In response to Iran’s non-compliance with the UN over its nuclear programme, and its continued support for terrorist organisations, the US Congress on June 24 passed the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 – an amendment to the original Iran Sanctions Act of 1996.

As expected, the act tightened restrictions against Iranian commercial transactions with the outside world and increased penalties for proscribed deals such as those relating to its nuclear programme and energy sector. The US government intends to prohibit transfers of credit or payment between any financial institutions either based in or dealing with Iran, and maintains an almost-total ban on imports and exports between the two countries. The act requires asset freezes on any individuals affiliated with any Iranian government organisation, including the powerful Iranian Revolutionary Guard Corps (IRGC). The act also calls on the president to consider imposing direct sanctions on the Central Bank of Iran, or any third-party financial institution dealing with it.

As regards the energy sector, the act applies a penalty on organisations that invest more than US$20mn in projects to develop Iran’s oil and gas resources. In addition, the act targets investors in Iran’s refined petroleum products segment with sanctions, if the investment’s fair-market value exceeds US$1mn, and also applies sanctions to exporters of refined petroleum products into Iran, should the products’ fair-market value exceed US$1mn. Furthermore, the act also calls on the president to submit to Congress, within 90 days, a list of all international energy-related ventures with Iranian participation, targeting any foreign investments that have been even partially financed with Iranian money. Finally, the legislation mentions Iranian imports of ethanol, which Tehran had been hoping to source from Brazil to reduce its gasoline vulnerability.

Companies have responded to the US, EU and UN sanctions by halting gasoline exports to Iran, halting crude oil imports from Iran and pulling out of energy development projects, such as the South Pars gas field. Furthermore, the UAE – the most important regional transshipment and commercial centre – has instructed local financial institutions to freeze bank accounts linked to Iranians targeted by the UN sanctions.

Nonetheless, Iran’s large proven oil and gas reserves (10% and 16% of the world’s total, respectively) will continue to attract industry attention. BMI’s Oil and Gas Team believes that Russian and Asian companies are best placed to take advantage of the vacuum created by the departure of their Western counterparts. Having said that, they run the risk of penalties should they need to access the US or EU financial system in any manner. Iranian plans to develop its energy reserves depend on its ability to continue exploiting legal and commercial loopholes. While the sanctions have the ability to affect both of these channels, their success will be determined by the comprehensiveness of their application.

BMI’s Oil And Gas Head Interviewed On NPR Radio

Meanwhile, Business Monitor International’s Head of Oil and Gas Analysis, Holly Pattenden, spoke on The Morning Edition of US National Public Radio on July 1 about the future prospects of BP CEO Tony Hayward in light of the Gulf of Mexico oil spill and the likely candidates to succeed him. The interview can be found by clicking here.