Black Markets

Iran's Smugglers Feel the Squeeze


Smugglers in Khasab, Oman, prepare to cross the Strait of Hormuz to reach the Iranian coast

Photograph by Kamran Jebreili/AP Images

Smugglers in Khasab, Oman, prepare to cross the Strait of Hormuz to reach the Iranian coast

One of the things that has made Iranian life tolerable under sanctions has been the flood of smuggled foreign goods. Fishermen by day, Iran’s black marketers make the two-hour journey across the Strait of Hormuz after dark to Oman to bring back flat-screen televisions, cell phones, and food. The traders have plied these waters for years, risking their lives in boats ill-equipped to cross one of the busiest waterways in the world. Now rising fuel costs have increased the price of the trips, while a slide in the value of Iran’s currency has made it harder to pay suppliers.

The risks are even greater with the state cracking down 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 says at the fishermen’s pier in Bandar Abbas, Iran, as three co-workers unload a catch of crabs in heat of 40C (104F). 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 country’s Customs and Excise Department. About 80 percent of cell phones sold in the country are brought in illegally, says Mohammad Reza Farzanegan, an economics professor at Philipps-University of Marburg, Germany, who authored a 2009 study on smuggling in Iran.

A European Union ban on Iranian oil purchases in July has added to trade, banking, and energy sanctions designed to force the Islamic Republic to curb its nuclear program. President Mahmoud Ahmadinejad said on July 3 that 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 spiked as the national currency has lost about a third of its value against the dollar since November, when the U.S. and the EU began to tighten sanctions. “With the rial losing its value, our purchasing power in markets abroad decreased,” says Bandari, who studied law in Tehran, and after failing to find a job returned to Bandar Abbas. Bootleggers who travel to the Omani port of Khasab say they have less cash to buy their usual haul of cell phones, Nike (NKE) shoes, clothes, textiles, cigarettes, and wristwatches.

Food has become a safer cargo than manufactured goods since Supreme Leader Ayatollah Ali Khamenei named the 12 months starting March 20 the “Year of Domestic Production and Support for Iranian Labor and Investment.” The Customs and Excise Department says that every $1 billion in smuggled goods costs Iran 50,000 to 60,000 jobs, according to the Mehr News Agency.

Hossein Shirazi says that after a police patrol picked him up the judge wasn’t as angry about his illegal importing as about the contraband textiles he was carrying. “The judge said, ‘Are you looking to annihilate Iranian companies?’ ” Shirazi recalls as he sits on his motorbike. The judge specifically referred to Khamenei’s directive on favoring local products over imported ones and fined him 15 million rials ($765), he says.

Six weeks later, Shirazi was back at it. In the short term, there’s little the government can do to stop the black marketers, says Philipps-University’s Farzanegan. Local producers aren’t competitive because they have limited capacity and aging technology. “The only way the government will protect local production is by increasing tariffs, which will be another signal to smugglers,” he says. “As long as there is a difference between the prices of imported goods and that of smuggled goods, smugglers will have an incentive.”

Those making alcohol runs can have their boat confiscated or go to jail, Ali Shabani says as he cleans his engine. “Smuggling edible goods is easier than shoes and clothing products, because if arrested by the Iranian coast guard there is a lesser fine for these things,” he says.

With energy and food subsidies gradually being removed as part of a five-year plan launched in 2010, Shirazi says trips to Khasab are more expensive. Each fishing boat needs 250 liters (66 gallons) of gasoline for a round trip, at a price of about $60. Gasoline prices have risen more than fourfold since subsidies were cut. To cope with lower profits from rising fuel prices and the weak currency, smugglers need to make more trips for more cargo to sell, crossing every other day rather than three or four times a month, Bandari says. Shabani says he and other fishermen have little choice. “The only reason that I’m a fisherman is to get health insurance from the government for my family.”

The bottom line: Smugglers supply Iran with many consumer goods, but between penalties and sanctions, the risks are rising as the rewards dwindle.

Nasseri is a reporter for Bloomberg News in Dubai.
Salehi is a reporter for Bloomberg News.

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