While the likelihood of congressional action is very low, will the negative impact of secondary sanctions on companies of NATO allies cause concern to Congress? Will Members support licensing efforts by European firms that have significant investment and employees in the US?

On the European side:

  • How vulnerable are European firms to US threats? Can the EU protect companies operating in Iran that have no direct ties to the US?
  • The initial European reaction — especially among the EU3 — has been to condemn the US move and to continue with the JCPOA. The Commission and some European capitals have proposed to use EU legislation from 1996 that blocked EU companies from complying with earlier US sanctions against Iran and Cuba. What are the chances that European efforts will be successful?
  • Can European governments offer protection to their businesses against US-pressure? Can the European Investment Bank (EIB) provide the necessary financial in support? Could there be an indemnity guarantee and how would that be structured?
  • How would European companies that chose to continue to operate in Iran cope with increased risks elsewhere in the Middle-East?

Impact on the Middle East

  • Iran will hardly accept further large-scale military attacks by Israel against its forces in Syria. Iran may decide to use its cyber capabilities to retaliate.
  • Yet, Israel could be tempted to provoke US military operations against nuclear installations in Iran or to act itself, relying on American tolerance and ultimate support.
  • A new coalition is forming in the Middle East: US – Saudi Arabia – Israel. This is of concern to other countries in the region. If Israel were to draw the US into military action against Iran, it would trigger a conflagration that plays directly into Iran’s hands by justifying a nuclear deterrent. Israel’s heavy retaliation after Iran fired rockets on the Golan Heights after Trump’s announcement emphasizes the fact that the Middle East is sitting on a powder keg ready to explode.

The threat of sanctions increases oil prices

  • The prospect of sanctions with no clear plan how they could be lifted again pushes up oil prices at a time where OPEC production is already below target due to problems in Venezuela. Swing producers such as US shale and Saudi Arabia may eventually step in with higher volume, but this will take time. This leaves the world economy, including the US, exposed to rising oil prices.
  • Should US sanctions be imposed and be effective they would interrupt foreign exchange and capital movements with Iran. Business relations with many important companies, including the National Iranian Oil Company and with Iranian banks will be disrupted. Renewed US sanctions would negatively affect Iran’s oil exports and eventually reduce its production and refinery capacity.

BGA Expert

Jan Kallmorgen

Jan Kallmorgen

CEO and Founder
Jan's Bio

Jan is BGA’s Founder and CEO combining a background in finance, foreign policy and international public affairs. He advises clients on complex investment situations and transactions and has a strong transatlantic focus.

He has worked at Goldman Sachs, the German Council on Foreign Relations, the European Group for Investor Protection, Bohnen Kallmorgen & Partner and the global public affairs firm Interel Group. Jan is also founder & chairman of the non-profit think tank Atlantic Initiative and a regular speaker at international conferences and universities. See him in action

Education
Jan holds a Master’s in history and international relations from Freie Universität Berlin and from Georgetown University’s School of Foreign Service in Washington, DC. He is an alumnus of several transatlantic Young Leader programs.

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