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Iran deal opens doors for business, but shuts out US

Michael KniggeSeptember 11, 2015

President Obama’s victory in Congress finally clears the path for his Iran deal. While the nuclear agreement with Tehran could be a boon for European and Asian businesses, US companies will be left in the cold.

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Barack Obama Iran Nuclear Vertrag Einigung Atom Deal
Image: picture-alliance/EPA/A. Harnik

To say that it was difficult getting to the point where the nuclear deal signed by the United States and five other international powers with Iran would finally stand and not be nixed by US lawmakers would be an understatement.

Talks by the group consisting of the US, Britain, France, Russia, China and Germany with Iran began in 2006, but it wasn't until 2013 that the parties were able to reach an interim agreement. It then took two more years until the final deal was signed two months ago.

And as soon as it became clear that an accord was in fact within reach, Republicans in the US Congress, in close cooperation with Israel's Prime Minister Benjamin Netanjahu, started a massive public relations effort to convince legislators in Washington to kill the deal. Their campaign climaxed in Netanyahu's unprecedented anti-Iran deal speech before Congress.

Contrasting effect

Now that the dust has finally settled after Republicans' last attempt to block the accord failed in Congress, it is time to look at the diverging practical implications the deal has for the US and the rest of the world.

The main feature of the nuclear agreement is that the US and Europe will lift most of its economic sanctions against Tehran. That means that on implementation day - when the IAEA issues an official report verifying that Iran has complied with all its obligations under the arrangement, probably in the second quarter of 2016 – Iran will regain access to the international financial system.

Yukiya Amano IAEA Direktor Atom Energie Behörde Agentur Wien Österreich
The IAEA must verify that Iran has fulfilled all requirements of the dealImage: picture-alliance/dpa/H.Punz

Tehran will then be able to sell oil again and its blocked funds abroad will be unfrozen. Iran will also be able to engage in trade relationships and sign contracts with foreign entities again – with the exception of American businesses.

US embargo remains

"US companies will remain off limits during the duration of this deal," said Elizabeth Rosenberg, a former senior sanctions adviser in the Obama administration's Treasury Department. "The US embargo that prevents US people and companies from doing business in Iran remains basically in place."

The reason why American firms will be essentially locked out from doing business with Iran with some exceptions like sales of commercial passenger airplanes is that the US sanctions regime vis-à-vis Tehran is far broader and dates back much further than that of Europe.

"The US really has two kinds of sanctions in place," explained Christopher R. Wall, Assistant Secretary of Commerce for Export Administration under George W. Bush. Back in the 1990s Washington began to impose various restrictions against Tehran. These direct sanctions penalized American companies for dealing with Iran.

Then around 2010 the United States started a second round of sanctions, this time aimed at non-US companies engaging in business with Iran, so called secondary sanctions. As part of the Iran deal, the US has agreed to lift those secondary sanctions.

European and Asian firms to profit

"However, the direct sanctions will stay in place for the US companies," said Wall, now the senior international trade partner at the law firm Pillsbury Winthrop Shaw Pittman. "And that means that US companies will not be able to engage in business with Iran because they would be violating US regulations."

"It will be European and Asian companies and others that will have the ability to expand trade and investment with Iran," noted Rosenberg who now heads the Energy, Economics and Security Program at the Center for a New American Security.

Iran Sigmar Gabriel trifft Bidschan Namdar Sanganeh
Germany's economics and energy minister met Iran's oil minister in JulyImage: Getty Images/AFP/A. Kenare

Variety of landmines

But non-US firms better not get too giddy and greedy about the potential windfall they could reap; for instance, by investing in Iran's oil and gas sector without having to deal with any US competitors. That is because even Washington's remaining direct sanctions have a secondary effect which penalizes international firms if they do business with an entity that remains blacklisted by Washington.

"There is still a variety of landmines that they could accidentally or incidentally if they want to play that game, step on having to do with future business with Iran," said Rosenberg.

What's more, even with US companies shut out of trade with Iran there is little appetite in Washington to scale down direct sanctions against Tehran. To the contrary, there is already talk in Congress to ramp up or level new sanctions against Iran, which would violate the terms of the Iran deal and could also have a negative impact on non-US companies.

New troubles

"I think after the Iran deal goes into effect there will be motions put forward, for example, to extend the Iran Sanctions Act," said Wall.

While tough rhetoric coming out of Congress vis-à-vis Iran does not automatically translate into new legislation, it does mean that the story of the Iran nuclear deal is far from over.

"It's the beginning of a range of new troubles," said Wall. "And it is very unclear how this is going to play out."