Treading carefully in Iran

A sanction-free Iran offers potential and pitfalls, but not necessarily in equal measures. While US and European Union sanctions have been lifted, the US has maintained sanctions that penalise anyone doing business with companies connected to Iran’s Revolutionary Guard.

This branch of the country’s armed guards has extensive and often opaque economic interests making it difficult to ensure that any business with Iran is completely free of its involvement. Remaining sanctions which exclude US individuals, banks and insurers from trading with Iran in business denominated in dollars have also caused confusion for dollar-dominated industries, such as shipping.

But some companies are dipping their toes in the water. In the oil sector, Glencore was the first to break the Iranian seal for European oil purchases. Shipowners have so far been reluctant to carry Iran’s oil because of the outstanding American sanctions, making Glencore’s move all the more interesting.

And there’s plenty to go around when it comes to crude oil movements. The country’s oil minister Bijan Zanganeh says that Iran plans to sell 300,000 barrels per day to European customers; Europe was a significant market for Iran before sanctions were imposed.

Container lines are also making tentative moves back in: CMA CGM and Islamic Republic of Iran Shipping Lines have unveiled plans to share vessel capacity, and jointly operate routes and marine container terminals.

A direct shipping route to Oman has been launched, connecting Iran’s Shahid Rajaee and the Omani port of Sohar. Khedri Jahan Darya Company will operate the route for one year, making a trip every 15 days to start with to carry agricultural products and perishable goods between the two countries.

Trail-blazing

These early pioneers are building on the expectation that Iran’s economic growth post-sanctions will rise exponentially, but it’s not a total free-for-all yet. Tensions are still running high and recent events remind us that this is still a politically-charged environment.

By official edict, Bahrain banned Iranian-flagged vessels from entering its waters in January and imposed other shipping restrictions, namely that no dealings are to be undertaken with Iranian-flagged ships until further notice and that if any of a ship’s last three calls are linked to Iran, that ship will not be allowed to enter Bahraini ports.

While the ban won’t directly influence international trade it does illustrate the ongoing uncertainty when dealing with Iran. One fixture was reportedly cancelled when a ship was denied entry after it emerged that the ship had visited an Iranian port two calls earlier.

But despite these regional tensions, commercial considerations can still trump political difficulties in some cases. Kuwait-headquartered United Arab Shipping Company, for one, has resumed its business with Iran even though Saudi Arabia is one of the shipping line’s main shareholders. UASC, founded in 1976 and with corporate offices in Dubai, is owned by the governments of the United Arab Emirates, Bahrain, Saudi Arabia, Kuwait, Qatar and Iraq.

It’s fair to say that on a political level, Saudi Arabia and Iran do not see eye to eye, and tensions are high on the back of the attack of its Tehran embassy following Riyadh’s execution of a Shi’ite cleric. But commercially, both nations appear to be on the same page.

There’s also concern about where Iran will secure the funding necessary to rebuild and re-establish itself. Its oil industry alone will need $200bn of investment to help it develop in the coming years. The Chinese have been quick off the mark to cover some of the funding gap with an undisclosed Chinese bank reportedly throwing its hat in the ring to extend a $5bn credit line to develop Iran’s containership and tanker fleet.

Dry bulk opportunities

Meanwhile, news on the dry bulk front is mixed. Iran wants to be self-sufficient in wheat in the future through improved yields, but it will continue to be reliant on imports for maize and barley. In recent years it has been a major wheat importer, but imports have fallen to 1.5m tonnes in the current season, which runs to March.

That hoped-for wheat self-sufficiency could come sooner than thought: Iran’s Ministry of Agriculture has already placed a ban on state imports of wheat in the coming Persian year which begins on March 20 and has ordered officials to stop registering new purchase orders. Earlier this year, the government imposed import duties on wheat and barley to protect local farmers from cheap imports and to prevent imported grain being re-sold to the government at higher prices.

Russia is keen to get a slice of any dry bulk action, having already doubled its grain exports to Iran during the 2014-2015 season. It currently ships 1.3m tons of grain a year to Iran.

Domestic sugar production is also expected to increase, but Iran will still need imports to meet an expected increase in demand. Iran currently produces 1.5m tonnes of sugar each year, and imports 1m tonnes. Mining also offers prospects for increased exports, with mining projects worth $29bn being opened up to foreign investors.

Undoubtedly, there are opportunities for shipping companies looking to capitalise on opportunities in Iran, but with so many unknowns still remaining fortune may not favour the brave on this occasion.