Iran sanctions disrupt food imports
Tehran, February 8, 2012
More evidence emerged of the crippling impact of new sanctions on Iran, with international traders saying Tehran is having trouble buying rice, cooking oil and other staples to feed its 74 million people weeks before an election.
New US financial sanctions imposed since the beginning of this year to punish Tehran over its nuclear programme are playing havoc with Iran's ability to buy imports and receive payment for its oil exports, commodities traders said.
Iran denies that sanctions are causing serious harm to its economy, but Reuters investigations in recent days with commodities traders around the globe show serious disruptions to its imports. That is having a real impact on the streets of Iran, where prices for basic foodstuffs are soaring.
South Korean President Lee Myung-bak was in Saudi Arabia on Tuesday, the latest leader of a major Asian oil importing country to visit the Middle East seeking alternative sources of oil as sanctions make it more difficult to import from Iran.
Traders in Asia told Reuters that Malaysian exporters of palm oil - the source of half of Iran's consumption of a food staple used to make margarine and confectionary - had halted sales to Iran because they could not get paid.
That followed news on Monday that Iran had defaulted on payments for rice from top supplier India, and news last week that Ukrainian shipments of maize had been cut nearly in half.
Rice is one of the main staples of the Iranian diet. With the rial currency plummeting, prices have more than doubled to $5 a kilo at bazaars in Iran from about $2 last year.
Maize is used primarily as animal feed, and the cost of meat has almost tripled to about $30 a kilo, beyond the budget of many middle class Iranian families.
The measures have had a dramatic impact on daily life in the country ahead of a March 2 parliamentary election that will pit supporters of hardline President Mahmoud Ahmadinejad against opponents seen as even more conservative.
Reformists are barely represented in the election, which is being seen as a referendum on Ahmadinejad's economic policies that have seen subsidies for basic goods cut and replaced with direct payments to families.
Next month's election will be Iran's first since a presidential vote in 2009, when a disputed victory for Ahmadinejad triggered eight months of violent protests. The authorities put that revolt down by force, but since then the Arab Spring has shown the vulnerability of governments in the region to popular anger fuelled by economic hardship.
Traders in Malaysia's capital Kuala Lumpur said palm oil shipments to Iran had largely been halted since late last year, after US and European sanctions made it difficult for buyers to obtain letters of credit and make payments via middlemen in the United Arab Emirates.
A margarine factory owner in Iran, who asked not to be identified, said there was a shortage in supply of the oils needed to make margarine that could halt production soon.
"The way things are going, I predict that over next three to four months our edible oil will run out because of sanctions. It is no longer being imported and Iran itself cannot produce that much."
A Tehran market wholesaler said: "There is a big shortage of margarine in the market, due to drop in imports. What is being sold now is our previous stockpiles."
A default by Iranian buyers on purchases of 200,000 tonnes of Indian rice is potentially more crippling. The average Iranian eats 40 kilos of rice a year, 45 percent of which is imported, according to the US Department of Agriculture. India is the main supplier.
The president of the All India Rice Exporters' Association said it was advising exporters to stop selling rice to Iran with the customary 90 days credit for payment.
"As part of our efforts to minimise losses, we are asking our colleagues to avoid sending rice on credit," Vijay Setia said.
Iranian buyers normally pay for Indian rice through middlemen in the UAE, but falls in Iran's rial means buyers have trouble covering the cost in hard currency.
While it is too early to talk of hunger from the rising prices of food in Iran, international organisations are keeping an eye out for a sign of hardship.
Gaelle Stevenier, spokeswoman for the UN's World Food Programme, said the agency was "monitoring" the situation but had no further comment.
The ultimate hammer blow to Iran's economy could come in the next few months if it becomes unable to sell the 2.6 million barrels of oil a day that it is accustomed to exporting, or is forced to offer such steep discounts that its revenue shrivels.
While Iran has a more diverse economy than other big oil exporters in the Gulf, energy exports are still its main source of earnings to buy food and other necessities. - Reuters