Trump's Exemptions for Iran Confuse Markets Amid New Licenses and Old Sanctions

SadaNews - The administration of U.S. President Donald Trump is seeking to lift decades-long sanctions as part of an agreement to end the war with Iran, creating a confusing situation for governments, banks, and other companies as they consider a changing web of new permits and old restrictions.

After the regime change in 1979, Iran became one of the most sanctioned countries in the world due to its nuclear program and support for regional militia groups. However, the White House is now making a stunning turn as part of a broader deal to open the Strait of Hormuz, lower global energy prices, and end its unpopular war.

The process has not been smooth at all. President Donald Trump accused Iran on Friday of violating the fragile ceasefire, while the U.S. Central Command launched new strikes on Iranian targets. Ongoing disagreements could lead to the collapse of the agreement.

Nevertheless, the speed and scale of the effort have long stunned sanctions observers. The United States has already allowed the sale of Iranian oil and fuel, and has pledged to free up billions of dollars in frozen funds.

The 14-point memorandum of understanding signed by Trump and Iranian President Masoud Pezeshkian on June 17 includes the removal of all U.S. sanctions on Iran according to a "mutually agreed timetable." It also directs the Treasury Department to issue waivers for current sanctions for 60 days while technical negotiations take place.

Executing this confusing change in a way that attracts U.S. financial institutions and other risk-averse companies will be difficult, according to former Treasury officials, sanctions lawyers, and industry sources monitoring the process.

Adam Smith, a former advisor to the Director of the Office of Foreign Assets Control at the Treasury, which oversees U.S. sanctions, said: "You have to be 100% sure that you are in compliance with the sanctions." He added, "Individual transactions that close within 60 days may succeed, but there may be challenges in finding banks and other intermediaries willing to process the transactions."

Pressure on the U.S. Administration

Amid the uncertainty, some hardliners on Iran are pressing the administration to move from cash payments for Iranian oil sales to a system requiring the funds to be placed in an escrow account, where U.S. officials can ensure they do not go to proxy groups like "Hezbollah" or "Hamas," according to sources familiar with the matter.

Trump has publicly suggested that Iran’s funds could go into escrow accounts controlled by the U.S. or that Tehran could spend it on U.S. agricultural products—ideas that were not in the memorandum of understanding and have been ridiculed by Iran and rejected.

The idea of using frozen funds to buy U.S. agricultural products was first discussed about a month ago during a meeting in the Oval Office with Trump, Vice President J.D. Vance, and other advisors regarding Iran, according to a source familiar with the matter.

The individual saw the proposal as a means to insulate the White House from criticism leveled by Republicans against former President Barack Obama’s administration for handing Iran "cash money," adding that they believe Iran has no option but to accept such a mechanism.

Changes in Iran's Billing System

Treasury Secretary Scott Beeson said on Wednesday that Iran will issue invoices for its oil sales in U.S. dollars. These statements represent a departure from Washington's long-term goal of distancing Tehran from the U.S. financial system.

To make this happen, the United States will need to enlist some of the largest U.S. or U.S.-connected banks, which have been hesitant to engage in any transactions that might risk sanctions violations, according to a former Treasury official.

The first step came on Monday when the Treasury Department issued General License "X," allowing oil sales to be conducted in "currency denominated in U.S. dollars."

In addition to the license, companies are likely to seek clear guidance from the Treasury Department, such as reassurance letters or fact sheets normally issued in complex cases, in order to reassure compliance departments regarding participation in these types of transactions, according to someone familiar with the guarantees the oil industry plans to request.

Companies are seeking guidance similar to that which was issued for Venezuela after the U.S. arrested President Nicolás Maduro in January, according to the individual.

Michael Honig, a trade and national security attorney at "Morgan, Lewis & Bockius," said, "Financial institutions are generally more risk-averse than their clients when they see sanction programs being rolled back." He added, "I expect them to be very cautious here too."

Potential Financial Risks

Rushing and risking a potential violation of sanctions is not an attractive bet. "BNP Paribas" paid nearly a billion dollars to settle with the United States in 2014, over alleged violations of sanctions on Iran and Sudan. Other banks have also paid hefty fines.

Subsequent U.S. administrations, along with Congress, have imposed hundreds of sanctions on Iran over the years, creating layers of restrictions designed to be difficult to remove all at once.

According to the 2015 law known as the "Iran Nuclear Agreement Review Act," Congress must review and approve any nuclear agreement reached with Iran. It was passed after the signing of the "Joint Comprehensive Plan of Action" in 2015 (the official name of the Iran nuclear deal), which was signed during former President Barack Obama’s administration, an agreement that Trump repeatedly attacked before withdrawing from it in 2018.

Some hardline U.S. legislators believe the administration may sidestep the law by claiming that the memorandum of understanding with Iran is not a nuclear agreement, even though it directly addresses that issue, according to a person familiar with the matter.

If that happens, they are likely to put additional pressure on banks and companies dealing with Iran and remind them of their obligations under U.S. law, according to the individual who requested anonymity to discuss internal deliberations.

The individual pointed to the 2012 law known as the Iran Threat Reduction and Syria Human Rights Act, which requires companies listed on U.S. exchanges to report certain Iran-related activities to the Securities and Exchange Commission, exposing them to potential future scrutiny from Congress if the deal collapses.

Chris Kennedy, head of political economy at "Bloomberg Economics," said, "The general license is unprecedented in the exemption it provides to Iran." He added, "However, relying on waivers instead of new legislation means that in the long run, the Trump administration will face a tough battle to fulfill its promise to permanently lift sanctions on Iran."