U.S. Sanctions Against Iran: Impact On Charterparty Obligations

Introduction

U.S. legislation seeking substantially to broaden the Iran Sanctions Act of 1996 could have huge repercussions for the trade of refined petroleum products to Iran for both U.S. and non-U.S. owners, charterers, and insurers.

Iran does not currently refine enough oil to meet its own demand. The U.S. Congress is moving ahead with new trade restrictions designed to hit Iran where it hurts – its ability to import refined petroleum products. The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009 was passed by the Senate in January, and the Iran Refined Petroleum Sanctions Act of 2009 passed the U.S. House of Representatives in December, both by wide bi-partisan margins.

Congressional staff are currently working on reconciling the two bills, and a final measure is expected for President Obama's signature this term. Secretary of State Clinton has asked Congress for increased flexibility and discretion for the President, given that harsh extraterritorial U.S. sanctions could undercut her efforts to forge a multilateral sanctions regime against Iran this spring.

Once the legislation is finalized, the U.S. Treasury will move quickly to prepare implementing regulations. Treasury officials have made it clear to us that they are interested in hearing the international shipping sector's concerns to ensure that implementation of the sanctions is as workable as possible; however, they warn that their hands will be tied in many regards by the text of the legislation.

The proposed legislation

Whilst the wording in the two Acts is slightly different, their effect (amongst other things) is that the U.S. President is to impose sanctions on persons (both U.S. and foreign) who provide ships or services relating to shipping for the transportation of refined petroleum products to Iran or provide insurance or reinsurance for such activities. Persons who provide brokering, financing, underwriting, insurance, or reinsurance in connection with refined petroleum trade to Iran also are targeted under the proposed law.

The "persons" against whom sanctions could be imposed would extend to owners, charterers, managers, brokers, banks, insurers and P&I clubs.

The Iran Refined Petroleum Sanctions Act of 2009 provides that:

"The President shall prohibit any transfers of credit or payments between, by, through, or to any financial institution, to the extent that such transfers or payments involve any interest of the sanctioned person." The...