From Zero Hedge via John Rolls
Much has been made of today’s Reuters story how “Iran turns to barter for food as sanctions cripple imports” in which we learn that “Iran is turning to barter – offering gold bullion in overseas vaults or tankerloads of oil – in return for food”, and whose purpose no doubt is to demonstrate just how crippled the Iranian economy is as a result of the ongoing US embargo. Incidentally this story is 100% the opposite of the Debka-spun groundless disinformation from a few weeks ago that India was preparing to pay for Iran’s oil in gold (they got the asset right, but the flow of funds direction hopelessly wrong). While there is certainly truth to the fact that the US is actively seeking to destabilize the local government, we wonder why? After all as the opportunity cost for the existing regime to do something drastic gets ever lower as the popular resentment rises, leaving the local administration with few options but to engage either the US or Israel. Unless of course, this is the ultimate goal. Yet going back to the Reuters story, it would be quite dramatic, if only it was not the case that Iran has been laying the groundwork for a barter economy for many months now, something which various other analysts perceive as the basis for the destruction of the petrodollar system. Perhaps regular readers will recall that back in July, we wrote an article titled “China And Iran To Bypass Dollar, Plan Oil Barter System.” Specifically, we wrote that “according to the FT, China has decided to commence a barter system in which Iranian oil is exchanged directly for Chinese exports. The net result: not only a slap for the US Dollar, but implicitly for all fiat intermediaries, as Iran and China are about to prove that when it comes to exchanging hard resources for critical Chinese goods and services, the world’s so called reserve currency is completely irrelevant.” Seen in this light the fact that Iran is actually proceeding with a barter system, something that had been in the works for quite a while, actually puts the Reuters story in a totally different light: instead of one predicting the imminent demise of the Iranian economy, the conclusion is inverted, and underscores the culmination of what may have been an extended barter preparation period, has finally gone from beta to (pardon the pun) gold, and Iran is now successfully engaging in global trade without the use of the historical reserve currency.
Here is how Reuters presents its findings:
Difficulty paying for urgent import needs has contributed to sharp rises in the prices of basic foodstuffs, causing hardship for Iranians with just weeks to go before an election seen as a referendum on President Mahmoud Ahmadinejad’s economic policies.
New sanctions imposed by the United States and European Union to punish Iran for its nuclear program do not bar firms from selling Iran food but they make it difficult to carry out the international financial transactions needed to pay for it.
Reuters surveys of commodities traders around the globe show that since the start of the year, Iran has had trouble securing imports of basic staples like rice, cooking oil, animal feed and tea. Grain ships have been held at its ports, refusing to unload until payment can be received for cargo.
With Iran’s rial currency tumbling, the prices of rice, bread and meat in Iranian bazaars have doubled or more in dollar terms in recent months.
Iranian grain importers have in the past side-stepped sanctions by booking business through the United Arab Emirates, traders said, but this option was cut off by the UAE government in response to sanctions.
Iran has been trading oil in currencies like Japanese yen, South Korean won and Indian rupees, but such deals make it difficult to repatriate profits.
Deals revealed Thursday appear to be among the first in which Iran has had to result to offering cashless barter to avoid sanctions, a sign of new urgency as it seeks to buy food and get around the financial restrictions.
The article’s punchline:
Another trader said: “As the shipments of grain are so large, barter or gold payments are the quickest option.”
Details of how the barter deals work are still unclear as the payments problem is so new, and traders did not disclose the exact size of such deals.
Perhaps a different spin on the news is that gold is “suddenly” just as equially accepted as a pseudo-reserve currency virtually everywhere in the world, as the dollar: a blasphemous concept to many legacy economists for sure. But the truth is that gold and barter appear to be working. Especially when one considers what the FT had to say on this topic back in July 2011
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