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Economy

US-backed sanctions hit Kenya’s exports to Iran

The Tea Trade Centre in Mombasa. Kenya exported 5.4 million kilogrammes of tea to Iran last year, accounting for the bulk of Sh1.9 billion worth of commodities sold to the oil producing state. Photo/ANTHONY KAMAU | FILE
The Tea Trade Centre in Mombasa. Kenya exported 5.4 million kilogrammes of tea to Iran last year, accounting for the bulk of Sh1.9 billion worth of commodities sold to the oil producing state. Photo/ANTHONY KAMAU | FILE 

Tea and meat exporters top the list of Kenyan businesses that have been hardest-hit by the US-backed smart sanctions slapped against Iran last year.
Kenyan commodity traders said it had become difficult to do business with their Iranian counterparts who have been facing a crippling US dollar shortage since January.

The US and its European allies imposed an oil exports embargo on Iran — the world’s fourth largest oil producer — over a long-running nuclear power stand-off.

The Western powers accuse Iran of developing nuclear technology that could be used to make bombs, an allegation Iran has denied, insisting that its programme is for peaceful, non-military use.

Smart sanctions

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The targeted or smart sanctions also bar foreign firms or governments from doing business with Iran’s central bank, cutting the country’s ability to earn dollars – the international currency of trade – to almost nil.

The acute scarcity of dollars in Tehran is now being felt in Nairobi as Iranian traders are rendered incapable of paying for imports from Kenya.

Njue Kiarie, the chairman of the Tea Traders Association, told the Business Daily that trade between Kenya and Iran has been declining steadily since January and nearly grinding to a halt since the beginning of the month.

“We have lost that market because buyers of our commodities cannot pay for anything,” said Mr Kiarie. According to him, the crisis had worsened in recent weeks.

Trade with Iran has been declining since January with most payments coming through from the United Arab Emirates, according to Mr Kiarie.
“We do not know when this will end so that the Iranians can start buying our goods again,” he said.

Kenya exported 5.4 million kilogrammes of tea to Iran last year, accounting for the bulk of Sh1.9 billion worth of commodities sold to the oil producing state.

Iran last year signed a contract with the State-owned Kenya Meat Commission for the supply of 1,000 metric tonnes of beef and other meat products, but escalating dollar scarcity in the Persian country has left that deal on the rocks.

International trade experts expected the dollar scarcity in Iran to hamper the meat export deal opening yet another area of potential loss of business for Kenya.

Indian rice exporters to Iran in February reported massive payments default for commodities delivered in the last quarter of last year as the dollar squeeze progressed, highlighting the risk that Kenyan traders face.

Mukhisa Kituyi, a former Trade minister , said the dollar scarcity could cut trade between the two countries by up to 80 per cent of last year’s exports, adding that Kenya’s desire to maintain good relations with the Western world puts the country in a difficult position.

“The sanctions are meant to deny Tehran foreign exchange and cripple its ability to participate in international commerce, including its ability to pay for imports,” said Dr Kituyi.

The Tea Board of Kenya, the agency that markets Kenyan tea globally, could not be immediately reached for comment but Sicily Kariuki, its managing director, had in an earlier interview acknowledged that the sanctions posed a big threat to Kenya’s trade with Iran.

“Iran is an important market for Kenyan tea with a huge growth potential. The current circumstances caused by sanctions are definitely affecting our traders who must only hope for a quick solution to the nuclear stand-off,” Ms Kariuki had said.

Tehran is, however, reported to be seeking alternative means of paying for its imports, including use of gold and oil to pay for grains.

It has also been reported that the Persian nation has paid in yen for a large consignment of wheat imports – the first such deal since the Western sanctions began.

While the sanctions are limited to oil, the resulting scarcity of foreign currency in the oil-producing nation has increasingly rendered it incapable of paying for all imports, negating the bilateral trade deals that Nairobi struck with Tehran in recent months.

The US and its allies imposed smart sanctions on Iran to pressure the Islamic regime into abandoning its nuclear ambitions. Adams Oloo, a political scientist at the University of Nairobi, said that while the sanctions are mainly targeting Iran’s oil revenues, the implications have and will continue to be felt by traders in all other commodities.

“The sanctions may be directed on Tehran’s export commodities but the implications are much wider because it disables Iran’s ability to participate in international trade,” said Dr Oloo.

Nairobi last week terminated an oil supply agreement it had signed with Tehran for the supply of 80,000 barrels of oil a day after the US government and Israel warned Kenya that the deal was in breach of the embargo.

Energy permanent secretary Patrick Nyoike said Kenya had cancelled the contract because it was bound by international sanctions imposed on the oil producer.

Kenya risked economic sanctions from the US and EU, which are important export markets for horticultural produce, tea and coffee, and are sources for billions of shillings in bilateral aid.

Good relations

Officials said the prospective dividend of maintaining good relations with both the US and EU far outweighed any gains Kenya could make from importing Iranian oil, irrespective of the price discounts.

The international media had by last week reported that the embargo had left Iran with large and growing oil inventories that are expected to overrun the storage capacity in the coming month.

The Persian state must, however, continue to produce the commodity to preserve the oil wells.

Kenya has been trying to diversify its export markets for tea to cut its reliance on traditional markets such as UK, Egypt, Sudan, Afghanistan and Pakistan that account for 70 per cent of the country’s total exports.

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