Iran Snapshot: The Difficulties of Getting Around Sanctions (Zeb Khan)

Mahmoud Ahmadinejad & Pakistan President Asif Ali ZardariIn recent weeks, we have documented the increasing squeeze on the Iranian economy, including food supplies, of sanctions. Ships laden with grain have turned away, Indian traders have complained about money owed for basmati rice, and Malaysian suppliers have suspended shipments of palm oil. 

We have also detailed Iran's efforts to get around sanctions through trade in non-dollar currencies and even barter arrangements. In a telling example from Pakistan, Mubarak Zeb Khan, writes for the newspaper Dawn of the difficulties that Tehran faces:

Sanctions-hit Iran has been offering new trading agreements to countries in an effort to skirt around the restrictions but it may be reluctant to extend the same to Pakistan, according to sources.

“We are ready to export the 200,000 tons of rice that Iran needs but its tariff and non-tariff barriers and unwillingness to agree to a currency swap arrangement stand in the way,” the president of the Rice Exporters Association of Pakistan, Javed Islam Agha, said on Sunday.

Iran has signed a $10 billion oil deal with India under a currency swap arrangement to avoid the use of dollars. (Such an arrangement allows the trading partners to deal in their own currencies.)

During his visit to Iran in July last year, President Asif Ali Zardari had suggested that the two countries finalise a currency swap agreement to enhance bilateral trade. He made the offer again during the recent visit to Pakistan of President Mahmoud Ahmadinejad. But the Iranian president did not make any commitment on the matter.

Talking to Dawn, Iranian Embassy spokesman Majeed Khazaei said his government had welcomed the Pakistani proposal. “We are working on it so that it may be finalised,” he remarked.

He said Iran had already formalised similar agreements with a number of countries.

Sanctions imposed by the West on Iran have set its trading partners pondering over the possibility of default. But, according to Mr Agha, the Pakistani rice exporters are not worried.

He, however, urged the Iranian authorities to ease their import regime for grains. “They impose a tax of (equivalent of) Rs22 per kg of rice for registered importers and Rs27 for unregistered importers.”

The Iranian government should waive off this duty, Mr Agha said.

Rice constitutes Pakistan’s biggest export to Iran. And rice and bread dominate the diet of most Iranians. That’s why the Iranian government recently announced that it would import some two millions tons of wheat from Pakistan.

Pakistan has sufficient wheat, a trader said. The government has allowed the export of the commodity but due to the declining prices in the world market Pakistani wheat is not too competitive.

“The Iranian government’s decision on wheat will allow our authorities to sell the stock available for sale,” said the trader.

Commerce Secretary Zafar Mahmood said Islamabad would utilise the opportunity to grab the Iranian market. However, he said that no official word had been received from Tehran on the issue.

Mr Mahmood ruled out the possibility that wheat and rice would be exported to Iran through state-owned entities. The matter would be handled by the private sector, he added.