Seemingly, to many this serious threat is no news. For the past few years Iran and Iranian companies are suing their Western counterparts for breach of contract for not keeping their part, while they were complying with the sanctions the US put on Iran. With the renewal of business relations Iran will cash in at least part of their reimbursement demands, one way or another. But this is only money, and although this will get costly to small companies and might even threaten long term investments for larger business groups and conglomerates, this can all be taken into account when signing the new contracts.
What really changes the rules is the new legislation that has been running in the Majlis for now more than a year. A strong group of legislators brought in a proposal for a law to punish the US for allegedly eliminating the commander of Quds Forces, Kassem Soleimani. This legislation has 16 articles, inter alia dealing with the US activity in the area and demands for compensation for his death. Although these are not to be taken lightly, our interest here is in article 10 of the legislation, dealing with business associates of Iranian companies who would like to renew these relations after the nuclear agreement will be signed. Here is a simple translation of the relevant part:
Article 10- Companies that violate their contract due to sanctions against Iran, if they wish to return to cooperate with Iran in any contract, are required to comply with the following conditions:
• The guarantee of termination of the contract by a foreign party must be set at least twice as much as in similar cases.
• The cost of equipment and production lines must be borne by the outside party until the final product is reached.
• The foreign party is subject to tax in the amount of twice the same cases.
• In tenders on equal terms, these companies are given lower priority.
In case of violation of mentioning these cases in the agreement, the offender will be sentenced to 1 to 5 years in prison.
This article should light up the imagination of anyone who thinks to renew his business relations with Iran. On a business level it takes away all leverage of the supplier to a country that has been cut off for so many years. It cuts almost any winnings for the first few years and in fact makes Western companies repay the damage the Iranians suffered through the sanctions. It is the Iranian way to get the justice they believe is owed to them.
At this point we would like to remind our readers, that Iran has invested greatly in developing weapons of mass destruction in general and runs a nuclear weapons program at least from the late eighties. The only reason that the sanctions were renewed was that Iran is repeatedly in breach of the NPT, is not complying with the monitoring protocols of the IAEA and is using every loop hole to execute the original plan to achieve nuclear weapons capability. This having been said, and in the spirit of avoiding military action as much as possible, the return of sanctions on Iran, should they be lifted, is inevitable.
Keeping this in mind, a company that reviews the possibility to renew business with Iran should not only consider to play second fiddle, while China is clearly in front, but should take into account that the above-mentioned legislation might be implemented, even if it is not passed, as any Iranian court will interpret the laws accordingly. This is the outcome of Iranian intention, it is the essence of returning losses and getting justice, and is not to be taken lightly.
There is a good reason why the Iranian legislator intends to punish the offender with a prison time. Many middle-men have at least a double citizenship or are Iranians. When a Western company withdraws, these people, the company representatives and the middle-men, the shippers and the bankers – they will all land in prison, as long as Iran can get her hands on them. There is much leverage in it, as can be seen with many double-citizenship prisoners in Evin prison.
This threat is to be taken into account, because Western companies will lose the access to their investment and goods that have been shipped but not sold, infrastructures will be nationalized and there will be no-one to deal on a local level. There will be no way out and the Iranian legislator will make sure of it. To them this is only fair play, as they claim innocence and unjustified financial hardship. European companies might believe that this is an understandable step to take, but make no mistake:
Should the sanctions return, and seeing Iran for the last forty years they surely will, any Western investment will pay the price before it all starts, and then will have to carry the blame for the suffering and torments of their local employees.