Iran struggles to pay for basic foods as sanctions kick in


KUALA LUMPUR/TEHRAN – Iran is having trouble buying rice, cooking oil and other staples to feed its 74 million people weeks before an election as a result of the new sanctions imposed on the country over its nuclear pogramme.

The sanctions are said to be 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 say that Malaysian exporters of palm oil – the source of half of Iran’s consumption of a food staple used to make margarine and confectionery – had halted sales to Iran because they could not get paid. Earlier this week, Iran defaulted on payments for rice from top supplier India, and last week Ukrainian shipments of maize were cut nearly in half.

The sanctions have had a dramatic impact on daily life in the country ahead of a March 2nd 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 Mr Ahmadinejad’s economic policies that have seen subsidies for basic goods cut and replaced with direct payments to families.

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.

“They keep asking in the spirit of Muslim brotherhood. The last I heard was an enquiry for 5,000 tonnes for February or March delivery, but no one wants to take that risk now,” said one trader in Kuala Lumpur, speaking on condition of anonymity while discussing commercial contracts.

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 a drop in imports. What is being sold now is our previous stockpiles.”

While it is too early to talk of hunger due to the rising prices of food in Iran, international organisations are keeping an eye out for signs 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.

The sanctions were imposed to halt Iran’s nuclear programme, which the West believes is being used to develop a nuclear bomb. Iran’s leadership maintains the nuclear programme is peaceful. – (Reuters)