U.S. Sanctions Implications of the U.S.–Iran Memorandum of Understanding

How the U.S.-Iran Memorandum of Understanding may impact 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 agreement providing for the immediate and permanent termination of military hostilities, the reopening of the Strait of Hormuz, and a 60-day period of negotiations toward a comprehensive final agreement addressing Iran’s nuclear program, phased lifting of sanctions, and release of frozen Iranian assets. The first round of negotiations under the MOU framework concluded on June 22, 2026, in Switzerland. Though both sides reported making progress toward a final deal, significant issues remain unresolved such as the future of Iran’s nuclear program and the ongoing conflict between Israel and Iran-backed Hezbollah militants in Lebanon.

While the MOU represents the most significant diplomatic development in U.S.-Iran relations in years, it is not itself an operative legal instrument under U.S. sanctions law. However, the negotiations have already resulted in limited formal changes to the U.S. sanctions regime pursuant to the MOU. On June 22, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued General License X, authorizing certain transactions related to the production, sale, and delivery of Iranian-origin crude oil and petrochemical and petroleum products through the 60-day negotiating period. Additional changes may follow as negotiations develop and the parties work toward full implementation of the MOU. Aside from General License X, no other general licenses have been issued. Importantly, General License X does not lift U.S. sanctions on Iran; rather, the license provides a temporary easing of sanctions and all existing prohibitions outside its scope remain fully in force. This client alert provides an overview of the MOU’s key sanctions-related provisions and their practical implications for businesses and financial institutions.

Background: Current U.S. sanctions on Iran

Iran remains subject to one of the most comprehensive U.S. sanctions regimes. U.S. primary sanctions, administered by OFAC—principally under multiple executive orders and the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560)—broadly prohibit U.S. persons (individuals and entities) from engaging in virtually all transactions involving Iran, the Government of Iran, and Iranian financial institutions. These prohibitions may also extend to certain non-U.S. persons, including non-U.S. entities owned or controlled by U.S. persons and non-U.S. persons that “cause” U.S. persons to violate sanctions, such as by using U.S. goods, software, technology, or services in connection with Iran-related activities. OFAC may impose significant civil penalties on a strict liability basis for sanctions violations.

In addition, the United States maintains an extensive secondary sanctions framework that authorizes the imposition of sanctions on non-U.S. persons for significant transactions with Iran, particularly in the energy, shipping, insurance, and financial sectors. These secondary sanctions have had a powerful deterrent effect on international commerce with Iran, as non-U.S. companies risk losing access to the U.S. market and financial system if they engage in sanctionable activity.

Prior to the MOU, OFAC had issued Iran-related General License U on March 20, 2026, which temporarily authorized certain transactions related to the sale and delivery of Iranian-origin crude oil. That license expired on April 19, 2026. In addition, OFAC designated the Persian Gulf Strait Authority (“PGSA”) as a Specially Designated National (“SDN”) on May 27, 2026, and continued “Economic Fury” designations targeting Iran’s trade networks. Indicative of progress toward implementation of the MOU, on June 22, 2026, OFAC issued the time- and transaction-limited General License X, authorizing certain transactions related to the production, sale, and delivery of Iranian-origin crude oil, petrochemical products, and petroleum products through August 21, 2026.

Key Sanctions-Related Provisions Of The MOU

The MOU contains several provisions with direct implications for U.S. sanctions policy as follows:

Article 7 (Comprehensive Sanctions Termination): The United States undertakes to terminate all types of sanctions against Iran—including UN Security Council resolutions, International Atomic Energy Agency Board of Governors resolutions, and all unilateral U.S. sanctions, both primary and secondary—on “an agreed upon schedule” as part of the final deal. Both parties “acknowledge the critical importance of the sanctions termination issue” and express their intention to immediately address it in negotiations. If fully implemented, this would require coordinated action across multiple U.S. government agencies, including OFAC and the State Department, and engagement with the U.S. Congress and UN Security Council.
Article 9 (Status Quo/Standstill): Pending a final deal, the United States will not impose new sanctions on Iran and will not deploy additional forces in the region. Iran will maintain the current status quo of its nuclear program. This is a standstill commitment only—it does not remove or modify any existing sanctions.
Article 10 (Oil and Petrochemical Waivers): Immediately upon signing the MOU and until sanctions are fully terminated, the U.S. Department of the Treasury will issue waivers for the export of Iranian crude oil, petroleum products and derivatives, and all associated services—including banking transactions, insurance, and transportation. General License X appears to implement this provision by authorizing certain transactions ordinarily incident and necessary to the production, sale, delivery, or offloading of crude oil, petrochemical products, or petroleum products of Iranian origin, including transactions involving blocked vessels, through 12:01 a.m. EDT on August 21, 2026. The license does not authorize any other prohibited transactions or activities and does not authorize transactions involving other comprehensively sanctioned jurisdictions, such as in Cuba, North Korea, and certain regions of Ukraine, or related parties. Broader sanctions relief would require further OFAC action, guidance, or other implementing measures.
Article 11 (Release of Frozen Assets): The United States undertakes to make fully available for use the frozen or restricted funds and assets of Iran “upon the implementation of this MOU.” The Central Bank of Iran will determine final beneficiary payments. Reports suggest this could involve billions of dollars in frozen assets held in various jurisdictions. The MOU is notably silent on what specific implementation steps must occur before asset release, creating significant ambiguity.
Article 12 (Monitoring Mechanism): An executive mechanism will be established to monitor the successful implementation of the MOU and future compliance with the final deal.

Implications For Sanctions Relief and The Energy Sector

Article 10 has already produced tangible regulatory action. As stated, OFAC’s General License X authorizes certain transactions ordinarily incident and necessary to the production, sale, delivery, or offloading of Iranian-origin crude oil, petrochemical products, and petroleum products. Entities in the energy, shipping, insurance, and banking sectors should assess whether any contemplated transaction falls within the specific terms of General License X.

While General License X is a formal OFAC authorization, it does not amount to comprehensive sanctions relief. The authorization is limited in both scope and duration. The MOU remains a political commitment between two governments—it is not itself a waiver, general license, or other operative authorization under U.S. sanctions. Until OFAC takes additional formal action, all existing sanctions prohibitions, blocking rules, SDN designations, and enforcement risks remain fully in force, except for activities that are exempt from regulation or authorized by General License X or other OFAC specific or general licenses.

Companies should note that:

The prior Iran-related General License U, authorizing delivery of Iranian crude already loaded on vessels, expired on April 19, 2026. General License X is now in effect through August 21, 2026, but only for transactions that fall within its specific scope and conditions.
OFAC’s “Economic Fury” designations remain in effect, including the designation of the PGSA and multiple entities in Iran’s trade network.
Secondary sanctions exposure remains acute for non-U.S. persons. Non-U.S. companies that engage in significant transactions involving Iranian petroleum outside the scope of General License X’s authorization face the risk of being cut off from the U.S. market and financial system.
The MOU makes no reference to Iran’s ballistic missile program or support for regional proxy groups, which have historically been the basis for several Iran-related sanctions that are separate from the nuclear program.

Implications For Frozen Assets and Financial Institutions

Article 11’s commitment to release frozen Iranian funds is conditioned on “implementation of this MOU,” but the MOU does not define the specific implementation milestones that must be met. This ambiguity creates significant uncertainty for financial institutions that hold or process Iranian-related blocked funds.

Financial institutions should note:

All property blocked under OFAC’s Iran sanctions program remains blocked until OFAC issues specific unblocking licenses or guidance or removes persons from its SDN list. Financial institutions should not process transactions or release frozen of blocked Iranian assets without clear OFAC authorization or guidance, regardless of the political commitments in the MOU.
The MOU’s reference to the Central Bank of Iran determining “final beneficiary payments” raises significant anti-money laundering and counter-terrorism financing concerns because it could potentially allow payments to sanctioned entities, including IRGC-affiliated persons.
In addition to sanctions, Bank Secrecy Act, USA PATRIOT Act, and FinCEN obligations remain fully applicable and financial institutions should expect heightened scrutiny of any Iran-related transactions. Importantly, the IRGC is currently designated as a Foreign Terrorist Organization (“FTO”), creating exterritorial criminal and civil liability under 18 U.S.C. § 2339B for anyone providing support to the IRGC. The IRGC is widely integrated across economic and political sectors. Therefore, without an FTO designation removal, it will remain challenging to engage in transactions in Iran.

Key Considerations

The MOU is the most significant development in U.S.-Iran sanctions policy in years. Its practical effect, however, depends on a critical distinction: political commitments themselves are not operative waivers or authorizations under the U.S. sanctions legal framework. Companies, including financial institutions, therefore should consider the following:

Limited sanctions relief under the MOU framework is currently in effect. Although the United States has committed to potentially significant sanctions relief and to refrain from imposing new sanctions during the negotiation period, those commitments do not authorize any activity that remains prohibited under existing sanctions. Aside from General License X’s time-limited authorization for certain transactions related to the production, sale, delivery, or offloading of Iranian-origin crude oil and petrochemical and petroleum products, all existing sanctions remain in place and enforceable. Unless and until OFAC issues further waivers, authorizations, or takes other actions implementing the MOU provisions, all existing prohibitions, blocking rules, secondary sanctions, and enforcement risks remain in place. Persons who act prematurely—before OFAC takes formal action—or outside the scope of General License X or another applicable OFAC authorization face exposure to significant civil and criminal penalties and possible sanctions. In many cases, effective relief would require OFAC to act under multiple sanctions authorities because certain Iranian parties are designated under more than one sanctions program. In addition, certain measures to relieve sanctions on Iran will only be possible with Congressional involvement.
Companies can begin internal preparation and targeted compliance review now. Companies in sectors potentially affected by General License X—including energy, shipping, insurance, banking, and infrastructure—should review the license’s scope, conditions, counterparties, and payment flows before engaging in any Iran-related activity. Similarly, while premature action carries serious legal risk, companies in sectors that may benefit from future sanctions relief can begin reviewing their compliance programs and developing plans to be ready to move quickly if and when OFAC issues further authorizations, guidance, or sanctions relief.
Snapback risk remains significant. Beyond the expiration of General License X on August 21, 2026, the MOU contemplates a final agreement to be negotiated within 60 days. History demonstrates that U.S.-Iran agreements are subject to reversal—as occurred when the United States withdrew from the Joint Comprehensive Plan of Action in 2018. Companies that engage in Iran-related business if and when sanctions relief is granted should structure their engagements to account for the possibility of reimposition of sanctions, including through contractual protections, wind-down provisions, and contingency planning.
Secondary sanctions risk remains acute for non-U.S. persons. Non-U.S. companies should neither interpret the MOU nor General License X as providing any protection from secondary sanctions exposure for activity outside the scope of that authorization or any other applicable authorization. Until the United States formally terminates or waives secondary sanctions more broadly, non-U.S. persons continue to face significant risk.

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 X and any future sanctions relief, waivers, or implementing guidance may affect your business. Please contact any member of our team with questions or to discuss next steps.

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