Tomato squeeze: US sanctions begin to hurt Iran’s economy

The Iranian government has banned tomato exports, one of the many interventions to try to limit economic instability, but the policy was not working. (AFP)
Updated 11 October 2018
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Tomato squeeze: US sanctions begin to hurt Iran’s economy

  • With US curbs on Iran’s oil exports set to come into force next month, some Iranians fear their country is entering an economic slump that may prove worse than the period from 2012 to 2015

DUBAI/LONDON: Tomato paste is not the most obvious economic indicator, but in Iran, where it is a staple that some people have started panic-buying, it says a lot about the impact of renewed US sanctions.
While Iran makes its own paste from an abundant crop of locally grown tomatoes, sanctions reimposed by US President Donald Trump since August have played havoc with supply.
A 70 percent slide in the rial this year has prompted a scramble for foreign currency that has made exports much more valuable in local terms than selling produce at home.
Some shops are limiting purchases of tomato paste, which is used in many Persian dishes, and some lines have sold out as people buy up existing stock.
The government has responded by banning tomato exports, one of a raft of interventions to try to limit economic instability that has fueled public protests and criticism of the government this year.
But the tomato policy is not working. An industry representative said tomatoes were being smuggled abroad.
“We have heard that trucks full of tomatoes are still leaving the country, especially to Iraq,” Mohammad Mir-Razavi, head of the Syndicate of Canning Industry, said by telephone.
“They put boxes of greenhouse tomatoes on top and hide normal tomatoes at the bottom,” he said, referring to an exemption for hot-house grown tomatoes that left a loophole.
It is one of many ways in which the sanctions are hurting ordinary Iranians while benefiting those with access to hard currency.
Washington reintroduced steps against Iran’s currency trade, metals and auto sectors in August after the US withdrawal from a deal that lifted sanctions in return for limits on Iran’s nuclear program. Trump said the deal was not strict enough.
With US curbs on Iran’s oil exports set to come into force next month, some Iranians fear their country is entering an economic slump that may prove worse than the period from 2012 to 2015, when it last faced major sanctions.
“There is an emerging consensus that the economy will go through a period of austerity similar to that recorded during the Iran-Iraq war,” said Mehrdad Emadi, an Iranian economist who heads energy risk analysis at London’s Betamatrix consultancy.
Jumps in prices are occurring in a range of goods — particularly imports such as mobile telephones and other consumer electronics, but also some staples. A bottle of milk, 15,000 rials last year, now sells for 36,000.
An 800-gram (28-ounce) can of tomato paste was selling in Tehran stores for around 60,000 rials in March; it is now 180,000 rials, or $1.24 at the unofficial rate, prompting a scramble by households to stock up. The price of tomatoes has increased more than five-fold compared to last year.
Signs on the shelves of some stores limit each customer to two cans. Iranian online shopping site Digikala lists the top nine tomato paste items as out of stock, and the rest as “coming soon.” In supermarkets in Najaf in neighboring Iraq, meanwhile, supplies of Iranian tomato paste are plentiful.
Adding to the pressure is a fourfold rise in the price of cans, Mir-Razavi said. Traders importing material to make cans sought to buy dollars at a little-used official rate of 42,000 rials; authorities asked them to use a more expensive rate. The issue has delayed shipments of material to factories.
The government is mounting a campaign against price-gouging, periodically ordering shopkeepers to sell at lower prices. But some shopkeepers respond by not selling at all, believing prices will eventually rise again as the sanctions bite.
Iran, a big oil producer with a diverse economy, has shown its farming, manufacturing and distribution sectors can ride out long periods of war and sanctions.
The Tehran Stock Exchange index has soared 83 percent this year as shares of exporting companies have rocketed. Urban real estate prices have also risen as Iranians plow their savings into property rather than keeping them in depreciating rials.
The rial’s plunge, which in the unofficial market has taken it to around 145,000 against the dollar from 42,890 at the end of 2017, according to currency tracking website bonbast.com, may even have strengthened the financial system in one way.
Banks and pension funds have been struggling with massive debts. Emadi said the rial’s slide, to as low as 190,000 in late September, had given the government huge windfall profits on its dollar holdings; authorities appear to have injected some of those profits into insolvent banks to shore them up, he said.
But while official data for the last few months has not yet been released, Emadi said he believed the economy was already in a recession that could deepen in coming months.
The International Monetary Fund predicted this week that the economy would shrink 1.5 percent this year and 3.6 percent in 2019, before recovering slowly.
That would make the slump less deep than the recession of 2012, when the economy shrank over 7 percent, and not nearly as damaging as the Iran-Iraq war of 1980-1988, when it shrank by about a quarter.
The IMF also forecast the average inflation rate would jump to a peak above 34 percent next year, briefly returning to its level in 2013.
How much the current recession resembles past periods of economic pain for Iran will depend on the extent to which Washington can use the sanctions to push other countries into cutting oil and non-oil trade with the Islamic Republic.
US officials have said the sanctions will be tougher than the steps in 2012-2015. They aim to reduce Iranian oil exports more sharply, and to disrupt exports to Iran from trading hubs such as Dubai more aggressively.
“I think the return of the sanctions has had a devastating effect on their economy and I think it’s going to get worse,” Trump’s national security adviser John Bolton told Reuters in late August.


Istanbul summit aimed at avoiding new humanitarian disaster in Idlib

Updated 16 min 23 sec ago
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Istanbul summit aimed at avoiding new humanitarian disaster in Idlib

  • The event will focus on ‘harmonizing joint efforts for finding a lasting solution to the conflict’
  • Germany and France welcomed the Turkey-Russia deal on Idlib that had set Oct. 15 as the deadline for removing all radical groups from a demilitarized zone in the province

ANKARA: Turkish President Recep Tayyip Erdogan, German Chancellor Angela Merkel, French President Emmanuel Macron, and Russian President Vladimir Putin are expected to attend a critical four-way summit on Syria in Istanbul next Saturday. 

They will discuss recent developments in the war-torn country as well as projections for a political settlement.

Experts have underlined the importance of this summit in providing a strong push for key EU countries to work together with regional players to end the years-long conflict in Syria as it will gather the four countries’ leaders at the highest level.

The summit will focus on the recent developments in the opposition-held northwestern province of Idlib, and the parameters of a possible political settlement.

The ways for preventing a new refugee inflow from Idlib into Europe via Turkey, which is home to about 3.5 million Syrian residents, following a possible offensive by the Assad regime will also be raised as a topic that mainly concerns France and Germany and pushes them to work more closely with Turkey and Russia.

The summit will also aim at “harmonizing joint efforts for finding a lasting solution to the conflict,” presidential spokesperson Ibrahim Kalin announced on Friday.

Germany and France welcomed the Turkey-Russia deal on Idlib that had set Oct. 15 as the deadline for removing all radical groups from a demilitarized zone in the province. Although the withdrawal of some opposition groups from the zone has not been accomplished in due time, Ankara and Moscow have agreed to extend the deadline for Idlib, which is still a strategic area where the opposition holds out.

“Turkey and Russia want the status quo for Idlib. Although the jihadists have not withdrawn from the demilitarized zone, Russia is turning a blind eye,” said Fabrice Balanche, an associate professor and research director at the University of Lyon II.

“Turkey will make some efforts to save face. Turkish proxies have withdrawn because Turkey pays wages, so they must obey, but for the jihadists it is more complicated,” he told Arab News.

According to Balanche, without the complicity of Turkey, the Syrian regime cannot take over the north of the country.

“In exchange, Turkey wants a buffer zone in the north, all along its border. The main objective is, of course, to eliminate the Syrian Kurdish YPG from the border as it has already done in Afrin. A secondary objective is to protect its opposition allies and the Turkmen minorities, many in the province of Idlib but also between Azaz and Jarablus,” he said.

But the summit also shows that these four countries need each other in the Syrian theater as each of them has stakes regarding the settlement of the crisis.

Emre Ersen, a Syria analyst at Marmara University in Istanbul, said the main goal of the summit is to provide a major diplomatic boost to the ongoing Astana and Sochi peace processes, which have so far been led mainly by Turkey, Russia and Iran.

“A second and maybe even more important goal is to include France and Germany in the reconstruction efforts in Syria once the civil war is over,” he told Arab News.

Considering the cost of the reconstruction, estimated at about $400 billion, Ankara, Moscow and Tehran are not ready to take this enormous financial burden without the financial support of the West, Ersen said.

“Both Paris and Berlin hope that Ankara’s ongoing efforts to prevent a humanitarian crisis in Idlib can be successful. If the settlement in Idlib does not work, everybody is aware that this may lead to a big refugee crisis for both Turkey and Europe once again,” he added.

Martina Fietz, deputy spokeswoman for the German government, told a news conference in Berlin that her country is also hopeful about the forthcoming summit’s potential contribution to the stabilization of Idlib’s de-escalation zone.

“Progress in the UN-led political process, in particular the commencement of the work of the constitutional commission, will be discussed,” she said.

The chief foreign policy advisers of the quartet have met in Istanbul in recent weeks to discuss the agenda of the summit.