Why Boeing kept Iran dealings under the radar

As the world cashes in on an Iran ready to do business, the US risks being late to the game because of a mixture of political sensitivities, confusion about the remaining American sanctions and structural impediments.

al-monitor An Iran Air Boeing 747 passenger plane sits on the tarmac of Mehrabad Airport in the Iranian capital Tehran, Jan. 15, 2013. Photo by BEHROUZ MEHRI/AFP/Getty Images.
Saam Borhani

Saam Borhani


Topics covered

us sanctions, us-iranian relations, trade, state department, sanctions on iran, jcpoa, iran nuclear deal, business

Mar 2, 2016

Barely a week after the Jan. 16 lifting of nuclear-related sanctions on Iran, Tehran hosted its first international business summit in years. The event, sponsored by the Centre for Aviation (CAPA), brought together 400 executives of the global aviation industry to re-establish links with their Iranian counterparts after a decades-long estrangement. What raised eyebrows in Tehran and Washington, however, was the conspicuous absence of Boeing, the world’s largest aircraft manufacturer. Boeing’s curious decision to skip the CAPA event raised questions about the United States’ commitment to the sanctions relief mandated under the July 14, 2015, Joint Comprehensive Plan of Action (JCPOA). The decision Boeing made to stay home, likely prompted by unease as to the confusing web of remaining US sanctions, is a harbinger of things to come for the delicate dance between Iran and American business.

It turns out that Boeing, while skipping the high-profile CAPA event in Tehran, has actually been unofficially negotiating behind the scenes with Iranian civil aviation officials for a considerable time. Indeed, weeks after European rival Airbus signed a multibillion dollar deal for 118 passenger jets with Iran, Washington finally gave the go-ahead for Boeing to begin official negotiations and to apply for special licenses to sell aircraft to the Iranians.

As the world cashes in on an Iran ready to do business, the United States risks being late to the game because of a mixture of political sensitivities, confusion about the remaining American sanctions and structural impediments that make trading with Iran prohibitively risky for all but the most adept American companies.

American trade with Iran is known to attract seething headlines in both countries. A simple form on McDonald’s website about franchise opportunities in Iran last year prompted warnings of an impending cultural invasion of the country in the Iranian right-wing media. Similarly, US companies risk the wrath of special interest groups devoted to inflicting reputational damage because of trade with Iran. Halliburton and Hewlett-Packard are prominent examples of companies that have been attacked in the American media for previous legal business relations with Iran.

Groups such as United Against a Nuclear Iran have also been successful in convincing around half of the state legislatures to pass measures punishing companies operating in Iran. These local laws have directed state pension funds with billions of dollars in assets to divest from targeted companies and sometimes have barred these companies from public contracts. The impact of these state “sanctions” on the JCPOA is not clear and may yet prompt a political and legal battle between the federal government and state officials. Indeed, the harm to the reputations of US companies by such local punitive measures is a strong deterrent to engaging with the Iranian consumer. It is also an issue that is likely to continue, as long as Iran remains listed as a state sponsor of terrorism by the State Department.

For American companies large enough to weather bad publicity, the remaining and now largely unilateral US sanctions on Iran represent a potentially costly minefield. The JCPOA allows for licensed sales of American airliners to Iran and the legal importation of Iranian foodstuffs and rugs. Besides these specific carve-outs, US companies may trade with Iran under the general licenses that were available before the JCPOA and under specific licenses granted by the Office of Foreign Assets Control (OFAC), the Treasury Department’s sanctions administrator. In addition, foreign subsidiaries of US companies that are not under the control and direction of US persons may trade directly with Iran. Maintaining a robust compliance system and routinely checking company interactions with Iran to make sure that they do not run afoul of OFAC regulations is a costly and time-consuming endeavor. Indeed, any American company that trades with Iran under the terms of the JCPOA, and especially under the complicated foreign subsidiary clause, must be large enough to support sufficiently adept legal compliance teams. Small and medium-size US businesses are thus effectively shut out of a presence in Iran for this very reason.

For the large multinational American companies that may be able to gain a foothold in Iran, there remain structural constraints that residual US sanctions place on legal trade with Iran. The United States has made it clear that no payments linked to Iran may be processed through its financial system. This means that profits made by American businesses in Iran will likely not be able to be directly repatriated and probably will remain offshore in segregated foreign accounts. American companies must also contend with strict bars on doing business with any Iranian entities that remain on OFAC’s “specially designated nationals” list, the Iranian government and the Islamic Revolutionary Guard Corps. Each of these barred entities took over vast parts of the Iranian economy as a result of the international sanctions that have now been lifted.

The JCPOA has opened small opportunities for trade between American and Iranian firms. However, the remaining labyrinth of hard-to-understand restrictions will likely spook most Americans.

Both the Iranian and US governments have a vital interest in seeing that the JCPOA is an enduring agreement — and this partly depends on sanctions relief benefiting Iranian and American private sectors in a way that would effectuate the “buy-in” of JCPOA skeptics. A mutually beneficial trading arrangement that connects the private sectors of the United States and Iran — despite political differences — would strengthen the nuclear deal by attaching a direct economic cost to nonadherence. The limited avenues for legal trade, if quickly institutionalized, can be insulated from the historically volatile political relationship between Iran and the United States.

In this vein, a quiet Iranian commitment to protect American investors in Iran and to tone down the harshest anti-US rhetoric, at least with respect to American business, would give space for Wall Street to influence a change in Washington’s largely monolithic view of a hostile Iran. More importantly, a quiet US commitment to actively support legal trade with Iran — with the same zeal that it uses to enforce sanctions — would give the Iranians space to consider future negotiated compromises.

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