Although foreign businessmen are now flooding the streets of Tehran, prospecting for opportunities spawned from what diplomats dubbed the “Joint Comprehensive Plan of Action” (JCPOA) and everybody else calls the “Iran Nuclear Deal,” investors that jump into Iran-related investments without first conducting intense due diligence and understanding the complex sanctions landscape are likely to face daunting repercussions for their hastiness.

Why The Nuclear Deal Helps Iran But Punishes The U.S.

The opening of Iran’s markets, should the JCPOA come into effect, offers tantalizing opportunities, particularly in finance, oil/petrochemicals, and auto manufacturing, but the opportunities are not equally distributed. Within the US, the political tussling over the national security implications of the Iranian nuclear deal have obscured just how terrible a deal it is in commercial terms for US citizens, companies, and investors, when compared to every other signatory nation.

The start of the race to reap Iranian riches awaits the arrival of “Implementation Day.” Implementation Day will have arrived when the International Atomic Energy Agency (IAEA) certifies that Iran has satisfied the IAEA’s concerns on the details of Iran’s past nuclear work, and is actively cooperating with the nuclear monitoring terms in the JCPOA. If “Implementation Day” arrives, US, UN, and EU sanctions will be suspended (but NOT repealed) on Iran’s currency, as well as several other key sectors to include the oil/petrochemical sector, banking, shipping, insurance, automobile manufacturing, and Iranian import of precious metals. (US sanctions on Iranian entities and individuals connected to terrorism and human rights abuses will remain in place, even after Implementation Day).

The IAEA is scheduled to report on 15 December 2015 on the details of Iran’s cooperation, or lack thereof, with the terms of the nuclear deal.   While many Iranians are fervently hoping that report will trigger “Implementation Day” and bring the desperately desired rush of new business and new investment, arms control experts still question whether the IAEA’s doubts about Iran’s nuclear program can be fully assuaged by 15 December, given past Iranian obfuscation and intransigence on nuclear issues. Some nuclear proliferation wonks have asserted that there is no way the IAEA could certify Iran as cooperative in such a limited time frame, unless the IAEA makes a deliberate decision to subject Iran’s past nuclear work to only minimal scrutiny and focus mainly on Iran’s cooperation with IAEA efforts to monitor Iran’s future nuclear activities.

Because of this uncertainty, Implementation Day could arrive as soon as the 15 December 2015 report…or it could be delayed indefinitely, if the IAEA declines to certify Iran as cooperative with the terms of the JCPOA.

Assuming Implementation Day does arrive, investors looking for new opportunities should look first to overseas markets and companies and avoid investment in US concerns, as the punishing terms of the JCPOA (as currently interpreted by the US Treasury Department) virtually guarantee that any profitable business dealings with Iran not involve the US.

According to the text of the JCPOA, “U.S. Persons and U.S owned or control foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to this JCPOA, unless authorized to do so by the U.S. Department of Treasury’s Office of Foreign Asset Control (OFAC).

The italicized phrase “unless authorized to do so by the U.S. Department of Treasury’s Office of Foreign Asset Control (OFAC),” implies that OFAC could level the playing field for US firms so they could compete on equal footing for Iranian business opportunities with foreign competitors, if OFAC chose to do so. However, OFAC has repeatedly stated, including at a closed-to-the-press OFAC symposium on sanctions that took place on 22 September 2015 (attended by an Iran Analysis Group staffer), that OFAC has no intention of relaxing the restrictions on US persons.   In fact, OFAC staffers intimated during this symposium that US investors in foreign energy funds or firms that dealt with Iran could also face legal sanctions. For example, a US hedge fund that held British Petroleum stock, or invested in an energy fund that owned BP stock, might technically have to sell off that investment if BP inked a deal to develop Iranian oil fields, and failure to do might trigger financial penalties.

One of the few legal loophole around the restrictions on US firms wanting to do business with Iran is if a US firm has a foreign subsidiary that is not majority owned or controlled by US persons or majority staffed by US persons. Oil services firm Halliburton, for example, has gotten around this restriction by having a Tehran office that is not controlled by the US parent and is staffed by non-US persons.

What these restrictions means in practice is that individuals and companies from every other signatory to the JCPOA will be able to do business…except for US persons, to which the suspensions of sanctions on doing business with Iran do not apply. In other words, as far as most US businesses are concerned, there is no Iran nuclear deal. The US government can and will perversely punish US energy, financial, and manufacturing firms for engaging in business with Iran that the JCPOA makes perfectly legal for their European and Asian competitors.

So come “Implementation Day,” Royal Dutch Shell, BP, Total Fina or Gazprom would be free to enter into lucrative energy deals with Iran; ExxonMobil and Chevron would not. Iran would be able to meet its financial services, shipping, and insurance needs by dealing with banks in the UK, Switzerland, or Singapore, but if JPMorgan, Citibank, or Bank of America were to make a penny from identical deals, the US banks would face legal penalties.   Fiat, Volkswagen, Toyota, or Hyundai would be able to enter into partnerships to update Iran’s large (over 1 million units a year produced) but antiquated auto industry, but Ford or GM would remain legally barred from similar deals.

Why The Nuclear Deal Helps Iran But Punishes The U.S.

Finance, energy, and automobile manufacturing are three of the largest and most politically influential industries in the US. If Implementation Day arrives and US firms are forced to sit on the sidelines while foreign competitors ink-multi-year, multi-billion dollar deals with Iran, their extreme collective displeasure will almost certainly be communicated in a loud-and-clear manner to those that inhabit Washington D.C.’s corridors of power. If that happens, stay tuned for scathing Congressional hearings.

Politicians eager to build their war-chests for the 2016 elections may be counted on to ask Treasury officials why the US has adopted an exclusionary policy as part of the nuclear deal which is wildly perverse in its incentives and punishments.   According to Treasury, the ongoing restrictions on US persons doing business with Iran are ostensibly aimed at continuing to punish Iran and keep a stranglehold on Iran’s economy. At it becomes more undeniably evident that the deal only punishes the US business community, while doing nothing to discomfit Iran, it may be a very bad day to work at OFAC.

For more information on the business implications of the JCPOA, including details of sanction relief and compliance, Iran’s business environment, how to take advantage of opportunities offered by the nuclear deal, and what kind of business US firms CAN legally do with Iran, download the Iran Analysis Group’s white paper, “Doing Business with Iran” or visit IAG’s website to learn how IAG’s unique “on the ground” due diligence capabilities can help our clients navigate Iran’s many perils and opportunities.

Art Keller Bio:

Iran Analysis Group founder Art Keller served in the US Army during Operation Desert Storm and later spent seven years serving in the Central Intelligence Agency’s Directorate of Operations, where he worked on cases to block the proliferation of Weapons of Mass Destruction, with a particular focus on Iran.    While at the CIA, he served as a weapons inspector in the Iraq Survey Group, and concluded his time at the CIA as an Acting Chief of Base in the North West Frontier Province of Pakistan.

Since leaving the CIA, he has been published in a wide variety of leading media outlets included Forbes.com, NewsweekThe New York Times, The Washington Post, ForeignPolicy.comCNN’s Security Clearance, and the CTC Sentinel.   He has appeared on CNN, CBS, PBS’s News Hour, The National Geographic Channel, and the BBC.  He is author of the espionage thriller, “Hollow Strength” about the CIA and Iran’s Revolutionary Guard.