US Wheat Exports to Iran: Just Commercial or Carrot in the Sanctions Game?

Iran is continuing its wheat import spree against the backdrop of sanctions and the nuclear stand-off.

It has already purchased  or tried to purchase 3 million tons this year. In good years Iran is self-sufficient in wheat and has production subsidies in place to encourage such self-sufficiency. Yet it imported 7 million tons in 2008 after a drought and a bad harvest. Due to inclement weather this year’s harvest is not expected to be a good one either.

1.8 million tons of the 7 million tons came from the US. The US has never included food in its sanctions against Iran. It contemplated such measures in the wake of the hostage crisis in 1979, as declassified documents in the Carter Library reveal, that I have seen. Yet, food was never included in sanctions because it was assumed that “Iran’s oil is a powerful tool in finding alternative sources of supply for agricultural goods.”

Such trade diversion indeed happened in the wake of the grain embargo against Russia in 1980. It failed to achieve its foreign policy objectives and just angered the US agro-lobby.

Wheat sales to Iran just require the approval of the US Treasury and sales of more than 100,000 tons of any commodity to any country need to be reported to the USDA by law.

Apart form the commercial interest of the agro-lobby and the negative track record of food embargoes as a foreign policy tool the US might be tempted to use the carrot of food exports as a show of good will in negotiations around the nuclear program.

Recently US food aid delivery to North Korea coincided with a suspension of enrichment activity and a moratorium on nuclear and missile tests by North Korea. Marcus Noland and Stephen Haggard of the Peterson Institute have showed a historic coincidence of American aid offers and North Korean diplomatic concessions.

This year the US has already exported 180,000 tons of US wheat, enough to fill two large cargo ships. Another 200,000 are rumored to be contracted.

Iran has also purchased 120,000 tons of soy meal from India and asked to import a million tons of wheat from Pakistan in a barter deal against iron ore and urea.

It would be interesting to know how the Iranians pay for the US wheat imports given the financial sanctions which make dollar transaction all but impossible. Maybe a big commodity trader like Cargill or Glencore is accepting barter deals as well or takes not freely convertible Indian Rupees from Iran’s still vibrant oil trade with India.

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