Iran and Middle East

The United States' protection has brought Pakistan to its knees. It is a nation dying with -- among other things -- chronic and severe energy shortages. Alliance with the U.S. has done nothing to alleviate the problem in the era of Peak Oil. This oil supply from Iran will save Pakistan's bacon (no offense). Look at a map for a second. I can see a possible emergence of a new regional confederation between Iran, Afghanistan and Pakistan. Separate, Afghanistan and Pakistan face seemingly insurmountable challenges. In a confederation they become an entirely different story. Saudi Arabia would be out flanked and overpowered.  -- MCR

Iran 'to supply Pakistan with 80,000 bpd of crude'

Google, 28 February, 2012

Iran has offered to supply Pakistan with 80,000 barrels of crude oil per day and a $250 million loan to help build a gas pipeline from the Iranian border, a Pakistani official said Wednesday.

A Pakistani delegation will visit Iran in the middle of March to discuss the mode of payment, the official from the petroleum ministry told AFP.

Although the United States objects strongly to the pipeline project, Pakistan appears determined to press ahead importing fuel from its western neighbour under a deal expected to start providing gas in 2014.

Nuclear-armed Pakistan suffers from a crippling energy shortage and insists it cannot do without the fuel from Iran, subject to increasing EU and US sanctions over its controversial nuclear programme.

"Iran has offered to supply 80,000 barrels of crude oil per day on deferred payment to Pakistan," said the official, speaking on condition of anonymity because he was not authorised to speak to the media.

"Iran has also agreed to provide $250 million as credit to Pakistan for the gas pipeline project," he added.

Pakistani Oil Minister Assem Hussein was quoted in the local media as confirming the 80,000 barrels and $250 million loan.

System 'D' in international trade
Barter, other steps help Iran firms beat sanctions

Iranian firm AHT exports millions of dollars worth of nuts and dried fruit from Iran each month but Western financial sanctions mean it gets little money in return. Instead it is paid with other goods, such as cardboard boxes and metal cans from China.

News Daily,

29 February, 2012

"Most of our business right now is like this. No money is involved in the process," Mohammad Amin, managing director of the pistachio and raisin exporter, told Reuters at an international food industry show in Dubai this month.

"We import the goods, sell the goods to the local market, get the money from the local market, and then pay my staff and my farmers.

"No money is circulating -- it's like thousands of years ago," Amin said between negotiations with prospective buyers over bowls brimming with pistachios. Last year AHT's exports totaled about $100 million, mostly to China and India.

Financial sanctions imposed over Iran's disputed nuclear program have dealt a heavy blow to its foreign trade. Since late last year the United States has stepped up its use of anti-money laundering legislation to make it legally dangerous for banks that have any U.S. business to maintain ties with Iran.

As a result, Iranian firms have been frozen out of much of the global banking system which finances trade. It is difficult or impossible for them to obtain letters of credit or conduct international transfers of funds through banks.

But the cases of AHT and other Iranian companies contacted by Reuters suggests many are finding their way around the obstacles and continuing to do business, albeit at considerable inconvenience and cost.

Some Iranian exporters and importers are resorting to barter; others are putting together complicated but legal networks of partners abroad to handle payments. Some are using transfers through money exchange houses instead of banks, or employing a legal but largely unregulated money transfer network known as hawala in the Middle East and hundi in India.

"Commerce takes precedence over everything, so if tomorrow there are sanctions or whatever else, there are always different ways of getting round it," said Sanjiv Sawla of Mumbai-based trading firm M Lakhamsi.

"There was a minor aberration for a while where there was a drop-off in trade, but everybody has put their systems in place now," he said. His firm trades about $125 million a year of seeds, spices, wheat and rice -- some $5-10 million with Iran.

"I get my money out of Dubai. I don't know how they arrange it...The product never touches Dubai, the product just goes from India to Iran and the payment comes from Dubai these days...Until about six months ago, it used to come from Iran."

EXPORTS

Iran's exports in the last fiscal year to March 20 were estimated at $107 billion, of which $81 billion were oil and gas, according to the International Monetary Fund. Imports were estimated at $70 billion.

The Iranian government is scrambling to find ways to continue getting paid for its oil; Iran has agreed with India, for example, to settle 45 percent of their oil trade in the rupee, which is not freely exchanged in global markets. The rupees may be used to pay for imports into Iran of Indian iron and steel, chemicals and cereals.

Most of Iran's non-oil businesses cannot count on such strong demand for their products, so for them it may be more difficult to work around the sanctions. But there are signs that many are managing.

Because of the freeze on bank transfers, the 20-odd Iranian food exporters among the 3,800 stands at this month's Dubai show paid cash or used the hawala network to secure modest stands in an outlying building at the sprawling exhibition centre.

Some Iranian exporters and suppliers to Iran said they still used banks in Turkey, which has kept some banking channels to Iran open to handle oil payments.

But AHT's Amin said he had largely stopped using Turkish banks because of high fees or taxes, and because he feared the next wave of sanctions could freeze payments to him that were still in the pipeline. Barter is safer, he said.

Other Iranian companies have switched from banks to money exchange houses in Dubai or elsewhere for their international payments. The exchange houses have continued to do business legally with Iran, although limits on the size of individual transfers make them less convenient than banks.

Iran's Gohar Saffron, which exports around 11,000 kilos a year of the highly prized spice, has started using exchange houses in the last few months to keep its $30-million-a-year business going. Iran is the world's biggest producer of saffron.

"We can do it but only with a lot of trouble," Hutan Motamedi, Spain-based marketing manager for Gohar, said at the company's stand. "Every year sales are growing because every year we get into a different country...Some of the sales go directly, but it's easier if it goes via Spain."

Other Iranian firms are using the hawala network, traders said. There are thought to be hundreds of millions of dollars transferred in and out of Dubai each year through the network, which is a popular way for the emirate's sizeable south Asian and Iranian communities to send money home. It is barely documented and based largely on trust.

Typically, an expatriate worker in Dubai pays an intermediary called a hawaladar in dollars or dirhams; the hawaladar calls a contact, often a trusted relative, in the receiving country, and the contact pays the worker's family in local currency. Hawaladars later settle debts to each other through simple cash-carrying -- for example, using the ferry between Iran and the emirate of Sharjah, which adjoins Dubai -- or by supplying goods.

According to World Bank studies of hawala channels operating between Afghanistan, Dubai and Pakistan, there is no clear limit on the volume of funds that they can handle. The World Bank has estimated single transactions of over $500,000 are not uncommon; large international aid institutions have made transfers twice as large because of the lack of banks in rural Afghanistan.

SHIPPING

Such channels cannot substitute for the international banking system completely.

Iran relies on imports for about 45 percent of its rice consumption, U.S. government data show, with India one of the biggest suppliers. But several Indian rice exporters at the Dubai show said they had stopped shipping to Iran by sea in the past few months because of payment and insurance problems.

"What's the point of doing business with Iran when you lose 100 percent?" said Sharif Yusuf, director of Mumbai-based Al-Gyas Exports, which deals in rice, corn, sugar and wheat.

Malaysian and Singaporean palm oil exporters at the food show said they had stopped sending shipments to Iran since their banks refused to issue letters of credit to any shipment bound for Iranian ports last year.

Away from the modern halls of the exhibition centre, in the crowded streets of Al Ras market in old Dubai, many among the long-established expatriate community of Iranian food merchants said they were also cutting trade, partly because they had been burned by the steep slide of the Iranian rial in the past few months.

"Right now it is very hard to trade with Iran," an Iranian foodstuffs trader said as a white-haired colleague slept at his desk. "We try not to do it because we have lost out."

But there are signs that new trade routes are replacing damaged ones. Several traders at the show said there had been a rise in rice shipments across Iran's border with Pakistan, paid for in cash.

Iranian companies are also forming new partnerships and arrangements with foreign firms to facilitate trade. A Europe-based broker specializing in Iranian agricultural exports, who declined to be named because of the sensitivity of the issue, said that since documents could no longer be sent through normal banking channels, papers showing ownership of the goods were sent directly to the buyer, who then remitted funds straight to a bank account chosen by the exporter.

"No letter of credit and no banks involved, other than the receiving account," said the broker, who has been dealing in Iranian goods for decades.

"We have new logistics and commercial issues to resolve each day," he added. "The goal posts are changing every day and it is likely that solutions proposed today may no longer be applicable by the end of the week."

Behrooz Rezazadeh, head of Tehran-based PSDC Group, which advises Iranian companies on export growth and logistics, described another option.

"The export companies have partners outside Iran and they export to their partner and their partner gets the letter of credit, receives the money and then delivers the goods.

"Business is like snow at the top of a mountain; after melting to become water, it will find its way down to the bottom. This is the nature of business -- to find a solution."

Airlines are going down left and right. Malaysia Airlines is in crisis, as is British Airway, as are a number of U.S. carriers. We have it all on the World News Desk.... I stand by my prediction that commercial air travel, as we have known it, will be gone by the end of the year. -- MCR

Middle East airlines hit by cost of jet fuel

The National, 

1 March, 2012

Jet fuel costs have jumped by more than US$3 per barrel in just one week, hitting Middle East carriers hard, and are up more than 11 per cent on last year's prices, according to the aviation industry's fuel watchdog.

The latest figures from the International Air Transport Association's (Iata) jet fuel price monitor show that for the week ending February 10, the cost rose worldwide to $133.9 per barrel, from $130.59 the previous week.

However, prices remain below the 2008 level of more than $140 per barrel that had ravaged the airline industry. The increases immediately preceded a decision by Emirates Airlines on Tuesday to impose fuel surcharges of up Dh610 (US$166) per ticket on all its flights from today.

However, James Hogan, the president and chief executive of Etihad Airways, said yesterday the airline, based in Abu Dhabi, had so far been cushioned by its fuel hedging policy, under which it has agreed fuel prices in advance to secure supply at a fixed cost regardless of any fluctuations in price.

"Back in 2006 we took a decision to invest in fuel hedging," Mr Hogan said at the Global Financial Markets Forum in Abu Dhabi. "Last year we hedged 80 per cent of our fuel at $80 a barrel, and at the start of this year we were still hedging at $80. That has gone up to $100 a barrel, but we are now 77 per cent hedged for 2012." According to the Iata monitor, the recent rises will add $32bn to world airlines' fuel bills this year, taking it to an estimated annual $129.7bn.

"Airlines face two big risks: rising oil prices; and Europe's sovereign debt crisis," Tony Tyler, Iata's director general and chief executive, said yesterday. "Both are hanging over the industry's fortunes like the sword of Damocles."

The monitor's most recent figures show jet fuel prices rose 2.3 per cent on the previous week, 2 per cent on the previous month and 13.4 per cent on last year. In the Middle East, the weekly rise was sharper at 2.9 per cent, reported the monitor. On the previous month it was up 2.1 per cent and on the previous year 11.6 per cent.

The recent increase also drove up Iata's world jet fuel price index to 366 points, but the index rise for Middle East airlines, which account for 7 per cent of the world's jet fuel annually, was at 389. The index has been rising steadily from 353.11 in mid-January.

Between 2001 and 2003, fuel costs made up 12 to 13 per cent of an airline's costs. Today it is more than a third. "Fuel price volatility is the major threat to the airline industry," Zacks Investment Research, an analyst based in Chicago, said in a briefing note. "Even a small change in fuel prices can significantly affect profitability. Projecting this key variable with any level of accuracy has always been extremely challenging. Fare hikes and fuel hedging are the most effective tools to abate the negative impact from fuel prices.

"Hedging strategies provide a cushion to the rising fuel prices and is being used extensively by most of the air carriers, but airlines' ability to pass along the increased costs of fuel to their customers is limited by the competitive nature of the airline industry." Oil is at a nine-month high, with Brent crude at $126 per barrel yesterday, driven up by concerns over the fallout from Iran's nuclear programme.

Mr Tyler's warning came as Iata announced global traffic results for January showing a 5.7 per cent rise in passenger demand but an 8 per cent decline in air freight compared with the same month last year. Middle East airlines recorded double-digit traffic growth in January, posting a 14.5 per cent increase. Capacity rose 10.6 per cent, and load factor climbed 2.7 points to 78.5 per cent, among the highest of all global regions.