Signs show sanctions are taking toll on Iran

Reports of the Islamic Republic of Iran’s resorting to bartering for essential imports in order to bypass economic restrictions show signs that sanctions have been effective in economically pressuring and isolating Iran, according to experts.

As a fresh round of sanctions hit Iran again this week, the country’s hard-line regime has turned to bartering, trading gold bullion and tanks of oil for vital food imports, in an effort to avoid transaction problems in international banks, commodities traders said.

New sanctions imposed by the U.S. beginning this year targeting Iran’s Central Bank, meant to deter the Islamic regime’s ongoing nuclear proliferation program, have taken a toll on Iran’s energy sector, trade and oil exports.

While the U.S. has not engaged in direct business with the Islamic Republic in more than 30 years, Iran does business through the world financial system and sells its oil in dollars.

The measures do not forbid other countries from selling basic food supplies to Iran, but completing these transactions in international banks has become increasingly difficult.

Recently, ships carrying grain have refused to unload cargo at Iran’s ports until payment is received.

“Contrary to statements made by President Ahmadinejad and Supreme Leader Khamenei, sanctions have been effective in their main objectives of reducing the regime’s access to technology to complete their nuclear agenda and reducing their finances,” external economic consultant to the European Union Mehrdad Emadi said.

Emadi points to a series of signs that reveal the efficacy of sanctions, including the severe reduction in oil exports, which comprise 81percent of Iran’s gross national product, now down two-thirds. He also sites the significant loss of European business partners down from 1,400 companies just two years ago to 200 remaining companies who are struggling today.

“At best, bartering will only be partially accommodating for Iran. There will not be as many takers as they may be hoping. It will be too complicated and costly to deal with Iran commercially,” Emadi said, citing the high commissions that bartering partners will have to pay when utilizing a third party transactional proxy.

The regime’s difficulty in importing essential items together with government subsidy cuts has put a harsh economic burden on the Iranian people. The measures have caused steep rises over recent months, in some cases doubling and tripling basic foods such as flour, oil, rice and meat. This comes just before March 2 parliamentary elections.

Iran’s Rial currency has drastically depreciated seeing up to 40 percent declines against the dollar just 48 hours after sanctions were announced against Iran’s Central Bank Dec. 31.

Inflation is above 20 percent, according to the Central Bank.

Newer sanctions against Iran’s Central Bank announced last week will further enforce measures announced in December with more severe restrictions that give U.S. banks authority to freeze assets connected to the Iranian government.

“There is no question that the impact of the isolation on Iran and the economic sanctions on Iran have caused added turmoil within Iran,” White House spokesman Jay Carney said about the new measures.

While the U.S. does not buy oil from Iran, December’s sanctions on Iran’s banking sector make it harder for Iran to continue crude exports. Iran exports about 3 percent of the world’s oil supply.

The European Union, which bought about 20 percent of Iran’s oil exports last year, announced last month that it would ban Iranian import of crude oil beginning in July.

According to the International Energy Agency, which oversees world oil trade, the imminent EU oil sanctions and U.S. financial measures against Iran are already affecting global trade flows.

Iran has the second-largest economy in the Middle East with a diverse range of exports. Energy exports, however, still remain its main earnings source.

Iran’s economy will take even a larger hit in the coming months if it is not able to export its usual 2.6 million barrels of oil a day or if it is forced to give significant discounts.

Iran’s oil consumers are confident that if Iranian oil is blocked from getting to the market, other suppliers can replace them.

The U.S. has been pressuring other Middle East and North African oil exporters to increase production. Saudi Arabia has already said it would make up the difference for lost Iranian crude.

China, meanwhile, which single-handedly bought about a fifth of Iran’s oil in 2011, is demanding steep discounts from the Iranian regime to keep doing business. China has already cut imports by more than half over the past two months.

According to a senior executive of a U.S. oil company, Saudi exports have increased by 200,000 barrels daily, mostly to Asia, to make up for China’s cut backs on Iranian oil imports. China has also been increasing oil purchases from Russia and West Africa, oil traders said.

South Korea, Japan and China have visited Saudi Arabia in recent weeks to discuss new oil trading partnerships.