Shipping company Maersk Line last week decided to limit a large part of its Iran operations following the United States Department of the Treasury’s designation of Iranian ports operator Tidewater Middle East as a Specially Designated National (SDN). The limitations imposed by this designation make business by both U.S. and third country entities with Tidewater legally problematic from a U.S. compliance perspective.
Maersk Line is a part of the A.P. Moller – Maersk Group based in Denmark. Maersk’s line fleet consists of over 500 vessels and is the largest in the world. Although Maersk Line’s motivation is likely to be the addition of Tidewater to the SDN list, shipping and cargo with Iran have more broadly become difficult due to recent sanctions imposed on Iran. Many companies have pulled out of Iran, even in instances where the sanctions have not prohibited their activity. This can be explained by various reasons:
(1) The lack of ancillary services for Iran transactions, such as finance facilities and insurance services;
(2) Ambiguity in the laws and a desire to be compliant, thereby causing some companies to forego Iran business altogether;
(3) Various public relations concerns that may be associated with dealing with a country like Iran.
The above notwithstanding, pulling out of Iran is arguably a difficult decision for many companies as Iran is a market relatively untapped by competition and foreign companies, particularly in key sectors. Furthermore, Iran is by many measures a wealthy country with sizable buying power. However, the difficulties encountered above have given pause to some internationally entities. Conversely, some companies may see new restrictions as an opportunity for them – with competition crowded out, they have more probability for higher profits. Irrespective of the companies views, what is true however, is that engaging in prohibited business with Iran is not only violative of the law but also potentially very costly. Furthermore, even those conducting legitimate, permissible business with Iran are facing increasing challenges and costs.