Iran & Sanctions: "All Major Pakistani Banks Refuse Transactions" (Shah)

I was going to post this story, from Shahid Shah in The News in Pakistan, in our Tuesday updates, but it seems so potentially significant --- given that Pakistan neighbours Iran and that the story also points to a choking-off of trade via Dubai, which has handled a large share of trade with Tehran --- that we have given it a separate entry:

Economic sanctions on Iran by the United States has also affected Pakistan’s exports as all major banks have refused to conduct transactions with the troubled nation, exporters said on Monday.

Although there is no official ban on the transactions of Pakistani banks with Iran, banks are hesitant to incur the superpower’s wrath, they said. Several Pakistani exporters’ dues were withheld in Iran as no bank was ready to conduct transactions, they added.

The head of a private bank on the condition of anonymity said that they were in no position to challenge this power structure. He agreed that a majority of Pakistani banks were not conducting transactions with Iran.

One of the major trade routes with Iran is via sea to Bandar Abbas from the Pakistani ports, while the land route to Taftan in Iran is from the Chaman border in Balochistan.

An exporter said that the land route remains unfeasible for exporters from Karachi. This route is also used as a means of smuggling. According to reports, Iran closed its Taftan border with Pakistan on Sunday amid threats of suicide attacks in its territories.

Pakistan had been conducting trade with Iran via Dubai. After dollar transactions from Iran stopped under the sanctions, Dubai banks started transactions in euro, but now it is carried out in the UAE dirham, a source said.

An exporter told The News that even Dubai was not opening letters of credit (LCs) with Iran for the last one month. “This is now a very critical situation.”

According to the data of the Federal Bureau of Statistics (FBS), exports to Iran declined by 55 per cent to $116.79 million during the eight months from July 2009 to February 2010 against $259.70 million during the corresponding period last year.

Kazim Khandawala, one of the leading basmati rice exporters, told The News that a majority of the banks in Pakistan stopped transactions with Iranian banks since one-and-a-half-year.

“We had been doing our business via Dubai. If we state Bandar Abbas as our port of destination in the State Bank of Pakistan’s export form, banks refuse to handle the money.”

During trade via Dubai, Khandawala said that they paid nearly four percent in commission to the agents as land routes were made illegal and goods were under-invoiced.

Khandawala, who was a major basmati rice exporter to Iran with a volume of around 40 containers a month from 2002 till 2007, has almost lost his business due to transactional problems. “Now, I barely send two containers a month.”

Due to the refusal of Pakistani banks to conduct transactions, Indian rice exporters sold their variety 1121 rice, which was purchased by Iranians in the absence of Pakistani basmati rice.

Iran is a huge market where Pakistan could sell its entire production of basmati, he said. “Though India has fully captured Pakistan’s basmati market in Iran, Pakistani rice can still be sold there, as our rates are good and we have people-to-people contact,” he added.

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