UK Forbids Shell to Pay Iran Debt in Food

The UK government has not granted permission to Shell to pay  outstanding debt it owes to Iran in food and pharmaceuticals.

Shell owes Iran $2.3 billion on earlier oil deals and has an interest to repay this debt to maintain good relations with the OPEC producer.

As financial sanctions prevent payment in cash Shell sorted out possible barter deals with British pharmaceutical company GSK and global grain trader Cargill. Iran is already trading part of its oil in barter deals with Pakistan or against non-convertible Rupees in the the case of India.

Food has been exempted from Iranian sanction regimes, yet Iran switched from the US to Australia as a major supplier at the height of the hostage crisis in 1979 out of fear of US food boycotts as I outline in chapter 4 of Oil for Food.

As a result of droughts Iran has increasingly resorted to food imports in recent years, also from the US of all things. This happened despite efforts at self-sufficiency, particularly in wheat.

While Iran managed to increase wheat production in the 2000s, this happened at the expense of other food items like vegetables and meat that witnessed an import boom.

Self-sufficiency remains elusive and the country continues to e dependent on grain imports, which it regards as a strategic liability in light of the current sanction regime.

Fertilizer as Strategic Assets: Canadian Bid for Israel Potash Producer Crumbles

Canadian Potash Corporation of Saskatchewan’s planned takeover of Israel Chemicals, a large producer of Potash has run into massive opposition.

Israel’s finance minister Lapid and trade unions oppose the deal vigorously as they fear loss of jobs royalties and a strategic asset.

Potash Corp itself was target of protectionist sentiment in 2010 when a bid by Australian BHP Billiton  and a possible counter bid by Chinese Sinochem led to vigorous opposition in Canada that derailed the deal.

In a world of high food prices fertilizers are increasingly perceived as strategic assets as I argue in the last chapter of Oil for Food. Asia in particular has a potash shortage.

The Middle East’s position in global phosphate reserves is more dominant than in the case of oil where it holds 60 percent of conventional reserves. Morocco alone holds over three quarters of global reserves after the recent revisions by the International Fertilizer Development Center and the US Geological Survey.

Iraq has another 9 percent, albeit its reserves are undeveloped. Syria, Jordan, Tunisia are also substantial producers as will be Saudi Arabia once its Al-Jalamid project is fully operational.

As reserves in the two largest producers worldwide, China and the US deplete, the importance of the Middle East in global phosphate markets will grow and therefore their importance for global food security.

The Ability to Pay: One Third of Iranians go Hungry

Sanctions and the resulting currency crisis, the Iranian riyal plunged more than half over the last year, affect food security in the country too.

Food accessibility is compromised for lower income households. About a third of Iranians have been cutting back their diet.Luxury products like dairy or chicken are consumed less.

The situation is exacerbated by neglect of the agricultural sector and recent droughts.

Like in Egypt, strained foreign exchange position affects the ability to import sufficient food at affordable prices.

The Ability to Pay: Egypytian Food Imports Threatened

As a result of its continuous currency crisis Egypt is facing problems in financing food and fuel imports. Lack of diesel for pumps and farming equipment in turn threatens domestic agricultural production.

The country is the world’s largest wheat importer, a dependency that has developed since the 1950s when Egypt started to import large quantities of P.L. 480 deliveries from the US as I describe in chapter 4 of Oil for Food.

This dependency is not to go away despite Egyptian efforts to increase self-sufficiency from currently around 60 percent. There is simply not enough land and water around. Ethiopia has already questioned the Nile waters accord of 1959 that grants Egypt three quarters of the flows.

Egypt is now amidst a demographic transition. Birth rates have been falling and the fertility rate, the average number of children per woman, stands at 2.64. However, it takes time until youth cohorts grow through a population pyramid.  Population will continue to grow to 124 million by 2050 and will only level out afterwards.

That means more food imports while Egypt faces growing problems financing them. It has turned into an oil net importer at the end of the 2000s. Natural gas exports face problems of their own due to underinvestment and sabotage of the pipeline to Israel and Jordan. In any case the rent component of natural gas production is much lower than for oil, even Qatar, the world’s largest LNG exporter receives the majority of its government revenues still from oil.

The problems of Syria are similar. Because of a lack of refining capacity its overall petroleum balance turned negative in monetary terms at the end of the 2000s. Dwindling crude oil exports did not earn as much foreign exchange as was needed to import refined products like gasoline. With the civil war and the EU import embargo against Syria this gap has grown.

Hence, the ultimate story of food security in the Middle East is not domestic agriculture, but economic diversification and the ability to pay for food imports. This is a daunting task given the current global financial crisis and the paltry track record of  the region’s countries in this field.