2013 was a banner year for the U.S. sanctions program against Iran.  For the first time in recent history, not all of the big Iran news involved new restrictions and prohibitions.  True, there were plenty of those, especially during the beginning of the year as the U.S. government implemented legislation passed in 2012.  But the most noteworthy Iran development in 2013 – a tentative nuclear agreement between Iran and six world powers – proved that diplomacy may be an alternative to ever-tightening sanctions.  With that single development came the possibility, remote though it may still be, that Iran’s economy could someday reopen to international business.

Here, we look back at important developments of 2013 and contemplate what 2014 might hold for U.S. sanctions on Iran.

Leading up to 2013

In January 2013, we would have been surprised to learn that less than a year later, the United States and other major world powers would enter into a nuclear accord with Iran.  In large part, the view from January 2013 was influenced by the enactment of the Iran Threat Reduction and Syria Human Rights Act (ITRA) months earlier.  As we reported at the time, the ITRA dealt a serious blow to Iran in 2012 by – among other things – expanding U.S. sanctions to reach foreign subsidiaries of U.S. companies.  Following President Obama’s implementation of key provisions of the ITRA on October 9, 2012, we predicted that the pace of U.S. sanctions against Iran would increase over the near and medium term.

And increase it did.  On October 22, 2012,  the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) published a final rule amending the re-named Iranian Transactions and Sanctions Regulations (ITSR) to add numerous prohibitions, definitions, interpretations, and licensing provisions, and to eliminate a host of previously operative general licenses.

Faced with even higher hurdles to engage in business with Iran, we ushered in 2013.

Major Developments in 2013

The first half of 2013 looked an awful lot like the sequel to 2012.  The National Defense Authorization Act for Fiscal Year 2013, which included the Iran Freedom and Counter-Proliferation Act of 2012, authorized new sanctions on entities participating in particular Iranian industries, businesses, or activities.  And the U.S. government engaged in a flurry of other activities to impose additional sanctions on Iran.

But with the spring came the first signs of a thaw in U.S.-Iran relations.  On May 30, 2013, OFAC issued General License D, which authorized the exportation and re-exportation of certain personal communications services, software, and hardware to Iran.  The general license promised real relief for the Iranian people and new opportunities for the international telecommunications industry.

In June, Hassan Rouhani was elected to the Iranian presidency on a platform based in part on improved relations with the United States.  His election opened the door to diplomatic discussions between the United States and Iran.

Throughout the early summer, however, the tug of war continued.  Executive Order 13645 authorized sanctions against foreign financial institutions that conduct or facilitate significant transactions in the Iranian Rial or that provide support to Iranian persons on the List of Specially Designated Nationals (SDN) and Blocked Persons.  But EO 13645 was mostly a paper tiger, quite restricted its reach.

In July, OFAC issued another general license, this time for the exportation or re-exportation of medicine and basic medical supplies to Iran.  Another general license in September 2013 authorized nongovernmental organizations to export and reexport services to or related to Iran in support of specific not-for-profit activities designed to directly benefit the Iranian people.  And still another permitted the importation into the United States, exportation from the United States, or other dealing in Iranian-origin services related to professional and amateur sporting activities and exchanges involving the United States and Iran.

As the tides started to shift, in October, we wondered whether increased diplomacy between the United States and Iran was imminent.

The Iran Nuclear Agreement

A month later, that diplomacy became a reality as the United States and five other countries negotiated an interim agreement with Iran to freeze its nuclear program in exchange for the loosening of some sanctions.  We are not astrophysicists, but our understanding is that the deal laid the foundation for an agreement that would prohibit Iran from installing any new centrifuges for enriching uranium and from enriching uranium beyond five percent.  The deal also required Iran to dilute or convert its 20 percent uranium stockpile into oxide.  In December 2013, Iran took the first steps to fulfill its side of the bargain, permitting a team of U.N. atomic experts to inspect a plant that produces heavy-water for a plutonium reactor.

In return, the United States agreed to provide $6 billion to $7 billion in sanctions relief, more than $4 billion of which is oil revenue that has been frozen in foreign banks.  President Obama could provide the other promised sanctions relief – aimed at Iran’s gold and precious metals industry, automotive sector, and petrochemical exports – through executive order, without seeking congressional approval.

In the wake of the agreement, U.S. and Iranian leaders spoke of diplomacy, trust, safety, and peace between the United States and Iran.

But it was not all good news at the end of 2013.  Even as negotiators hammered out the details of the November agreement, members of the U.S. Congress threatened to impose additional sanctions against Iran.  In response, Iranian lawmakers reportedly drafted a bill that would require their government to increase uranium enrichment if new sanctions were imposed.

Then, in December, OFAC added a number of new entities to the SDN List that were accused of providing or facilitating the provision of goods and services to Iran.  Iran reacted angrily, interrupting nuclear talks in Vienna aimed at implementing the November agreement.

In addition, as always, many members of Congress have pressed for tighter Iran sanctions in spite of the diplomatic progress.

Expectations for 2014

Despite some hiccups at the end of 2013, we rang in the New Year amid reports that the United States and Iran were on the verge of reaching a more comprehensive agreement.  With that simple possibility, 2014 offers the hope of a new era in U.S.-Iranian diplomacy, one marked by tentative steps toward normalization.  While this year’s Iran sanctions developments will likely continue to trace a jagged and indirect trajectory, it is possible that their net impact will someday allow Iran to reopen its economy to the international community.  This year, as always, we resolve to keep you apprised.