What lifting Iran sanctions means for world markets
By Amir Paivar BBC Persian business reporter 4 hours ago
The untangling of the world's most complex regime of sanctions starts now.
The European Union terminates all its nuclear-related economic sanctions including an embargo on buying Iranian crude oil, but more importantly, ends restrictions on Iranian trade, shipping and insurance.
"This is a day we were awaiting for years. There will be big changes," says Michael Tockuss, managing director of the German-Iranian chamber of commerce.
"We will also get some 300 Iranian individuals and companies off the (EU) sanctions list. Up to now, we couldn't do a single business transaction with them, not even selling bread or biscuits."
Some sanctions remain
Besides removing sanctions on entire sectors such as banking or insurance, Iranian entities or individuals who were blacklisted because of their alleged nuclear-related activities can now do business with the EU.
However, those on the terrorism sanctions list, will still be excluded.
The United States will no longer apply its crippling sanctions on Iran's economy, especially on the banking sector.
A full annulment of those restrictions would in some cases require approval by the Republican-dominated US Congress - which is why President Obama opted for issuing "waiver orders" for these sanctions.
The US, too, keeps sanctions on entities accused of sponsoring terrorism such as Iran's Revolutionary Guards or those allegedly linked to it.
Previous UN Security Council resolutions that imposed sanctions on Iran's nuclear programme will be annulled.
Though the economic impact of these has been small in scope, compared with US or EU sanctions, those of the UN lent legitimacy to restrictive actions by others.
At current prices, the lifting of energy sanctions means Iran could increase its revenue from oil exports by $10bn (£6.9bn) by next year
Iran's central bank says lifting banking sanctions will allow $30bn of foreign reserves currently frozen in accounts around the world to be brought back - the US Treasury says the figure is $50bn
With sanctions gone Iran could boost its GDP growth to around 5% in 2016-17, from almost zero currently, says the International Monetary Fund
Sanctions have added 15% to the cost of trading with Iran and lifting them will save the country some $15bn yearly in cheaper trade, says Iran's first Vice-President Eshaq Jahangiri
With the lifting of sanctions Iran will be able to export as much crude oil to the world as it can, or as much as it can find demand for.
Before imposing an oil embargo on Iran in 2012, one in every five barrels of Iranian crude went to European refineries.
Iran has been selling just over one million barrels a day for the past few years, mostly to China, India, Japan and South Korea.
Tehran says it will hike sales by 500,000 barrels the day after sanctions are lifted and increase total exports to around 2.5 million barrels within the next year.
This will push the price only one direction: downwards. The market is already flooded by cheap oil and there will be many more barrels in the market than there are buyers.
In order to win back its customers, Iran plans to offer discounts on prices that are already the lowest in 11 years.
Iran's full return to the market could trigger a price war with its arch-rival Saudi Arabia, which is trying to keep its own market share by selling under the market price.
But the biggest bottleneck in future business with Iran could be banks. Although Iran will be again connected to the global financial system it is unclear how many banks will re-engage in Iranian business.
"When I speak to our big German banks, they say wait until 'implementation day' then another 12 months, then you might be able to speak to us again about doing business with Iran," says Mr Tockuss.
US financial and judicial authorities have slapped hefty penalties on two dozen European banks for bypassing US sanctions on Iran, Sudan and Cuba.
Over the last 10 years, banks have paid $14bn in fines or out-of-court settlements - French bank BNP Paribas's bill alone amounted to $9bn.
"A number of UK banks have given commitments to US regulators not to increase their Iran exposure," says Justine Walker, director of financial crime at the British Bankers' Association.
Both German and British business leaders say they have asked the US Treasury to give a "green light" to banks, so that financial institutions are confident in handling Iran-related requests by their European clients.
"If we can't convince any big banks to provide us with big amounts, we have to look for a large number of smaller banks," says Mr Tockuss, whose chamber members managed to keep doing business with Iran, thanks to small German banks with no exposure to the US market.
But such "micro-financing" could prove inadequate for large-scale projects like the overhaul of Iran's railway system by engineering firm Siemens, or the purchase of large passenger aircraft from Airbus.
If practical complexities were not enough, there are also legal ones too.
The US is lifting its so-called "secondary sanctions" - the ones that apply to non-US individuals or companies, but US "primary sanctions" will still ban US nationals and companies from engaging in business with Iran.
"There are big grey areas: what about non-US subsidiaries of US companies?" says sanctions expert Maya Lester, a barrister at London's Brick Court Chambers.
The text of the nuclear deal says business with Iran will be permissible for subsidiaries of US companies but that contradicts with US primary sanctions.
Many companies and their lawyers are waiting for detailed guidelines by the US Treasury's financial and asset control office (OFAC) before doing business with Iran.
But the legal complications are not solely on the western side. It may seem straightforward to export cosmetics to Iran's hungry market but navigating the country's legal and regulatory regime is like walking in a minefield.
Corruption is an epidemic, says Ahmad Tavakoli, a prominent Iranian conservative member of parliament.
Sometimes obtaining import permits could be a headache without "extra payments", while some businesses, such as those in the UK must observe Britain's bribery act.
"There might be joy for now, but there will also be surprises and disappointments," says one managing director of a Tehran-based engineering procurement firm.
"Many will understand that sanctions were only part of the problem."
World | Sat Jan 16, 2016 5:53pm EST Related: WORLD, UNITED NATIONS
Factbox: Lifting sanctions on Iran - how it will work
The United Nations' nuclear watchdog confirmed on Saturday that Iran had curbed its nuclear program as agreed with world powers, paving the way for most international sanctions against Tehran to be lifted.
Following are details of what this means:
The July 14 nuclear deal aims, for the next decade, to extend the amount of time it would theoretically take Iran to produce enough fissile material for an atomic bomb - so-called breakout time - from several months to a minimum of one year.
Critics of the deal in the U.S. Congress and Israel worry that, once the main restrictions on Iran's nuclear program expire in 10 to 15 years, Tehran will be in a position to quickly develop an atomic weapon, if it wishes. The Obama administration says the deal will ensure long-term scrutiny of Iran to deter it from developing a bomb.
Under the deal, Iran agreed to reduce the number of its centrifuges by two-thirds. It will be permitted to operate up to 5,060 first-generation centrifuges for 10 years at its Natanz plant. It will cap its level of uranium enrichment at 3.67 percent, well below the 90 percent level needed for bomb-grade material.
Iran will keep 1,044 first-generation centrifuges at its underground Fordow enrichment plant, which will be converted into a nuclear, physics and technology center. Before the deal, Iran had 20,000 centrifuges installed at Natanz and Fordow.
The deal says Iran can continue to conduct enrichment research and development without accumulating enriched uranium, including work with certain types of advanced centrifuges.
Heavy water reactors, such as the one Iran had started building at Arak, can produce weapons-grade quantities of plutonium. Under the deal, Iran agreed to convert the Arak reactor so that such a "plutonium pathway" to a nuclear bomb is ruled out. The core of the Arak reactor has been removed and has been filled with concrete, Washington said on Thursday, so it will cease to be operational. The original core is expected to remain in Iran.
Iran had to reduce its enriched uranium stockpile from around 10,000 kg (22,000 lb) to 300 kg (660 lb) for 15 years. U.S. officials have described it as a 98 percent reduction in Iran's stockpile of uranium, which would have no material enriched beyond 3.67 percent.
On Dec. 28, the United States said a ship carrying more than 11,000 kg of low-enriched uranium materials had left Iran for Russia.
POSSIBLE MILITARY DIMENSIONS
Iran helped the IAEA to complete an investigation into what Western powers said was past nuclear weapons research, based on an IAEA report strongly suggesting that Tehran had a nuclear weapons program for years.
Last month, having received the extra information, which was not made public, the IAEA's board of governors ended the agency's inquiry into the so-called "possible military dimensions" of Iran's nuclear program.
Iran denies ever having considered developing atomic weapons.
All U.N. sanctions resolutions passed between 2006 and 2010 are terminated. However, a new resolution adopted on July 20 carries over some U.N. restrictions.
Iran will be "called upon" to refrain from work on ballistic missiles designed to deliver nuclear weapons for up to eight years, language that critics of the deal say does not make it obligatory. A U.N. embargo barring Iran from selling weapons will remain in place for up to five years.
The new resolution allows for the supply of ballistic missile technology and heavy weapons such as tanks and attack helicopters to Iran with Security Council approval, but the United States has pledged to veto any such requests and to continue to act as if Iran's ballistic missile program were banned.
U.N. restrictions on the transfer to Iran of nuclear technology for peaceful purposes will remain in place for a decade.
A committee of the parties that negotiated the deal - known as the "Joint Commission" - will handle disputes over possible violations of the agreement. If the complaining state is not satisfied with how the commission addresses its concerns, it can then take its grievance to the U.N. Security Council.
With IAEA confirmation that Iran has met its obligations under the deal, the EU said it was immediately taking the formal steps to lift all its nuclear-related economic and financial sanctions, including those applying to the following: financial transfers; banking; insurance and reinsurance; the SWIFT system; trade financing; oil, gas, petroleum and petrochemical products and related technology; naval equipment and technology; design and construction of cargo vessels and oil tankers; access to EU airports; trade in gold, diamonds and precious metals; and other areas.
Under the agreement, the United States is suspending nuclear-related sanctions against Iran.
In practice, this means lifting the restrictions that now prevent non-U.S. companies, entities and individuals from engaging in a wide array of transactions with Iran, on pain of sanctions against their activities in the United States. For the most part, restrictions on U.S. actors will remain in place.
The most dramatic U.S. sanctions to be eased will be those that had prevented non-U.S. actors buying oil from Iran, except in very limited circumstances, or investing in its petroleum sector.
Among other things, non-U.S. actors will now largely be able to carry out transactions involving the Iranian rial; provide U.S. banknotes to the Iranian government; release Iranian oil-sale revenues held abroad; issue Iranian sovereign debt; provide insurance underwriting; trade precious metals; sell goods and services to Iran's auto sector; and undertake many financial and banking dealings.
Most U.S. sanctions involving U.S. actors remain in place. So, while non-U.S. banks may trade with Iran without fear of punishment in the United States, U.S. banks may not do so, directly or indirectly. However, the U.S. Treasury Department said foreign subsidiaries of American companies would now be allowed to do business with Iran.
The U.S. government has also committed to allow companies, including U.S. actors, to seek licenses to sell commercial aircraft and spare parts to Iran and to license imports of Iranian carpets, caviar, pistachios and other foodstuffs into the United States.
The so-called snapback mechanism is designed to allay fears that Iran might fail to keep its promises once sanctions are lifted. Under snapback, punitive sanctions are automatically reintroduced if Iran fails to comply with the deal.
A July 20 Security Council resolution allows all U.N. sanctions to be re-imposed if Iran breaches the deal in the next 10 years. If the council receives a complaint of a breach, it will then need to a resolution within 30 days if it wishes to extend sanctions relief.
If the council fails to pass such a resolution, the sanctions will be automatically re-imposed. This procedure prevents any of the veto powers that negotiated the accord blocking a re-imposition of sanctions.