Experts: Iran's isolation is beneficial for South-East Asia

Business Materials 4 May 2011 09:00 (UTC +04:00)
International sanctions against Iran's nuclear program forced the Islamic Republic to strengthen trade relations with countries in Southeast Asia who have benefited from Iran's isolation
Experts: Iran's isolation is beneficial for South-East Asia

Azerbaijan, Baku, May 3 /Trend, T.Konyayeva/

International sanctions against Iran's nuclear program forced the Islamic Republic to strengthen trade relations with countries in Southeast Asia who have benefited from Iran's isolation, experts say.

"Of necessity, the Iranian government has turned to Asian banks and companies for trade and international transactions," Professor at Northeastern University Kamran Dadkhah wrote in an e-mail to Trend. "At the same time, the sanctions have created profit opportunities for Asian banks and they are taking advantage of it."

Last Iranian calendar year (the year in Iran ends March 20), China has invested $570 million in Iran, and plans to invest additional $320 million, the chairman of Iran-China Chamber of Commerce Assadula Asgaroladi said May 1.

He said it is expected that China's investment in Iran will exceed one billion dollars.
In general, over the past 12 months, Iran has considerably increased its trade with Asian countries, said the head of Customs Service of Iran Abbas Memarnezhat. According to him, the total amount of consumer goods imported to Iran was $64.3 billion, or 15 percent increase compared to previous 12 months.

The Asian countries accounted for 61 percent of all products imported to Iran, while imports from Europe were 34 percent.

An American expert Paul Sullivan believes that the trade with Asia could be seen important source for the Iranian economy because exports are about 15 percent of the Iranian economy.

"About 17 percent of all Iranian exports go to China. Japan is next at about 12.5 percent. Then India with about 10 percent and South Korea with about 7.5-8 percent," Sullivan, Professor of Economics at the U.S. National Defense University and Georgetown University, wrote in an e-mail to Trend. "So we have about 47 percent of all of Iran's exports going to East Asia and India."

The total amount of goods exported from Iran, mostly agricultural and petroleum products (excluding oil), is estimated at $32.6 billion.

According to the data provided by the Iranian Customs Committee, the volume of exports of non-oil products from Iran to Asia grew by 20 percent and now makes up 83 percent of total exports, while exports to European countries fell by almost a quarter to 13 percent.
The American expert said China and South Korea are about 22 percent of all Iranian imports as well.

Sullivan said the importance of China, Japan, South Korea and India to Iran can also be seen from the exported energy resources, which are the main source of income for the country (80 percent of Iran's budget).

About 10 percent of all of China's oil imports come from Iran. About 16 percent of all of India's oil imports are from Iran. Japan imports about 9 percent of its oil from Iran. About 8 percent of all of South Korea's oil comes from Iran.

Sullivan said this trade with Asia in crude is also quite important for Iran because 1/5th of Iran's oil exports go to Japan. China and India take each about 16 percent of all Iran's oil exports. South Korea takes about 8 percent. So Japan, China, India and South Korea combined take about 60 percent of Iran's oil, he said.

He also mentioned the importance of foreign direct investment flows from South Asia and East Asia.

"As China and India, which represent about 1/3 of humanity, grow their importance for Iranian trade and investment will also likely grow - and the importance of European and other "western" investment will likely drop," he said.

According to Dadkhah, despite trade with Asian and to some extent European countries, Iran's economy has suffered.

"Because of the wrongheaded policies of the government and the sanctions, Iran is facing very slow or zero growth, high unemployment rate especially among youth, and inflation," he said.

Dadkhah said sanctions are ineffective in changing the target country's political behavior. "But, on the one hand, it damages the target country's economy and particularly hurt ordinary people," he said. "On the other hand it deprives the sanctioning country's companies of business in the sanctioned country, while creating profit opportunities for those countries who are able and willing to bypass sanctions."

In 2010, the UN Security Council adopted the fourth resolution on Iran because of Tehran's refusal to suspend uranium enrichment activities, which can be used for military purposes. Resolutions approved by the UN Security Council, as well as additional unilateral sanctions adopted by the U.S. Congress and EU foreign ministers in the summer of 2010, primarily focused on the energy, banking and financial sector of Iran.

Dadkhah believes that indeed, some European banks and businesses, with tacit approval of their governments, have continued doing business with Iran. "Sanctions have deprived American companies and banks of business opportunities in Iran," he said.

In his article, Avi Jorisch, former representative of the U.S. Treasury Department, wrote that despite that more than 80 financial institutions worldwide have interrupted or reduced their relations with the Islamic Republic as a result of sanctions, a number of Asian banks, including the South Korean Woori Bank and Industrial Bank, as well as Chinese Yinzhou Bank continue to collaborate with many Iranian banks, some of which have been included in the U.S. and EU's "blacklist".

The financial institutions which continue to cooperate with Iranian banks have received a warning. Thanks to the law recently adopted in the U.S., all international banks operating in the U.S. must choose between the U.S. financial markets and their Iranian partners.

Those banks that do business with Iranian companies face severe punishment: the Department of Justice may close their branches in the U.S. and among other things, forced to sell their assets in the U.S.

Dadkhah said that the result of such pressure has been that the transactions have become more underhanded and complicated and carried out in a roundabout way.

"Thus, Iran would have to pay a higher cost for its international transactions, but there will always be a bank or business that is willing to oblige for a fee. Iran's economy will suffer, Asian and other banks will pocket the profit," he said.

According to Dadkhah, on the other hand, Chinese as well as other governments will have a bargaining chip when dealing with the United States government.

"China, Korea and others would ask for favors in return for barring their companies from dealing with Iran," he said.

All in all, sanctions are ineffective tools in international diplomacy, Dadkhah concluded.