Iranian Smugglers Feel the Pressure as Sanctions Bite

Western sanctions on Iran are biting so deep that even fishermen who make the two-hour journey across the Strait of Hormuz at night to Oman to smuggle flat-screen televisions, cell phones and food say they’re feeling the pain.

Using small fishing boats in a waterway through which a fifth of the world’s traded oil passes has always been a risky business. Rising fuel costs have increased the price of boat trips, while a slide in Iran’s currency has made it harder to pay suppliers. The risks are even greater with the state promising a crackdown on imports of manufactured items.

“Nobody would believe that we put our life in danger on the sea for a profit of about $80” a month, Aghil Bandari, 40, said in an interview at the fisherman’s pier in Bandar Abbas as three co-workers unloaded a catch of crabs in heat of 40 degrees Celsius (104 degrees Fahrenheit). With more sanctions, “our situation will only get tougher.”

Each year about $5 billion worth of goods are smuggled into Iran, the state-run Mehr News Agency reported in June 2011, citing the Customs and Excise Department. About 80 percent of the mobile phones sold in the country are brought in illegally, said Mohammad Reza Farzanegan, an economics professor at the Center for Near and Middle East Studies at the Philipps- University of Marburg, Germany, who authored a 2009 study on smuggling in Iran.

A European Union ban on Iranian oil purchases this month has added to international trade, banking and energy sanctions designed to force the Islamic Republic to curb its nuclear program. Iranian officials concede restrictions are hurting.

‘Heads High’

President Mahmoud Ahmadinejad said July 3 the measures are “the harshest ever imposed on a country” and urged Iranians to keep their “heads high.”

Prices of basic goods, including meat, rice and bread, have spiralled as the national currency has lost about a third of its value against the dollar on the open market since November, when the U.S. and the EU began to tighten sanctions. The Iranian rial fell to 19,590 against the dollar on July 26 from 13,200 on Nov. 2. The central bank’s official exchange rate of 12,260 rials to the dollar isn’t available to the general public.

“With the rial losing its value, our purchasing power in markets abroad decreased,” said Bandari, who studied law in the capital, Tehran, and after failing to find a job returned to Bandar Abbas.

Smugglers who travel at night to the Omani port of Khasab say they have less cash to buy everything from cell phones, Nike shoes and fruit juices to perfumes, clothes, textiles, cigarettes and wrist watches.

Domestic Production

Food has become a safer cargo than manufactured goods since Supreme Leader Ayatollah Ali Khamenei named the Iranian year starting March 20 the “Year of Domestic Production and Support for Iranian Labor and Investment.” Every $1 billion in smuggled goods costs Iran 50,000 to 60,000 jobs, the Customs and Excise Department said, according to Mehr.

Hossein Shirazi, 43, said when he was sent to court this year after a police patrol picked him up, the judge wasn’t as angry about the smuggling as about the textiles that he was carrying.

“The judge said, ’are you looking to annihilate Iranian companies?’” Shirazi recalled, as he sat on his motorbike. The judge specifically referred to Khamenei’s directive on favoring local products over imported ones and fined him 15 million rials, he said.

Six weeks later he was smuggling again.

Penalties Vary

In the short term, there’s little the government can do to stop smuggling, said Farzanegan from Philipps-University. Local producers aren’t competitive because they have limited capacity and ageing technology, he said.

“The only way the government will protect local production is by increasing tariffs, which will be another signal to smugglers,” he said. “As long as there is a difference between the prices of imported goods and that of smuggled goods, smugglers will have an incentive.”

Penalties vary depending on what products are smuggled. Those who are caught carrying alcohol can have their boat confiscated or receive a jail sentence, Ali Shabani, 32, said as he cleaned his engine at the pier.

“Smuggling edible goods into Iran is easier than shoes and clothing products, because if arrested by the Iranian coastguard there is a lesser fine for these things,” he said.

Hamid, a 34-year-old street seller of sunglasses in downtown Tehran, the capital, says his wares mostly come from China via Bandar Abbas, where he buys from a friend. He says the police generally don’t crack down on him.

Energy Subsidies

“It’s not like I’m selling opium or something, you know,” he said in an interview in between bargaining with clients over sunglasses with brand names such as Ray-Ban, Giorgio Armani, Gucci, Chanel. “When the police come and ask me to pack up, I leave and stash my stuff somewhere else. Sometimes they are tough and take the goods away.”

With energy and food subsidies gradually being removed as part of a five-year government plan that started in 2010, Shirazi said trips to Khasab have become more expensive.

Each fishing boat needs 250 liters (66 gallons) of gasoline for a return trip at a price of about $60, Shirazi said.

To cope with rising prices and the weakening currency, smugglers need to make more trips, crossing every other day rather than three or four times a month, Bandari says. Inflation accelerated to 22.4 percent in the 12 months ended June 20, Iran’s Central Bank said July 9.

Shabani says he and other fishermen by day, smugglers by night have little choice.

“The only reason that I’m a fisherman is to get health insurance from the government for my family,” Shabani, wearing a tank top and flip flops, said at his boat. “Otherwise it is not a worthy job to do.”

To contact the reporters on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net; Yeganeh Salehi in Bandar Abbas, Iran, at yalehi@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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