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How do Sanctions Affect Safe Delivery of Food and Medicine?

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The United States added more than 700 Iranian individuals, entities, banks, aircraft, and sea vessels to its sanctions list as it renewed its official pressure on the Islamic Republic on November 5. 

Despite the intention to apply “relentless” pressure on Iran, as US officials put it, both the US State Department and the US Treasury announced that, as with the previous round of sanctions in place prior to the nuclear deal (the Joint Comprehensive Plan of Action or JCPOA) being reached, humanitarian goods such as medicine, medical equipment, food and agricultural produce are exempt from sanctions and other countries are permitted to sell such items to Iran. In another measure to facilitate the export of humanitarian items to Iran, the State Department also exempted the port of Chabahar on the Gulf of Oman, as well as financial support for the project to develop and expand this port, from the sanctions list.

Brian Hook, the US special representative for Iran, has assured Iranians that regardless of what their leaders tell them, the United States has never targeted humanitarian trade through its sanctions. President Trump announced the US decision to leave the Joint Comprehensive Plan of Action (JCPOA) and reimpose sanctions on May 8, 2018.

But both Iranian government officials and merchants say that although such humanitarian items are exempt from sanctions, importing them is not an easy proposition. The first and main reason for the shortage of medicine in Iran is widespread corruption and mismanagement, but there is a second important reason: International banks and drug, food and transportation companies are not willing to accept the risks that go with dealing with Iran, which include heavy fines.

 

Problem One: Which banks will accept funds from Iran?

In addition to problems of institutional and financial corruption that hinder the efficient importation of food and, especially, high-quality medicine and medical equipment, the fear of foreign companies and banks being fined and facing sanctions by the United States is a serious obstacle as well.

With intensifying sanctions against Iran, the US is taking aim at the Islamic Republic’s financial transactions and its air and sea transportation. But just because these sanctions have been imposed by the United States, it does not yet mean that all communication, business and import channels with Iran are blocked. It does, however, mean that the costs have risen — both financially and in terms of reputation.

Under the sanctions, the easiest, most straightforward measure Iran can take is to find sellers for humanitarian merchandise and services, although this will not be as easy as when sanctions had been lifted. In recent years, Iranian merchants have opened offices outside Iran to facilitate commercial transactions and, as medical and food items are exempt from sanctions, it is still possible to conduct such transactions from inside Iran. However, the key problem arises when an Iranian business attempts to pay for these imports.

When conducting financial transactions, the word “Iran” is enough to make banks hesitant about transferring funds originating from the country. Even before the new sanctions went into effect, a number of big international banks that have extensive dealings with the United States refused to have dealings with Iran, even when the deals were obviously legitimate. As a result, it falls on smaller banks to accept the possible risks of dealing with Iran because they have a smaller volume of financial transactions at their disposal.

The US has exempted a number of Iranian banks from sanctions so that they can pay for imports of food and medicine and they are free to enter such deals. But, according to the US Treasury instructions, to avoid being fined or sanctioned, companies have a number of matters to clarify before engaging in transactions with Iran. First, no US citizen or company can be involved in the deal. Second, individuals and companies on the US sanctions list for supporting international terrorism or the proliferation of weapons of mass distraction cannot take part in any shape or form in such transactions. Lastly, if there are uncertainties in this regard, these individuals and companies must ask the Treasury Department for clarification and receive permits on a case-by-case basis.

Ignoring these rules can quickly lead to fines or sanctions by the US. The Treasury Department recently placed sanctions on Parsian Bank, one of the banks exempt by the US to purchase humanitarian goods, because it said the bank was working with the Revolutionary Guards. Banks all over the world will see this unexpected move as a warning that the dangers of flouting American sanctions must be taken seriously. In fact, the sanctions against Parsian Bank for having indirect transactions with the Revolutionary Guards demonstrates that the US can at any moment put any entity that it considers to be an offender on its sanctions list unless the banks strictly follow the rules set by the US Treasury.

The process of following these rules, however, is laborious and time-consuming. If a bank or any other financial institution still intends to engage in financial transactions with Iran and succeeds in clearing up any worrisome questions, then it can accept the order, transfer the funds for the purchase of humanitarian goods and its job is done. However, the challenge of how these goods are then transported into Iran comes into play, and the process of having to work within a sanctions-squeezed environment begins all over again. 

 

Problem Two: How to transport goods to Iran?

Most Iranian imports arrive by sea. The United States has placed sanctions on everything from Iran’s major seaport to its vessels, shipping companies and the required insurance but, according to promises made by the US Treasury, this does not apply to the import of medicine and food.

Companies intending to ship humanitarian merchandise to Iran must heed the rules about banking transactions, and then heed the same rules again when they receive money from Iran for their services. Naturally, even if a transportation company is willing to go through such a time-consuming process, it would add extra costs to its invoice.

To avoid this, Iran must use intermediaries and send the shipments to a Persian Gulf Arab state. In the previous round of sanctions it was mostly ports in the United Arab Emirates that were used as destination for goods purchased by Iran and recently, Oman promised that it would keep its ports open to legitimate Iranian commercial activities.

But unloading the shipments at the ports on the southern shores of the Persian Gulf and transporting them to warehouses means increased costs for importers — and Iranian consumers have to pay the higher prices for imported goods. Iranian ships and boats must then transfer fragile and necessary goods such as medicine and food to Iranian ports on the north side of the Persian Gulf, which are then distributed to other parts of the country. It is reported that these goods are often transported in substandard conditions.

The Differences between Obama and Trump Eras

The reported inefficiency and corruption in the Iranian Customs Bureau in releasing these goods means that they get to the Iranian consumers with an even further delay, and the consumers have to pay even more for them. This spring, the Iranian government announced that it was getting prepared for the sanctions and that it would provide importers of medicine a more affordable dollar when it came to their transactions. But it turned out that some of the companies that received this cheaper currencies to buy medicine have instead used them to import electric appliances.

It has been a very short time since the US announced new sanctions and put them into effect, but so far reports show that the situation for companies and small banks dealing with the import of food has changed since the previous era of sanctions. Under President Obama, companies could arrange for the export of food and medicine to Iran without significant worries about fines and sanctions, but under President Trump, these worries are substantial.  

Many of these banks that facilitate these exports are based in Switzerland, as are the companies that produce the medicine and medical goods Iran needs. Recently, the country’s government announced that it wanted to negotiate with the United States to solve the problems of exports to Iran immediately. In other words, Switzerland is implicitly confirming that there are new constraints to the supply and transfer of these goods to Iran.

Iran’s partners in the JCPOA, especially the European Union, have criticized new US sanctions against Iran, but private companies are more vulnerable to sanctions and are forced to observe these restrictions.

The time that Iran could use the chances provided by the nuclear agreement in a responsible manner to develop the country’s infrastructure and lessen the sufferings of Iranians is now gone — at least for now.

 

 

Related Coverage:

US Sanctions Against Iran: The War of Calculations, November 6, 2018

Decoding Iran’s Politics: New Sanctions and Public Protests, November 6, 2018

The Cost of Iran’s Stubborn Refusal to Join International Treaties, November 5, 2018

The Humanitarian Cost of Sanctions on Parsian Bank, October 23, 2018

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The Fall and Fall (and Fall) of Iranian Currency, September 12, 2018

The Diaper Crisis in Iran: An American Conspiracy?, September 7, 2018

Iran’s Medicine Shortage: More About Corruption and Mismanagement Than Sanctions, September 7, 2018

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Disclaimer

The opinions expressed in the article are solely those of the author and do not necessarily reflect those of Iranians Global Network.

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