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How And When U.S. Sanctions On Iran Take Effect

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The first round of U.S. sanctions targeting companies continuing to do business in Iran after the U.S. pullout from the nuclear deal with Iran come into force August 6. Here is how the sanctions work and which sectors will be impacted.

When U.S. President Donald Trump decided to leave the Iran Nuclear Deal, also known as the JCPOA (Joint Comprehensive Plan of Action) in May 2018, he issued a National Security Memorandum ordering several government institutions, including the Treasury Department, to prepare the framework for reimposing sanctions on both U.S. and international companies operating in Iran.

The sanctions will be reimposed in two stages, according to a guideline issued by the Treasury Department. The first batch takes effect August 6, 2018, 90 days after the U.S. withdraw from the deal. The second group comes into force 180 days after the U.S. withdraw, on November 4 this year.

The 90 and 180-day windows were given to allow companies a reasonable period of time to wind down their activities in Iran before they would be subject to U.S. sanctions. Iran’s petroleum dependent economy has already taken a hit during this wind down period, as companies scramble to cancel deals and investments in the country. Most notably, the value of Iran’s currency, the Rial, has sharply declined.

Which sanctions take effect August 6?

The Obama era sanctions which will be reimposed on Tehran August 6, are quite diverse and target different sectors. Restrictions include reducing the Iranian government’s access to the U.S. dollar, banning the trade of gold, precious metals, the sale and supply of aluminum and steel, sanctions on large purchases of the Iranian rial, as well as sanctions on Iran’s automotive sector.

The nuclear deal also included lifting the four-decade-old ban on selling civilian air craft and related parts to Iran, a provision which will now expire, as will an agreement to allow countries to import Iranian carpets and foodstuffs without facing sanctions.

The U.S. Treasury Department has said certain payments made to Iran after August 6 honoring trade agreements made prior to the scrapping of the Nuclear Deal will be protected from sanctions.

Among the major international companies closing shop in Iran are Boeing, Peugeot, Total, and Maersk.

Companies active in Iran’s energy and shipping sectors have and additional 90 days to wind down their business in Iran, with sanctions taking effect November 4.

The U.S. sanctions being reimposed are extraterritorial and will affect not only U.S. persons and businesses, but also any non-U.S. business or individual engaging in forbidden investment or trade activity in Iran.

Most companies have already left the Iranian market or say that they will depart soon. A small group of companies have stayed, and are waiting to see what other parties to the JCPOA, specially the European Union, will do.

The EU, which was supportive of U.S. sanctions before the deal was struck, is now determined to salvage the deal. Leaders in Brussels have already announced certain mechanisms to protect European businesses against the U.S. sanctions, however many economists are skeptical as to whether or not they can offer meaningful protection to companies staying in Iran past the sanctions deadlines.

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