Iran sanctions constrict trade flows to Asia

New US sanctions authorized by President Obama complicate payment for Iranian crude, fuel oil and iron ore.

February 7, 2012 09:54
3 minute read.
Iranian rial money exchange

Iran rial sanctions 390. (photo credit: REUTERS)


Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analysis from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief


BEIJING - Trade between Asia and Iran is likely to slow as new US sanctions make payments more difficult, traders said on Tuesday, although the more determined can still find a route through Middle Eastern intermediaries.

On Sunday, US President Barack Obama authorized new measures which extend sanctions to all Iranian financial institutions and require financial institutions doing business in the United States to block and freeze transactions having a suspected link to Iran.

Previous sanctions had only required American banks to reject those transactions.

Asian importers of Iranian crude, fuel oil and iron ore will find the sanctions complicate payment, which already often goes through intermediaries in the Middle East.

Iran will be forced to rely more on settlement in illiquid currencies, which raises its cost of trade and adds to pressure on its currency.

"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.

Some Indian rice exporters already have reported defaults by Iranian customers, after a rial devaluation in January made payments more expensive for both the Iranian importers and the Dubai intermediaries, who must convert rial into dollars to transfer money back to India.

Iranian fuel oil shipments through Singapore are slowing as sanction worries deter traders, while some Iranian iron ore exporters are accelerating loadings to China for fear of even 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.

An agreement between Iran and India to settle 45 percent of Indian crude oil purchases in rupees leaves Iran saddled with a currency that is only partly convertible.

Iranian money, an estimated $5 billion so far, is piling up in South Korean banks as South Korean refiners continue to pay for shipments in won, which the banks cannot legally transfer back to Tehran.

"We don't do money laundering with Iran and our won-denominated bank accounts have nothing to do with the toughened US measures," a Bank of Korea source told Reuters.

Obstacles to trade increasing

Only a select few Chinese banks are still willing to process payments for Iranian shipments, and those must be filtered to be sure none of the counterparties appears on official sanction lists, an exporter in China said.

Customers are also required to issue a guarantee to the banks opening letters of credit that any losses due to sanctions will be borne by the buyer, not the bank.

Chinese buyers of Iranian iron ore must pay 25 percent in advance and settle the remainder in Dubai dirham on presentation of the bill of lading, one Indian trader said.

Other iron ore or fuel oil buyers pay with direct cash transfers, sometimes routed through more than one intermediary before ending up in a Middle East bank account belonging to the Iranian exporter. The exporter uses its representative office in the third country to bring the money home to Iran.

If trade with Iran slows, it will generally be a bigger problem for Iran than for its customers.

For instance, about one-third of Iran's iron ore production is sold to China, but that only accounts for about 3 percent of China's massive imports.

Click here for full Jpost coverage of the Iranian threat

But Iranian crude is still an important source for Asian buyers, making up roughly one-tenth of imports into India, China, Japan, and South Korea.

China cut its purchases of Iranian crude oil to half last year's volume due to a dispute over pricing and payment terms. Iran wants Chinese buyers to pay within a shorter period - possibly a sign of its need for currency.

Join Jerusalem Post Premium Plus now for just $5 and upgrade your experience with an ads-free website and exclusive content. Click here>>

Related Content

Bushehr nuclear Iranian
August 5, 2014
Iran and the bomb: The future of negotiations