Iran hard-liners skirt sanctions

Tightened international sanctions meant to punish Iran for its nuclear program may be strengthening the country’s hard-line elite, as blacklisted firms linked to the powerful Revolutionary Guard manage to circumvent and even profit from the embargo.

Businesspeople, officials and analysts inside and outside the Islamic Republic describe the sanctions as taking a toll on the economy and ordinary citizens, increasing the cost of everything from the production of medicine to the manufacture of baguettes.

But they also say key businesses and government operations controlled by the Revolutionary Guard have found ways to skirt the sanctions, which ban trade with state-run firms connected to the nuclear program, by enlisting private-sector firms as fronts.

Although the Obama administration contends that sanctions are damaging Iran’s economy, supreme leader Ayatollah Ali Khamenei has described the restrictions as a potential opportunity for the government of President Mahmoud Ahmadinejad.

“Fortunately, officials have adopted very strong and appropriate policies,” he said in a speech broadcast on state television last week. “Hopefully, the decision by the officials is to turn sanctions into opportunities. In fact, the situation needs to be turned into an opportunity.”

Businesspeople say that the situation means consumers are paying skyrocketing prices for housing, food and transportation, and that independent merchants are losing ground to those inside the political establishment.

Meanwhile, in Tehran’s sprawling Grand Bazaar, well-connected conservative merchants linked to the Islamic Coalition Party, which is close to Khamenei, have used their business and financial connections with China to ignore sanctions, said Kamran Vakil, an official at the Iranian Union of Mineral Products Manufacturers and Exporters, a private-sector trade association.

For importers and exporters, the 2,500-member Iran-China Chamber of Commerce and Industries has become more important than Iran’s Central Bank, Vakil said.

“The sanctions have played into the hands of the most hard-line and fanatic in the bazaar and the traditional rightists,” he said.

Merchants described a number of ways the Revolutionary Guard circumvents sanctions. The manager of a company that imports and exports printing equipment said he was contacted in July by a blacklisted Revolutionary Guard-affiliated firm that wanted him to sell old machinery and help it buy new equipment from a company in Venezuela — all at a modest profit for the businessman, who said he was considering the deal.

Government-affiliated firms are also seeking to establish offices in Iraqi Kurdistan, Persian Gulf states and Venezuela, trade experts and businesspeople say.

Through offshore offices, they sell products to Iran, thwarting sanctions by attaching fake addresses in Afghanistan, Turkmenistan or other Central Asian countries. Additional costs are passed on to the buyer, said Vakil and other Iranian businesspeople.

Well-connected companies are even finding ways to profit directly from the sanctions. Businesspeople say a sanctions-breaking industry is emerging, with firms specializing in helping others overcome the restrictions for a price. When one channel is blocked, managers seek others.

“Until three months ago, we could get out money, in return for exporting chemicals, from a Turkmenistan bank,” said a manager at a company that exports chemicals and imports equipment for renewable energy who has employed a consulting firm to help him circumvent sanctions. He spoke on condition of anonymity. “But recently, even a $20,000 transaction was blocked. So we’re looking for another way.”

Over the last two decades, Iran’s dogmatic and anti-Western hard-liners — including a circle of Iran- Iraq war veterans and members of the Revolutionary Guard — have emerged as the dominant players in economic and political life, with control over the country’s borders and international trade.

Critics of sanctions say there is no evidence that the U.S.-led effort has forced the hard-liners to change their position on the country’s nuclear program, decrease their support for allied militant groups fighting Israel or soften their crackdown on the nation’s pro-democratic opposition forces.

“The Iranian people are like cannon fodder caught between the barrage of two enemies: the West and the government of President Mahmoud Ahmadinejad,” Mohammad-Reza Behzadian, a former lawmaker who is now a supporter of the country’s opposition movement, told The Times.

The U.S. has restricted trade with Iran since a 1979 revolution there brought to power radical Islamists who seized the American Embassy and held its employees hostage for nearly 15 months. In 2006, the U.N. Security Council began imposing a series of ever-tightening trade restrictions on Iran over its refusal to curtail sensitive aspects of its nuclear program. The European Union, Japan, Canada and Australia also recently announced new trade restrictions.

Iran insists its nuclear development program is for civilian energy purposes, not weapons.

Even without sanctions, international deals involving Iran were clunky and lengthy affairs that entailed multiple phone calls, sketchy middlemen and massive amounts of bureaucratic red tape. But sanctions restricting Iran’s access to international banks have made those deals even more difficult and expensive, experts say.

“By limiting Iran’s access to ancillary services necessary for international trade, such as international financing and banking as well as insurance and shipping, countries are making it extremely difficult for many businesses, even those trading in nonsanctioned goods and services, from doing business with Iran,” said Farhad Alavi, a Washington lawyer specializing in the Iran sanctions. “Business is getting very tough for Iran and Iranians, including normal Iranian businessmen who do business overseas.”

One wholesale importer of precision timing equipment said he’s been forced to increase his prices by as much as 35% in part because he must use currency exchange shops instead of banks to conduct transactions with foreign suppliers.

A manufacturer of elevators said simple electronic parts that used to cost $2 before the sanctions now cost nearly $9, increasing the cost of repairing lifts. A manager at one of Iran’s leading pharmaceutical firms said an inability to obtain letters of credit from Western banks hurts Iran’s ability to produce high-quality medicine.

“When we produce vitamins or aspirin … it is not important whether it is 302 or 310 milligrams,” he said. “But when we produce sleeping pills or sensitive tranquilizers, the difference between 5 and 10 milligrams is vital. For that, we need German or Swiss-made machines.”

The elevator manufacturer said because of increased costs, his company is losing ground to a firm affiliated with the Defense Ministry.

“To break the sanctions through middlemen costs so much,” he said. “The private sector loses to the military and Revolutionary Guard-affiliated companies. Now the private sector must import items via governmental companies.”

Many businesspeople and observers said sanctions have not diminished the world’s appetite for Iranian oil and raw materials. The chief of a cargo inspection firm that examines imports and exports in the Iranian port of Bushehr told The Times that business is solid, even growing.

With the right connections, state-owned manufacturers are able to sell construction products to Iraq through Turkish holding companies. “No private sector can compete with quasi-private and state-run companies, so gradually the private sector is shrinking,” the mineral trade group’s Vakil said.

The sanctions have increased Iran’s cost for exporting materials, taking a bite out of profits. A high-level engineer at a mineral mining firm said Iranians were relying on smaller, more expensive ships to export iron ore because European reinsurers refuse to cover large vessels. The ore is shoveled onto mostly Chinese-operated boats and carried to Dubai or other nearby ports and reloaded onto larger ships.

“At the end of the day, the fee for exporting iron ore is getting higher and higher,” she said. “But the ore reaches its final destination: China.”

daragahi@latimes.com

Daragahi reported from Beirut and special correspondent Mostaghim from Tehran.