Sanctions benefit Iran’s rich and powerful

Financial Times - Mohammad-Reza Behzadian, an Iranian importer of commodities and medicine, has been trying to import 5,000 tonnes of wheat from Kazakhstan for more than three months, but cannot pay for it because the government has not provided him with foreign currency at the official rate.

“There is enough hard currency to import pineapples and Porsches by favourite businessmen, but not for wheat [imported] by a private businessman,” he said.

Mr Behzadian and other private business owners in Iran say international sanctions over the country’s nuclear power programme are fuelling a rentier economy that benefits company owners with links to powerful officials while private companies and ordinary people suffer.

David S. Cohen, the US Treasury undersecretary for terrorism and financial intelligence who oversees the sanctions regime, said last month that sanctions were meant to “intensify the economic pressure against the Iranian regime”.

Instead, many Iranians say the opposite is happening. The banking and oil sanctions imposed by the US and EU have led to a dramatic fall in the Iranian rial, which has dropped by about 60 per cent since January last year, and led to the creation of a multiple currency system, which is exploited by those with links to the political elite.

The government provides businessmen with US dollars at the official rate of IR12,260 for imports of food and medicine and a higher rate, IR24,386, for other goods, such as livestock, metals and minerals. The remaining trade is at the open market rate, which stood at IR35,500 on Thursday.

Private sector businessmen claim those with links to powerful officials have far easier access to cheaper hard currencies and may even sell their imported goods at open market rates, allowing them to accumulate considerable wealth.

Private businessmen say they have no choice but to use the open market exchange rate for transactions with banks in China, India, South Korea, Turkey and Russia – European banking channels are blocked – or for hawala – a traditional financial transfer system which relies on trusted intermediaries. This makes their trade more expensive and risky.

Mr Behzadian, the importer, pointed out that US companies sell medicine and commodities to Iran’s state-owned companies far more easily than private companies through waivers issued by Washington.

He said he failed to get US pharmaceutical companies to provide him with chemotherapy drugs for cancer patients because of banking sanctions, so he resorted to a German company.

The latter, he said, sold the medicine but refused to give a pharmaceutical certification out of fear of provoking the US.

“While many cancer patients need that medicine, it is now stuck in storage in Iran because the health ministry would not allow distribution of any medicine which lacks a certificate,” he said.

A spokesman for the US Treasury said: “US sanctions have never targeted Iranian humanitarian imports, including medicine. We have been very clear about this and we have seen that payment channels for these types of goods remain open and available.”

Iran’s private sector is largely composed of small and medium-size companies, partly because of an unspoken policy of the Islamic regime, which does not let private businessmen become too strong for fear that it could increase their political influence.

Private companies are also overshadowed by state-owned companies or those affiliated to state entities following a flawed privatisation scheme over the past two decades.

Many of these state-run companies are hit by a shortage of investment and difficulties in transferring technology because of sanctions, but have representative offices outside the country which give them more scope to overcome the challenges of trade than the private sector.

Meanwhile, some 60,000 Iranian overseas students are facing the closure of their bank accounts in the US, Canada and European countries as banks try to avoid violations of US banking sanctions.

Many students are also returning home, as their families can no longer afford to support them following the plunge of rial. But ordinary people are conscious that the children of high-ranking officials seem to be able to stay abroad.

“Those who have better connections and are financially stronger can pass through the cement wall of sanctions, but cancer patients and students are trapped,” Hatef Haeri, a business consultant said. “Western powers could have drafted targeted sanctions, but instead they decided to shoot blindly and blackmail 75m Iranians.”