Several of the P&I Clubs have issued notices to members on the implications of the Trump administration’s decision to withdraw the US from participation in the Joint Comprehensive Plan of Action (JCPOA ) agreed between Iran, the EU, and the P5+1 (the five permanent members of the United Nations Security Council — China, France, Russia, UK, US — plus Germany), and to re-impose US nuclear-related sanctions.
UK P&I Club said that the decision was expected to have significant implications for maritime trade with Iran and the insurance of such trade. However, the club said that a full assessment of the likely impact of the decision would only become possible following receipt of clarification of the position of the remaining JCPOA partners, who have recently reaffirmed their support for the JCPOA, as well as further clarification from the US Treasury’s Office of Foreign Assets Control (OFAC) in relation to the management of the “wind-down” periods envisaged under the decision.
An FAQ document, published by OFAC, indicated that, following a 180 day ‘wind-down’ period running up to November 4th 2018, sanctions would be restored — including secondary sanctions directed against non-US persons — in relation to specified activities and entities in relation to which relief was granted under the JCPOA. UK Club said that it should be noted that this included in paragraph 1.3:
(i) sanctions against Iran’s ports operators, and shipping and shipbuilding sectors; sanctions against IRISL and South Shipping Line.
(ii) sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC) including the purchase of petroleum, petroleum products, or petrochemical products from Iran.
(v) sanctions on the provision of underwriting services, insurance, or reinsurance.
Paragraph 4.4 provided that that General Licence H, which authorizes US-owned or controlled foreign entities to engage in certain activities involving Iran, would be revoked as soon as was administratively feasible, and that activities already authorized by Licence H, including provision of insurance and re-insurance, would have to be wound down by November 4th 2018.
It was announced that the International Group Clubs would continue to monitor developments and further guidance would be provided when there was greater clarity. UK Club said that Members “should take care before entering into any new Iran related fixture to ensure that they only do so with up to date legal advice on sanctions compliance”.
London P&I Club noted that the exact nature and extent of the new sanctions regime that President Trump intended to impose against Iran was as yet unclear. William Juska of New York law firm Freehill Hogan & Mahar LLP reported that there would be two different periods in which persons/businesses must wind down business activities connected to sanctioned trade: one for 90 days until August 6th 2018, and the other for 180 days until November 4th 2018.
The 90 day winding down period that expires on 6 August 2018 relates to:
(1) The purchase or acquisition of US dollar banknotes by the Government of Iran;
(2) Iran’s trade in gold or precious metals;
(3) The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, coal, and software for integrating industrial processes;
(4) Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
(5) The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt;
(6) Iran’s automotive sector.
The 180 day winding period that expires on November 4th relates to:
(1) Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
(2) Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
(3) Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
(4) The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
(5) The provision of underwriting services, insurance, or reinsurance;
(6) Iran’s energy sector.
Mr Juska also reported that all US secondary sanctions would apparently be re-imposed. The importance of secondary sanctions was that these effectively had extra-territorial reach so that they would affect non-US persons and entities. The potential penalties for non-US persons breaching US secondary sanctions could include:
(a) restriction from accessing the US financial system and capital markets;
(b) blocking of all property and interest in property that are in the US or under the control of a US person;
(c) prohibition from importing goods, technology, or services into the US.
West P&I Club wrote that the new decision would re-impose the sanctions that were lifted in January 2016 under the Obama agreement. Parties which had been on the SDN list but were removed as part of the JCPOA would again become SDNs.
The Club noted that the reaction of the other partners to the agreement – France, Germany, the UK, China and Russia – was awaited and efforts might be made to maintain the agreement without the participation of the US, but the re-imposition of US secondary sanctions would in all likelihood “deal a fatal blow to the JCPOA and have severe ramifications on the ability of non-US entities to continue trading with Iran”.
West of England said that of particular interest to the maritime community, was the fact that sanctions on the carriage to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, and coal would be re-imposed by August 6th 2018, whilst those on Iran’s ports and shipping operations and – “crucially” — on all petroleum-related transactions would be re-imposed by November 4th 2018. “However, if an entity is re-added to the SDN list then activities would have to cease immediately with that entity” said West of England.
West of England said that “whilst it is appreciated that Members will wish to know how their trades with Iran will be affected, the full picture will take some time to emerge and the Club will keep Members closely advised. Those with specific questions concerning these measures and any other sanctions matters should contact the Managers but it is again emphasised that at this stage little firm comment can be made”.
North P&I Club said that the decision by President Trump was “likely to have significant ramifications for maritime trade with Iran and the insurance of such trade”.
North noted that “as the sanctions relief introduced by the US pursuant to the JCPOA focused to a large extent on the relaxation of secondary sanctions and thus permitted non-US persons to trade more freely with Iran, the re-imposition of these secondary sanctions will have the opposite effect”.
All sanctions queries can be addressed to North’s dedicated sanctions advice team: [email protected]
For more information from UK Club please contact Nigel Carden ([email protected])
The Club notifications followed the decision by President Trump on Tuesday to pull the US out of an international agreement aimed at stopping Iran from obtaining a nuclear bomb, and saying that he would reimpose economic sanctions on Tehran immediately – a more hardline approach than many had anticipated.
“This was a horrible one-sided deal that should have never, ever been made,” Trump said at the White House. “It didn’t bring calm. It didn’t bring peace. And it never will.”
The 2015 deal, worked out by the US, five other international powers and Iran, eased sanctions on Iran in exchange for Tehran limiting its nuclear programme.
The Iran deal might remain partially intact, even without the US. Iranian President Hassan Rouhani suggested on Monday that Iran could remain in the accord with the other signatories that stay committed to it.
Trump’s move was seen as a snub to European allies France, UK and Germany who are also part of the Iran deal and who tried hard to convince the US president to preserve it. China and Russia are also signatories to the Iran deal.
South Korea said on Wednesday it would seek US exemptions to buy Iranian oil, a path many big oil consumers are likely to follow in the wake of the new sanctions.
During the last round of sanctions, Iran’s oil supplies fell by around 1m bpd, but the country re-emerged as a major oil exporter after sanctions were lifted in January 2016. Since then Iran has increased supplies, producing 3.81m bpd in March 2018, almost 4 percent of global output. Its crude exports averaged over 2 million bpd in Q1 2018. Iran’s supplies are expected to fall by between 200,000 bpd and 1m bpd, depending on how many other countries fall in line with Washington.