The Risk Professional: Anti Iran sanctions bite in unexpected ways

Already in trouble in the USA because of its oil spill in the Gulf of Mexico, BP is the first major foreign company to fall into line with the USA's hard approach to sanctions imposed against Iran.

The sanctions were widely regarded as applying, primarily, to the financial sector but the USA has interpreted them as including all businesses owned or controlled by the Government of Iran. That includes almost all of the country's commercial airline fleet.

The USA says, in summary, no US person or foreign person in the USA may deal with any entity covered by the ban.

Because of the way that US law works, all inter-bank dealings - wherever they are in the world - in US dollars are deemed to clear in New York and, as a result, US banks are prevented from conducting any dealings with banned entities, including indirectly.

Therefore payments made in US dollars other than in cash are subject to review, by "correspondent banks" who handle payments on behalf of foreign banks.

The end result of this is that Iranian government-linked companies cannot pay for products or services in US dollars. If they do, then the banks that handle the payments must report them to the US Treasury. If the parties include any company that has a US footprint, then that company may be attacked under the USA's sanctions regime. It could face substantial fines and its officers could face jail.

As a result, and given that it is already in the firing line for all manner of action in the USA from class action law suits to threats of prosecution as a result of the continuing problems arising from the blown undersea well in the Gulf of Mexico, BP has responded to calls to ensure that its sales of oil-derived products, which are denominated in US dollars, do not include sales to Iranian government owned aircraft.

BP is also at risk under the sanctions legislation because it is a US issuer, with its stock quoted in the USA. That provides a footprint which is totally independent of its physical presence or legal entities. In addition to the risk of criminal sanctions, BP would be at risk of civil penalty action by the Securities and Exchange Commission which requires all US listed companies to comply with US criminal law including that relating to sanctions.

BP has ordered its airline bunkering operations to refuse to refuel Iranian aircraft. Iran Air says that it has been refused refuelling in the UK, Germany, UAE and Kuwait.

The move will put further pressure on Iran Air which is already finding it extremely difficult to source parts for its ageing Boeing fleet.

BP has formally refused to comment on the ban but the growing body of comment points towards it.

However, no similar comments are at present circulating in relation to other bunkering operations, including those by US based oil companies some of which have substantial facilities in many countries.

A statement quoted in Iran's national news agency, apparently made by an un-named member of the Iranian parliament says that reprisals will take the form of refusing to refuel aircraft and ships registered in countries that refuse to allow refuelling of Iranian planes and vessels.

That will not affect any US carriers who do not travel to Iran but many European, Asian and Oriental carriers do and if their banks push the US line, as they must, those - too - must impose the ban in order to avoid action against themselves in the USA.

The ban under the US legislation is not an absolute ban - but it might as well be. Obama's sanctions prohibit the sale of refined petroleum products of a value of more than USD5 million per annum. That's remarkably little.

---- UPDATE

After this story appeared, an official statement from Iran said that the reports on which it was based, including those quoting Iranian officials, were "false." Ramin Mehmanparast, a minister in the Foreign Ministry, held a hastily convened press conference and told reporters "The refuelling of our planes is continuing" and when specifically asked about the reported denial of bunkering services in various countries said "That information is false." Officials in the UAE have also said that refuelling has not been denied to Iranian aircraft there.