• Parameters on Iran Nuclear Deal Reached, Offers Path for Sanctions Relief
  • April 13, 2015
  • Law Firm: Dentons Canada LLP - Toronto Office
  • On April 2, 2015, the parties of the P5+1 (US, UK, France, China, Russia and Germany) and Iran reached what they are calling the “key parameters” of a Joint Comprehensive Plan of Action (JCPOA), regarding Iran’s nuclear program. These parameters address many key issues, such as enrichment capacity, centrifuge infrastructure, reactors and inspections, phased over 25 years. These parameters also outline the basis on which a number of US, EU and UN Iran-related sanctions would be suspended, thus offering a path for Iran to reintegrate into the global economy.

    The parties still need to finalize the details of the JCPOA by June 30, 2015. But the key parameters announced late last week illuminate the main conditions for the suspension of Iranian nuclear-related economic sanctions now in effect. A final JCPOA will therefore have significant implications for investment in Iran. We discuss below how, under the key parameters, Iran may be reintegrated into the global economy.

    Key nuclear-related steps of the JCPOA

    The JCPOA requires that Iran take a number of major steps so as to extend its “breakout timeline”—the time that it would take for Iran to acquire enough fissile material for one weapon—to at least one year, for a duration of at least 10 years, and to submit to international monitoring of its nuclear activities for up to 25 years. These “key nuclear-related steps” are, among others:
    • Enrichment. Iran will reduce its installed centrifuges to about 2/3 of their current capacity, to just over 6,000. Iran will not enrich uranium above 3.67% for at least 15 years, and will not build any new uranium enrichment facilities for at least 15 years.
    • Facilities. Iran’s Fordow facility will be converted to a research facility and no enrichment will take place for at least 15 years; limited enrichment will take place at Iran’s Natanz facility. Overall, enrichment and enrichment research and development will be limited to the “one year” breakout timeline, for a duration of ten years.
    • Reactors and reprocessing. Iran will redesign and rebuild a heavy water research reactor in Arak, based on a design that is agreed to by the P5+1, and use for research purposes only.
    The key actor ensuring that Iran abides by its commitments is the International Atomic Energy Agency (IAEA). The IAEA will have regular access to all of Iran’s nuclear facilities and will be responsible for verifying that Iran abides by its commitments. The key parameters set out a number of mechanisms (and phases for these mechanisms) by which IAEA will maintain surveillance, such as access to and monitoring over Iran’s uranium mills and supply chain and centrifuge infrastructure.

    Key sanctions relief provisions

    Sanctions relief conditional on IAEA verification
    The US and EU will suspend all “nuclear-related” sanctions after the IAEA has verified that Iran has taken all of its key nuclear-related steps. In addition, all past UN Security Council resolutions related to Iran’s nuclear program will be lifted simultaneous with Iran’s addressing of all “key concerns”, which has been explained to include the major activities related to enrichment, the Fordow facility, the Arak reactor, the implementation of IAEA steps to address the “Possible Military Dimensions” of Iran’s program and transparency.

    Thus even a final deal will not automatically roll back sanctions, and at this point in time it is unknown how long implementation will actually take. It is not clear, for example, how long Iran will need to implement all steps, nor how long the IAEA will need to verify that Iran has taken all of the required steps. We note that it also remains to be seen whether the actual implementation of any deal will be politically palatable in Iran and in each of the P5+1 countries.

    The key parameters do not specify precisely all of the US and EU sanctions that would be considered “nuclear-related” and these will likely be provided under the details of a final deal, together with guidance by the respective enforcement agencies of the US and EU. Precisely which sanctions may be suspended will be vital in determining which sectors of Iran's economy will be re-opened for investment, under what conditions, at what times and for whom.

    Certain US sanctions—including extraterritorial sanctions—will not be suspended
    All US sanctions on Iran for terrorism, human rights abuses and ballistic missiles will remain in place under the deal. Thus, for example, the sanctions provided under Executive Order 13606,1 known as the “GHRAVITY” Executive Order, would remain in place even after the IAEA verifies Iran’s compliance with all nuclear steps. Executive Order 13606 provides for imposition of sanctions on persons, US and non-US, who operate or provide information and communications technologies used by the Government of Syria or Government of Iran to commit grave human rights abuses.

    Sanctions architecture remains in place
    If Iran at any time fails to fulfill the commitments established under the JCPOA, then the US and EU sanctions “snap back” into place. The US has stated most “architecture” of its nuclear-related sanctions will be retained for much of the duration of the deal, which, as noted above, extends as long as 25 years for certain phases. Thus the patchwork of laws, Executive Orders and regulations under which the US now imposes Iranian-related sanctions may all remain largely in place even as certain applications are suspended.

    While it is not clear from the key parameters how sanctions may be automatically re-applied, the parameters also provide for a dispute resolution process (to be later determined). Under this process, any of the P5+1 parties may bring a dispute about the performance of JCPOA commitments. The precise details of the mechanism for re-applying sanctions will likely be a critical element of any final deal.

    A failure to resolve JCPOA disputes could also trigger the re-imposition of all UN sanctions. The key parameters provide that the provisions in the UN Security Council resolutions with respect to transfers of sensitive technologies and activities will be re-established by a new UN Security Council resolution. This new resolution will endorse the JCPOA and urge its full implementation, and also incorporate a number of the JCPOA’s key provisions.

    The key parameters offer the outline of a final deal that is intended to be reached among the parties by June 30, 2015. Among the terms of a final deal would be the grounds on which the EU, US and UN would suspend their nuclear-related sanctions against Iran. A final JCPOA would therefore offer a path for the Iranian economy to re-integrate, and provide a number of new opportunities for businesses to invest in Iran.

    Even if a final deal is reached, persons contemplating transactions with Iranian entities that may now be under sanction will need to wait until IAEA verifies Iran’s compliance in order to be able conduct business without violating the nuclear-related sanctions. Critically, moreover, businesses must be aware that under any final deal, sanctions will only be suspended—not repealed—and therefore the violation of Iran of its commitments may lead to these sanctions snapping back into place. The mechanism and lead time for such a snap-back is not clear: while the key parameters provide for a dispute resolution process, it is not known at this time how and whether this process will need to be engaged in the event Iran significantly fails to perform on one or more key commitments. A number of US sanctions—including extraterritorial sanctions—will also remain in place notwithstanding Iran’s fulfillment of its JCPOA commitments.

    Finally, the key parameters did not provide for any further immediate sanctions relief. Accordingly, other than the limited sanctions relief agreed to among the parties as part of their initial understanding reached on November 24, 2013, and as extended until June 30, 2015, all US sanctions remain in place.

    1. Executive Order 13606 (April 22, 2012), Blocking the Property and Suspending Entry Into the United States of Certain Persons With Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology.