The easing of international sanctions against Iran is seen as bad news for rival oil exporters, with share prices in Gulf region markets sliding. A lawyer specialising in the sanctions field says obstacles remain, but nonetheless has hailed the move.

(Updates market reaction, comments.)

International sanctions were partially lifted against Iran at the weekend, a move that hit Gulf states’ equity markets due to the prospect of fresh oil exports from the country, while a warning has been issued that barriers remain in dealings with the nation. Today, Asia equity markets and oil prices retreated.

The country has, in the reported words of its president, Hassan Rouhani, opened a “new chapter” after international sanctions were eased; global nuclear organisation IAEA has said Iran complied with a deal with the European Union and US to prevent it creating nuclear weapons. The deal remains deeply controversial because of reservations of how robust the inspections regime on Iran’s activities actually is. Israel, for example, fears Iran has the means – and intention – to build weapons.

The easing of sanctions, and potential addition of Iran oil exports, has hit markets in nations such as Qatar. Yesterday, equity markets in Middle East nations fell, although they rose in Iran. Saudi Arabia’s Tadawul All Share Index fell by 5.4 per cent, reaching the lowest level since March 2011 (source: Bloomberg). The Bloomberg GCC 200 Index, tracking 200 of the six-nation Gulf Co-operation Council’s largest companies, has a price-earnings ratio of 9.5 times, the lowest P/E ratio in seven years. Today, Japan's Nikkei N225 was down 2.8 per cent, the lowest for a year. Brent crude oil futures were down below $28 per barrel. Other Asia indices were generally lower.

Sanctions imposed by the West against Iran – a country accused of being a sponsor of global terrorism – have been a major compliance issue for the wealth management industry. A number of banks, for example, have been fined for breaches of sanctions against Iran, with BNP Paribas taking the largest hit of any one single firm with a US fine of $8.9 billion in July 2014. The raising of sanctions might be a relief for private banks who haven’t been allowed to deal with Iran, but a prominent lawyer has warned there remain restrictions.

“It is important to note… that Iran is subject to a `snapback’ re-imposition of the terminated sanctions in the event of significant non-performance of its JCPOA [Joint Comprehensive Plan Of Action] commitments. Additionally, the majority of US sanctions preventing US persons from conducting transactions in Iran remain in place and businesses must ensure they comply with all applicable sanctions to prevent problems,” Sarosh Zaiwalla, founder and senior partner at Zaiwalla & Co, a London-headquartered law firm focusing on such issues, said. Zaiwalla’s past and present Iranian clients include the National Iranian Oil Company, Petropars, Bank Mellat, Bank Tejarat and shipping company IRISL.

As if to underline that point, US president Barack Obama announced yesterday that his administration was imposing new, more limited sanctions on some Iranian citizens and firms for breaching UN resolutions against ballistic missile tests.

In general however, the removal of the wider international sanctions against Iran, and unfreezing of more than $100 billion in funds, mostly linked to oil sales, is a welcome economic move, Zaiwalla said.
 
“We welcome the lifting of Western economic sanctions on Iran’s financial, energy and transport sectors, as well as the termination of so-called ‘secondary sanctions’ preventing non-US persons from conducting transactions with Iranian entities,” he said.

“Since the JCPOA was agreed in July last year, we have seen dozens of multinational companies extending their efforts in Iran, all of which have been jockeying for pole position in an effort to become an exclusive trade partner with Iran. This untapped market, with a large young population, offers investors exciting prospects and Iran has been making a concerted effort to capitalise on this new interest,” he said.

In a note today, Barclays said: "Now that those sanctions have been removed, Iran’s oil exports are likely to increase at least 500 kb/d this year on average, pressuring prices in the near term. We expect many memoranda of understanding with Western oil firms, especially in February, but in this price environment, we think that energy investment is likely to proceed slowly."