Iranian buyers are required to put cash up front to obtain import letters of credit (L/Cs) as US sanctions imposed on the Islamic republic last year apparently bite into its economy and international trading ability.

Last year Washington focused on threats and sanctions against banks worldwide that dealt with Iran, thus prompting banks in Europe and across the world to reduce or cease doing L/C business with Iranian banks.

Economic isolation

The US sanctions on Iran are inspired by Washington's belief that Tehran should be penalised for its alleged pursuit of nuclear weapons and sponsorship of terrorist groups.

As a result Iran's trade figures and other economic performance indicators have begun to fall, suggesting deepening economic isolation.

Falling trade

Iran's trade with its largest European trading partner, Germany, fell 14 per cent in the first eight months of 2006 according to the German-Iranian Chamber of Commerce. Germany is a major supplier of steel, machinery and other capital goods required by Iran's manufacturing sector.

German government export credits meanwhile reduced by one-third last year and will probably do so again this year according a spokesman at the German Embassy in Washington, Ulrich Sante.

L/C impacts

Washington has now barred Iranian banks from dealing with the US financial system, either directly or indirectly, which appears to have impacted on L/C business.

A US media report quotes a Tehran business consultant, Saeed Laylaz, saying that exporters to Iran now require buyers to deposit the full amount of a transaction to obtain L/Cs. This he says has added between 8-12 per cent to the cost of imports.

Washington's deterrents

On 8 December 2006 US officials alleged that Iran was supporting terrorism, therefore the US Department of the Treasury announced that Iran's Bank Saderat would be cut off from all access to the US financial system, direct or indirect. (DC World News, 18 September 2006).

The measure came in the wake of pressure earlier in 2006 on European and international banks to reduce their business links with Iran. This led the likes of Swiss banks UBS and Credit Suisse as well as global giant HSBC to reduce their L/C and other business with Iran. (DC World News, 14 June 2006).

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