backLatest developments in the U.S.-Iran Memorandum of Understanding and U.S. sanctions targeting Iran
On June 17, 2026, the Presidents of the United States and Iran signed the “Islamabad Memorandum of Understanding” (the “MOU”), a 14-point framework addressing the cessation of hostilities, reopening of the Strait of Hormuz, negotiations over Iran’s nuclear program, phased sanctions relief, and release of frozen Iranian assets. Since our June 25, 2026 client alert, OFAC has revoked and superseded General License X with General License X1, sharply limiting the authorization to short-term wind-down activity, and news reports state that President Trump has described the ceasefire or MOU as “over” amid renewed U.S.-Iran conflict.
The MOU remains a political framework, not an operative legal authorization under U.S. sanctions law. The current operative OFAC action in connection with the MOU is General License X1, effective July 7, 2026, which revokes General License X and authorizes only transactions ordinarily incident and necessary to wind down previously authorized activity to July 17, 2026. Except to the extent ordinarily incident and necessary to the wind down of transactions previously authorized by General License X for the production, sale, delivery, or offloading of crude oil, petrochemical products, or petroleum products of Iranian origin, General License X1 does not authorize any new transactions, including purchases or loading of such products.
Background: Current U.S. Sanctions and Recent Developments
As noted in our prior client alert, Iran remains subject to one of the most comprehensive U.S. sanctions regimes. Pursuant to the MOU framework, OFAC issued General License X, dated June 21, 2026, for certain Iranian-origin crude oil, petrochemical product, and petroleum product transactions. Effective July 7, 2026, OFAC revoked and superseded General License X in its entirety with General License X1, which authorizes only wind-down transactions previously authorized by General License X through 12:01 a.m. EDT on July 17, 2026.
Implications Of General License X1 For Energy And Related Sectors
General License X1 materially changes the risk profile for entities in the energy, shipping, insurance, banking, and related services sectors. The license no longer provides a forward-looking authorization for new activity during the broader negotiation period under the MOU framework. Instead, General License X1 authorizes only transactions ordinarily incident and necessary to wind down transactions previously authorized by General License X and only to July 17, 2026. The practical consequence is that any Iran-related activity pursuant to General License X should be reevaluated immediately against the narrower wind-down authorization.
Transactions that were previously planned in reliance on General License X may no longer be authorized if they involve new purchases, new loading, new commitments, or activity not ordinarily incident and necessary to wind down previously authorized transactions. Where activity cannot be completed within the wind-down period, parties should consider whether a specific license, contractual termination, suspension, or other risk-mitigation step is required.
Companies should note that:
- General License X is no longer in effect. OFAC revoked and superseded it in its entirety effective July 7, 2026, and General License X1 authorizes only a short wind-down period through 12:01 a.m. EDT on July 17, 2026.
- General License X1 does not authorize new transactions, including purchases or loading of Iranian-origin crude oil, petrochemical products, or petroleum products on or after July 7, 2026, except to the extent such activity is ordinarily incident and necessary to wind down transactions previously authorized by General License X.
- Any payment to a blocked person under the wind-down authorization must be made into a blocked, interest-bearing account located in the United States. Companies should confirm payment routing, account status, and sanctions screening before processing any payment.
- General License X1 does not authorize transactions involving persons located in or organized under the laws of Cuba, North Korea, or the comprehensively sanctioned regions of Ukraine, or entities owned or controlled by or in a joint venture with such persons. General License X1 also does not authorize transactions prohibited under other authorities not referenced in the license. Secondary sanctions exposure remains acute for non-U.S. persons engaging in Iranian petroleum-related activity outside General License X1 or another applicable authorization.
Implications Of Reported Ceasefire Termination And Mou Status
President Trump’s reported statement that the ceasefire is over, if confirmed, would call into question the factual and political assumptions underlying the MOU. As a legal matter, however, companies should distinguish between public statements and diplomatic breakdowns and legally operative sanctions changes. U.S. sanctions obligations change through formal legal actions, such as OFAC general or specific licenses, regulations, executive orders, sanctions designations, delistings, written guidance, or other formal measures.
Key Considerations And Action Items
The MOU remains a significant diplomatic development, but the combination of General License X1 and the reported end of the ceasefire increases legal, commercial, and operational uncertainty with respect to U.S. sanctions on Iran. Companies, including financial institutions, therefore should consider the following:
- Treat General License X1 as a wind-down-only authorization. Companies should not rely on the prior August 21, 2026 expiration date associated with General License X. The new applicable authorization is General License X1, which allows only transactions ordinarily incident and necessary to wind down previously authorized transactions to July 17, 2026.
- Stop new activity and document wind-down reliance. Companies should halt any new purchases, loading, or commitments involving Iranian-origin crude oil, petrochemical products, or petroleum products unless another OFAC authorization applies. For any activity under General License X1, companies should document why the transaction is ordinarily incident and necessary to wind down activity previously authorized by General License X.
- Reassess sanctions risk and contract protections immediately. Parties should review cancellation rights, force majeure provisions, sanctions termination clauses, payment mechanics, vessel and cargo status, insurance coverage, and counterparty representations. Companies should also preserve flexibility to suspend or terminate activity if OFAC further narrows or revokes the authorization, issues adverse guidance, or resumes more aggressive designation activity.
- Monitor official action rather than reports alone. The reported statement that the ceasefire is over is important for risk assessment, but companies should monitor official sources for legally operative developments, including OFAC guidance, license amendments or revocation, executive orders, new designations, State Department guidance, and any formal statement regarding the status of the MOU.
K&S’s International Trade team will continue to monitor Iran-related sanctions developments closely. We have extensive experience advising companies on compliance obligations involving Iran and can assist in assessing how General License X1, the reported ceasefire development, and any future sanctions relief, waivers, revocations, or implementing guidance may affect your business. Please contact any member of our team with questions or to discuss next steps.