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Wednesday 10 July 2013West increases penalties for breaching sanctions against IranMiddle East businesses face new US and EU sanctions targeting Iran’s energy and shipping industries as western states ramp up efforts to isolate its economy. US sanctions applied this month broaden penalties to non-US entities dealing with these vital sectors, another strand in the ever more complicated web of sanctions aiming to force the Islamic republic to abandon its nuclear programme. Western powers will hope that restricting non-US and EU companies’ dealings with Iran will help force a change in Iranian policy as Hassan Rohani, the new more reformist president, takes power in August. European and American companies have for years been restricted in dealing with the oil and gas industries of Iran. Other sanctions have targeted the global financing of trade with the Islamic republic and maritime insurance. All companies will now have to take greater care managing their relationships with Iranian entities or face new punishments that range from having their assets and properties frozen in the US to being shut out of the US financial system. “Asian and Middle Eastern businesses are now liable to be penalised by the US for engaging in conduct that they were previously carrying out legitimately,” says Patrick Murphy, legal director at law firm Clyde & Co in Dubai. The Iran Freedom and Counter-proliferation Act (IFCA) targets anyone who deals with Iran’s state-owned oil company, its tanker company, two shipping liners, and a big ports operator. Companies or people who “knowingly provide significant support or provide goods and services for the benefit of” these five companies face asset or property freezes in the US. EU sanctions have placed similar restrictions on EU companies and individuals, raising question marks over the role of European employees of non-EU companies that do business with Iran. Further penalties have been put in place on the provision of services or repairs for Iranian shipping, as well as the importation of metals, graphite and industrial software into the Islamic republic. “Barring metals imports is huge, as Iran is a semi-industrial country, causing it major harm,” says Iran sanctions specialist Farhad Alavi, a Washington-based partner at Akrivis Law Group. “All these impediments increase prices.” In response to the confusing matrix of restrictions, companies are already seeking legal advice on how to deal with the wider-ranging sanctions regimes. “I am aware of businesses in the region recalibrating their activities with Iran after reassessing them in light of IFCA,” says Mr Murphy of Clyde. For example, United Arab Shipping Company, owned by six Gulf states, in April said it would halt its 53-strong fleet’s operations in Iran because of sanctions “which now include virtually all terminal and port operators in Iran.” The US, at the same time, has eased restrictions on importing software and computer technology into the Islamic republic to ease Iranians’ access to information. The sanctions, as with previous regimes, are likely to be used mainly as a deterrent, with the threat of penalties persuading companies to fall into line. There have been relatively few cases of existing sanctions being utilised against regional companies. The US last year sanctioned United Arab Emirates-based Fal Oil for allegedly dealing with Iran, while two Dubai-based exchange houses were sanctioned by the US Treasury for providing financial services to designated Iranian banks. But Dubai’s state-owned refiner, Emirates National Oil Company, which buys supplies from Iran but says it is seeking other sources of supply, has avoided sanctions. The introduction of new restrictions will nonetheless place further pressure on businesses based in Dubai, a conduit for Iran trade. The emirate may be booming again thanks to trade and tourism, but sharp fall in trade Dubai has still witnessed a with the Islamic republic’s weakening economy. Trade fell by a third from Dh36bn ($9.8bn) in 2011 to Dh25bn in 2012. “Naturally the impact is very much in shipping,” says Hossein Asrar Haghighi, co-founder and official spokesman for the Iranian Business Council in Dubai. “Many suppliers are not directly dealing with Iran even if their products are regular, non-sanctioned items – they try to avoid any kind of involvement.” Membership of the IBC in Dubai has over the past two years fallen from 400 to 200 companies as traders move operations to Iraq, Turkey, China, Pakistan, Afghanistan and Turkmenistan. Iraq’s trade links with the UAE are booming, with the value of Dubai exports there quadrupling to Dh42bn in 2012, raising concerns among some diplomats that the increase could reflect indirect Iranian trade as much as healthy bilateral trade between the UAE and Iraq. As well as new trade routes, small operators are moving into markets abandoned by global companies scared off by the sanctions. Iranian oil products, for example, are offered in the regional spot market on a daily basis by low-profile middlemen, traders say. “These new sanctions further give the image to businesses around the world that they will get into trouble (if they deal with Iran), making more people stay away,” Mr Alavi says. Copyright The Financial Times Limited 2013. |