Lifting sanctions on Iran, a boon to exporters

by Rohana Jayalal

Trade experts who hailed the lifting of sanctions on Iran said it would help eliminate trade restrictions which curtailed Iran’s trade with the rest of the world and create a trade-friendly environment.

Tea Exporters Association President Rohan Fernando said Iran will sooner or later, adopt a single exchange rate.

A single exchange rate policy will help Iranian importers to buy more tea from Sri Lanka. Earlier, importers of Ceylon Tea had to obtain foreign currency at the prevailing market rate.

With the lifting of financial sanctions most Iranian banks will re-join the SWIFT system. The restoration of bank facilities would enable Sri Lankan banks to deal directly with Iranian banks to facilitate trade between the two countries.

The banking facilities will help third world countries to reduce the cost of transactions.

Indian tea exporters who enjoy doing business with Iran at the official exchange rate under the Rial-Rupee agreement may lose a part of their advantage when a single exchange rate is introduced. This may encourage Iranian importers to focus on Sri Lanka.

The international shipping companies will resume direct operations to major Iranian ports soon.

This will shorten the delivery time and also reduce transportation costs and insurance charges. The end result may be a lower cost to the consumer, Fernando said.

Sri Lankan tea companies could increase tea exports under a sanctions-free Iran and also get better prices with the elimination of third party involvement.

Tea exports to Turkey for re-export to Iran may drop with the opening of the Iranian market.

UAE may again import more tea for re-export to Iran. The unofficial trade may support export of more tea in pre-packed form.The declining oil prices and subsequent revenue losses may create further economic worries for Russia and other Middle Eastern countries that may affect our tea exports to those markets.

Iranian tea trade members may adopt ‘a wait and see’ approach in the coming weeks in anticipation of some changes to the exchange rate but the market should improve thereafter. The 2016 Gulf Food exhibition may attract more Iranian traders.

Fernando said ?Iran will re-enter the world oil market. It will release oil stocks stored in floating tankers. At current prices, the lifting of sanctions may help Iran to increase oil revenue by US $ 10 billion next year.

Iranian funds in frozen bank accounts around the world would be brought back strengthening its foreign reserves.

The estimated amount is between US $ 50-100 billion. The IMF forecasts that the GDP growth rate in Iran will go up to five percent this year.

The Iranian Government incurred an additional 15% cost on all trading activities with the outside world during the time there were sanctions. It will now save the additional charges and bring down the cost of imported goods.

The elimination of the market rate would help businessmen.

The Government will need to control high inflation levels due to the increased consumption of imported goods.

The entry of Iran to the global oil market may put more pressure on the prices which has already reached the lowest level since 2003. The OPEC members will have to restrict output to control prices.

The low oil prices will help non-oil producing countries to reduce their energy bills and increase economic growth.The decrease of oil prices may have an adverse impact on the economies of Russia and other Middle Eastern countries which are already hit due to low oil prices. These countries may have to restrict imports to save foreign exchange.

Most countries and banks may wait for clear guidlines from the USA - OFAC before resuming business with Iran.

The new Iranian Ambassador to Sri Lanka, Mohammed Zaeri Amirani said, “We are entering the post sanction era and it is time to upgrade our bilateral relations, including economic relations.”“Iran is looking to supply medicine, medical equipment, agricultural machinery such as tractors, fertilizer, bitumen, and petrochemicals to Sri Lanka,” the Ambassador said.

According to Commerce Department sources, bilateral trade between the two countries surpassed $1 billion in 2011 and 2012. Trade declined thereafter due to the unconditional decrease of imports from Iran. As a result, last year’s bilateral trade stood at $188 million.

Secretary General, National Chamber of Exporters, Shaim Marikar said the most important aspect in the new development in Iran is to get cheap oil and sell Sri Lankan tea to Iran which was the major tea buyer of Sri Lanka. This could improve our tea industry and we should act fast before Kenya.

At the same time, India has delayed the negotiations on concluding bilateral cooperation agreements and the government should see whether we can use that as an opportunity and send some goods India was selling, as Iran is free to buy from anywhere. If we can close some contracts, we can get part of the oil money back to Sri Lanka.

Sri Lanka’s major supplier of crude oil is Iran, and due to the sanctions we imported from other supply sources, at higher prices.

Already, the prices of crude has dropped to US$ 29 per barrel, and we expect the benefit to be passed on to the consumer. Being an exporter of horticulture products, the cost of fuel and transport play a significant role in our cost structure and in turn the pricing.

“We are operating in a very competitive environment and every cost element is vital to ensure our survival. At a time cheaper products are entering the global market from Costa Rica, Honduras, and India, we believe, if the decline in fuel prices are passed down to the end user, it will help immensely to bring down our overall costs, even in a small way and we could re-evaluate and adjust our pricing policy to be on par, or even close to international competition, to continue our presence in the global market,” Marikar said.

“International customers are very sensitive to pricing, and we have had the experience of losing orders if our price was even one US cent or one Euro cent higher than our competitors,” he said.

The lifting of USA sanctions is mainly secondary sanctions that apply to non USA individuals and companies but certain primary sanctions imposed on USA citizens and companies still remain in force. The sanctions imposed on Iran for its alleged involvement in promoting terrorism also remain unchanged.

Sri Lanka Convention Bureau CEO Vipula Wanigasekera said the lifting of sanctions on Iran will open avenues for Sri Lanka tourism to enter the Iranian market more aggressively and promote charter operations where we would specifically address corporate meetings.

Minister of Petroleum Resources Development, Chandima Weerakkody said discussions will begin with Iranian officials on trade and petroleum imports.

A high level delegation from Iran is due to arrive in Sri Lanka next month to re-commence petroleum and petrochemical imports from Iran.

Sri Lanka depended heavily on Iran for its crude oil before imports were halted due to US pressure in 2012. Due to the change in crude oil suppliers, several problems arose as the refinery in the island was configured to run on Iranian crude oil.