Survival skills honed by embargo

By Gareth Smyth 
February 2, 2006
The Financial Times
Original Source: http://news.ft.com/cms/s/c25c7452-9391-11da-a978-0000779e2340.html

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Iran has honed its survival skills in 27 years of circumventing a US embargo imposed after the 1979 Islamic revolution. So, in spite of the likelihood that the International Atomic Energy Agency will refer Tehran to the United Nations Security Council over its nuclear programme, there is no panic at the prospect of economic sanctions.http://globalelements.ft.com/c.gif \* MERGEFORMATINET
Nonetheless, business concern at the nuclear crisis can be detected in the decline of the Tehran stock exchange index: at 10,076 yesterday, it stands some 23 per cent below its level of a year ago. Haydar Pourian, an economic analyst in Tehran, says he expects the market to make no progress until July when the political picture will be clearer. Bankers say both private and government companies have already shifted funds out, especially to Dubai.
Officials in Tehran play down the effect of the US embargo. Iran Air points to a good safety record in spite of Washington's blocking of parts for its fleet. US banking sanction
s erect barriers for Iranian citizens rather than the state, which receives oil revenue in dollars and holds, according to International Monetary Fund estimates, foreign exchange reserves of $30.6bn (¬ 25bn, £17bn).
US sanctions have blocked Iran's access t
o some advanced technology. This is an area where European companies have clearly stepped into the gap to some extent, says a European Union diplomat. Groups including Royal Dutch Shell, Eni and Total have brought up-to-date techniques to Iran's oilfields, although insiders say Iran struggles to produce 4m barrels a day. Even if their returns are low, the Europeans have gained a toe-hold on Iran's reserves of 133bn barrels in oil and 27,500bn cubic metres of natural gas.
Any disruption of oil exports could have serious consequences for Iran, for which oil receipts provide 80 per cent of export earnings - $42bn of $52bn in the current Iranian year - and account for 60 per cent of government revenue.
The Security Council is, however, thought unlikely to impose oil sanctions. A concern at putting upward pressure on oil prices is compounded by resistance from Iran's customers. Japan, China and India are all big consumers of Iranian crude, one reason Tehran remains hopeful Beijing will use its veto. Oil is part of annual Iran-China trade of around $10bn, up from $1.3bn in 2000 and set to increase further under an agreement, valued at around $100bn, for Beijing to buy 10m tonnes a year of liquefied natural gas over 25 years.
Moscow, which also holds a Security Council veto, has its own economic interests, with $800m invested in Iran's atomic reactor in the southern city of Bushehr and a recent $1bn deal to supply surface-to-air missiles.
Analysts in Tehran say sanctions, even if agreed, would not bleed Iran dry, given its porous borders and skill in secondary trading through centres such as Dubai.
But two areas in which Iran would be vulnerable to sanctions are the car industry - for which many components are imported and where Iran Khodro, the national manufacturer, plans to enter the world market through a joint venture with Peugeot - and imported petrol, which in the absence of adequate refining capacity accounts for about 40 per cent of the total used by Iranian motorists.
Outside oil, sanctions would harm Iran's trading partners. Businessmen in Germany - the biggest European exporter to Iran, with shipments worth $4.4bn in 2004 - are already grumbling. Jochen Clausnitzer of DIHK, the German chamber of trade and industry, recently told Reuters he expected a significant decline of exports in 2006.
Turkey had nearly $4bn of trade with Iran in the first 11 months of 2005, a 56 per cent increase. Iraq has agreements with Tehran over electricity and oil while Iran has agreed a $
1bn credit facility for private Iraqi businesses.