Iran is struggling to import essential goods such as food and medicine. International banks and governments are holding back from doing any businesses with Iran because they fear breaching US restrictions placed on taking and transferring the Iranian Rial. Although, essential supplies were not included in the list of sanctioned items, the fear of unknowingly breaching the agreement has deterred companies from doing trading with Iran to avoid any potential penalties.
Iran, the world’s 7th largest oil exporter has billions of dollars generated from oil sales frozen in foreign accounts in countries where it does business such as South Korea, Switzerland and Japan . As a result of the sanctions international banks and the bodies regulating them are being extremely cautious about the release of any funds without the correct permissions from the US Government. The repercussion for Iran is that it will not be able to access the full amount of its foreign currency portfolio to maintain its currency if it weakens substantially vs the dollar. The sanctions also prevent dollar transactions with Iranian companies.
Iran has effectively been shut out of the world’s biggest financial system – the USA. Iran may be able to weather the financial implications of sanctions due to its vast oil supplies. But it goes to show the influence which the US system still has over Emerging Market trade relations. Furthermore, highlights that investing in EM countries like Iran (assuming no Geo-political tensions) which have an abundance of natural resources underlying their economy limits your risk when investing in a country.