CBE II NEWS Presentation

Iran Times of Distress

By-

SuneetSaxena 164

Iran Buying Wheat, Fearing More Curbs

Iran is in talks on what could be a major wheat buy from India, according to market watchers and official data. Such a maneuver could bolster the Islamic regime at a time when the West is increasing pressure over Iran's disputed nuclear program, including curbing purchases of Iran's oil and freezing its government banks out of international networks. Access to wheat is crucial for the country, enabling it to prevent spikes in the cost of bread, a key staple among its 78 million citizens. Such spikes have in the past led to social unrest in Iran and elsewhere in the Middle East. Recent dry weather in the region also may lend urgency to Iran's purchases, he said. Iran is due to start harvesting a new wheat crop in May, and could be concerned about lower production. Current U.S. sanctions allow companies to sell food to Iran.

Iran Buying Wheat, Fearing More Curbs

Traders are watching purchases by Iran, which often imports relatively little wheat. But wheat supplies are fairly robust at the moment, and the deals haven't sent prices soaring. Wheat is up just 1.1% in the futures market in 2012, to $6.595 per bushel, well below last year's peak near $9. The U.S. Department of Agriculture estimates Iran will import 2 million metric tons of wheat in the year through June. That is a tenfold rise from a February estimate, and enough to cover 13% of Iran's annual consumption, according to USDA data. Industry officials say Iran is also negotiating to buy up to 3 million tons of wheat from India, but it isn't clear if that deal will come to pass.

Iran Buying Wheat, Fearing More Curbs

As sanctions expand, it has become increasingly difficult for Iran to arrange and pay for such purchases. Iranian banks typically send payments to the U.S. via a European or Middle Eastern bank. But some banks have stopped doing business with Iran out of fear of retribution from the U.S., they said. The Europe-based organization that clears money transfers, known as Swift, this month banned 20 Iranian financial institutions from using its international bank-transfer system. Congress is debating sanctioning some of the few remaining Iranian financial institutions involved in such trade, which could choke off other avenues, regional businessmen. Bread prices are politically sensitive in Iran, as they are across much of the Middle East, where flatbread is a staple. The price of a popular Iranian bread, known as We would take no options off the table. nan-e sangak, has risen by about 30% in the - Barack Obama past few months, according to Iranians.

Declining Currency a Factor; Sales Don't Violate Sanctions

Iran is likely getting ahead of any tightening of sanctions, as well as a further decline in its currency. It's clear they're worried about their currency declining and potential war ahead of them. The country is really being squeezed. - Paul Sullivan, a Middle East security expert and adjunct professor at Georgetown University.

The Iranian rial has fallen 30% against the U.S. dollar in the past six months, making purchases in U.S. dollars more expensive. Iran is boosting the monthly cash payments it gives to its citizens by more than fifty percent, the Iranian Labour News Agency reported, as soaring inflation and the depreciating Rial continue to bite deep into the national economy.

Historical Data
The currency of Iran is the Iranian Rial (IRR). From early 80s to 2001, Iran had a multi-exchange-rate system; one of these rates, the official floating exchange rate, by which most essential goods were imported, averaged 1,750 rials per US dollar; in March 2002, the multi-exchange-rate system was converged into one rate at about 7,900 rials per US dollar. The Unofficial - Street Exchange Rate used among small businesses and private transactions was much higher than official multi-exchange-rate prior to 2002. Since going to a single exchange rate the official and "Street-rate" have come much closer. We compare the official and "Street-rates" to ensure rates listed below are the most accurate indicative of the true IRR-USD exchange rate. US Dollar (USD) is the most widely used foreign currency and the new $100 bills are preferred for street transactions and get the best rate.

Exchange control authority is vested in Bank Markazi Jomhouri Islami Iran (Central bank of Islamic Republic of Iran). All foreign exchange transactions must take place through the banking system.

Last 6 months Iranian Rial v/s U.S. Dollar

- 9/30/2011 to 3/27/2012

Reasons of this devaluation

1. Impending political tension and power struggles between the camp of President Mahmoud Ahmadinejad and the principalist camp after the parliamentary elections, which to an extent generated administrative and political instability (Mir Hossein Mousavi - 2009 and Gholam Ali Haddad Adel - 2012); 2. United Nations- and United States-imposed financial sanctions that have virtually dismantled Iran's international financial transactions for trade and hence the economy; 3. A possible military confrontation with the US, and 4. Consequences of economic and financial mismanagement and inappropriate monetary and fiscal policies of the ninth and tenth governments.

As on Tuesday - March 28, 2012

Reserves
During the 6.5 years of Mahmud Ahmadinejad's presidency, more than $470 billion of oil income has entered the government's treasury, thanks to high oil prices. The mechanism that the government uses to provide for its local currency budget is to sell the foreign exchange that has earned to the central bank and instead the central bank delivers rials to the government. These foreign currency deposits form the foreign reserves of the central bank. The current figure is estimated $75 billion. The difference between the $470 billion of oil income and ($75 billion of foreign reserves subtracted from the balance of foreign reserves when Ahmadinejad took office) is the amount that the government has spent for various purposes such as imports, debt payments, and other expenditures to fulfill its foreign currency needs.

GOLD RUSH
While it will not come as a major surprise to most, Iran has been actively purchasing gold well over the amount reported to and by the International Monetary Fund, in an accelerated attempt to diversify its reserves away from the US dollar, in a sign of growing political pressure. Market observers believe Tehran has been one of the biggest buyers of bullion over the past decade after China, Russia and India, and is among the 20 largest holders of gold reserves with an alleged 300 tons or 9,600,000 oz. If the gold price is assumed $1,600 per ounce today, Iran's current gold value amounts to about $15.4 billion.

Problems with Export

In the meantime, Indian traders sold 60,000 tonnes of sugar and up to 150,000 tonnes of soymeal to Iran, in dollars, through Dubai-based middlemen. India is Iran's second-biggest oil client after China and Tehran used to supply about 12 percent of the south Asian country's needs, worth about $11 billion a year. Exports are about $2.7 billion annually. Two traders, who were in the delegation and did not wish to be identified, said there were some doubts about the new payment mechanism when Iran still owes about $3 billion, blocked by sanctions. With western sanctions choking traditional dollar and euro conduits, Iranian buyers are channeling import payments through unofficial routes involving several layers of middlemen based in Dubai. Rice exporters from India, Iran's top supplier of the grain, have used the same route but some buyers in the Islamic nation have still defaulted on payments.

Iran to boost monthly cash payments as inflation bites

After the additional payment, the vast majority of Iranians will receive 730,000 Rials (around 60 U.S. dollars) in direct monthly cash payments. The Iranian government implemented the first-stage of its Targeted Subsidies Plan towards the end of 2010 in an attempt to wean the country off more generous food and fuel subsidies and so cut government spending. At the time, President Mahmoud Ahmadinejad called it the "biggest economic plan of the past 50 years". Last year, the International Monetary Fund commended the Iranian government for the policy which it said had led to a reduction in fuel consumption and inflationary pressure. The price of gasoline has risen three-fold and the cost of gas has soared by 500 percent. According to official figures, inflation has decreased to around 20 percent but critical MPs say the real figure is closer to 50 percent.

Impact on Oil
Crude has jumped from $75 in October amid growing concern a military strike by Israel or the U.S. against Iran's nuclear facilities would disrupt global crude supplies. Iran and the six nations -- the United States, Britain, France, Germany, Russia and China -- have agreed to meet on April 13 for new talks about Tehran's nuclear program, diplomats told The Associated Press on Monday. President Barack Obama said Sunday that there is still time to resolve the dispute over Iran diplomatically, but that the window is closing. Other analysts expect worries about Iran will keep oil prices elevated. Iran is the world's third-largest crude exporter, and reports last week said its oil sales abroad fell sharply last month, suggesting sanctions imposed by Western powers have begun to hurt Iran's economy. Saudi Arabia has pledged to increase production to replace Iran's lost output, but that would leave little spare capacity, analysts say.

A light at the end of tunnel

A light at the end of tunnel

According to Iranian state media, Mr. Salehi said Iran and representatives of the six powers the United States, Russia, China, France, Britain and Germany would be held on April 13. The last time the world powers met with Iranian officials was in January 2011, when talks in Istanbul ended in failure. Western leaders say they suspect Iran is seeking the capability to construct nuclear weapons, but Tehran says its program is for peaceful purposes. Press TV, the Iranian state satellite broadcaster, said Tehran was ready to resume the talks based on common grounds. However, Iran has repeatedly made clear that it will not negotiate on any of its nuclear rights. The resumption of negotiations could relieve pressure from Israel to use military force against Iran. But the decision is not without risks. Direct talks could allow Iranian negotiators to exploit various nations differences, effectively playing for time while Tehrans scientists press ahead with nuclear ambitions. Failure could offer a rationale for military strikes.

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