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Iranian Oil – Access Granted?

Iranian Oil – Access Granted?

The much anticipated agreement between the P5+1 countries (the US, UK, France, China and Russia plus Germany) on lifting Iranian sanctions may finally have been reached in Vienna in the last 24 hours. The stakes are high for all sides in this negotiation, and some might say for international relations in general. As such this deal has rightly been the subject of intense scrutiny and debate in the media.

With the potential to end the heavy-weight sanctions which have been in place for decades, the changes brought by this deal will have far-reaching ramifications. Iran, as an oil producing nation, has been starved of investment and new technology as a result of the restrictions that have been in place. As such, Iran is now considered a honey pot for future investment with opportunities ripe for the picking... if only the sanctions would be lifted. On the other side of the coin is the dual effect which is likely to occur in Western nations: increased revenues from business in Iran coupled with a potential for a further drop in the oil price as global supply increases.

So what can we do to prepare for business with Iran and how soon should we act?

At present it is not clear exactly what has been agreed in Vienna. In the last few months we have seen very different rhetoric coming from the parties to the negotiations. In April, the Iranian President stated unequivocally that, “We will not sign any agreements unless on the first day of the implementation of the deal all economic sanctions are totally lifted on the same day.” In the meantime the US have continuously stated that any removal of sanctions will come in phases (which could last 6-8 months) in response to the conditions which Iran must meet to hold up their side of the bargain.

Regardless of what is decided however, the fact remains that any deal is precarious, particularly given the issues coming from the other side of the Atlantic – the US Presidential election in 2016 could drastically change the US view on any deal (the US press is already muttering about Iran’s “double dealings” and not everyone thinks that Obama should be awarded a peace prize for these negotiations) and there are doubts that the US Congress will vote to ease the sanctions. The effect for business is that uncertainty will continue to surround any Iranian business dealings.

In an immediate sense, this shroud of uncertainty means that negotiations with Iranian parties must remain “in principal” and non-binding for now with plenty of “wriggle” room for Western business to react to the changing political climate. Caution should also be exercised in carrying out negotiations as a breach of sanctions could occur in the inadvertent export of technology which can even occur during sales pitches or over the telephone - if sufficient information is provided such that the technology itself can be considered to have been exported.

Looking further ahead, where the sanctions are lifted, any commercial agreements should be drafted in such a way as to ensure that exit strategies are in place should the Vienna accord fall through or come to an abrupt ending. Any such sudden end to the deal will have commercial ramifications, and these can be taken care of in careful drafting in commercial agreements, but there will also be a real practical impact on any staff who are in Iran should a sudden change occur. Practical arrangements should also be considered far in advance to ensure that staff  have access to funds and safe refuge in these circumstances.

Finally, even if the sanctions are lifted and the doors of opportunity open, doing business in Iran should be approached tentatively. Like any other new venture, the risks should be thoroughly assessed and addressed and a compliance programme should be implemented to deal with risks as they arise. In relation to Iran this compliance programme must address risks of bribery and corruption (Iranian business is not conducted according to Western principles and the UK Bribery Act applies to UK businesses’ operations abroad) and should also incorporate sanctions checks and monitoring to ensure compliance as the political climate changes.

If you are considering opportunities that may arise for your business if Iranian sanctions are removed and would like to discuss how to take these forward, please get in touch.

Fran Hutchison
Senior Solicitor