“Iran to end up with low quality product in case of oil-for-rice barter with Uruguay”

Posted on April 6, 2012


In the oil-for-rice barter with Uruguay, Iran is most likely to end with more low quality rice than it would have if it were buying the rice in the international agricultural commodity markets, since Uruguay has to compete both on quality and price and hence has to ensure the quality of its rice is as good as the other rivals adjusted for price, EU economic advisor Mehrdad Emadi said.

Emadi was commenting on Uruguay’s recent proposal to Iran, regarding an oil-for rice barter deal. Uruguay officials said that if Iran is willing to barter oil for rice, currency will be excluded from the deal. Uruguay is Latin America’s top rice exporter and an ally to the United States in the region.

Iran used to be a major destination for Uruguayan rice but the impact of U.S. and EU sanctions, aimed at curbing Tehran’s nuclear ambitions, has put a strain on financing.

“The proposal made by Uruguay is an effective way of increasing the country’s rice export to Iran without facing fierce international competition and allowing it to sell more of its lower quality rice in the deal,” Emadi said.

He noted that one of the big issues for Uruguay in expanding its export of rice has been the declining quality of its rice vis-a-vis rice sourced from India, Pakistan and Egypt which have been reported to be more suited to Iranian taste.

“A barter-based trade, rice-for-oil will be highly favourable to the Uruguayan side since it will be significantly more costly for Iran to monitor the quality of rice than it is for Uruguay to monitor the quality of Iranian crude simply since oil is easier and cheaper to grade and the international market has accepted grading-price tables,” Emadi explained.

Emadi said that if Iran chooses to accept the proposal it will be able to purchase foreign rice without facing the increasingly suffocating banking restrictions imposed by the United States and the European Union. He added that this kind of choice will be more costly to Iran since within this proposal, Iran can not use international metrics on quality of rice and delivery times to ensure the transaction is the best outcome its oil exports.

“Rice is a perishable and highly sensitive commodity when it comes to the methods of delivery, storage conditions and timeframe under which the rice is transported. Almost on all these Iran has to assume the risks since in barter deals it is the buyer who accepts such risks,” Emadi said.

“Similar risks for Uruguay are much smaller since crude is neither perishable nor sensitive to delivery time and methods of delivery. On this basis, the distributions of risks are very asymmetrical and unfavourable to the Iranian side”.

Answering the question how such deal would impact the Uruguay-U.S. relations, Emadi said that the strategic position of the U.S. will be enhanced if this proposal is implemented.

“This all depends on the scale of the transaction and the extent to which the U.S. government assesses the deal as a sanction-busting attempt,” Emadi noted.

He added that if Iran goes for the deal, it would be dealing with a country that is located in an area that is much easier for the U.S. to monitor the flow of trade, interrupt it should it wish to do so, and exert pressure on those agents which facilitate and ensure the completion of the transaction.

American Enterprise Institute Research Fellow Ali Alfoneh believes that Uruguay’s proposal to barter oil for rice is a reminder of the United Nation’s “Oil for Food Program” imposed upon the Saddam Hussein led Iraq.

“The U.S. would most likely not oppose it because of humanitarian reasons, and because the proposal denies the regime in Tehran access to much needed foreign currency which could be used to advance Iran’s nuclear program,” he said.

Washington has said that it could slap sanctions on countries that buy crude from Iran. Pressure from Washington and Brussels, which will slap a EU-wide embargo on Iranian oil from July as part of a campaign against Tehran’s nuclear program, has led to a rally in oil prices this year as markets fear supply shortages.

In this particular case, Uruguay has offered Iran a deal that would work without involving any currency.