Iran Faces Oil-Cash Squeeze as U.S. Bolsters Sanctions
From Bloomberg
By Ladane Nasseri, Anthony DiPaola & Pratish Narayanan
Iran faces a fresh obstacle to turning its most lucrative export into cash as the U.S. tightens sanctions this week to keep importers from paying for the oil with dollars and euros.
Under penalty of expulsion from the U.S. banking system, Iranian crude customers such as China, Japan and India will be restricted to using their own currencies for the purchases, starting today. Importers will be compelled to keep the payments in escrow accounts that Iran can use only for locally sourced goods and services, in what will amount to barter arrangements.
“They’ll have to accept that a lot of cash is piling up in banks in importing countries, and they’ll now have to look for ways to get it out,” said Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting & Project Management, in a Jan. 31 phone interview. “It’s making the trade much more difficult.”
Crude production and exports from Iran plunged in the past year as the U.S. and European Union sought to choke off money to the Islamic republic to dissuade it from pursuing a nuclear program. Today’s sanctions, part of U.S. legislation passed last year, may exacerbate the decline because they force bartering with countries that in almost every case export less to Iran than they buy from it.
‘Hostile’ Act
The new restrictions are another “hostile undertaking.” Iran’s Foreign Ministry spokesman Ramin Mehmanparast said today, according to the state-run Mehr news agency. He exhorted his compatriots to transform the added pressure into an “opportunity” to double Iran’s trade with certain countries.
“It’s our nation’s dream to free the national budget from reliance on oil revenue, and we hope to do so in the near future through planning,” Mehmanparast said.
Iran exported 1.2 million barrels of crude a day in December, with China, South Korea, Japan and India accounting for 84 percent, the International Energy Agency said in a Jan. 18 report. Sales were less than half of what Iran shipped on average during the first 10 months of 2011, IEA data show.
Sanctions enacted previously sought to isolate Iran’s banks and the scarcity of foreign exchange flowing into the economy has led to skyrocketing prices for consumer goods such as meat. The national currency has weakened over the last year, reaching 38,900 rials to the U.S. dollar in street trading yesterday compared with 16,900 in January 2012.
Blocked Funds
The new blockage on remittances will add to financial restrictions the U.S. imposed last year that curtail Iran’s access to dollars, euros and other hard currencies. Sanctions have already forced it into barter arrangements with China, its largest oil customer, Mahmoud Bahmani, Iran’s central bank governor, said a year ago.
Increased bartering is one way to counter the additional U.S. measures, Yahya Ale-Eshagh, head of the Tehran Chamber of Commerce, Industries and Mines, said yesterday.
“It’s time for private companies to act and take responsibility for actions the government is unable to carry out,” Ale-Eshagh told chamber members, according to the state- run Fars news agency.
South Korean buyers have been paying for Iranian crude in local won, through two accounts that Iran’s central bank opened in 2010 at the Industrial Bank of Korea and Woori Bank.
Oil For Wheat
Iran has made “precise” plans for increased imports of goods through barter, including the formation of a special committee to handle such trade, Fars reported yesterday, citing Deputy Commerce Minister Hamid Safdel. Iran previously sought to trade oil for wheat from Pakistan and Russia, media reports from the countries said.
“It’s getting more and more complicated every month,” Samuel Ciszuk, a consultant at KBC Energy Economics in Walton- on-Thames near London, said by telephone on Jan. 31. The new U.S. measures “will further cement the fact that Iran has to rely on a very small group of countries” for sales, he said.
The U.S. and allies say Iran’s nuclear program may lead to the development of atomic weapons, an allegation Iran denies, saying it wants energy for civilian use. The country will resume stalled discussions with the U.S. and five other powers later this month in Kazakhstan, Iranian Foreign Minister Ali Akbar Salehi said on Feb. 3. The EU said in a statement yesterday that Iran has agreed to talks starting Feb. 26.
