Chinese firms drop Iran as latest U.S. sanctions bite

Mon Jul 1, 2013 1:14pm EDT

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* Foreign firms wary of falling foul of sanctions

* Iran reliant on shipping markets for trade

By Jonathan Saul

LONDON, July 1 (Reuters) - Two top Chinese shipping lines severed ties with Iran as tough new U.S. sanctions over the country's disputed nuclear programme came into effect on Monday, leaving the country increasingly dependent on front companies and overland routes.

Many of Iran's imports, including food and consumer goods, arrive by ship, either directly or via feeder services from places like the United Arab Emirates, and the latest set of sanctions are likely to worsen an already deep economic crisis.

"The vast majority of major container carriers have now ceased calling at Iran," said Daniel Richards, shipping analyst with Business Monitor International.

"As even feeder services begin to shy away from calling there, the country will struggle to continue importing."

Tehran is set to become more reliant on trade by land, which will push up prices already driven by currency volatility.

An Iranian food producer said business was getting more difficult. "The prices of food are so high, I don't know how people can afford it," the Tehran-based producer said. "They're about three times higher than before."

The U.S. National Defense Authorization Act (NDAA), which came into effect on July 1, blacklists Iran's shipping, shipbuilding, energy and port management sectors.

The latest measures build on previous sanctions which targeted Iran's banking sector and key oil exports to try to force Tehran to negotiate on a nuclear programme it says is peaceful but which Western states fear has military aims.

While the NDAA has an explicit exemption for food, medicine and other humanitarian goods, foreign shipping firms have pulled out to avoid falling foul of its provisions.

China is among Tehran's main allies, but its shipping firms are also bailing out. China Shipping Container Lines Co (CSCL) , among the world's top 10 lines, has become the latest group to exit Iran, a CSCL official confirmed.

In a June 27 letter seen by Reuters to U.S. pressure group United Against Nuclear Iran (UANI), whose board includes former CIA and British intelligence chiefs, Shanghai-headquartered CSCL said it took "trade sanctions compliance with the utmost seriousness", ceasing all Iran business from July 1.

China's COSCO Container Lines, the world's number 5 player, was another firm to end ties.

"All of COSCO's business to and from Iran has been suspended," said a Shanghai-based company official, citing a company statement saying lines to Iran stopped in early June and those leaving Iran would end in early July.

An industry source summed up the impact of the latest U.S. move. "China's shipping firms operate in a globalised trade, so they are more risk averse to Iran now," he said.

TOUGHER TRADE

Taiwanese lines Evergreen and Yang Ming Marine said they had pulled out, while Singapore's Pacific International Lines has also cut ties along with two top South Korean shipping firms.

"The departure of international shipping companies including those from China and Taiwan indicates that the virtual economic blockade of Iran is increasing," said Mark Wallace of UANI, which has targeted companies trading in Iran to end links.

"It is a sign that Iran has fewer and fewer friends in the international community that are willing to do business with its regime," said Wallace, a former U.S. ambassador to the UN.

AP Moller-Maersk's Maersk Line, the world's biggest container company, pulled out of Iran last year, joining others including the world's number two and three MSC and CMA CGM and smaller groups like Germany's Hapag-Lloyd.

Ali Reza Cheshm Jahan, deputy of logistics for Tidewater Middle East Co, which operates six ports in Iran and was blacklisted in 2011, said the remaining four lines had cut ties with the top southern cargo port of Shahid Rajaee.

"The carrying of goods and cargo at this port will be carried out by the Islamic Republic of Iran Shipping Lines (IRISL) and (a subsidiary)," he told Iran's student news agency last week.

IRISL, Iran's biggest cargo carrier, has tried to dodge sanctions by changing its flags and setting up front companies, the U.S. Treasury and the European Union have said.

In March, Archer Daniels Midland Co, one of the world's top grain traders, said it unwittingly used a vessel beneficially owned by IRISL last year to transport grain in what it said was a "concerted effort" by Tehran to hide the ship's ownership.

Shipping sources say IRISL will find it harder to call at many ports globally, adding that Iran may become more dependent on land based trade via its borders with Iraq and Pakistan, slowing the transport of goods further.

"It seems logical that shippers will try and find the most convenient way to get their cargoes as close to Iran as possible in a first step," another ship industry source said. "It is improvising from there on." (Additional reporting by Keith Wallis in Singapore, Aizhu Chen in Beijing and Marcus George in Dubai; editing by Philippa Fletcher)

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