Iran: Iran may not have much choice, but selling oil under a barter system won't solve the country's woes. International sanctions make it increasingly difficult for buyers of Iranian oil to finance their imports. A payment dispute recently led to a suspension of Iranian oil sales to India. Now Teheran and Beijing are exploring ways to barter oil for Chinese goods. But even if China sends machinery instead of money to circumvent US sanctions that are increasingly hampering payments, Iran's economy will remain vulnerable without hard currency. The oil-for-something system is tried and tested, although it is more common among poorer countries. Venezuela, for example, provides around 100,000 barrels of discounted oil to Cuba, accounting for around half of the island country's total consumption. In return, Cuba acts as a contractor, sending teachers and doctors to Venezuela. The arrangement helps Cuba to get oil it could not afford otherwise.
Similarly, China manufactures goods that Iran needs - machinery accounts for around 15 per cent of the Persian Gulf country's imports. With bilateral trade already at around $30 billion last year and growing, it wouldn't be too hard to offset the oil trade estimated at around $10 billion, or 540,000 barrels per day, in the first half of this year. That is equivalent to about 20 per cent of Iran's total oil exports.
Iranians are accustomed to bartering their way around international sanctions. Speedboats zip daily across the Strait of Hormuz to the Musandam Peninsula in Northern Oman, carrying sheep or goats. Vessels make the return journey loaded with electronics and cigarettes that US manufacturers are prevented from exporting to the country. But sanctions are also making it harder to get things like spare parts for airplanes.
A barter system could preserve Iran's valuable relationship with China, which extends beyond oil and into areas like transport and aluminium. However, it would still leave Iran searching for the steady supply of foreign funds it relies on to stabilise its own currency, devalued last month and under pressure amid inflation fears. It is unclear how much of Iran's forecast $122 billion reserves have been spent addressing the problem. But as sanctions bite into key trade relationships, Iranians aren't inclined to trust their own currency.
