International O&G companies gear up for Iran sanctions final deadline next week

- Commercial agreements require flexibility to safeguard against sanctions 'reset button'
- Final agreement expected 30 June

Oil and gas companies must build flexibility into all commercial agreements with Iranian third parties to avoid potentially crippling financial penalties caused by snap-back provisions following the lifting of sanctions next week.

The final agreement, which could see onerous trade restrictions placed on Iran since 2010 lifted, may lead to an influx of O&G businesses seeking to exploit the country's natural resource reserves. Any final deal would follow the draft agreement announced in April which outlined the initial proposal to lift sanctions.

Energy experts warn that while preparing for re-entry is essential, sanctions snap-back provisions expected to feature in the final agreement between Iranian leaders and the P5+1 Western powers could lead to onerous restrictions being re-imposed if Iran is seen to breach the deal. This could lead to a costly process of withdrawal for businesses which have committed to Iran following any initial relaxation of sanctions.

Emerging markets O&G expert, Jason Rosychuk, said:

"The snap-back provisions essentially give the P5+1 the power to push the reset button should they regard Iran to be reneging on aspects of the final deal.

"This puts O&G companies, which are understandably eager to exploit Iran's rich resources, in a difficult position as they could be potentially exposed to sanctions suddenly leading to costly fines and severe penalties.

"The 30 June is a critical date for Iran as it hopes to rebuild its economy which has been crippled by sanctions for the last five years. But enthusiasm for re-entry and the opportunities Iran presents should not mask the exposure to sanctions which could remain in place to a certain level for some time or could be switched back on suddenly if the US and other countries aren't 100% convinced all is going to plan.

"At this point no contracts can be signed. If and when it is possible to do so, it is vital that these are future-proofed and structured flexibly, to take into account the very real possibility of a snap-back somewhere down the line. The lifting of restrictions will be a complex process rather than an immediate open door to international businesses looking to establish a base in Iran."