Exclusive: Iran food stockpiling grows as grain ships near port

LONDON/HAMBURG Thu Mar 15, 2012 3:50pm EDT

Stalks of wheat grow at a farm near Gonbad, 550 km (342 miles) northeast of Tehran, May 6, 2008. Picture taken May 6, 2008. REUTERS/Caren Firouz

Stalks of wheat grow at a farm near Gonbad, 550 km (342 miles) northeast of Tehran, May 6, 2008. Picture taken May 6, 2008.

Credit: Reuters/Caren Firouz

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LONDON/HAMBURG (Reuters) - Vessels carrying at least 360,000 metric tonnes (396,832 tons) of grain are lined up to unload in Iran, Reuters shipping data showed on Thursday, a sign that Tehran is succeeding in stockpiling food to blunt the impact of tougher Western sanctions.

Iran has been shopping for wheat at a frantic pace, ordering a large part of its expected yearly requirement in a little over one month and paying a premium in non-dollar currencies to work around toughened Western sanctions and avoid social unrest.

Food shipments are not targeted under western sanctions aimed at Iran's disputed nuclear program, but financial measures have frozen Iranian firms out of much of the global banking system.

Since the new year, some vessels had turned away from Iran without unloading after Iranian buyers were hit by a trade finance squeeze, but Thursday's data appears to show that shipments are now arriving successfully.

In an effort to blunt the impact of the sanctions, Iran has even begun buying wheat from its enemy - the United States.

The sanctions make it difficult to obtain letters of credit or conduct international transfers of funds through banks.

So instead, Iran has embarked on an ambitious buying spree, purchasing around 2 million metric tonnes of wheat since February at a premium to international market prices in currencies including Japanese yen and Russian roubles.

"There is no doubt in my mind it is geopolitical hedging. They are trying to get as much (wheat) as they can in the country to blunt the effect of any further escalation in international sanctions," Rabobank commodities analyst Nick Higgins said.

"I think they hit the market hard and early and that from their perspective limited the chances that anyone could react to such large purchases," he added.

AIS ship tracking data on Reuters showed 10 dry bulk vessels on Thursday were anchored outside Bandar Imam Khomeini, one of Iran's largest grain terminals.

At least six of the vessels were larger ships known as panamaxes, which can carry around 60,000 metric tonnes of grains.

A further panamax vessel, which had been anchored at the port this week, was now heading to India and was likely to have discharged a cargo already, AIS data showed. A smaller bulker vessel was also heading away from Iran to Singapore after being anchored near the terminal this week.

MASSIVE STOCKPILING

Iran is close to self-sufficient in wheat most years, but needs to import when the harvest is weak, as it is expected to be this year.

German commodity analysts FO Licht forecast Iran will need about 3 million tonnes this buying season, which runs from July 2011 - June 2012. There are signs Iran's purchases will be far greater to shield it from the possibility of future shortages.

It bought around 2 million metrictonnes just last month from Russia, Germany, Canada, Brazil and Australia.

Sanctions are worsening an economic crisis which has caused rising prices, shortages of some goods and a collapse of the local currency at a time when other countries in the Middle East are experiencing political and social unrest.

"If left unchecked, significant hikes in food and basic commodity prices on the ground are likely to be a key source of social unrest," said Rory Lamrock, intelligence analyst with security firm AKE.

"The Iranian government's reported payment is telling of its continued ability to mitigate against finance freezes despite increased sanctions aimed at nuclear proliferation."

While U.S. President Barack Obama aims to squeeze Iran's oil trade and not impoverish its population, evidence is mounting that the measures are hitting the economy more broadly.

On March 1 it was revealed Iran had made a rare purchase of 120,000 metric tonnes of U.S. wheat. It is also aiming to import 1 million metric tonnes of wheat from Pakistan in a barter deal.

Payment problems resulting from sanctions halted some deliveries to private Iranian buyers since the start of this year. Ten vessels turned away from Iran to new destinations including Yemen, the United Arab Emirates and Egypt, incurring big losses. The last of them sailed away earlier this month.

Since then, the Iranian state appears to have stepped in to make sure the deliveries are successful.

"The large number of ships arriving and their large size may show that the purchases which Iran has been making in the last couple of months are starting to arrive. The sanctions have disrupted the grain imports but certainly not stopped them," one European trade source said.

ALTERNATIVE FINANCING

The shipments currently outside Bandar Imam Khomeini are believed to be mostly state purchases.

"The state agency GTC (Government Trading Corporation) has been buying a lot of wheat internationally and can use the country's financial power to get purchases pushed through," another trade source said.

"A lot of the grain purchases seem to be routed via Russia where the big trading houses have a large financial presence. I think we will see a lot more ships arriving soon.

"The sanctions have hit private sector Iranian milling wheat and feed grain imports. The state has taken over the buying and things are starting to roll."

Another trade source said the purchases included milling wheat from Russia, German wheat and corn from Argentina.

"These vessels will discharge their cargoes as the payments this time have been made. It seems like they may have routed the deals through Switzerland using intermediaries," the source said. "They are not using traditional contracts and letters of credit but they are finding ways around it."

Despite the success by Iran's state sector, sanctions still appear to be preventing private grain buyers in Iran from arranging financing.

"The private sector in Iran is seeking to buy from Russia, Ukraine and Kazakhstan with payments in roubles but is having a hard time of it," another trade source said. "Private buyers are still waiting on the sidelines."

(Additional reporting by Nigel Hunt in London; Writing by Veronica Brown; Editing by Peter Graff)

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