Iranians Face Higher Food Prices Due To Rial, Import Woes – Analyst

Iranians Face Higher Food Prices Due To Rial, Import Woes – Analyst

Sanctions on Iran’s Central Bank are compounding inflationary pressure on basic food items, with prices likely to continue rising, as the rial depreciates and the ability to import food stuffs becomes increasingly challenging, risk analysis company Maplecroft said.

According to Maplecroft’s MENA analyst Tobjorn Soltvedt, imports of rice and food oils into Iran have already started to decline, especially after the country defaulted on payments to Indian rice suppliers during the second week of February.

Major European and U.S. banks, including Rabobank, have halted trade finance for grain or any agricultural products bound for Iran. The European Union and U.S. have both introduced trade restrictions on the Central Bank of Iran to increase pressure on the Islamic Republic over its nuclear program.

While Western sanctions are aimed to hit only Iran’s oil revenues, food imports into the country have so far been strained the most, leaving Iranians facing higher food prices amid emerging signs the country is struggling with credit issues due to tightening sanctions.

Prices for essential food commodities have become increasingly expensive under President Mahmoud Ahmedinejad’s ongoing policy of cutting subsidies, added Soltveldt.

In early 2011, bread prices jumped by 25% following subsidy cuts, while rice prices increased by 150% over the last 12 months.

“Although an immediate shortage of basic food items is unlikely given Iran’s ability to pay for imports using gold and oil, the continuing rise in prices is likely to have a significant political impact,” warns Maplecroft’s Soltvedt. “As such, Ahmadinejad’s position could become further weakened if prices continue to rise.”

Maplecroft added that sharp increases in Iranian food prices could prove troublesome for Ahmadinejad, whose political rivals could use the situation to marginalize or oust him.

The risk analysis company also warned that Iranian food security could come under question if tensions between the country and Saudi Arabia worsen.

“If an EU and US-led oil embargo is successful enough to necessitate a boost in production by Saudi Arabia, Iran could respond with covert or overt actions against Saudi interests,” said Soltvedt. “Iranian authorities are likely to view such a move as an act of hostility.”

If Saudi Arabia eventually were to push for a GCC halt to exports, Iran could see itself severed from its principal source of imported goods–the UAE accounts for 34% of Iran’s imports, warned Soltvedt.