Tomato squeeze: US sanctions begin to hurt Iran’s economy

The Iranian government has banned tomato exports, one of the many interventions to try to limit economic instability, but the policy was not working. (AFP)
Updated 11 October 2018
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Tomato squeeze: US sanctions begin to hurt Iran’s economy

  • With US curbs on Iran’s oil exports set to come into force next month, some Iranians fear their country is entering an economic slump that may prove worse than the period from 2012 to 2015

DUBAI/LONDON: Tomato paste is not the most obvious economic indicator, but in Iran, where it is a staple that some people have started panic-buying, it says a lot about the impact of renewed US sanctions.
While Iran makes its own paste from an abundant crop of locally grown tomatoes, sanctions reimposed by US President Donald Trump since August have played havoc with supply.
A 70 percent slide in the rial this year has prompted a scramble for foreign currency that has made exports much more valuable in local terms than selling produce at home.
Some shops are limiting purchases of tomato paste, which is used in many Persian dishes, and some lines have sold out as people buy up existing stock.
The government has responded by banning tomato exports, one of a raft of interventions to try to limit economic instability that has fueled public protests and criticism of the government this year.
But the tomato policy is not working. An industry representative said tomatoes were being smuggled abroad.
“We have heard that trucks full of tomatoes are still leaving the country, especially to Iraq,” Mohammad Mir-Razavi, head of the Syndicate of Canning Industry, said by telephone.
“They put boxes of greenhouse tomatoes on top and hide normal tomatoes at the bottom,” he said, referring to an exemption for hot-house grown tomatoes that left a loophole.
It is one of many ways in which the sanctions are hurting ordinary Iranians while benefiting those with access to hard currency.
Washington reintroduced steps against Iran’s currency trade, metals and auto sectors in August after the US withdrawal from a deal that lifted sanctions in return for limits on Iran’s nuclear program. Trump said the deal was not strict enough.
With US curbs on Iran’s oil exports set to come into force next month, some Iranians fear their country is entering an economic slump that may prove worse than the period from 2012 to 2015, when it last faced major sanctions.
“There is an emerging consensus that the economy will go through a period of austerity similar to that recorded during the Iran-Iraq war,” said Mehrdad Emadi, an Iranian economist who heads energy risk analysis at London’s Betamatrix consultancy.
Jumps in prices are occurring in a range of goods — particularly imports such as mobile telephones and other consumer electronics, but also some staples. A bottle of milk, 15,000 rials last year, now sells for 36,000.
An 800-gram (28-ounce) can of tomato paste was selling in Tehran stores for around 60,000 rials in March; it is now 180,000 rials, or $1.24 at the unofficial rate, prompting a scramble by households to stock up. The price of tomatoes has increased more than five-fold compared to last year.
Signs on the shelves of some stores limit each customer to two cans. Iranian online shopping site Digikala lists the top nine tomato paste items as out of stock, and the rest as “coming soon.” In supermarkets in Najaf in neighboring Iraq, meanwhile, supplies of Iranian tomato paste are plentiful.
Adding to the pressure is a fourfold rise in the price of cans, Mir-Razavi said. Traders importing material to make cans sought to buy dollars at a little-used official rate of 42,000 rials; authorities asked them to use a more expensive rate. The issue has delayed shipments of material to factories.
The government is mounting a campaign against price-gouging, periodically ordering shopkeepers to sell at lower prices. But some shopkeepers respond by not selling at all, believing prices will eventually rise again as the sanctions bite.
Iran, a big oil producer with a diverse economy, has shown its farming, manufacturing and distribution sectors can ride out long periods of war and sanctions.
The Tehran Stock Exchange index has soared 83 percent this year as shares of exporting companies have rocketed. Urban real estate prices have also risen as Iranians plow their savings into property rather than keeping them in depreciating rials.
The rial’s plunge, which in the unofficial market has taken it to around 145,000 against the dollar from 42,890 at the end of 2017, according to currency tracking website bonbast.com, may even have strengthened the financial system in one way.
Banks and pension funds have been struggling with massive debts. Emadi said the rial’s slide, to as low as 190,000 in late September, had given the government huge windfall profits on its dollar holdings; authorities appear to have injected some of those profits into insolvent banks to shore them up, he said.
But while official data for the last few months has not yet been released, Emadi said he believed the economy was already in a recession that could deepen in coming months.
The International Monetary Fund predicted this week that the economy would shrink 1.5 percent this year and 3.6 percent in 2019, before recovering slowly.
That would make the slump less deep than the recession of 2012, when the economy shrank over 7 percent, and not nearly as damaging as the Iran-Iraq war of 1980-1988, when it shrank by about a quarter.
The IMF also forecast the average inflation rate would jump to a peak above 34 percent next year, briefly returning to its level in 2013.
How much the current recession resembles past periods of economic pain for Iran will depend on the extent to which Washington can use the sanctions to push other countries into cutting oil and non-oil trade with the Islamic Republic.
US officials have said the sanctions will be tougher than the steps in 2012-2015. They aim to reduce Iranian oil exports more sharply, and to disrupt exports to Iran from trading hubs such as Dubai more aggressively.
“I think the return of the sanctions has had a devastating effect on their economy and I think it’s going to get worse,” Trump’s national security adviser John Bolton told Reuters in late August.


Syrian fighters to support anti-Kurdish forces in northeast

A military vehicle is transported as part of a convoy on the outskirts of the city of Kilis, southeastern Turkey, close to the border with Syria, Thursday, Dec. 13, 2018. (AP)
Updated 34 min 53 sec ago
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Syrian fighters to support anti-Kurdish forces in northeast

  • Turkey has already swept YPG fighters from Afrin and other areas west of the Euphrates in military campaigns over the past two years

ISTANBUL: Up to 15,000 Syrian fighters are ready to join a Turkish military offensive against US-backed Kurdish forces in northeast Syria, but no date has been set for the operation, a spokesman for the main Turkish-backed Syrian opposition group said on Thursday.
President Tayyip Erdogan said on Wednesday that Turkey would launch the offensive in a few days, targeting a border region east of the Euphrates River which is held by the YPG Kurdish militia.
The announcement prompted a sharp rebuke from the Pentagon, which said any unilateral military action into northeast Syria would be unacceptable.
The US has been supporting the YPG in the fight against Daesh insurgents since 2015. Following cross-border shelling from Turkey into Kurdish-controlled territory two months ago, US forces have set up three military observation posts near the border.
Turkey says the YPG is a terrorist organization and an extension of the outlawed Kurdistan Workers Party (PKK), which has waged an insurgency against the state in southeastern Turkey for more than three decades.
On Thursday the Turkish military said one of its soldiers stationed in Syria’s Afrin region was killed by fire from YPG fighters, who were in the Tel Rifaat area. Both areas are west of the Euphrates in northern Syria.
Turkish forces returned fire, the military said. Turkey has already swept YPG fighters from Afrin and other areas west of the Euphrates in military campaigns over the past two years, but has not gone east of the river — partly to avoid direct confrontation with US forces.
But Erdogan’s patience with Washington over Syria — specifically a deal to clear the YPG from the town of Manbij, just west of the Euphrates — seems to have worn thin.
The spokesman for the National Army, a Turkish-backed opposition force aimed at unifying disparate factions in northwest Syria, said on Thursday that there was no set date for the operation, which would start from both Syrian and Turkish territory.
“The battle will be launched simultaneously from several fronts,” Maj. Youssef Hamoud told Reuters.
“It will be in Manbij and Tel Abyad and Ras Al-Ayn,” he said, referring to towns about 200 km apart near Syria’s northern border.
Hamoud said the operation from Turkey might begin a few days before the move from within Syria.
In a speech on Wednesday, Erdogan said that Turkey’s target “is never US soldiers.”
Commander Sean Robertson, a Pentagon spokesman, said in a statement that unilateral military action into northeast Syria by any party would be of grave concern, “particularly as US personnel may be present or in the vicinity.”
Chairman of the US Joint Chiefs of Staff Gen. Joseph Dunford spoke with the chief of Turkish General Staff Gen. Yasar Guler on Thursday.
“Dunford emphasized that the observation posts will continue to focus on and deter threats from Syria toward the Turkish southern border,” a US military statement said.
“In addition, he reiterated that the US remains committed to coordinating efforts with Turkey to bring stability to northeastern Syria,” it added.