The Islamic Republic of Iran has been forced to begin trading its oil for goods as the US-led imposition of sanctions make it increasingly difficult for the country to obtain hard currency for its oil exports. Bloomberg News reports that Iran has barter arrangements with China and India, and has tried to negotiate similar deals with Pakistan and Russia.
While the barter deals allow Iran to get something in exchange for its oil, piles of wheat and warehouses full of consumer products are not the same as cold, hard cash that can be used to buy stuff the country actually needs.
A second — a perhaps more devastating — impact on Iran falls on the country’s currency. By accepting goods instead of cash for its oil, Iran fans the flames of inflation as it must spend what hard currency it has to buy goods that it needs. At some point, the country’s economy could simply collapse. Bloomberg quotes an Iran researcher from the US Congressional Research Service:
Iran cannot stabilize the value of its currency with such unorthodox payment methods, and that is why its economy is collapsing. Iran is essentially on a junk-for-oil program.
One thing Iran does accomplish is to provide cover for its trading partners and make it harder for the US and others to track the country’s cash movements. But overall, that seems to be a price the US is willing to pay to stop the flow of hard currency to Iran’s nuclear research program.
Paul Ausick
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