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Iranian oil sales, foreign exchange taking a hit from US, UN sanctions

Despite Tehran's insistence that increasingly strict sanctions are not harming Iran, Iranian oil sales are down and its foreign exchange access is being hampered by the US and UN sanctions.

By Roshanak TaghaviCorrespondent / October 14, 2011



Washington

Iranian President Mahmoud Ahmadinejad's recent sweep through New York for the UN General Assembly hit the usual rhetorical buttons, and kept headlines focused on possible nuclear negotiations and Iran's view of the "Arab Spring."

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But the focus on foreign policy issues also served as a useful tactic to steer global attention away from Tehran's mounting internal concerns – especially the impact of US-led and UN sanctions and Iran's weakening currency.

Iranian officials have consistently said that the latest international sanctions, the harshest to date, haven't damaged the country's energy sector or slowed economic growth any more than previous UN sanctions.

What has become privately worrisome for Tehran is the rise in global implementation of financial sanctions unilaterally imposed by the United States Treasury, which have constrained the Central Bank of Iran's access to foreign exchange and hampered the country's oil sales by raising the transaction cost for purchases of Iranian oil.

Tehran's financial sector has faced constraints since as early as 2006, with the onset of tougher US and UN sanctions over the Islamic Republic's nuclear energy program.

The financial squeeze on Iran tightened considerably after 2007, as the US Treasury increased its efforts to persuade foreign governments and private entities to follow the financial sanctions against Iran that had long been in place but not consistently implemented, says Erich Ferrari, an attorney specializing in US Office of Foreign Assets Control (OFAC) legislation and author of The Iranian Transactions Regulations Practice Guide.

Revenues from crude oil exports – currently around 2.2 million barrels a day – serve as Iran's main source of foreign exchange, with earnings from oil sales deposited into National Iranian Oil Company (NIOC) accounts held in banks overseas. Revenues are then transferred to the Central Bank, which converts them into rials, Iran's local currency, and deposits them into the Treasury’s accounts for allocation into the state budget.

Sanctions' double whammy

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