Benefits of Iran Sanctions Relief to Bypass Most U.S. Companies

WASHINGTON (Bloomberg News/TNS) -
A currency exchange dealer counts U.S. dollar banknotes at his shop in a shopping centre in northern Tehran, January 17, 2016. REUTERS/Raheb Homavandi/TIMA/FilesATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY.
A currency exchange dealer counts U.S. dollar banknotes at his shop in a shopping center in northern Tehran, Sunday. (Reuters/Raheb Homavandi/TIMA/Files)

The lifting of sanctions on Iran as part of the nuclear deal with world powers may be a bonanza for companies in Europe and Asia, but not so much for those in the U.S.

The U.S. lifted sanctions against Iran when Kerry confirmed in a statement that the IAEA verified that Iran had “fully implemented its required commitments” under the nuclear deal.

The actions taken Saturday in Vienna leave in place a number of U.S. restrictions on commercial dealings with Iran over its ballistic missile program and support for terrorist groups that will block any swift flood of U.S. business with the Islamic Republic and its roughly 77 million people.

One exception is Boeing and other makers of commercial aircraft and parts. They will have authority to quickly do business as Iran revitalizes its airliner fleet. For other companies, in particular those in financial services, the deal lifts only sanctions imposed to punish Iran for its nuclear program and doesn’t touch a ban on U.S. trade and investment put in place by the Clinton administration in 1995.

“There is not going to be a comprehensive law allowing all U.S. companies to operate in Iran anytime soon,” said Majid Rafizadeh, president of the International American Council on Middle East and North Africa and a member of the Harvard International Relations Council. “This will make American firms the biggest losers of the nuclear deal.”

The nuclear agreement doesn’t repair a U.S.-Iran relationship ruptured by the seizure of the U.S. Embassy in Tehran in 1979, in which dozens of American diplomats and other citizens were held hostage for over a year, and which has been further frayed by Iran’s missile tests and support for terrorist groups.

U.S. and European airplane makers, such as Boeing and Airbus Group, stand to benefit, according to a Bloomberg Intelligence report published on Jan. 14.

Airbus got a jump on Boeing even before Saturday’s proceedings were final. Tehran agreed to buy 114 Airbus planes, the Tasnim news agency reported on Saturday, citing Abbas Akhoundi, Iran’s transport minister. The deal includes both new and used jets.

The country’s fleet of airliners is ripe for replacement, especially its narrow-body jets. Like automobiles in Cuba, planes in Iran have been frozen in time because of trade embargos. The average age of Iran Air’s 45 planes is 27 years, with its Boeing 747s the oldest, according to Planespotters.net.

U.S. and European engine makers such as General Electric, Safran and United Technologies may also benefit from airplane purchases.

For most U.S. companies, however, little will change after the deal’s implementation gives Iran access to more than $50 billion in cash frozen in overseas accounts and eases restrictions on Western business deals.

Foreign subsidiaries of U.S. companies will get “some relief of as yet unknown quantity” under the general licenses issued by the Treasury Department when the agreement is implemented, said Adam M. Smith, an attorney who designed and enforced U.S. sanctions when he worked at the Treasury Department and who is now an attorney with Gibson, Dunn & Crutcher in Washington. Those licenses will clarify how much access private businesses with U.S. ties will have to the Iranian market.

Even if a U.S.-based company is granted a license for a foreign subsidiary, it will have to take great pains to ensure that its American business is walled off from any Iranian entities still sanctioned under U.S. law, said Mark Dubowitz, executive director of the Foundation for Defense of Democracies in Washington and a supporter of tougher sanctions.

“The large financial institutions, the large energy companies and industrial companies are going to have to be very, very cautious,” Dubowitz said.

Ben Rhodes, President Barack Obama’s deputy national security adviser, said the U.S. won’t be left behind by a sudden flood of investment and commercial deals from Europe and Asia after the lifting of international sanctions.

“Some companies are going to wait and see: Is this going to hold? Are these guys going to stick to the agreement?” Rhodes said at a lunch with Bloomberg editors and reporters on Friday. “So I think it will be a more incremental process.”