Now, with the cloud of sanctions hovering over bilateral trade between India and Iran, the safest route would be to switch over to the barter of commodities, as financial transactions involve high risks.
There is a silver lining, too. Indian companies might now smell a golden opportunity of setting up business operations on Iranian soil, what with competition having slowed down after the sanctions, SteelMint reported.
Iran’s Ambitious Steel Plans
As the largest steel manufacturer in the Middle East and North Africa region, Iran has been pushing forward its national steel industry development program that aims to nearly double its capacity from the current 32 million tons per year to 55 million tons by 2025, according to Financial Tribune.
With this boost to Iran’s steel sector, the country’s demand for ferroalloys is increasing rapidly.
Will Sanctions Impact Iran’s Steel, Ferroalloy Sectors?
The looming sanctions are likely to adversely affect Iran’s steel sector, thereby impinging the domestic demand for ferroalloys. This is because European plant makers, including SMS, Danieli, Sarralle, Outotec and voestalpine have invested in expanding Iranian steel production projects since JPCOA became effective in early 2016.
The new mills are expected to be seriously hit by financing difficulties stemming from US sanctions. As per trade sources, many have already come to a halt amid uncertainties over US policy.
In Iran, financing has always been a challenge for these projects in which only banks with no US connections have been able to participate. Thus, there are chances that Iranians may turn to Chinese technology for their steel and metals development projects, if European companies back out.
Iran Depends on Indian Imports
Apart from domestic production, Iran has been importing ferroalloys from India, especially after India amended its foreign trade policy by lifting sanctions on trade with Iran in 2016. This decision came on the heels of the Joint Comprehensive Plan of Action in Jan. 2016, under which most western sanctions on the Islamic Republic were lifted.
According to customs data in 2016, India exported 37,725 tons of ferroalloys to Iran, which increased by 64% to 61,850 tons in 2017. Between January and May of the current year, exports stood at 34,142 tons.
Effect of Rial’s fall on Indian Ferroalloy Exports
In May 2018, the US announced plans to reimpose economic sanctions on Iran, which means that any country or company having trade ties with Iran would be subject to secondary sanctions.
The immediate adverse effect of these sanctions was seen in Iran’s currency depreciation, which has lost more than 50% of its value in the past four months. The rial has touched a new low last week against the US dollar trading at an average of 112,000 in the country’s black market from around 90,000 the week before.
As a result, imports of ferroalloys have become significantly costlier in Iran.
“After the US sanctions and the ongoing currency depreciation, it has become quite difficult to import ferroalloys. Therefore, we are hoping that the government would formulate a fresh policy to ease the burden,” said an Esfahan Steel Company official.
Apart from the possibility of switching over to the oil-ferroalloys barter amid sanctions, another option could be an Indian rupee-based payment mechanism for trade that India adopted during the 2015 sanctions that prohibited purchases from Iran in dollars.
At a time when sanctions on Iran could derail its trade with India, it could simply trigger a stimulus that could end up boosting ferroalloy demand from India.