The World Turns Its Back on Business With Iran

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Global Trade, Macroeconomics

It’s not just the oil and gas industry that is fighting shy of doing business in Iran. Although US pressure to enforce sanctions is pulling in high profile oil companies to withdraw from doing business with Tehran a host of metals firms and other manufacturers are also taking preemptive action.

Many firms have simply announced that they would no long supply refined derivatives to the Iranian regime both directly such as Europe’s Royal Dutch Shell or Malaysia’s Petronas, or indirectly such as BP who provides aviation fuel to airliners around the world. BP has refused to refuel Iran Air aircraft that land in Germany. BP stopped doing business directly with Iran in 2008. Others have stopped buying crude oil such as India’s Reliance Industries. For such firms, the decision is a relatively easy one. For others, it is much harder.  Italy’s ENI announced earlier this year it was ceasing operation of its wells in Iran after over fifty years of presence in the country, handing them over to local partners to carry on.

German firms have been in the vanguard in Europe recently with insurance companies Munich Re and Allianz followed by ThyssenKrupp and Siemens. Germany was until recently a major exporter to Iran, selling nearly $5bn in 2009. Thyssen has a particularly close association with the country as it was part owned by Iran for many years dating from the Shah’s rule in the 1970’s until the company bought enough of its shares in 2003 to avoid being put on a US government blacklist. Now ThyssenKrupp’s involvement will be wound down to zero as it ceases sales that had been running at about $265m a year. Partly under pressure from Israeli diplomats reported in the Jerusalem Post, Daimler has called a halt to sales of heavy three axle trucks to Iran that it is feared will be converted into mobile rocket launchers and aircraft refueling trucks for the military. In 2009 Daimler delivered 8,653 trucks to Dubai without special export controls and reportedly continued to work with Iranian state company Iran Khodro Diesel that sells Mercedes trucks in the country but has recently announced they would sell their 30% share in Iranian Diesel Engine Manufacturing as they cease all contacts with the country. After 100 years of doing business in the country, Siemens has also announced it will cease any further sales of parts and equipment. Siemens has been a major supplier of components for the oil and gas industry and tens of thousands of computers running their programs in the energy industry have been infected with a worm virus this year. Although no culprit has come forward, the Iranians of course suspect Uncle Sam to be behind the sabotage.

More than anything Iran desperately needs expertise, finance and equipment to develop both its own metals industry and reserves. Iran holds what are believed to be the world’s largest zinc reserves and very large reserves of iron ore, lead and copper largely unexploited. According to  a Wikipedia entry, Iran has over 220 million tons of zinc and lead ore reserves. Representing about 11 million tons of zinc and 5 million tons of lead as refined metal, Iran has just under 5% of the world’s metal constituent reserves and at 165,000 tons is the Middle East’s largest zinc producer. So Caterpillar’s decision reported in a Reuters article to tighten up controls on subsidiaries not to sell earth moving and mining equipment to Iran is a significant problem for local resource developers in Iran.

Needless to say global efforts to exert pressure on Iran are not universally supported. Russia’s Lukoil has resumed gasoline sales to Iran and Gazprom is in talks to help Iran develop the Azar oilfield according to MSNBC. What China is doing there is anyone’s guess but chances are they are busy developing opportunities western firms have given up.

–Stuart Burns

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