EU sanctions: Ban on the import of Iranian petroleum products to the EU

February 2012

Contacts

Introduction

The continuing concerns of EU Member States with regard to the Iranian nuclear program have prompted the adoption and implementation by the council of the EU on 23 January 2012 of further measures to broaden existing sanctions against Iran.

The US and EU governments are campaigning for other governments to follow suit in implementing similarly broadened sanctions.

Council Decision 2012/35/CFSP (the Council Decision) was agreed on 23 January 2012 and was published together with Council Implementing Regulation (EU) No 54/2012 and Council Regulation (EU) No 56/2012, which implement certain elements of the Council Decision.

The Council Decision adds to and amends Council Decision 2010/413/CFSP which set out various restrictive measures against Iran and which was subsequently implemented by EU Council Regulation 961/2010.

Please note that the Council Decision is binding immediately on EU Member States, but certain parts of the Council Decision have yet to be implemented by Regulation – this is required in order for such provisions to be directly applicable in Member States and therefore binding on individuals and corporate entities. We understand that a further Regulation will be adopted by the Council within the next few weeks.

Council Decision 2012/35/CFSP - measures not yet implemented by Regulation

Crude oil, petroleum and petrochemical products

The Council Decision prohibits the import, purchase or transport of Iranian crude oil, petroleum products and petrochemical products by EU entities, along with the provision of financing, financial assistance, or insurance and reinsurance in relation to these matters.

The phrases “Iranian”, “crude oil”, “petroleum products” and “petrochemical products” are not defined in the Council Decision and it is likely that the further Regulation will contain more detailed definitions. The definition of “Iranian” will be particularly important in determining the potential impact of the Regulation. The Recitals suggest that the definition will most likely be limited to crude oil, petroleum and petrochemical products from Iran itself. However, it is possible that the definition will go further to cover any Iranian owned or controlled entity (which could potentially include a joint venture) wherever it may be located worldwide.

With regard to Iranian crude oil and petroleum products, the Council Decision includes transitional provisions which provide that contracts concluded before 23 January 2012 can still be performed up to 1 July 2012, and contracts related to Iranian petrochemical products can still be performed up to 1 May 2012.

There is also an exception which allows for debt obligations owed by Iranian entities arising from contracts concluded before 23 January 2012 to be honoured by the supply of Iranian crude oil, petroleum products and petrochemical products or the proceeds derived from their supply.

Petrochemical industry

The existing prohibition on the export of key equipment and technology to the Iranian “oil and natural gas industry”, along with related technical assistance and financial assistance, has been broadened in the Council Decision so as to also include the same prohibition in respect of the Iranian “petrochemical industry”. The meaning of the term “petrochemical industry” is not yet clear. However, a more detailed definition is likely to be included in the further implementing Regulation, along with a further Annex setting out details of the prohibited equipment and technology.

The broader prohibition in respect of the petrochemical industry will not affect the delivery of goods provided for in contracts concluded before 23 January 2012 or the performance of obligations arising from contracts concluded before 23 January 2012 relating to investments made before the same date.

The provision of finance, acquisition of participating shares and/or securities or the creation of a joint venture with companies in the Iranian “oil and gas industry” has also been extended to include the Iranian “petrochemical industry”. Again such prohibition will not affect contracts concluded before 23 January 2012 or extensions of participations which are due to obligations under contacts concluded prior to 23 January 2012.

Other goods

Trade in gold, precious metals and diamonds with Iranian public bodies and the Central Bank of Iran is prohibited, along with the delivery of Iranian-denominated banknotes and coinage to the Central Bank of Iran.

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Council Decision 2012/35/CFSP - measures implemented by Regulation

An asset freeze on certain Iranian individuals has been extended by the Council Decision and has been implemented by Council Implementing Regulation (EU) No 54/2012. This includes asset freezes in respect of the Central Bank of Iran and Bank Tejarat. This is not a blanket freeze on all transactions in relation to these banks, as Council Regulation (EU) No 56/2012 has carved out certain transactions which can still take place.

Generally, provided that the payment is in relation to a specific contract and the competent authority of the relevant Member State (i.e. HM Treasury for the UK) has determined, on a case by case basis, that the payment will not directly or indirectly be received by any other person or entity with assets frozen under EU Regulation 961/2010, then certain transfers of funds or economic resources are allowed.

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Impact

As noted above, there is an element of uncertainty surrounding the current legal position in respect of the non-implemented provisions of the Council Decision. Such uncertainty is likely to be alleviated to some extent by the further implementing Regulation, due to be adopted within the next few weeks. The Council Decision, which is currently only binding on EU Member States, does however provide a good indication of the nature of the impending prohibitions that will be implemented in relation to the Iranian crude oil, petroleum and petrochemical industries and that will apply directly to individuals and entities within EU Member States.

Entities or individuals from EU Member States conducting transactions in Iran or with Iranian entities which relate to the crude oil, petroleum products and petrochemical products industries should carefully assess present or future transactions in light of the Council Decision and should seek legal advice in the event of any concern or uncertainty.

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