* Indian wheat not meeting Iranian standards
* Iran alternative payment system set up
By Jonathan Saul and Qasim Nauman
LONDON/ISLAMABAD, June 28 Iran's attempts to
secure millions of tonnes of wheat via sanction-beating barter
deals with India and Pakistan are failing, and Tehran is poised
to pay premium prices on international markets to secure food
and stave off unrest.
Food is not targeted under Western sanctions aimed at
deterring Iran's nuclear programme, but in recent months it has
paid high prices for grain to work around a freeze on financial
transactions due to the measures.
Iran had turned to India and Pakistan for wheat to meet some
of its needs, but international grain traders say talks with
both Delhi and Islamabad are deadlocked.
"There is great doubt in the market about whether the Indian
deal will happen. They are never going to get the phyto-sanitary
standards worked out," one European grains trader said.
"The Indian wheat cannot reach the standards the Iranians
As Iran's second-biggest crude client, India hoped to
reassure Tehran on quality and secure wheat sales to help settle
part of its $10 billion a year-plus oil import bill through a
barter-style mechanism using rupees. India said last week it can
export up to 3 million tonnes of wheat if supplies are
"There is an issue of Karnal bunt (a fungal disease in
wheat) ... Iranians are not too keen on Indian wheat because of
the quality," said a Singapore-based trader.
"All wheat cargoes have some amount of foreign matter, but
India has more because the loading is not mechanised - it is
An official with France's grain lobby told Reuters after a
visit to Iran that the Islamic republic needs to buy some 2
million tonnes of milling wheat in the next few months after
having imported 3 million tonnes so far this year.
"Rising food prices have become a thorny political issue for
the regime and President Mahmoud Ahmadinejad in particular,"
said Torbjorn Soltvedt with risk analysis firm Maplecroft.
"Given the potential for food shortages to erode support for
the regime, Iranian leaders are likely to continue to take an
active role in attempting to secure high volume grain shipments
through bilateral agreements. Despite some deals falling
through, Iran has so far been relatively successful in securing
large orders using its state food buyer."
PAKISTAN DEAL FADES
Trade sources said talks between Iran and Pakistan over a 1
million tonne wheat barter deal also had hit a growing number of
snags including uncompetitive pricing.
"There is no movement on the barter proposal with Iran at
the moment. Given the delay, it is difficult to say when and if
anything will happen," a Pakistan commerce ministry official
told Reuters on Thursday.
In May Islamabad said Iran offered $265 per tonne for wheat,
but Pakistan asked for international prices of $312 per tonne.
Benchmark Chicago July soft red wheat futures were priced at
$6.11 per bushel or $224.50 per tonne in late May.
A Middle East-based trader also cast doubt on any deal.
"The dynamics for this to work are not there, and there is
more chance that the Iranians will reach an agreement with India
rather than Pakistan, which shows how doubtful it is," he said.
A Pakistan-based trade source pointed to wider political
factors influencing the deal, which would require the nod from
the United States.
"For better or worse, these days owing to their own domestic
problems, Pakistan's leaders are subservient to U.S. pressure,
but outwardly they give different and hard messages for local
consumption," the source said.
"Something similar applies to India, which depends on U.S.
military and technology support. India seems to talk with Iran
but most times does not conclude deals."
INTERNATIONAL MARKET WATCHES
Iran is constantly making enquiries in the international
market for supplies, trade sources said.
"I expect Iran to re-enter the international wheat market in
July, and it seems the only origins available rapidly at that
time will be U.S. and Black Sea. Western European harvests will
only be starting," a European grain trader said.
"I expect Iran to make 3.5 million tonnes of wheat imports
Iranian companies have been cut off from much of the global
banking system because of the financial measures against Tehran,
making payments difficult.
The government, however, has become increasingly adept at
sidestepping the restrictions, creating alternative payment
systems to secure vital supplies.
"The Iranians are working around the restrictions," another
European based grain trader said.
"They are constantly price checking and are using other
tracks apart from exploring government-to-government deals. One
way or the other, there is no doubt they will get their grain."
(Additional reporting by Michael Hogan in Hamburg, Mayank
Bhardwaj in New Delhi, Naveen Thukral in Singapore; Editing by
Veronica Brown and Jane Baird)