Enhanced US Iranian Sanctions and the Oil and Gas Industry

On the 1st July 2010, President Obama signed into law The Comprehensive Iran Sanctions, Accountability and Divestment Act, ("The Act"). The Act both amends and enhances the Iran Sanctions Act (ISA).

No companies were ever sanctioned under the ISA; however, that is likely to change, as the president will no longer be able to exercise discretion as to when to enforce ISA sanctions against those who knowingly or (now) unwittingly assist the Government of Iran.

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The Act has ramifications for both the Worldwide Oil and Gas and Financial Services Industries, and is not simply restricted to the Government of Iran. Its provisions will, for the first time, render non-US companies liable to severe economic sanctions.

This briefing concentrates on the Oil and Gas Industry and identifies activity liable to sanction.

The Activities

1) Investment in Iran's Oil and Gas Industry

"Persons," (which includes natural persons and companies) are prohibited from making investments of $20 million or more (or smaller investments of $5 million that equal or exceed $20 million, in aggregate, over a period of twelve months) that "directly and significantly contributes to the enhancement of Iran's ability to develop petroleum resources."

"Petroleum Resources" includes:

• Petroleum
• Refined Petroleum Products
• Oil or Liquefied Natural Gas ("LNG")
• Natural gas resources
• Oil or LNG tankers
• Products used in the construction and maintenance of oil and LNG pipelines

2) Construction, modernisation or repair of Iran's domestic petroleum refineries

The provision, sale, or lease of goods, services, technology, information, or support to Iran, in any single activity valued in excess of $1 million, will violate sanctions. Sanctions will also be triggered where, over a twelve-month period, such activities total, or exceed, $5 million.

3) Exportation of "Refined Petroleum Products" to Iran

The Act prohibits:

• the sale or provision of refined petroleum products to Iran, triggered by a single sale or provision, at a fair market value of £1 million or more; or, over a 12 month period, and aggregate of $5 million or more;
• and the provision, sale, or lease of goods, services, technology, information, or support to Iran that would enhance Iran's ability to import refined petroleum products.

Again, the $1 million single activity and $5 million, 12-month aggregate applies.

"Refined Petroleum Products" include:

• Diesel
• Gasoline
• Jet fuel
• Aviation gasoline

The Sanctions

The six original ISA sanctions are increased to nine, of which the president is required to impose any three on sanctions violators. The three additional sanctions are at the foot of the list, below:

• Denial of US Export-Import Bank credits for US exports
• Denial of licences for US exports of military technology
• Denial of US bank loans in excess of $10 million per year
• Prohibition on a financial institution serving as a primary dealer in US government bonds and as a repository for US government funds
• Prohibition on participation in US government procurement
• Restrictions on certain imports into the US from the sanctions target
• Any transactions in foreign exchange that are subject to US jurisdiction, in which the sanctioned entity has any interest
• Any banking transactions, between financial institutions subject to US jurisdiction, that involve an interest of a sanctioned entity
• Any property transaction, involving property subject to US jurisdiction, which involves an interest of a sanctioned entity.

It is, arguably, the three new sanctions that have the greatest, adverse ramifications for companies, engaged in the Oil and Gas Industry, given both the global nature of trade and the reliance on the US dollar.

Presidential Reporting Obligation

It is clear the inertia of previous administrations, in enforcing ISA, has not impressed Congress, hence the increased obligation on the President to report any, and all, investigations to it.

The law also requires the president, within 90 days, to report all significant energy-related investments, in Iran, since 2006, to include:

• the total value of any joint venture, investment, or partnership;
• and the percentage of the joint venture, investment, or partnership owned by any Iranian entity.
  

This is to be updated, every 180 days, with new activities and any older activities recently discovered. Once with Congress, it can be anticipated this information will be published.

How We Can Help

In common with other US sanctions programmes, Iranian sanctions are administered by the US Treasury's Office of Foreign Assets Control ("OFAC"). OFAC will consider applications for the removal of sanctions designations; however US lawyers cannot act until an OFAC representation licence is granted, a process that can take up to two months. We use that time to work, with our Clients, to prepare the rebuttal evidence for the US lawyers to put before OFAC.