August 20, 2008 / 8:04 PM / 11 years ago

Iran reluctant U.S. wheat buyer amid nuclear tension

CHICAGO (Reuters) - Iran has emerged as one of the top buyers of wheat from the United States this marketing year, but political tensions between the two countries make it unlikely that Tehran will be a regular buyer from the world’s top wheat exporter.

Iran has booked more than 1 million tons in its first purchases from the United States in 26 years. The deals, made over several weeks and valued at an estimated $350 million, were sparked by a drought that will likely reduce wheat production in Iran, one of three countries President George W. Bush labeled as an “axis of evil.”

Iran stopped buying U.S. wheat following the Iranian revolution in 1979 which ousted the pro-U.S. government and provoked a hostage crisis at the U.S. embassy in Tehran that lasted 444 days.

Prior to 1979, Iran had bought 150,000 to 1.3 million tons of U.S. wheat a year, according to the U.S. Agriculture Department.

“To cover their needs, they will have to go to many different origins to secure the amount of wheat they are looking for,” said Prudential Financial analyst Shawn McCambridge. “Iran came to the U.S. with, I’m sure, a little bit of reluctance.”

The United States and Iran have been at odds over Iran’s nuclear program. However, the need for food cuts across politics.

Drought is expected to reduce Iran’s wheat crop by 20 percent to about 12.0 million tons, its lowest level in six years, according to the U.S. Agriculture Department. Iran is expected to import 4 million to 6 million tons of wheat to make up the shortfall.

“If they could, I think they wouldn’t buy a single ounce of U.S. wheat,” said a U.S. trader. “But a lot of the wheat coming out of the Black Sea is feed quality and their ports can only handle so much business. There are some concerns about the quality of wheat in Europe.”

In addition to 1 million tons of U.S. wheat, Iran is believed to have purchased 1.5 million tons of Canadian wheat, 1.5 million tons of Black Sea wheat and 1 million tons of European wheat, traders said.

“They are negotiating to take 500,000 tons of new-crop Australian wheat to top it off for this season,” said another U.S. grain trader.

The U.S. government prohibits virtually all trade with Iran except for carpets, dried fruit, nuts and caviar. However, there are additional exceptions for humanitarian aid, medicine and food.

The last time the United States enacted a grain embargo was against the former Soviet Union following its 1979 invasion of Afghanistan.

“From the U.S. perspective, that type of measure works against us rather than for us,” McCambridge of Prudential said. “The posture is that food wouldn’t be used as a weapon.”

The United States recently said it would provide 500,000 tons of food to North Korea even as the countries continue to wrestle over verifying claims that North Korea has dismantled its nuclear weapons program.

Reporting by Lisa Shumaker; editing by Jim Marshall

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