Iranian firms feel the heat as sanctions bite

By Fredrik Dahl and Edmund Blair

TEHRAN (Reuters) - When a Western bank suddenly suspended the account of her family freight firm, Nazila Noebashari revived a financial practice she thought long gone: she sent staff to the Afghan border to collect $50,000 by hand.

With foreign banks increasingly closing down business with Iranian customers in the face of U.S.-led sanctions, such physical transactions are the only way Traf Co Ltd and many other firms in Iran are staying in business.

"As an Iranian-based company we can't have a foreign currency account anywhere in the world," said Noebashari, who runs the transport company that was established in the 1930s and is now facing some of its biggest obstacles in seven decades.

"We have to go back to old traditions of carrying cash around," she told Reuters. "Carrying $50,000 in cash to any border these days is one of the biggest risks you can take -- both for the company and the employees doing it."

The prospect of thousands of dollars ferried around an area such as Afghanistan, earmarked by Washington as a hunting ground for terrorists, can scarcely delight Western security services. But this side-effect of sanctions is food for the thought of politicians rather than businessmen.

Noebashari's experience shows how Western punitive measures imposed on the Islamic Republic over its disputed nuclear activities are making it increasingly difficult to conduct business in the world's fourth largest oil producer.

Other Iranian executives, often reluctant to use their names, cite mounting problems in obtaining finance from abroad for imports, rising interest charges on the credits they do obtain and growing wariness among European and other partners.

One Iranian trader said equipment for a university listed as "laboratory" items -- for an arts rather than science department -- took 10 weeks to get an export permit to Iran from a European state, compared with the usual two.

"CREATIVE"

Another businessman cited problems obtaining equipment for his detergent plant, saying it was barred on suspicion it might have a "dual use", meaning it could have an application in Iran's nuclear program. He was baffled what that could be.

A construction executive showed Reuters offices in a new building in Tehran. He built it with plans to expand, but some of the floors are now empty looking for tenants.

He has opted to investigate projects in Dubai, a regional financial and commercial centre, where others are also seeking to open offices to skirt problems of doing business from Iran.

They are paying the price for a U.S.-led drive to isolate Tehran over atomic work Washington suspects is aimed at making bombs. Iran denies this, saying it wants to generate electricity to export more gas and oil.

Life may get tougher still. The United States is now seeking a third round of United Nations sanctions and is also putting pressure on Western companies not to invest in Iran.

Major banks including Switzerland's UBS and Germany's Deutsche Bank have decided to either cut all ties or reduce their dealings with the country.