Iran's economy is no stranger to international economic sanctions. Over the last three decades the country has managed to find its way around various degrees of economic sanctions through a web of offshore payment mechanisms and through its own largely self-reliant economy.
This time, clearly, there are tell-tale signs of distress in the economy that is facing a new range of sanctions. The recent series of economic embargo, the toughest so far, on Iran imposed by the US, UK and the European Union in an effort to restrict its nuclear ambitions has virtually cut off all possible forms of trade financing mechanisms available to do business with Iran.
"There is no way we can receive payments for goods shipped to Iran. No banks are willing to do transactions," said Salim Ahmad, an Indian basmati rice trader. Iran is the largest importer of basmati rice from India. India exported 2.2 million tonnes of basmati rice in the last fiscal year, of which around one million tonnes was shipped to Iran through Dubai.
All India Rice Exporters Association officials have confirmed that trade with Iran has come to a grinding halt as most Gulf based banks are no longer willing to open letters of credit.
"There have been payment defaults from Iran as the Iranian currency has depreciated sharply in the last few months, making imports costlier for them. So, a significant portion of the exporters' money is blocked, which may affect exports," said Vijay Setia, president of All India Rice Exporters Association.
The Association is now exploring the possibility of opening rupee denominated letters of credit to pay for Indian rice, Sethia said in Dubai on Wednesday. Other key suppliers of food grains, edible oils and medicines are finding it hard to realise payment from their trade with Iran.
The US has imposed sanctions on all financial institutions dealing with Iran's central bank. This has affected the dealings of Gulf based banks with Iranian banks. From the first week of February all banks operating in the UAE have stopped issuing letters of credit to goods shipped through Dubai and other UAE ports.
In addition to stopping trade finance, banks have restricted all types of banking services to Iranians including registered traders. There are about 8,000 Iranian traders registered in Dubai, and re-export trade between Iran and the UAE totalled Dh19.5 billion in the first half of 2011, according to the latest figures from UAE Customs Authority.
Bankers told Gulf News that bank accounts of Iranian nationals living and doing business in the UAE are under close scrutiny to detect any unusual movement of money. Although the Iranian administration is putting up a bold front, the economy and Iranian people are destined to face the harsh consequences of sanctions.