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November 28, 2012 3:06 pm
Iran is paying millions of dollars in higher costs for vital imports of agricultural commodities, including wheat, as the impact of the European and US oil sanctions spills over into sections of the Iranian economy.
The extra costs, which traders in Geneva, Dubai and Tehran estimate at between 5 and 10 per cent above prevailing prices in the international market, are putting further pressure on the country’s finances.
Washington and Brussels this year imposed a new round of sanctions on Iran, targeting its oil and banking industries.
The sanctions, which included a full embargo on Iranian oil in Europe, have reduced Iranian oil production to a 32-year low, sharply reducing the country’s hard currency income. Last year Iran exported 2m barrels a day on average; it is now selling as little as 900,000 b/d.
The value of the Iranian currency, the rial, has plunged more than 50 per cent against the dollar so far this year, while most international banks have all but stopped dealing with their Iranian counterparts.
The complications of financing the transactions, insuring the shipments and securing vessels willing to call at Iranian ports are leading to the higher import prices, traders said.
“The main problem is the banking channel,” a senior Europe-based agricultural commodities trader said. “Iran is paying roughly 5 per cent more – in some cases, it has paid 10 per cent more.”
Mohammad-Hossein Karimipour, head of the agricultural committee of Iran’s Chamber of Commerce, said “in some cases” Iranian buyers must pay higher than market prices for agricultural commodities due to sanctions.
Masoud Daneshmand, a senior member of Iran’s Chamber of Commerce, put the surcharge at 7-8 per cent, in line with western traders’ estimate of 5-10 per cent.
The US Department of Agriculture earlier this year warned that a “disappointing” wheat harvest was set to “fuel higher import requirements” just as the sanctions imposed by Brussels and Washington hampered trade.
“Though current sanctions do not officially target food or agricultural commodities, restrictions imposed on Iranian banks and trading firms have impeded the country’s ability to finance needed imports,” the USDA said in a “commodity intelligence report” about Iran.
The Iranian premium, as traders call it, comes as Tehran buys unusually large quantities of wheat and other agricultural commodities in the international market. Industry executives forecast that in the 2012-13 crop season to next October Iran would buy roughly 12m tonnes, including wheat, rice, barley, corn and soyabean – the third highest level on record.
The purchases appear larger than is suggested by the balance between domestic supply and demand, even when considering a lower-than-normal wheat harvest due to the impact of a mild drought. Western food traders speculate that Tehran could be stockpiling food commodities, fearing that further rounds of sanctions could hinder its buying capacity even more.
In the past, the Iranian private sector handled the bulk of the country’s imports of grain and oilseeds, but recently the government has stepped up operations through its Government Trading Corporation (GTC) in an attempt to offset the impact of the sanctions.
Additional reporting by Mehrnosh Khalaj in Tehran
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