Chinese exporters are refusing letters of credit (L/Cs) from Iranian importers, but not as a direct result of international sanctions.

However, exporters in Chinaare concerned that the sanctions have so diminished liquidity in Iran's banking system that they now doubt whether banks will be able to meet their L/C obligations.

Sanctions pressure

Despite international sanctions imposed on Iran, its importers still enjoy good relations with Chinese exporters, who are notionally not restricted from doing business with buyers in the Islamic republic.

But L/Cs are perceived as increasingly risky financial instruments in light of the wide-ranging sanctions now imposed on Iran's financial sector.

L/C refusals

The commercial director of an Iranian rolling mill was recently reported to have said he had been negotiating for some weeks with a Chinese supplier of flat steel products, but failed to persuade the supplier to deal on L/C terms.

Earlier this month Iran saw its L/C business with countries in the Gulf halted. (DC World News, 7 February 2012).

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.