Secretary of State Mike Pompeo’s announcement yesterday that the U.S. Government will not renew any of the significant reduction exemptions (SREs), previously granted to eight countries under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA), could significantly impair Iran’s ability to conduct international trade. If fully implemented, this move would create a new, high level of risk for those engaging in continued trade in oil and related products with Iran. It also could directly impact ancillary activity such as shipping and insurance. Moreover, any such move could have indirect effects on other, non-oil sectors that rely on third country banking arrangements to fund trade with Iran. Although there are broad provisions of U.S. law restricting the President’s authority to impose sanctions for trade with Iran in agricultural commodities, food, medicine, and medical devices, even this trade could be indirectly impacted by reduced availability of funds and banking channels. No sanctions restrictions have ever been imposed under the NDAA, although the firmness of U.S. policy in this area may now be put to the test, as the current SRE waivers are set to expire on May 2, 2019.
At the same time, even though the U.S. Government will not renew the eight existing SRE waivers, the actual imposition of sanctions under the NDAA could still be delayed. This blog post provides some brief background on the NDAA and the SRE waivers, what the consequences of non-renewal of these waivers may be, and how the Trump Administration may use other provisions of law to delay action in this area in order to sidestep confrontations with China, India, Turkey or other major Iranian trading partners were they to refuse to back down in the face of U.S. sanctions threats as the “moment of truth” approaches. Continue Reading