This week the Obama Administration
released the full text of the proposed nuclear deal with Iran, known as the Joint Comprehensive Plan of Action (“JCPOA”). Whether or not Congress approves it, the other parties to the deal (Russia, China, France, U.K. and the E.U.) already have, so Iran can be expected to resume significant exports of oil in 2016.
In addition to the drag on the price that extra Iranian oil is likely to create, the Iran deal will also disadvantage U.S. energy companies, again whether or not Congress approves. The JCPOA authorizes European energy companies (e.g., Schlumberger’s home office in Paris ) to provide oilfield services to Iran but keeps in place the ban on U.S. companies doing business with Iran. Specifically, footnote 6 of the JCPOA provides that “U.S. persons and U.S.-owned or -controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to this JCPOA, unless authorised to do so by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).”
So what does it take to be authorized by the U.S. Treasury’s Office of Foreign Assets Control to do business with Iran? Seattle based Boeing, Co., which contributed a cool $1 million to Obama’s 2013 inauguration party in Chicago, gets automatic permission from OFAC to sell planes to Iran. Section 5.1.1 of the JCPOA provides that the “United States commits . . . to allow for the sale of commercial passenger aircraft and related parts and services to Iran by licensing the (i) export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft . . .” No other U.S. industry sector gets such favorable treatment under the JCPOA. Indeed, footnote 6’s initial admonitions that the lifting of sanctions under the JCPOA only applies to non-U.S. persons excludes this Section 5 giveaway to Boeing.
As the Economist notes, “this could earn tens of billions of dollars for Western aircraft manufacturers, including American firms such as Boeing.” Maybe Obama felt a moral obligation to Boeing, like being the kind of guy who remembers who brought the pot and blow to the party.
For everybody else, and especially smaller U.S. companies without a lobbying budget, OFAC is likely to say no to selling to Iran , a state sponsor of terrorism. U.S. companies that set up foreign subsidiaries and pay for lawyers to lobby OFAC, which in the past has used a secret “private letter ruling” approach to allow favored companies to deal with pariahs, may come out okay. Section 5.1.2 of the JCPOA provides that the United States commits to “license non-U.S. entities that are owned or controlled by a U.S. person to engage in activities with Iran that are consistent with this JCPOA.” If Section 5.1.2’s permission to have a U.S. controlled foreign subsidiary sell oilfield products to Iran sounds like it contradicts footnote 6 that prohibits U.S. controlled foreign subsidiaries from selling oilfield products to Iran, that’s because it is contradictory. As a result, lobbying OFAC for licenses to sell stuff to Iran may become a good niche business for lawyers in Washington, DC over the next ten years. Halliburton may be able to use a Qatari subsidiary and its DC lawyers to work around the rules, but smaller U.S. oilfield companies may be left out of selling to Iran.
What if Congress votes against the JCPOA? The U.S. would then not be a party to the deal, but the Europeans will lift their sanctions anyway and make a rush for the estimated $1 trillion in infrastructure projects that Iran wants to undertake.
So what does the United States get out of the JCPOA? Essentially, under the JCPOA Iran promises that after continuing to chant “Death to America” during parliament, it will wait a few years before building a nuclear weapons arsenal.
Maybe being a community organizer is not the best training background for negotiating international trade agreements with a state sponsor of terrorism.
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