Egypt Independent

Iran shrugs off latest US sanctions, trade suffers


castigated its US adversary on Tuesday over new financial measures to disrupt Iranian commerce, and a default on payment for rice purchases highlighted the encroachment of sanctions on the staples of everyday life.

Lawmakers in Tehran vowed to ban crude exports to European countries even before an EU oil embargo takes effect.

The US sanctions, targeting Iran's central bank and giving US banks new powers to freeze Iranian government assets, were the latest in a tightening web of international measures aimed at forcing the Islamic Republic to scrap sensitive nuclear work.

"It is an antagonistic move, psychological warfare which has no impact… There is nothing new, it has been going on for over 30 years," Iranian Foreign Ministry spokesman Ramin Mehmanparast said, referring to three decades of US-Iranian hostility.

Rice exporters said Iranian buyers had defaulted on payment for 200,000 tons of rice from their top supplier India in another sign that Western financial sanctions are playing havoc with trade, even in one of Iran's food staples.

While a plunging rial has made forward purchases costlier, the sanctions are hampering Iranian traders who have previously used Dubai-based middlemen to keep paying Indian rice suppliers.

Bread and rice dominate the diet of most Iranians, many of whom can no longer afford to buy meat, now selling for about US$30 a kilogram in Tehran. Bread prices have tripled since December, while rice costs about $5 per kg. Iranians earn about $350 a month on average. Officials put the poverty line at $800.

Grain ships are docked outside Iranian ports, traders are not booking fresh cargoes and exports of staples to Iran such as maize are falling as collecting payment from buyers gets harder.

Maize is used widely to feed livestock and eventual shortages could force farmers into stress slaughter.

Iran imported 62 percent of its maize, 45 percent of its rice and 59 percent of its sugar in 2010-11, but only three percent of its wheat, according to the US Department of Agriculture.

Tension with the West rose last month when the United States and the European Union targeted Iranian oil exports in their efforts to halt Tehran's suspected quest for an atomic bomb.

Mehmanparast said the pressure would not deter Iran from pursuing a nuclear program it says has only peaceful purposes. "Our history has shown that sanctions, which are totally illogical, have accelerated our nation's progress," he added.

A spokesman for EU foreign policy chief Catherine Ashton blamed Tehran for any civilian suffering caused by sanctions.

"EU measures on Iranian oil are intended to affect the potential funding for the nuclear program. Unintended consequences on the civilian population are therefore the result of policy choices by the government," Michael Mann said.

He said EU measures did not target civilians, citing the partial designation of Iran's central bank as intended to let legitimate trade continue to avoid undue effects on the people.

Reprisal sanctions

Iranian MPs promised to speed passage of a bill to oblige the government to ban oil exports to some EU states well before the 25-nation bloc phases in its embargo in July.

"The draft bill has been almost finalized. It will oblige the government to immediately cut oil exports to the EU. The bill also will ban import of any goods from the EU," lawmaker Parviz Sarvari told Iran's semi-official Fars news agency.

Washington and its allies have been constricting Iran's access to capital and oil revenues to try to push it back into negotiations to resolve the nuclear stand-off.

Mehmanparast said Iran would soon write to the EU's Ashton about resuming discussions with big powers, although he added that its rights to pursue peaceful nuclear research were "not negotiable."

The last talks in January 2010 failed because of Iran's refusal to halt its sensitive uranium enrichment work, as demanded by the UN Security Council and six world powers.

Washington and Israel have not ruled out military action if diplomacy fails to resolve Iran's nuclear row.

Iran has warned of a "painful" answer, saying it would hit Israel and US bases in the Gulf as well as block the vital Gulf oil shipping route through the Strait of Hormuz.

The measures authorized by Obama on Sunday are likely to slow Iran's trade with Asia by making payments more difficult, traders said on Tuesday, although the more determined can still find a route through Middle Eastern intermediaries.

US sanctions now encompass all Iran's financial institutions and oblige financial bodies doing business in the United States to block and freeze transactions with a suspected link to Iran. Previous sanctions had only required American banks to reject those transactions.

Trade headaches

Asian importers of Iranian crude, fuel oil and iron ore will find the measures snarl payment further. Iran will have to accept more settlement in illiquid currencies, raising costs and piling pressure on its rial.

On 26 January, Iran announced an eight percent devaluation of the rial and said it would enforce a single exchange rate, aiming to stamp out a black market where the dollar's value has soared due to fears over new sanctions imposed by the West.

"Iranian cargoes I can get, that's not a problem. But how to pay is a problem," said an iron ore trader in New Delhi.

Vijay Setia, president of the All India Rice Exporters' Association, said the Iranian default had prompted him to ask the Indian government to step in. "It is a serious issue and we do not rule out further payment defaults by Iran," he said.

Setia said India should not send any more rice to Iran on credit, adding that suppliers in Thailand, Vietnam and Pakistan had already stopped doing so.

Iranian fuel oil shipments through Singapore are slowing as sanctions worries deter traders, while some Iranian iron ore exporters are accelerating loadings to China for fear of more difficulty procuring ships and payment later this month.

Iran's economy is already so weakened that its oil exports are more valuable than its imports of food and consumer goods, making it difficult to offset its exports by paying for imports.