The surprise end of Swiss sanctions on Iran on Wednesday won’t allow the country’s legion of commodity traders to handle the Persian Gulf nation’s oil any time soon.
While Switzerland is home to some of the world’s largest oil traders including Vitol Group, Glencore Plc and Trafigura Beheer BV, their global operations are still bound by U.S. and European Union sanctions that prohibit dealing in Iranian crude.
“As long as they stay in force the practical consequences for the trading houses operating in Switzerland is precisely zero,” said Matthew Parish, managing director of Gentium Law in Geneva, whose clients include trading firms.
The Swiss government on Wednesday became the first nation to remove sanctions against Iran after the Gulf state sealed an historic accord with world powers July 14 to curb its nuclear program. The country could export an extra 500,000 barrels a day of oil within a week of international trade restrictions being lifted, Oil Minister Bijan Namdar Zanganeh said this month.
Switzerland’s decision removes a ban on precious metals transactions with Iranian state bodies and the requirement to report trade in Iranian petrochemical products, according to the government statement. It also eliminates an obligation to report the transport of Iranian crude oil and petroleum products and rules on insurance and reinsurance policies linked to such transactions. The measures already had been suspended since January 2014.
“This relaxation would have a negligible effect -- it is more a symbolic move reflecting Switzerland than anything else,” said John Whittaker, a lawyer who specializes on commodities at Clyde & Co LLP in London. “International commodities trading houses follow the restrictions applied by their banks, which tend to operate in America and Europe.”
Lenders have stepped-up scrutiny and compliance requirements for trading firms amid increased regulatory pressure. France’s BNP Paribas SA, one of the largest trade-finance banks, pleaded guilty last year to U.S. criminal charges and paid a record $8.97 billion penalty for doing business with countries blacklisted by the U.S. including Iran, Sudan and Cuba.
The Swiss Federal Council’s statement will have “no impact” on companies’ ability to get insurance for the transportation of crude oil, the International Group of P&I Clubs, whose members cover about 95 percent of the world’s tankers against risks including oil spills, said by e-mail. The U.S. and Europe need to give “legal effect” to the Joint Comprehensive Plan of Action that Iran and world powers agreed to in July before that’s possible, it said.
All of the International Group’s members must follow European law and none are based in Switzerland.
In Washington Wednesday, State Department spokesman Mark Toner said U.S. sanctions remain in place and penalties would still apply to any country or company that violates them. He told reporters that the U.S. wasn’t informed in advance of the Swiss move to drops its sanctions. Switzerland has handled diplomatic and consular affairs for the U.S. in Iran since its revolution.
“This agreement opens up new political and economic prospects with Iran, including bilateral relations,” the Swiss government said in a statement. The decision underscores Switzerland’s “support for the ongoing process to implement the nuclear agreement, and its confidence in the constructive intentions of the negotiating parties.”
Rather than seeking to directly benefit its 20 billion Swiss franc ($20 billion) per year commodity trading industry, Parish said the Swiss government is looking to ensure cordial diplomatic relations with Iran.
“It is a long-standing policy of the Swiss in maintaining neutrality,” he said.
As Iran and world powers neared a deal this summer, Glencore executives and Iranian officials held “exploratory talks” regarding “potential business opportunities subject to the removal of sanctions,” the trading company said in a statement last month.
Trafigura, Gunvor and Mercuria Energy Group Ltd. declined to comment on removal of Swiss sanctions. Andrea Schlaepfer, a spokeswoman for Vitol in London, said by e-mail that the company’s position “remains unchanged.”
The trading houses largely stopped dealing in Iranian oil and refined products in 2012 and 2013 after the U.S. and Europe introduced their most recent sanctions. Previously, Vitol, Trafigura and Glencore were regularly among the top-five suppliers of gasoline to Iran, industry estimates show.