Iran turns to barter for food as sanctions cripple imports
Cooling
towers at a nuclear power plant northeast of downtown Tehran, Iran.
Iran is turning to barter - offering gold bullion
in overseas vaults or tanker loads of oil - in return for food as new financial
sanctions have hurt its ability to import basic staples for its 74 million
people, commodities traders said. Difficulty paying for urgent import needs has
contributed to sharp rises in the prices of basic foodstuffs, causing hardship
for Iranians with just weeks to go before an election seen as a referendum on
President Mahmoud Ahmadinejad's economic policies. New sanctions imposed by the
United States and European Union to punish Iran for its nuclear programme do
not bar firms from selling Iran food but they make it difficult to carry out
the international financial transactions needed to pay for it. Surveys of
commodities traders around the globe show that since the start of the year, Iran has had trouble securing imports of
basic staples like rice, cooking oil, animal feed and tea. Grain ships have
been held at its ports, refusing to unload until payment can be received for
cargo. With Iran's real currency tumbling, the
prices of rice, bread and meat in Iranian bazaars have doubled or more in
dollar terms in recent months. Iranian grain importers have in the past
side-stepped sanctions by booking business through the United Arab Emirates, traders said, but this option was
cut off by the UAE government in response to sanctions. Iran has been trading oil in currencies
like Japanese yen, South Korean won and Indian rupees, but such deals make it
difficult to repatriate profits. Deals revealed on Thursday appear to be among
the first in which Iran has had to result to offering
cashless barter to avoid sanctions, a sign of new urgency as it seeks to buy
food and get around the financial restrictions.” Grain deals are being paid for
in gold bullion and barter deals are being offered," one European grains
trader said, speaking on condition of anonymity while discussing commercial
deals. "Some of the major trading houses are involved.” Another trader
said: "As the shipments of grain are so large, barter or gold payments are
the quickest option.” Details of how the barter deals work are still unclear as
the payments problem is so new, and traders did not disclose the exact size of
such deals. The economic hardship is being felt in Iran at a pivotal time in its domestic
politics and its nuclear diplomacy with the West. The United States and Europe say the sanctions are needed to
push Iran to the negotiating table before it produces
enough nuclear material to build an atomic bomb. Iran says its nuclear programme is
peaceful. Last month it began nuclear enrichment at a new facility deep under a
mountain to make it secure from military strikes. Iranian officials deny that
sanctions are having a serious economic impact, while also saying that their
people are willing to endure any hardship in support of the country's sovereign
right to nuclear technology. Officials in Israel, Iran's arch foe, openly say time is
running out for air strikes to destroy the nuclear programme if sanctions do
not persuade Tehran to back down. Iran’s parliamentary election on March 2
will be its first vote since a presidential vote in 2009, when Ahmadinejad's
disputed re-election against a reformist opponent triggered eight months of
violent street demonstrations. The Iranian government successfully put that
uprising down by force, but since then the "Arab Spring" has revealed
the vulnerability of authoritarian states in the region to popular anger
fuelled by economic hardship.
Reformists are barely
represented in next month's election, having been barred from standing or
declaring boycotts. The vote will be hotly contested between Ahmadinejad's
supporters and conservative opponents who blame him for economic disarray.
Children of Iranian opposition leaders called on the international community to
help their voices reach the rest of the world, opposition leader Mirhossein
Mousavi's website Kaleme reported on Wednesday. Reformists are planning a rally
next week, which could be a rare test of whether the soaring food prices are
increasing anger on the streets.The Feb. 14 rally would mark a year of house
arrest for Mirhossein Mousavi and Mehdi Karroubi, the candidates who opposed
Ahmadinejad in 2009. It was announced on Mousavi's website, Kaleme. The effect
of Iran's difficulty processing payments on often
opaque international commodities markets can be felt directly on the streets in
the form of higher prices and shortages. According to commodities traders in Asia, shipments of palm oil from both
the top suppliers, Indonesia and Malaysia, have been halted to Iran because traders fear they cannot
get paid. The two countries account for 90% of global supply of the oil, a
staple ingredient for products from margarine to sweets.” I can confirm that
Singaporean firms have stopped. We don't want to go anywhere near Iran at this
moment, it is too risky," said a trader with a listed Singaporean firm that
ships Indonesian palm oil cargoes to the Middle East and Iran. A trading source
from Saudi Arabia whose firm runs a 16,000-tonne-a-year plant
that refines food oil in Iran said the sector was barely
operating. A margarine factory owner in Tehran told Reuters on Wednesday he
expected to halt production within months because of a shortage of raw materials.
The impact could be felt in a Tehran pastry shop.” We are going bankrupt
and probably will be closed within weeks," said the owner on Thursday.
"All my ingredients come from abroad. Either the prices suddenly doubled
or they stopped being shipped. We are doomed.” While the United States and Europe lack the authority without the
United Nations to ban dealings by other countries with Iran, their measures can raise the cost
of doing business so much that it is no longer profitable for traders.” The
objective of current and likely sanctions is very simple: to raise the cost of
having anything to do with the purchase or shipping of Iranian petroleum to
such an extent that even such potential partners who are formally beyond the
legal jurisdiction of the United States or its allies will nonetheless shun
doing business with Tehran," said J Peter Pham, with the Atlantic Council,
a US think-tank. China, which bought a fifth of Iran's oil exports last year,
has cut its imports this year in half, seeking a steeper discount which will
hurt Iran's revenues.In public, companies and countries say they will still
trade with Iran as long as it remains legal to do so.” Like all the
international companies, we do business there, but you have to be very
careful," Paul Conway, chairman of US agribusiness giant Cargill told
Reuters in an interview on Wednesday. Rahul Khullar, trade secretary of India, one of Iran's main trade partners, said:
"If the EU and the US both want to stop exports to that
country, please tell me why I should follow suit? Why shouldn't I take up that
business opportunity?"Under US pressure, India shut down a payments system for
trade with Iran last year. Under a new system,
Indian firms are expected to pay for 45% of their Iranian oil imports in Indian
rupees to avoid going through international banks. Implementing the system has
been stalled while Indian authorities work out whether to subject such payments
to tax.Traders revealed to Reuters this week that Iranian buyers had defaulted
on payments for Indian rice. Khullar said there were also payment problems in
tea, although he did not give details. Indian tea exports to Iran fell by a third last year.Azam Monem,
director at McLeod Russel India, the world's largest tea producer, said
exporters were waiting for a system to be set up so that Iranian buyers can pay
in rupees.Reza Hosseini, a food wholesaler in Tehran, said: "The price per regular
package of tea has doubled.... Since Iran is a big importer of tea, the sharp
rise in price means that there is a problem with its import.” International
shipping firms are cutting back business with Iran. Last year the United States blacklisted major Iranian port
operator Tidewater Middle East Co, which operates seven terminals in Iran including Bandar Abbas, Iran's only container port connected to
the world's big shipping lines.” I sense that many international shipping
companies are challenged beyond what they find can be justified when looking at
the potential earnings of trading with Iran," said Jakob Larsen, a
maritime security officer with BIMCO, the world's largest private ship-owners' association.”
Having said that, I think there are still some who are able to carry on their
business in a way that does not breach sanctions and yet ensures a decent
return on investment.” Danish shipping company AP Moller-Maersk said this week
it had suspended new oil tanker deals with Iran due to the EU measures. German
container shipping group Hapag-Lloyd said on Thursday it no longer offered
limited services to Iran. It had already ended consignments
last year to Tidewater-run ports. Iran faces a bigger challenge if US
lawmakers pass sanctions on its main tanker group, the privately run National
Iranian Tanker Company (NITC) with a fleet of 40 tankers, or on the state-owned
National Iranian Oil Company.” The measure ... would amount to de facto oil and
shipping embargos," the Atlantic Council's Pham said. "The mere taint
would also have a net negative effect on Iran, driving those fearful of the reach
of sanctions to decide not to go through with transactions while giving Iran's remaining partners - one thinks,
for example, of Chinese firms - the leverage to drive the price they pay down."
