Iran is increasing trade flows with Latin America amid the threat of tougher US-led sanctions
Iranian president Mahmoud Ahmadinejad could hardly have wished for a warmer reception than the one afforded him by Latin American leaders when he led a high-level delegation to the region in November 2009.
The red carpet reception given by Brazil’s President Luiz Inacio Lula da Silva stood in sharp contrast to Tehran’s pariah status throughout much of the West and the Middle East.
For the EU and Washington, Ahmadinejad’s regime has gone far beyond the pale. And planned new US-led sanctions targeting Iran’s gas sector may further intensify the Islamic republic’s international isolation.
“Since sanctions hamper Iran’s exports, it is through direct investment that it aims to embed influence”
But Iran’s longer-standing Latin American partners, such as Brazil and Venezuela, have different political and economic priorities. President Lula is intent on transforming his country’s international role, emphasising economic links between emerging economies, and he has bolstered the country’s global status by steadfastly refusing to bow to US pressure not to trade with Iran.
Iran, as an oil-producing nation with a population of 71 million, is seen as a potentially important trade and investment partner by Brazil, which is looking to penetrate new export markets outside the Americas.
The imperative of striking up new commercial arrangements is even greater from Tehran’s point of view; securing the support of Brazil substantially strengthens the country’s position at a time of vulnerability. Even compared to its alliance with its staunch friend Venezuela – described by one critic in Washington as an “axis of annoyance” – Iran’s overtures to Brazil, with its economic and diplomatic clout, stands for much more.
There is real economic substance to the relationship between Iran and Brazil. The meeting in November last year between Lula and Ahmadinejad – who arrived in Brazil accompanied by 200 Iranian business leaders – led to the announcement of a slew of deals focused on industry, trade, energy, and technology. The two leaders set a target of conducting $25bn worth of trade annually between the two countries for the next five years. And indeed, bilateral trade is growing fast, according to International Monetary Fund statistics, which show that Iran’s trade with Brazil grew 88 per cent to $1.26bn in 2008 over the previous year. The flow of trade is overwhelmingly in the direction from Brazil to Iran, mainly in the form of commodities and manufactured products. Brazil’s exports to Iran rose from $660m in 2007 to $1.245bn in 2008. In contrast, Iran’s exports to Brazil in 2008 were just $16.7m, rising from $10m the previous year. Trade figures for 2009 are expected to show a continued rise. Given Dubai’s prominent role as a trade entry point to Iran, Brazil’s real exports could be even higher. Beef and other Brazilian products are reported to be sold to Iran via Dubai, but do not appear in official figures on bilateral trade.
Of the Latin American states, it is not just Brazil that is looking to increase trade links with Iran. The Islamic republic’s trade with Argentina – a country with which Tehran has enjoyed notably frosty political relations since Iranian officials were accused by Argentinian officials of involvement in two terrorist bombings in Buenos Aires in the early 1990s – grew to $1.2bn in 2008, dominated by agricultural commodities and foodstuffs. In contrast, Argentina exported less than $30m worth of goods to Iran in 2007.
Overall, Latin America maintains a large trade surplus with Iran – $2.53bn in 2008. Trade between Iran and Latin America as a whole grew 209 per cent in 2008, reaching $2.86bn in 2008, figures from the Institute for Fiscal Studies reveal. Iranian exports to South American states jumped by 85 per cent to $337.6m in the same period.
Iran’s closest political and investment partner in Latin America, Venezuela, remains a marginal trade partner – reflecting the reality that both countries’ exports are dominated by crude oil and they consequently have relatively little to sell to each other. Venezuelan trade volumes are growing, though: in 2008, bilateral trade grew 31 per cent to $52m.
“Both countries suffer the same economic problems and have an ideological affinity,” says Mehdi Varzi, an Iranian economic consultant and former oil ministry official. “Both their oil industries are in trouble, they can not increase their exports, their domestic demand is going up, and they have huge social projects.”
In terms of Iranian exports to Latin America, Ecuador is the main market, ahead of Peru. Iran sold $167m worth of goods to Ecuador in 2008, from virtually nothing the previous year. Peru, at $61m, is the next biggest export market in Latin America for Iran.
In global terms, though, Latin America still stands some way behind Asia as Iran’s main export market. According to the Export Guarantee Fund of Iran, an export credit agency, 76 per cent of the medium to long-term business that it covers is with Asia, with Latin America accounting for the other 24 per cent.
Since UN trade sanctions hamper Iran’s export efforts, it is through direct investment that Tehran primarily aims to embed its influence in Latin America. Iranian investment projects range from a $350m deepwater seaport in Nic-aragua to tractor assembly plants in Venezuela, the country that has been the main focus for Iranian direct investment, alongside fellow anti-American leftist or nationalist states such as Bolivia, Nicaragua and Ecuador.
In September 2009, Ahmadinejad signed more than 200 economic co-operation agreements during a visit by Venezuelan president Hugo Chavez to Tehran. The centrepiece was a large joint-investment initiative, focusing on the two countries’ energy sectors. Venezuela’s state energy company, PDVSA, is to invest $760m in the development of phase 12 of Iran’s South Pars natural gas field, while Iran will match the $760m investment in the development of the Venezuelan Dobokubi oilfield and the development of Block 7 of the Ayacucho heavy oil field.
The Islamic republic has made a number of large investments in Venezuela over the past 10 years. Iran’s Kayson construction group is building a 10,000-unit public housing development for the Ministry of Housing under a deal signed in 2006. This project has the added effect of boosting Iran’s exports of building materials to Venezuela. The Export Development Bank of Iran has also provided cover for a 1 million-tonnes-a-year capacity cement factory in the Matourin area of Venezuela, with an investment worth $193.8m. The project began in 2006, although the plant is not yet fully operational.
Indeed, the follow-through on announced joint initiatives is often disappointing. An Iranian-Venezuelan joint venture, Venirauto, for instance, began assembling the Centauro car – manufactured by Iran-Khodro Company – in 2006 but it is reported to be well short of a target production of 26,000 units a year. Parts delivery from the Khodro plant in Iran has run behind schedule, while the Venezuelan plant has been hit by strikes by local labourers unhappy at the pay and safety conditions.
Bolivia is Venezuela’s main rival as a competitor for Iranian investment, with schemes ranging from dairies and agriculture to mining and hydroelectric dams. An office of the National Iranian Oil Company opened in Santa Cruz in 2009 to help implement joint Iran-Bolivia energy projects.
Cuba has also attracted Iranian investment. Iran’s Pars Wagon Company is providing Cuba’s state railway with 550 freight wagons and 220 passenger carriages.
Despite nagging doubts about the viability of these investment schemes, Iran will continue to push these politically motivated projects as a means of solidifying political contacts with friendly regimes in Latin America. But they cannot disguise the reality that Latin American states will prioritise their own economic interests over expressions of political solidarity; the actions of Brazil’s state oil company Petrobras is a case in point. The company stated last year that it would end its operations in Iran, following five years of drilling in the offshore Tusan block in the Gulf.
While leading Latin American economies such as Brazil and Argentina see Iran as a substantial export market, the reality is that Iran has yet to prove itself a
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