Renewed US sanctions squeeze Iranian logistics

Once again, the US is tightening its grip on the flow of trade into Iran.

The sanctions pursued for the decade prior to the ‘Joint Comprehensive Plan of Action’ (JCPOA), which led to the lifting of UN sanctions in January 2016, were brutal for economic activity in and out of Iran. Their re-imposition seems likely to be at least as brutal, with the US now pressing for Iran to be excluded from the SWIFT banking transaction system.

Even prior to the formal imposition of sanctions on Tuesday August 7, key sectors of the Iranian economy had suffered badly. Automotive assembly in Iran had been a prominent destination for foreign investment. This has almost come to a halt. The automotive sector in Iran is dominated by ‘Complete Knock-Down’ (CKD) kits from Renault, Peugeot-Citroen and to a much lesser extent Chinese VMs. In a good year these can account for several hundred thousand TEUs, generally fed into Bandar Abbas port via Dubai and are one of the largest container trades. With the announcement last week that Renault was ceasing operations, something that Peugeot-Citroen decided last month, the CKD related container traffic will fall heavily. Possibly the Chinese VMs may increase inputs to compensate but they are much weaker in this market.

Shipping any cargo into Bandar Abbas is becoming complicated. The leading western container lines have effectively withdrawn from services into Iran, presumably leaving shippers to arrange their own feeder services from Dubai. Once again, the Chinese carriers may be the only option.

Although the success of sanctions in delivering their political objectives is debatable, the effects on the Iranian logistics economy of the country’s isolation has been enormous. Despite all of the talk of the development of Chabahar port on the Gulf of Oman coast, Iran lacks a large modern port. Bandar Abbas dominates non-hydrocarbon traffic yet it is unable to take any ship larger than 11,000 TEUs. The port needs to be able to move large volumes of containers into the main population centres in Northern and Western Iran, yet only now is even moderate investment in rail taking place and that is driven largely by the Chinese. Rather, the country is dependent on its less-than-adequate road system to move almost everything.

The comparison with its neighbours along the Gulf is painful. Saudi Arabia and the UAE are the location for some of the world’s largest concentrations of logistics infrastructure, such as the huge container port complexes and airports of Dubai or the vast petrochemical complexes that run west from Ras Tanura to the Kuwaiti border. Certainly, the capital for these developments on the Arabian Peninsula was provided by revenues flowing from oil and gas production, yet Iran also has vast hydrocarbon reserves, with the South Pars field alone accounting for around half of all global gas reserves.

Iran requires major investments in its logistics capabilities. New ports, airports, roads and railways are badly needed. The economic impact of such investments would be transformative for the Iranian economy and it would represent a valuable opportunity for the global logistics sector. However, it appears unlikely that this will happen until the political and strategic conditions in Iran change, with the major proviso that the present situation offers significant opportunities for the Chinese. 

Source: Transport Intelligence, August 7, 2018

Author: Thomas Cullen


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