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Export Control and Sanctions Update: US introduces further sanctions against Iran

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On Monday 3 June 2013, the U.S. Government  revealed new sanctions which specifically target Iran’s currency and automotive sector. These new measures further strengthen the U.S.’s existing export control regime against Iran.

The new restrictions on trade with Iran come only days after the White House announced that it had imposed further sanctions on Tehran’s petrochemical industry and two weeks before the Iranian presidential elections are due to take place. The measures announced on Monday, which are due to take effect on 1 July 2013, are the ninth set of sanctions imposed by the American Government on Iran.

“Making the rial unusable outside Iran”

The new provisions directly target Iran’s currency, the rial, aiming to make it weaker and more unstable. The measures prohibit foreign financial institutions conducting or facilitating significant transactions for the purchase, sale of, or holding of significant funds or accounts outside Iran denominated in the Iranian rial. Unfortunately, the executive order does not define “significant” but a statement from the White House stresses that the purpose of the sanctions is “to make the rial essentially unusable outside of Iran”.

Both the U.S. and the European Union have already rigorously restricted financial transactions involving Iran. However, the Obama administration is going further and has highlighted that this is “the first time trade in the rial has been targeted directly for sanction”.

Crippling Iran’s  automotive sector

The Iran Freedom and Counter-Proliferation Act of 2012 (IFCA), which also becomes effective on 1 July 2013, already provides several sectoral sanctions, primarily targeting Iran’s energy, shipping and ship-building industries. The sanctions announced on Monday have further imposed restrictions on Iran’s automotive sector as a key contributor to its economy.

The new measures prohibit the sale, supply, or transfer to Iran, by individuals or companies, of significant goods or services used in connection with the manufacturing or assembling in Iran of light and heavy vehicles including trucks, buses, passenger cars and motorcycles, as well as original equipment and after-market parts manufacturing relating to any such automobiles.

Aiding individuals

The new measures also entitle the U.S. Government to block all property or interest in property (in the control or that comes in the possession of the U.S. or of a U.S. person) of individuals who provide material support to Iranian persons and certain other persons that are included on the Specially Designated Nationals and Blocked Persons (SDN) List which is maintained by the Department of Treasury.

This new measure includes an exception for certain Iranian depository institutions and certain activities relating to the pipeline project to supply natural gas from the Shah Deniz gas field in Azerbaijan to Europe and Turkey.

Targeted petrochemical industry

At the end of May, the U.S. Government blacklisted eight Iranian petrochemical companies and sanctioned five non-Iranian entities in the same sector. The White House’s increased pressure on Iran’s petrochemical industry was announced a day after it had sanctioned over 50 Iranian officials for repressing dissent and stifling free speech within Iran.

The Obama administration concluded its announcement of the new measures on Monday by reiterating that it “hold[s] the door open to a diplomatic solution that allows Iran to rejoin the community of nations if they meet their obligations.  However, Iran must understand that time is not unlimited.  If the Iranian government continues down its current path, there should be no doubt that the United States and [its] partners will continue to impose increasing consequences”.