Sanctions on Iran have escalated recently. Iranian financial institutions were cut off from SWIFT. The Belgium based firm is sometimes considered the “glue” of world’s financial system, enabling international transactions.
Iran’s neighbors either shy away from any trade with Iran, or move to alternative ways, bypassing the currency.
Currency is a Risk
The Iranian rial is ditched in the United Arab Emirates. The sanctions may be the indirect cause of this move, but the direct motivation is the real value of the rial.
In the unofficial black market, the IRR lost half of its value against the dollar and a bottom isn’t in sight. This is what one of the UAE’s top two exchange houses said:
“Most exchange companies have stopped dealing in Iranian rial mainly because of its devaluation in the last few months, as well as the regulations imposed by the U.S. regulatory authorities on the financial sector,” he told Reuters.
It’s just too risky for them.
Iran is a large country and a large producer of oil, but it relies on food imports. A few months ago, there was a report that India would pay Iran gold for oil, and bypass the dollar.
With the severe sanctions by SWIFT, there are new reports that Iran is negotiating a deal with its neighbor, Pakistan. Iran might import one million tons of wheat from Pakistan, and pay with fertilizers or iron ore.
The actual price that Iran will pay may be dear, as it is squeezed by the sanctions and by potential internal unrest, according to the report:
Tehran has ordered a large part of its expected yearly requirement in the past month — around two million tonnes of wheat from various sources — paying premium prices to go around sanctions and prevent unrest.
Apart from the sanctions, also rhetoric is rising, especially in Israel.
Is this rhetoric meant to add to international pressure, or is a war imminent?Get the 5 most predictable currency pairs