Difficulty paying for urgent import needs has contributed to sharp rises in the prices of basic foodstuffs, causing hardship for Iranians with just weeks to go before an election seen as a referendum on President Mahmoud Ahmadinejad's economic policies. New sanctions imposed by the United States and European Union to punish Iran for its nuclear program do not bar firms from selling Iran food but they make it difficult to carry out the international financial transactions needed to pay for it. Reuters surveys of commodities traders around the globe show that since the start of the year, Iran has had trouble securing imports of basic staples like rice, cooking oil, animal feed and tea. Grain ships have been held at its ports, refusing to unload until payment can be received for cargo. With Iran's rial currency tumbling, the prices of rice, bread and meat in Iranian bazaars have doubled or more in dollar terms in recent months.
Iranian grain importers have in the past side-stepped sanctions by booking business through the United Arab Emirates, traders said, but this option was cut off by the UAE government in response to sanctions. Iran has been trading oil in currencies like Japanese yen, South Korean won and Indian rupees, but such deals make it difficult to repatriate profits. Deals revealed on Thursday appear to be among the first in which Iran has had to result to offering cashless barter to avoid sanctions, a sign of new urgency as it seeks to buy food and get around the financial restrictions. "Grain deals are being paid for in gold bullion and barter deals are being offered," one European grains trader said, speaking on condition of anonymity while discussing commercial deals. "Some of the major trading houses are involved." Another trader said: "As the shipments of grain are so large, barter or gold payments are the quickest option." Details of how the barter deals work are still unclear as the payments problem is so new, and traders did not disclose the exact size of such deals.
The effect of Iran's difficulty processing payments on often opaque international commodities markets can be felt directly on the streets in the form of higher prices and shortages. According to commodities traders in Asia, shipments of palm oil from both the top suppliers, Indonesia and Malaysia, have been halted to Iran because traders fear they cannot get paid. The two countries account for 90 percent of global supply of the oil, a staple ingredient for products from margarine to sweets. "I can confirm that Singaporean firms have stopped. We don't want to go anywhere near Iran at this moment, it is too risky," said a trader with a listed Singaporean firm that ships Indonesian palm oil cargoes to the Middle East and Iran. A trading source from Saudi Arabia whose firm runs a 16,000-ton-a-year plant that refines food oil in Iran said the sector was barely operating. A margarine factory owner in Tehran told Reuters on Wednesday he expected to halt production within months because of a shortage of raw materials.
The impact could be felt in a Tehran pastry shop. "We are going bankrupt and probably will be closed within weeks," said the owner on Thursday. "All my ingredients come from abroad. Either the prices suddenly doubled or they stopped being shipped. We are doomed." While the United States and Europe lack the authority without the United Nations to ban dealings by other countries with Iran, their measures can raise the cost of doing business so much that it is no longer profitable for traders.
