Bourse and Bazaar | Esfandyar Batmanghelidj: The bulk carrier ADA left Santos, Brazil on October 2, laden with 23 tons of maize. The Cypriot ship was charted by Cofco, China’s largest agribusiness firm and a global leader in commodities trading, to deliver its cargo to Iran. On November 8, ADA arrived at the anchorage for Bandar Imam Khomeini, located about 75 kilometers offshore. It has spent the last 32 days anchored in the same position and has not yet unloaded its important cargo.
ADA is just one of more than a dozen cargo ships carrying agricultural commodities that are spending weeks anchored off the coast of Iran as importers are delayed in making payments. With supplies of soybeans and maize restricted and demurrage costs incurred when cargoes do finally make it to shore, the delays are having a significant impact on Iran’s economy. Higher input costs are not only pushing up the price of meat and manufactured foods, but also exacerbating other pressures that risk pushing companies, such as poultry farms, into bankruptcy, threatening tens of thousands of jobs.
Global trading companies like Bunge, Cargill, and Cofco, which maintain significant business in Iran, typically dispatch their cargoes prior to receiving payment. Payment is received while the cargoes are en route and the vessel is then able to proceed to its destination port and unload.
Iranian importers and foreign exporters alike describe the recent delays as unprecedented, citing two main challenges. First, the Central Bank of Iran is struggling to allocate foreign exchange to importers in a timely manner as it continues to workout kinks in its recently implemented NIMA system, a centralized foreign exchange marketplace.
Some Iranian exporters, particularly major petrochemical companies, have proven reluctant to make their foreign exchange revenues available through the NIMA system as legally required, limiting supply. As a result, foreign exchange prices available through NIMA, which have averaged at around IRR 100,000 to the dollar in the past few weeks, are higher than what many importers consider fair, limiting uptake of the NIMA system.
As reported by Maziar Motamedi for Al Monitor, importers have “reached an agreement with the government to offer their hard currency revenues at an agreed a further subsidized rate of about IRR 80,000 to the dollar” forcing the Central Bank of Iran to essentially undercut its own marketplace. Unwilling to buy foreign exchange at the market price available via NIMA “buyers prefer to wait in long queues—sometimes taking up to three months—to receive their currencies at the subsidized rate,” according to Pedram Soltani, vice president of the Iran Chamber of Commerce, a private sector body.
It appears these added pressures are making it more difficult for the Central Bank of Iran to meet the needs of Iranian importers of essential goods such as agricultural commodities and pharmaceutical products, who are entitled to receive the lowest subsidized rate of IRR 42,000 per dollar.
In addition to these internal challenges, the Trump administration’s avowed “financial war” on Iran has made even routine banking more difficult. Despite long-standing exemptions for humanitarian trade, the reimposition of secondary sanctions has served to restrict the financial channels necessary to make payments. Even when foreign exchange is made available to importers, there are now fewer beneficiary banks in Europe and Asia willing to accept transfers from Iranian commercial banks. As a result, traders are often finding it necessary to identify new banking channels through which to conduct trades, adding to delays.
The delays are so significant that it appears some ships are being diverted to new destinations following payment delays. The bulk cargo vessel ANTHEA departed from Santos, Brazil on September 30 having been charted by commodities giant Bunge to deliver a cargo of maize to Bandar Imam Khomeini, the largest of Iran’s ports. But ANTHEA only made it as far as the anchorage point off the coast of Fujairah, United Arab Emirates, spending two days offshore before being diverted to a new destination altogether.
Encouragingly, in most cases, shipments are being completed despite the delays. CHAMPION EBONY successfully reached Iran’s Shahid Rajei port (formerly Bandar Abbas) on November 18, having been dispatched with a cargo of soybean oil by trading firm Renova Norte. SUMMIT SUCCESS and MACHERAS departed Santos, Brazil laden with Maize in early October. Each ship took about five weeks to arrive at its destination, with SUMMIT SUCCESS offloading at Bandar Iman Khomeini for Cofco and MACHERAS offloading at Chabahar for Bunge.
Moreover, commodities traders continue to dispatch ships. SEALADY departed from a Bunge-owned port in Longview, Washington on November 1 headed to Bandar Imam Khomeini with a cargo of American soybeans.
Traders remain adamant that given the significance of the Iranian market and the resources available to the major commodities traders, financial channels will be established in order to sustain a baseline of trade, notwithstanding the currency issues and the sanctions concerns.
Europe’s planned special purpose vehicle for Iran trade could also prove useful in the area of commodities trade. But further bespoke solutions will add costs that will no doubt be passed on down the supply chain, increasing the cost of foodstuffs above what would have otherwise been expected had Iranian importers been able to make payments using more typical channels.