According to a Business Recorder exclusive, Pakistan has lost the Iranian rice market to India due to lack of proper transaction channels. The lack of transaction channels refer to the justifiable reluctance of Pakistani commercial banks, particularly those with branches in the US and Europe, to engage in business with Iran due to the prevailing US sanctions. In other words, fear of reprisals by the US government in the event that business is carried out with Iran, prima facie, justifies the decision of our commercial banks.
China, South Korea, India, as well as several European countries with heavy existing reliance on Iranian crude, in marked contrast to Pakistan, got a waiver from the US State Department – a waiver which was expected in return for their agreement to reduce purchases of Iranian crude oil. This waiver implied that banks in these countries would no longer face being cut off from the US financial system. John Kerry, Secretary of State, is on record as having stated: “We will continue to aggressively enforce our sanctions over the next six months, as we work to determine whether there is a comprehensive solution that gives us confidence that the Iranian nuclear programme is for exclusively peaceful purposes.”
Sanction waivers were not the only reason behind India’s success in taking over the lucrative rice market of Iran from Pakistan. Indian shippers began being paid up front in rupees from massive amounts owed by the Indian oil refineries to Iran for crude oil imports. Suresh Manchanda, marketing director of a Delhi-based company which exports rice, wheat and sugar globally stated that “now business is being done directly because Iran is allowed to open letters of credit in Indian rupees because the government has to pay money to Iran for the oil.”
The US Treasury Department notes on its website that “on July 14, 2015, the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States), the European Union, and Iran reached a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear programme will be exclusively peaceful. October 18, 2015 marked Adoption Day of the JCPOA, the date on which the JCPOA came into effect and participants began taking steps necessary to implement their JCPOA commitments. January 16, 2016, marks Implementation Day of the JCPOA. On this historic day, the International Atomic Energy Agency (IAEA) has verified that Iran has implemented its key nuclear-related measures described in the JCPOA, and the Secretary State has confirmed the IAEA’s verification. As a result of Iran verifiably meeting its nuclear commitments, the United States is today lifting nuclear-related sanctions on Iran, as described in the JCPOA.”
Sadly no progress has been visible with respect to re-engaging with Iran after the lifting of the US sanctions. Rice is Pakistan’s second largest export item, after cotton and related products, and one would hope that the government provides the support that this sector requires to re-engage in the Iranian rice market. Noman Ahmed Sheikh, senior vice chairman of Rice Exporters Association of Pakistan (REAP), urged the government to extend support thereby enabling the local rice exporters to compete with our international competitors particularly India in terms of price and quality of inputs including seeds.
Thankfully, China is emerging as a major rice importer for Pakistan. However, the government needs to extend as much support to the farm sector in general and the cotton and rice sector in particular as possible, the two major export earners of this country, in terms of input prices that are comparable to what is available to their international competitors as well as making government-to-government deals to ensure that there is no loss of market even if that requires extending a subsidy.