WASHINGTON – The Trump administration’s effort to unwind decades of sanctions as part of a deal to end the war with Iran has created a head-spinning situation for governments, banks and other companies as they contemplate a shifting patchwork of new permissions and old restrictions.
Following the revolution in 1979, Iran became one of the most sanctioned nations on Earth over its nuclear programme and support for regional militias. But the White House is now orchestrating a stunning reversal as part of a broader deal to open the Strait of Hormuz, lower global energy prices and end its unpopular war.
It’s hardly been a linear process. On June 26, President Donald Trump accused Iran of violating a fragile ceasefire and US Central Command launched fresh strikes on Iranian targets. There’s also continuing disagreements that could unravel the deal.
Still, the pace and scale of the effort has stunned longtime sanctions observers. The US has already authorised the sale of Iranian oil and fuels and pledged to unlock billions 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 US sanctions on Iran on “an agreed upon schedule.” It also directs the Treasury Department to issue waivers for existing sanctions for 60 days as technical negotiations unfold.
The disorienting change will be tricky to implement in a way that appeals to risk-averse US financial institutions and other firms, according to former Treasury officials, sanctions attorneys and industry sources monitoring the process.
“You want to be 100 per cent sure that you’re within compliance,” said Adam Smith, a former senior adviser to the director of the Treasury’s Office of Foreign Assets Control, which oversees US sanctions. “One-off transactions that close within the 60 days could work, but there may be challenges finding banks and other intermediaries willing to process transactions.”
Amid the uncertainty, some Iran hawks are pushing the administration to shift from cash payments for Iranian oil sales to one requiring funds be placed in an escrow account where US officials can ensure it doesn’t go to proxy groups such as Hezbollah or Hamas, according to people familiar with the matter.
Trump has suggested publicly Iran’s money may go into escrow accounts controlled by the US, or that Tehran can only spend it on US farm goods – ideas that were not in the MoU and which Iran has mocked and rejected.
The idea of using the frozen funds to purchase US agricultural goods was first discussed about a month ago during an Oval Office meeting with Trump, Vice-President J.D. Vance and other advisers on Iran, according to a person familiar with the matter.
It was seen as a way to insulate the White House from the criticism Republicans levelled at the Obama administration for delivering Iran “pallets of cash,” the person said, adding they believed Iran had little choice but to accept such a mechanism.
Treasury Secretary Scott Bessent said on June 24 Iran will invoice its oil sales in US dollars. The comments marked a departure from Washington’s longstanding goal of locking Tehran out of the US financial system.
To make that work, the US would need to enlist some of the biggest US or US-linked banks, which have been hesitant to handle any transactions that risk violating sanctions, according to a former Treasury official.
The first step came June 22 when Treasury issued General License X, which allowed oil sales to be conducted in “US dollar-denominated funds.”
In addition to the licence, companies are likely to request clear guidance from Treasury – such as comfort letters or fact sheets that are regularly issued for thorny cases – in order to reassure compliance departments it’s okay to participate in these sorts of transactions, according to a person with knowledge of the assurances the oil industry is planning to seek.
Firms are looking for the kind of guidance issued for Venezuela after the US captured then-president Nicolas Maduro in January, the person said.
“Financial institutions are typically more risk adverse than are their clients when we see sanctions programmes unwind,” said Michael Huneke, a trade and national security lawyer at Morgan, Lewis & Bockius. “I would expect them to be very cautious here as well.”
Rushing in and risking a possible violation is not an appealing gamble. BNP Paribas paid a nearly US$1 billion (S$1.3 billion) settlement to the US in 2014 for allegedly violating sanctions on Iran and Sudan. Other banks also paid steep fines.
Successive US administrations, along with Congress, have levied hundreds of sanctions on Iran over the years, creating layers of restrictions designed to be difficult to remove in one fell swoop.
A 2015 law called the Iran Nuclear Agreement Review Act mandates that Congress review and approve any nuclear agreement reached with Iran. It was passed following the signing of the 2015 Joint Comprehensive Plan of Action, which was implemented during the administration of then-President Barack Obama – an agreement Trump repeatedly assailed before pulling out of it in 2018.
Some hawkish US lawmakers believe the administration may circumvent the law by saying the Iran MoU is not a nuclear agreement, even though it deals squarely with the issue, according to a person familiar with the matter.
If that happens, they are likely to place additional pressure on banks and companies doing business with Iran, reminding them of their obligations under US law, the person said, requesting anonymity to discuss internal deliberations.
The person pointed to a 2012 law called the Iran Threat Reduction and Syria Human Rights Act that requires companies that list on US stock exchanges to report certain Iran-related activities to the Securities and Exchange Commission, potentially exposing themselves to future congressional scrutiny should the deal fall apart.
“General License X is unprecedented in the relief it offers Iran,” said Chris Kennedy, economic statecraft lead at Bloomberg Economics. However, relying on waivers rather than new legislation means that “over the longer term, the Trump administration will face an uphill battle delivering on its promise to permanently remove sanctions on Iran.” BLOOMBERG