Conservative Chief Justice Ebrahim Raisi won the presidential elections on 18 June, ending reformist President Hassan Rowhani’s eight-year rule, and raising some concerns about the fate of the Joint Comprehensive Plan of Action (JCPOA – the 2015 nuclear deal).

  • Supreme Leader Ali Khamenei will ensure that Raisi reaches an agreement with the US on a return to mutual compliance with the nuclear deal. 
  • As a part of a final return to mutual compliance, the US will be required to lift all nuclear sanctions and some sanctions implemented under former president Donald Trump (2017-21), such as the counterterrorism designation on the Central Bank of Iran.
  • Some sanctions imposed on Iran after the US’ 2018 withdrawal from the nuclear deal will remain in force however, likely leading to a more complicated sanctions environment than during the period of the nuclear deal’s implementation in 2016.
  • While payment channels with Iran will increase after a return to mutual compliance, remaining US sanctions and Iran’s blacklisting by the Financial Action Task Force (FATF) will deter many international banks from processing Iran-related transactions.   

Raisi and the deal 

The polls closed on 18 June, with Raisi securing a landslide in what was a widely expected victory. Foreign businesses seeking to re-enter Iran or engage with Iranian entities have been most interested in how Raisi’s presidency will impact ongoing indirect talks on the JCPOA between the US and Iran in Vienna (Austria). The success of these talks would lead to the lifting of US nuclear sanctions, once again opening up the country for foreign investment and international trade. 

Raisi, who is averse towards engagement with the West, on 21 June affirmed that he would uphold the JCPOA. Khamenei is likely priming Raisi to be his successor and will therefore find it increasingly important that Raisi reaches an agreement with the US as he wants to boost his popularity. This also means that Khamenei will be averse to allowing Rowhani (and the reformist camp that he is aligned with) to take credit for reaching a final agreement before he leaves office in early August. 

Sanctions lifting 

As a part of a final return to mutual compliance, the US will have to lift all nuclear sanctions and some Trump-era sanctions. These latter sanctions include those that would undermine the practical implementation of the nuclear deal, such as the counterterrorism sanctions on the Central Bank of Iran, the National Iranian Oil Company and the National Iranian Tanker Company. The former would mean the lifting of secondary sanctions, which target non-US entities doing business with designated entities.

Primary sanctions will remain in force and US persons will remain barred from transacting with most Iranian sectors. However, there will be some very narrow primary sanctions relief as there was during the implementation of the nuclear deal in 2016, such as allowing the export of commercial airplanes and related-goods and services from the US to Iran. The US’s Office of Foreign Assets Control will also likely re-issue General License H, allowing foreign subsidiaries of US entities to engage in some Iran-related transactions as long as those transactions do not involve a US person or pass through the US financial system. 

Some sanctions imposed on Iran after the US withdrawal from the nuclear deal linked to terrorism, ballistic missiles, human rights and malicious cyber activities will remain in force. This includes the designation of the Islamic Revolutionary Guards Corps (IRGC) as a Foreign Terrorist Organization (FTO). However, this is unlikely to pose far more complications for foreign businesses compared to during the previous period of the nuclear deal’s implementation, as the group was already subject to several secondary sanctions and foreign businesses were already significantly restricted from conducting business with it. 

Foreign businesses interested in Iran following a US re-entry into the nuclear deal will likely face a more complicated sanctions environment than previously. While the US has reportedly agreed to lift some sanctions on individuals close to Khamenei, sanctions on Raisi, Khamenei, Khamenei’s office and entities directly controlled by him – such as the charitable foundations (bonyad) Mostazafan and Astan Quds Razavi – may persist as US President Joe Biden will likely want them to remain in force until follow-on talks on other issues. These entities have significant business interests in Iran and, as a result, businesses seeking to re-enter Iran will need to conduct detailed due diligence of their prospective local partners to mitigate their exposure to sanctions and reputational risks. Moreover, sanctioned entities like the IRGC have extended their reach into the economy since 2018, filling in the gaps left by the exit of foreign companies. Due diligence conducted by foreign companies between 2016-18 would be outdated and would need to be re-assessed to ensure potential business partners remain un-controlled and un-linked to sanctioned entities. 

Payment channels 

A US return to compliance with the deal will mean that payment channels with Iran will increase, but many international financial institutions will likely remain wary of processing Iran-related transactions. Similar to during the period of implementation of the nuclear deal, Iran will remain barred from processing its transactions in USD through the US financial system, deterring many non-US banks from facilitating such transactions. These banks will also continue to fear falling foul to remaining sanctions. As a result, smaller international banks will likely be the most willing to process Iran-related transactions, as larger banks will face greater difficulty proving separation of their US and non-US divisions. 

Non-US banks will also be concerned about Iran’s continued blacklisting by the FATF. While Iran has been on the FATF’s blacklist since 2008, the organisation in 2016 decided to suspend its countermeasures against Iran following the implementation of the nuclear deal, which eased some banks’ concerns about facilitating Iran-related transactions. However, the FATF maintains that Iran must enact the UN’s Palermo and Terrorist Financing conventions before it will consider suspending the countermeasures again.

There are some indications that Iran will seek to pass and implement the bills necessary to increase the chances of having itself removed from the FATF’s blacklist, though being removed remains highly unlikely over the coming two years. On the FATF, Raisi during the final presidential debate on 12 June said that if the interests of Iranians would be met by complying with it, then Iran would do so. Khamenei in December 2020 also approved the revision of two of four bills mandating the implementation of the Palermo and Terrorist Financing conventions that were rejected by the Expediency Discernment Council (which settles disagreements on bills between parliament and the Guardian Council). However, ratifying and implementing the bills will likely remain a prolonged process.

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