Peterson Institute for International Economics

Iran’s Food Supply Gets Pinched

Washington and Brussels are trying to curb Iranian oil revenue in a bid to convince Tehran to abandon its nuclear weapons program. But it appears financial sanctions imposed by the West are having a more immediate impact on what Iran buys from abroad rather than what it sells. Reports this week suggest Iranian companies are finding it increasingly difficult to import food, raising the specter of a political crisis ahead of the parliamentary elections on March 2, 2012. Tehran is trying to a get around the issue by bartering food for oil, but a close look at the data suggests this will only be a partial solution at best.

Sanctions Hit Food Imports First

Since the passage of US legislation sanctioning the Central Bank of Iran and decision by the European Union to ban imports of Iranian crude, attention has been focused on the country’s oil sales and the impact increased Western pressure will have on Tehran’s export revenue. But so far it looks like the most significant trade disruptions are occurring on the import side instead. In the past week Indian firms have held up wheat and rice shipments and Singapore-based traders have stopped selling Malaysian and Indonesian palm oil out of fear they won’t get paid.

In theory, this shouldn’t be happening. The National Defense Authorization Act signed into law by President Obama on December 31, 2011 explicitly excludes food products (as well as medicine and medical devices) from sanctions. So international agricultural producers should be free to sell to Iran without risk. But given the fragility of the Iranian financial system and the stigma surrounding trade with Iran, many foreign vendors are deciding it’s just not worth it. Because while Tehran is willing to continue selling crude on credit while its customers sort through sanctions-related payment problems, the country’s food suppliers aren’t so sure the small- and medium-sized Iranian companies they deal with will be able to come through.

figure 1

On top of global food producers’ hesitancy to sell, Iranian consumers’ ability to buy has taken a hit as well. In the face of increased international financial isolation, nervous Iranian households are converting their savings from rial to dollars in the country’s informal foreign exchange markets. This has caused the currency to depreciate by 40 percent over the past two months, making imported food 40 percent more expensive (figure 2). Financial sanctions have limited the Central Bank of Iran’s ability to intervene and keep the market exchange rate in line with the official target, so instead the government has had to raise interest rates and attempt to ban unofficial foreign exchange transactions.

A Political Challenge for Tehran

Coming less than a month before the parliamentary elections, this is a troublesome development for Iranian leadership. While not quite as dependent on foreign food as many of their neighbors in the Middle East, Iranians still depend on imports for more than a third of the calories they consume each day. Iran imports more than half the rice and maize it consumes, as well as soy beans and other oil crops or oil products (figure 2). Most of the maize and soy is used as animal feed, but impacts the price and availability of meat and dairy. Iran is also dependent on foreign barley, though this accounts for a relatively low share of overall caloric intake. Imported wheat accounts for less than 10 percent of domestic demand. But since half the calories the average Iranian consumes each day come from wheat, even this level of import dependence could be a liability.

figure 2

And a Difficult Problem to Solve

In addition to accounting for a large share of domestic demand, Iranian food imports account for a meaningful chunk of internationally traded food supply. Iran is the world’s fifth largest importer of wheat and rice, sixth largest importer of maize, and it makes the top 10 in barley and the top 20 in oil crops and oil products (table 1). So we’re talking billions of dollars in agricultural trade that needs to get settled each year—not an easy task with increasingly stringent international financial sanctions.

table 1

India has reportedly offered to utilize the new rupee arrangement with Iran (see Iran’s Oil for Rupee Program, February 6, 2012) to barter oil imports for wheat, tea, and other agricultural exports. Expect to see a significant increase in Indian food sales in the months ahead as New Delhi looks to maximize exports to Iran under the rupee arrangement and Tehran tries to keep agricultural imports flowing.

But among Iran’s major oil customers, India is the only significant exporter of the cereals, oil crops, and oil products Iran needs (figure 3). And even India doesn’t sell enough globally to meet Iranian demand (or come close to balance out what Indian refineries pay Tehran for oil). So unless India starts transshipping food products from other producers or Iran’s other large food suppliers start buying Iranian crude, “oil-for-food” barter is going to have limited effect. While there is some prospect for both, they will only partially mitigate the payment problems Iranian food importers now face. And foreign suppliers will likely charge a premium for their troubles, which will further inflate domestic food prices already skyrocketing thanks to sanctions-induced rial depreciation.

With Washington and Brussels hoping to shake up Iranian politics by targeting the country’s oil exports, the unintended impact on Iranian food supply appears to be having a greater impact. It just might not play out in the way Western policymakers expect.

figure 3

This post originally appeared at The Peterson Institute.

32 Responses to “Iran’s Food Supply Gets Pinched”

directv packagesFebruary 5th, 2016 at 4:34 am

I don’t know what happened to Iran’s food supply. I think it is a great shock to Iran in the food sector. It is very necessary to check why it is happened like this. Just go through this article and understand the real facts!

amantajoMay 20th, 2016 at 11:36 am

Great idea to export foods to Iran from Washington and Brussels. It is necessary to provide foods to such countries suffering a lot without having foods. Washington and Brussels have done a great job. Other countries also must do this.

niceMay 21st, 2016 at 10:43 am

I useful to run an organization that demanded me to build several revenue transfers once a week. Due that will umpteen money fluctuations available, I needed to get yourself a viable platform that will afford me when using the best modules of revenue transfer compare.tavakoli structured finance

niceMay 21st, 2016 at 10:44 am

I would once run an online business that recommended me to help make several bucks transfers daily. Due to help you umpteen fx fluctuations that are available, I needed to pinpoint a viable platform which can afford me considering the best modes of bucks transfer consideration.beneficial finance

niceMay 21st, 2016 at 10:44 am

I would always run profitable business that mandatory me to help with making several profit transfers purchase. Due towards umpteen up-to-dateness fluctuations in the marketplace, I needed to buy a viable platform that would afford me aided by the best settings of profit transfer quotation.islamic business finance

niceMay 21st, 2016 at 10:45 am

I which is used to run a booming enterprise that requested me to earn several finances transfers pay for. Due to make sure you umpteen cash fluctuations you can find, I needed to look through viable platform which will afford me along with the best methods of finances transfer room

niceMay 21st, 2016 at 10:45 am

I used to run a business that required me to make several money transfers every week. Due to umpteen currency fluctuations in the market, I needed to find a viable platform that could afford me with the best modalities of money transfer services

maria PaulMay 27th, 2016 at 1:43 pm

I have no voice after going through this article and am very much sad thinking about the lives there. Food and water is very much necessary to all human kind and the problems dealing with such matters should be considered as priority matter.
los angeles party rentals

Merlin JohnMay 31st, 2016 at 12:49 pm

Many people in different places are suffering from such food problem. It is pretty good idea to help such countries by exporting necessary foods to them. I think other countries should do like this and I am feeling proud about Washington and Brussels.
medical billing and coding companies

asimshahJune 3rd, 2016 at 7:59 am

Regarding style lovers, work in fashion will be the perfect career; a possiblity to influence tradition and change the way a region dresses in the daytime and night time. Read onto note that branch from your fashion industry could be right in your case.

asimshahJune 3rd, 2016 at 8:00 am

Exactly what larder? It’s yet another word pertaining to pantry — a space for storing where an individual retain non-perishable food products. You may well call this kind of your cupboards or possibly a food closet according to your area. Very crucial: having the particular well-stocked larder will assist you to create awesome meals in regards to the fly, when.

asimshahJune 3rd, 2016 at 8:00 am

Even though the actual prospective purchaser wants a property for the kids, it is still the “Emotional Connect” which usually guides the crooks to choosing which to get. Depersonalizing a residence concise of the particular minimalist can certainly feel cold and unwelcoming.

asimshahJune 3rd, 2016 at 8:00 am

Key elements in which determine the price tag on health insurance plan. The value of health care insurance effects every person, those who’re starting their particular business or perhaps marriage. There are level of factors in which determine these kind of cost, plus your insurability, your quality of life condition, selecting plan, what your location is, your age, and sexual intercourse.

Zhou NutritionOctober 25th, 2016 at 10:03 am

make healthy and fit body food supplement is more important to use. most of the body builders are like to use food supplement from Zhou Nutrition because it has no medical side effects. at the case of Iran food supply i think there is something wrong of the final procedure. hope for the best.

ehost couponApril 10th, 2017 at 6:47 pm

Calling inside professionals is usually fraught which consists of own threat. Before we accomplish that, there can be a few things we should instead understand regarding the very mother nature of infestation control, plus about the procedure for it throughout the UAE.pest inspection

ehost couponApril 10th, 2017 at 6:47 pm

While the thinking behind moving for you to new places could possibly be very pleasing to a single, moving homes may lead to some quite harrowing suffers from. There are countless things you've to consider before they plan to move relocation company

polinaApril 13th, 2017 at 11:48 am

Due to the woolen material utilized to make that, carpets are usually great magnets regarding dust and also dirt. If you can find kids and also pets at home, the must clean the carpet will be higher plus more frequent. The number of pet pelt and foods and shade stains supply the impression regarding poor sanitation and health habits.commercial cleaning

zaiduzbicJune 11th, 2017 at 11:36 am

Many home shoots happen through the winter weeks than any time of the year, when the particular cozy warmth of your fireplace are at its many inviting. Not merely are shoots a risk, space heaters are often used to heat rooms that want an added boost;

zaiduzbicJune 11th, 2017 at 11:36 am

If you are suffering loss, something moved wrong anywhere. It will be advisable to see the information and examine your mistakes using a cool brain. This will let you plan properly. When you recognize your blunders, you is not going to repeat the

zaiduzbicJune 11th, 2017 at 11:36 am

Locking the particular computer thus others can not access important computer data? Bypassing house windows passwords only has a minute or perhaps less as well as the windows 10 installment disk. To date, I are already successful in while using the Windows 10 hard drive to sidestep account account

zaiduzbicJune 11th, 2017 at 11:36 am

Residence tutoring requires the dispatch of your qualified and also highly knowledgeable tutor with a client and never having to drive or happen to be anywhere. This is simply not required for many children or perhaps

zaiduzbicJune 11th, 2017 at 11:36 am

Easily confront a property attack I really do not necessarily attention perhaps the criminals have got endured inside low income, result from awful scenario or perhaps are usually destitute. Almost all I am aware will be in which they cannot have got virtually any proper in any respect to be able to interfere with my own residence. Or my own

SanaSeptember 18th, 2017 at 7:49 am

On the off chance that one focuses on the predominant press as well as utilizations web-based social networking, they may have caught wind of various big names who have shared their perspectives on the transient emergency.evanewz

Most Read | Featured | Popular