COVID-19 and Iran Sanctions
The Covid-19 Crises and its Effect on the Application of Sanctions Measures: The Case of Iran and why an “Iran Oil for Pharma, Food & Humanitarian Goods” Programme should be considered
By Jeroen Jansen and Valerijus Ostrovskis
A Bit of History
In particular since the imposition of economic sanctions by the UN Security Council (UNSC) in the mid 90’s – against countries such as the Former Yugoslavia, Iraq and Libya – concerns have been raised about their unintended side-effects on vulnerable groups in society such as children, the elderly and people suffering from medical conditions. In all cases humanitarian goods (food, medicine, medical equipment) were exempted from sanctions regimes.
However, in some cases this mere exemption was not sufficient to avoid unwanted humanitarian side-effects. In the case of Iraq for example, the UNSC decided in 1995 to establish a dedicated “Oil for Food” programme. Iraq was allowed to export a particular volume of crude oil in return for funds that were subsequently used to procure humanitarian goods.
Today, there are several countries under sanctions – UN sanctions (globally applicable) as well as unilateral sanctions regimes – of which sanctions against Iran, Russia, Venezuela and Syria are probably the most impactful. Whether they are also effective is a different matter. In all these cases the sanctions measures are either partial or sector-focused and exempt humanitarian goods.
The Covid-19 Crisis
Then came the Covid-19 crisis. A global pandemic: the healthcare, social-support and supply systems for essential needs challenged and over-stretched in every country.
Of the sanctioned countries in particular Iran is severely hit. On 24 March 2020, Michelle Bachelet, the UN High Commissioner for Human Rights, stated that for global public health reasons, and to support the rights and lives of millions of people in living in countries under economic sanctions that are battling against the outbreak of COVID-19, “Sectoral sanctions should be eased or suspended. In a context of global pandemic, impeding medical efforts in one country heightens the risk for all of us.” In addition to Iran, the High Commissioner feared sanctions could also impact medical efforts in Cuba, the Democratic People’s Republic of Korea (DPRK), Venezuela and Zimbabwe.
The Case of Iran in the Context of the Nuclear Agreement (JCPOA)
The EU meanwhile, will send humanitarian good to Iran, initially making available a budget of EUR 20 million.
Even in the US, traction is developing to ease sanctions against Iran. On 26 March 2020, 11 US senators called on the Trump administration to release a “clear general license authorizing specific medical goods and equipment to facilitate international relief efforts” and to issue a “90-day waiver of sectoral sanctions that impede a rapid humanitarian response” among other efforts. In addition, on 31 March 2020, 34 members of Congress (bicameral) called for a substantial suspension of sanctions on Iran in a “humanitarian gesture.”
Some action was already taken. On 6 March 2020, the US Treasury Department’s Office of Foreign Assets Control (OFAC) issued guidance that transactions involving Iran’s foreign exchange assets held abroad, when used to procure humanitarian items, would not face US sanctions. But that in itself provides limited relief. Because so-called “waivers” are no longer available for purchasing Iranian oil and sanctions remain in place against Iran’s Central Bank, Iran’s access to funding to purchase so-much needed humanitarian goods and medical supplies on the international market, has become even more challenging and de-facto restricted.
While the US will have to change course, the EU can already deliver on the basis of current legislation.
The Real Issue
Despite the humanitarian exemption clauses in sanctions regimes and the fact that trade with Iran for e.g. the European Union is permitted as a result of the lifting of sanctions as a result of the Nuclear Agreement with Iran (Joint Comprehensive Plan of Action or JCPOA in short), trading has been slow following the unilateral withdrawal from JCPOA by the US and the reimposition of US primary and secondary sanctions (“maximum pressure” campaign).
The real issue is the extraterritorial effect of the US sanctions legislation. On the basis of domestic US legislation, also companies and individuals abroad are targeted when they engage in business transactions with Iran. Even when these transactions are fully legitimate under the laws of the respective country in which that business or the individual is located (e.g. in the EU). A special perceived risk exists for companies that have business interests – or a presence - in the US. This extraterritorial effect – infringing on the EU’s sovereignty in international trade – is considered a violation of Public International Law by the European Union (see the EU’s so called “Blocking Statute” - Council Regulation (EC) no. 2271/96). But despite that legal appreciation and the fact that it is not allowed for EU-based companies to submit to this US legislation, it has nevertheless serious negative effects on legitimate business.
By extension, in case there is hardly any activity in trade & commerce between e.g. the EU and Iran (due to self-sanctioning and submission to US legislation) there will also significantly less income for Iran overall, reducing also its purchasing power to procure humanitarian goods.
In practical terms, under EU (Sanctions) Law and following the lifting of certain sanctions measures under JCPOA, Iran is allowed to export crude oil to the EU. The financial transactions accompanying oil sales are equally permitted. So therefore, de-jure Iran could harvest significant income from legitimate trade in order – among other things – procure food, medicines and medial equipment. The fact that this is not happening is to be attributed to the chilling effect of US secondary sanctions in particular. Major oil companies, banks and insurance firms will decline trade due to their US nexus or perceived exposure.
A Chance for INSTEX
In addition to the “Blocking Statute”, several Member States (France, Germany and the UK), in close collaboration with the European Commission, established “INSTEX” in January 2019. A sovereign trading platform to facilitate legitimate trade between the EU and Iran, designed to protect and preserve EU trade sovereignty from US sanctions. At the end of 2019, Norway and five other EU Member States – Finland, Belgium, Denmark, Netherlands and Sweden – joined the INSTEX as shareholders. End of March 2020 it announced its first transaction of medical supplies to Iran. Given the current needs, INSTEX should seriously increase the pace of its operations.
In addition, given the Covid-19 circumstances it should – with its shareholders – also aim to start looking at oil exports from Iran to generate more income for the transactions, with focus on humanitarian goods. This will require a confident position on the applicable (EU) laws in this context and – first and foremost – continued diplomatic interaction between the EU and the US in particular. In that way the Covid-19 crisis could be a blessing in disguise (never waste a good crisis) for a renewed effort to uphold the rule of law, promote the rule-based international order and swiftly deliver humanitarian and other benefits and support where it is most needed.
Finally, it seems that in the case of Iran, an instrument similar to the “Oil for Food” programme that was designed for Iraq in 1995, should be considered. Given the importance that the EU and its Member States attach to JCPOA, together with China and Russia, this could be developed by the EU and the latter two countries. INSTEX could manage and administer the programme. Enough operational and technical expertise and lessons-learned from the past programme are available and could be applied. The design and operationalisation of such programme could be achieved in a relatively short time frame: two-three months.
When this “Oil for Pharma, Food and Humanitarian Goods” platform is created and attached to INSTEX it will accelerate humanitarian deliveries to Iran financed by proper and legitimate trade – including crude oil - and it could give a serious confidence boost to those that wish to preserve the integrity of JCPOA or the Iran Nuclear Agreement. JCPOA is still one of the key diplomatic successes of the last decades and an international agreement of great significance for achieving peace and stability in a turbulent region.
Experts at Acquis EU Law & Policy provide legal and compliance advice on EU and global (UN) sanctions regimes. The team is highly recognised for its expertise and insights. Over many years the team and individual team members advised companies as well as institutional clients on various sanctions regimes. Expertise includes e.g. Iran (1993-1996 and 2006-present), Russia (2014-present), Syria (2012-present), Libya (1994-1996), Iraq (1990-2003), Cuba (1995-present) and the Former-Yugoslavia (1992-1995). Team members have assisted in e.g. the design of the Iraq “Oil for Food” Programme as well as the establishment of INSTEX.
Valerijus Ostrovskis (also fluent Russian-speaker) is a qualified lawyer and seasoned sanctions law practitioner with focus on Iran, Russia and complex projects and transactions. Jeroen Jansen practiced sanctions law for over 25 years and fulfilled the role of National Sanctions Coordinator at the Ministry of Foreign Affairs in the Netherlands and was expert-sanctions partner at an international law firm before establishing Acquis EU Law & Policy.