A variety of spices are displayed at a shop at the spices souq in Deira, Dubai. Although US and European sanctions do not specifically target sales of most non-oil goods, Iranian exporters have found it hard to arrange shipping and insurance for their cargoes, and have faced tighter customs checks in some countries. The impact of the sanctions can be seen in Dubai, once a major centre for financing Iran’s non-oil exports.
Western financial sanctions hit non-oil trade hard; payment, insurance, shipping problems; imports more expensive; but businessmen keeping export channels open; weak rial boosting exports of some agricultural goods; government identifies products to obtain in barter
Reuters/Dubai
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At an international food industry fair in Dubai last week, prospective buyers, many from Africa and south Asia, flocked around 45 Iranian stands selling products such as dried fruit, pistachio nuts and saffron.
The Iranian exporters running the stands face challenges unknown to their competitors from other countries. For the past year, Iran has been mostly shut out of the international banking system by Western sanctions imposed over Tehran’s disputed nuclear programme.
That has made it difficult for Iranian food merchants to receive payments for their goods, forcing them in many cases to use expensive middlemen or inefficient barter arrangements.
By weakening the Iranian rial, the sanctions have made it more expensive and difficult for the firms to import the machinery and raw materials they need to keep producing. Although US and European sanctions do not specifically target sales of most non-oil goods, Iranian exporters have found it hard to arrange shipping and insurance for their cargoes, and have faced tighter customs checks in some countries.
But they are struggling on, limiting the damage which the sanctions are causing to their businesses and to Iran’s wider economy, and keeping open trade channels that could one day, when the sanctions are eventually lifted, boom once again.
“Most of the Iranian companies have an office outside Iran and they’re doing their business through those. They’re not transferring any money to Iran from outside,” said Behrooz Rezazadeh, head of private Iranian trade promotion consultancy PSDC Group. “They’re helping to import raw materials into the country while exporting the best quality Iranian products.”
Iran’s merchandise exports totalled $131.5bn and its imports $62.1bn in 2011, the year before the sanctions began making themselves felt in a big way, according to the World Trade Organization.
Over three-quarters of the exports were oil and gas, which may now have dropped by more than half, the International Energy Agency has estimated. Reliable data for Iran’s total non-oil exports in recent months is not available, but they too are believed to have suffered.
“You can’t get the packaging materials,” said an Iranian processed food products exporter who moved his business to Dubai over a year ago, but returns to Iran regularly. He declined to be named because of the sensitivities of his remarks.
“You go to the free zones in Iran and most of the factories are closed,” he said of the areas set up by the Iranian government to encourage manufacturing for export.
The impact of the sanctions can be seen in Dubai, once a major centre for financing Iran’s non-oil exports.
As recently as two years ago the Dubai operations of Bank Melli, a major Iranian bank, handled 300 to 400 letters of credit per month, often for large-scale deals, said a source familiar with the operations.
Now Bank Melli issues just two or three letters of credit a month and often for nominal amounts; it has shed about half of its staff and its offices above Dubai’s busy Creek waterway are almost dormant, the source said. Repeated telephone calls to the bank’s offices seeking comment were not answered.
“We have problems sending money, we have problems shipping. They don’t accept an Iranian loading sheet,” said Amin, an Iranian trader in dried fruit and nuts who attended last week’s industry fair.
But the presence of the sizeable Iranian contingent at the fair - there were more Iranian stands than at last year’s fair, and no room available for a further 32 firms which applied for one - showed that a considerable amount of trade is continuing.
Amirhossein Zargarzadeh, another agricultural businessman from Iran, said he exported 10,000-12,000 tonnes of dates a year and that demand outstripped his ability to supply customers because of difficulties expanding his processing facilities.
He used to supply customers in the US but because of the sanctions now limits his business to the Middle East, collecting payment for what he can sell in Iranian rials through Bahrain and Dubai.
Barter deals have become common; Iranian exporters exchange their products for other goods which they send back to Iran and sell there. In some cases, the exporters obtain goods which the Iranian government has identified as most needed in the sanctions-hit economy, such as basic foods and medicine.
“The ministry of commerce lets you know what kinds of products are needed now,” Rezazadeh said. “They’re importing raw materials for other factories. It means the barter relationship is now happening.”
The collapse of the Iranian rial, which hit record lows of about 37,500 against the US dollar last October compared to 10,500 in December 2011, has boosted demand for Iranian products in some cases by allowing exporters to quote more competitive prices and still make big profits.
An Iranian saffron exporter in Dubai said that since the main expense in making agricultural products was labour, which was paid in rials, costs for those products were now very low. Her business flies the feather-light spice to China and transfers the money it is paid back to Iran through exchange houses in Hong Kong.
Iran’s pistachio exports between last March 21 and December 20 doubled from a year earlier to $587mn, while exports of saffron jumped 87% to $213mn, the semi-official Fars news agency quoted Iran’s deputy agriculture minister Jahangir Pourhemmat as saying in January.
Pistachio exports have become so large that last month the Iranian government briefly banned them to ensure enough supply for the domestic market, before quickly lifting the ban after producers protested, local media reported.
Some other labour-intensive exports appear to be holding up reasonably well.
Iran exported $238mn worth of carpets in the seven months through mid-October last year, Mehr news agency quoted an official of the national carpet industry association as saying; that rate was down about a quarter from the previous year.
Because of a shortage of imported parts, the sanctions have dealt a heavy blow to Iran’s auto industry, which once built 1.6mn vehicles annually; local media reported that output has roughly halved in the past year.
But aided by the weak rial, exports of low-end cars have continued. Iran exported 44,682 cars valued at about $257mn in the nine months through mid-December, with the vast majority going across the border to Iraq, according to the Iranian Students’ News Agency.
Iranian exporters appear determined to keep going, even if it means relying on barter to survive.
“I send pistachios to India and I buy sesame seeds. I give you this and you give me that,” Amin said. “It’s like 1,000 years ago.”
