Sanctions working? Iran defaults on payments to India
Default prompts head of the All India Rice Exporters' Association to call on members to stop rice exports to Iran based on credit.
Iranian buyers have defaulted on payments for about 200,000 tons of rice from their top supplier India, exporters and rice millers said on Tuesday, a sign of the mounting pressure on Tehran from a new wave of Western sanctions.
The default prompted the head of the All India Rice Exporters' Association to call on members to stop rice exports to Iran based on credit, which would be a fresh blow to a country where imports of staple foods are already being hampered by sanctions.
"It is a serious issue and we do not rule out further payment defaults by Iran," said Vijay Setia, the association's president.
Indian sources said the Iranian buyers had defaulted on payments worth about e144 million for rice shipments under long-term supply deals. Iran shipped the cargoes from Indian ports in October and November. Most Indian rice exporters allow 90 days credit.
Iran relies on imports for about 45 pct of its annual rice consumption of 2.9 million tons, according to U.S. Department of Agriculture data.
In other supply disruptions, five deliveries of grain to Iran were diverted to new destinations because payments were held up, ship tracking data showed last week. Other cargoes are sitting offshore Iran because of difficulty with payments.
Under a tightening grip of sanctions, the country of 74 million people is finding it increasingly difficult to repatriate the hard currency from its crude oil exports, its major foreign currency earner, that it needs to pay for shipments of food and other imports.
A sharp drop in the value of the Rial is adding to Iran's import costs and the financial sanctions make it difficult for traders in the country to channel import payments through unofficial routes involving middlemen based in Dubai.
India is Iran's top rice supplier, accounting for some 70 percent of its annual requirement of 1-1.2 million tons of the grain, mainly the aromatic variety called Basmati.
Traders and officials in Iran could not be immediately reached to comment.
The United States slapped fresh sanctions on Tehran from the start of this year, targeting financial institutions that deal with the central bank, hoping to stem oil revenues and persuade Iran to abandon a suspected nuclear weapons program.
U.S. President Barack Obama tightened those sanctions on Sunday, again targeting Iran's central bank and giving U.S. banks new powers to freeze assets linked to Tehran.
The European Union has agreed to ban Iranian oil imports, a measure expected to take full effect within six months.
The rice defaults could be the latest sign that those sanctions are biting as Iranian importers find it increasingly difficult to settle payments.
Ukraine's maize exports to Iran dropped 40 percent in January due to payment problems, Ukrainian consultancy ProAgro said last week.
Ukrainian and European traders said they were no longer booking Ukraine grains shipments to Iran because of the payments difficulties, although talks were underway to save the market, the country's farm minister said.
Five ships of grain have been diverted away from Iran to other destinations and about 400,000 tons of grains on at least 10 vessels have been held up outside Iranian ports because of payments problems, trade sources said last week.
The Indian rice association's Setia said the group had approached the Indian government to recover their dues.
"As part of efforts to minimize losses, we are asking our colleagues to avoid sending rice on credit," he said, adding they were not calling for a ban on exports to Iran.
A government source acknowledged exporters had sought help.
The rice default is the latest snag in India-Iran trade, which is heavily skewed towards Tehran.
India is Iran's second-largest buyer of crude and it has struggled to settle payments worth some e11 billion annually after New Delhi scrapped a long-standing mechanism in 2010 under pressure from Washington.
While New Delhi has switched to a payment conduit for its Iranian oil using a Turkish bank, Indian rice exporters have been using a loose, unofficial route involving a network of middlemen based in Dubai.
The middlemen receive payments from Iranian importers in Rial and pay Indian exporters in U.S. dollars. The consignments are sent directly from India to Iran.
Indian traders said the defaults started after the Rial plunged over the past month, making previous purchases costlier for Iranian importers.
The cost of transactions also went up for the Dubai middlemen as they use U.S. dollars to pay Indian exporters.
On January 26, Iran announced an 8 percent devaluation of the Rial and said it would enforce a single exchange rate, aiming to stamp out a black market where the dollar's value has soared due to fears over new sanctions imposed by the West.
Indian traders said about 20 Iranian companies have failed to clear their dues during the past month.
"It threatens to jeopardize the trade with them, hurting both India and Iran," Anil K. Mittal, chairman of KRBL Ltd, a leading Indian rice miller and exporter, told Reuters.
"Due to sanctions on Iran, currently banks are not involved in payments to Indian rice suppliers. The payments are direct and at times on credit, making Indian exporters vulnerable to defaults. Indian traders must avoid supplying on credit."
Setia said India should not send any more rice to Iran on credit, adding suppliers such as those in Thailand, Vietnam and Pakistan had already stopped doing so.
However, the Thai Rice Exporters' Association said Thailand had stopped selling rice to Iran about a decade ago.
Javed Agha, chairman of the Rice Exporters Association of Pakistan acknowledged that sanctions had made traders reluctant in both Pakistan and Iran to do deals.
"Banking if a problem between Pakistan and Iran," he said. "There is no proper system."
Boosting exports to Iran
New Delhi will send a delegation to Iran this month to explore boosting exports to smooth use of the restricted rupee currency, which the two sides have agreed to use to settle 45 percent of India's e11 billion a year oil bill.
But this would give Iran large amounts of a currency which is difficult to use for international trade.
An Indian ministerial panel on food exports meets on Tuesday to review rice and sugar shipments. The issue of exports to Iran is not on the agenda, government officials said, seeking to knock down reports that the panel could discuss the possibility of boosting rice and wheat exports to Tehran.
India is expected to produce 102.75 million tons of rice in the crop year to June 2012, a farm ministry forecast said last month. Basmati makes up around 5 percent of India's total rice production.
India's Jan. 1 rice inventory at government warehouses was 29.8 million tons against a target of 11.8 million tons.
China, Japan, India and South Korea, which together buy about half or Iran's 2.6 million barrels per day of crude exports, are under pressure from U.S. sanctions to cut back their purchases.
China has already cut Iran imports in the first three months of this year over a pricing dispute and a flurry of U.S. diplomats has discussed the sanctions with Asian government officials.
South Korea is paying Iran for crude in its local currency, but difficulty repatriating the funds under the weight of sanctions means won worth an estimated e5 billion has piled up South Korean banks.