by Jasmin Ramsey
Press reports about medical supply shortages in Iran, some of which have described devastating consequences, have been surfacing in the last two years, while debate rages on about who’s responsible — the Iranian government or the sanctions regime. Siamak Namazi, a Dubai-based business consultant and former Public Policy [...]]]>
by Jasmin Ramsey
Press reports about medical supply shortages in Iran, some of which have described devastating consequences, have been surfacing in the last two years, while debate rages on about who’s responsible — the Iranian government or the sanctions regime. Siamak Namazi, a Dubai-based business consultant and former Public Policy Fellow at the Woodrow Wilson Center for International Scholars, admits the Iranian government shares responsibility but says sanctions are the main culprit. Humanitarian trade may be exempted from the sanctions, says Namazi, but that isn’t enough when the banking valve required to carry out the transactions is being strangled. “[I]f [sanctions advocates] maintain the sanctions regime is fine as it is, then how come they try to promote substitution from China and India?” asks Namazi. The following Q&A with Namazi was conducted in Washington, DC.
Q: You recently authored a policy paper published by the Woodrow Wilson Center where you essentially blame medical shortages in Iran on Western sanctions. How did you reach this conclusion?
Siamak Namazi: We concluded that the Iranian government deserves firm criticism for mismanagement of the crisis, poor allocation of scarce foreign currency resources and failing to crack down on corrupt practices, but the main culprit are the sanctions that regulate financial transactions with Iran. So, while Tehran can and should take further steps to improve the situation, it cannot solve this problem on its own. As sanctions are tightened more and more, things are likely to get worse unless barriers to humanitarian trade are removed through narrow adjustments to the sanctions regime.
My team and I reached these conclusions after interviewing senior officers among pharmaceutical suppliers, namely European and American companies in Dubai, as well as private importers and distributors of medicine in Tehran. We also spoke to a number of international banks. None of us had any financial stake in the pharmaceutical business, whatsoever, and we all worked pro bono.
Q: What is your basis for this claim given the humanitarian exemptions to the sanctions regime that allow for the trade of food and medicine?
Siamak Namazi: The US Congress deserves kudos for passing a law making it abundantly clear that humanitarian trade in food, agricultural products, medicine and medical devices are exempted from the long list of sanctions against Iran. This law is the reason why the Western pharmaceuticals can do business in Iran. I sincerely applaud that gesture.
Unfortunately, what we see is a case of what lawyers refer to as “frustration of purpose.” Iran can in theory purchase Western medicine, but in practice it is extremely difficult to pay for the lifesaving drugs it needs. Despite the Congressional directive, a number of Executive Orders that restrict financial transactions with Iran remain in place, making it all but impossible to implement that exception.
Sanctions also limit Iran’s access to hard currency. The country’s oil sales are seriously curtailed and have effectively been turned into a virtual barter with the purchasing country, mainly China and India.
Q: Not all Iranian banks are blacklisted by the US and there is a long list of small and large international banks that could carry out humanitarian transactions. Why can’t Iran use these channels for importing the medicine it needs?
Siamak Namazi: The non-designated Iranian banks are small and lack the international infrastructure required to wire money from Tehran to most foreign bank accounts. They rely on intermediary banks to process such transactions. Unfortunately, it’s extremely difficult, if not outright impossible, for these Iranian banks to find such counterparts, even when they are trying to facilitate fully legal humanitarian trade.
In the end, Iran needs to go through many loops and plays a constant cat and mouse game, creatively trying to find a channel to pay its Western suppliers of medicine. Not only does this increase the costs of medicine for the Iranians, it also causes major delays. In the meanwhile, pharmacy shelves run empty of vital drugs and the patient suffers.
Q: Isn’t that just a reflection of the international banks being too cautious rather than shortcomings in US sanctions laws? In a recent testimony to the Senate, US Treasury Undersecretary David Cohen was clear that no special permission is required to sell humanitarian goods to Iran and foreign financial institutions can facilitate these permissible humanitarian transactions.
Siamak Namazi: What Mr. Cohen actually said is that all is fine “as long as the transaction does not involve a U.S.-designated entity,” meaning a sanctioned Iranian bank.
How, exactly, does an international financial institution guarantee that none of Iran’s main banks, all of which are blacklisted, were involved in any part of the long chain involving a foreign currency transfer from Iran? Recall that foreign currency allocation for pharmaceutical imports start with the Central Bank of Iran, which is blacklisted. Maybe the CBI wired these funds to the non-designated Iranian bank from monies it holds in say, Bank Tejarat or Bank Melli, potentially adding further layers of banned banks to the chain.
Given the severity of the risk involved — fines that have reached nearly $2 billion in recent months — international banks seek clear indemnity. They want legal clarification that basically says, “You will not be fined for clearing humanitarian trade with Iran, period.”
So far Treasury has refused to grant such a measure, though recent comments by senior officials suggest that the US government has sent out delegations reassuring the banks, without actually making any changes to the letter of the law. While this is a welcome move, and indeed one of the recommendations in the report published by the Wilson Center, it is far from sufficient.
Q: You say that Iran has a hard time finding a banking channel to pay for Western medicine. At the same time, for the first time in many years, Iran purchased $89 million in wheat from the US in 2012. Why were they able to find a banking channel to pay for wheat, but have difficulty purchasing medicine?
Siamak Namazi: My claim is supported by recent US trade statistics showing that exports of pharmaceuticals to Iran dropped by almost 50 percent, but these numbers are ultimately misleading. My understanding is that US trade data only reflects exports from an American port, directly entering an Iranian port, which is a thin slice of the overall trade. This is while most companies send their goods to Dubai, Europe or Singapore and cover the entire Middle East, including Iran, from these hubs. So, when the statistics refer to a drop of sales of medicine from around $28 million in 2011 to half that figure in 2012, the figure grossly misrepresents the scale of the problem.
Let me stress this point again: the loss of $14 million in American-made drugs does not make for a crisis. The real problem is exponentially bigger than this. We are talking about the loss of hundreds of millions of dollars worth of American and European medicine.
You must also keep in mind supplier power in trade. Wheat is a perfectly substitutable good, so Iran is bound to find one supplier that is willing to sell its wheat with extended credit terms, until it secures the hard currency and banking channel to pay for it. A vital drug is often perfectly un-substitutable; meaning that a single company — most often American or European in the case of the most advanced medicines — enjoys a 20-year patent to manufacture it. So if Iran cannot find a banking channel to reimburse the manufacturer for it, it will have to do without that medicine until it can pay.
Q: Why can’t Iran procure its medicine from China, India or Japan — the countries it’s selling oil to?
Siamak Namazi: Iran has already increased its purchase of medicine and medical equipment from all the countries you listed. However, as I stated earlier, due to the highly regulated and patented nature of the pharmaceutical business, vital drugs are often un-substitutable.
Even when there is an alternative drug made by the Chinese, Indians or Japanese, there is an additional barrier. Medicine has to be registered before its importation is permitted. Just like the US has the Food and Drug Administration, Iran, like most countries, has an equivalent body that must approve the medicine. The specific molecule must be registered after thorough testing. In Iran, this process takes an exceedingly long time and should no doubt be improved, though recently they have taken steps to expedite it by making exceptions. The Ministry of Health sometimes allows a drug that was approved for sale in another country to also be imported and sold in Iran. But this rushed process has had major consequences in terms of side-effects. There are even press reports of deaths when substandard drugs were imported.
To be honest, I don’t understand the logic of the advocates of this solution. They argue that the existing humanitarian waivers are sufficient and claim any shortage of medicine in Iran is the consequence of Tehran’s own mismanagement. I have even heard accusations that Iran is intentionally creating such shortages to create public outrage against the US. But if they maintain the sanctions regime is fine as it is, then how come they try to promote substitution from China and India? Besides denying Iranian patients their right to receive the best treatment there is, aren’t they also rejecting the American pharmaceutical companies’ right to conduct perfectly legitimate business?
Q: To be fair, Iran’s own former health minister, Marzieh Vahid Dasjerdi, also accused the government of failing to allocate the necessary resources and lost her job after doing so.
Siamak Namazi: I actually commend the former health minister for her courageous intervention and have also voiced my concern about the misallocation of hard currency in various forums.
That said, I am not in a position to know or comment on the exact nature or circumstances of her dismissal. I can only reference our direct research and findings. We found and verified ample cases where Iran had allocated hard currency for vital medicine, yet the purchase fell through because they could not find a banking channel. This includes the sale of an anti-rejection drug needed for liver transplants by an American pharmaceutical that ultimately failed. Can you imagine waiting years for a donor and when your operation time arrives, being told that you cannot have it because the drug you need is missing?
You need not take our word for it. It is very easy for the US government to verify our claims by talking to the American pharmaceuticals that do business with Iran, or even by reviewing some of OFACs own files. In fact, the US industry lobby USA*Engage recently wrote a letter refuting Undersecretary Cohen’s claims that American companies have no problems dealing with Iran. In their own words: “Despite … clear Congressional directive and long-standing policy, the U.S. Treasury implements Executive Branch unilateral banking sanctions in a manner that blocks the financial transactions necessary for humanitarian trade.”
Q: So is there a solution to all this?
Siamak Namazi: Absolutely, and I have spelled it out in my op-ed in the International Herald Tribune and also in the Wilson Center report. It simply makes no sense to say humanitarian trade is legal, but the banking channel needed to facilitate the trade is restricted. In the case of medicine, the solution is arguably simpler than other humanitarian goods. With fewer than 100 American and European companies holding patents to the most advanced drugs needed, we can craft narrow, but unambiguous exemptions to the banking restrictions, essentially allowing these companies to sell medicine to Iran without undermining the sanctions regime overall.
To address the shortage of hard currency, Iran should be allowed to convert some of its current holdings in Chinese, Indian and other banks around the world into hard currencies for the exclusive purpose of buying medical supplies. Alternatively, the US could revisit its earlier decision on the matter and allow European companies that owe billions of dollars to Iran to settle this debt by paying a pharmaceutical company on Iran’s behalf.
US policymakers are reminded that medicine is highly subsidized in Iran. Imported drugs receive hard currency allocations at a greatly subsidized rate and are again supported through government-owned insurance companies. That means that the Iranian government ultimately gains far fewer rials for every dollar it allocates to an importer of medicine than it does selling its hard currency to importers of most other goods.
– Siamak Namazi, a Middle East specialist whose career spans the consulting, think tank and non-profit worlds, is currently a consultant based out of Dubai. His former positions include the managing director of Atieh Bahar Consulting, an advisory and strategic consulting firm in Tehran. He has also carried out stints as a fellow in the Wilson Center for International Scholars, the Center for Strategic and International Studies and the National Endowment for Democracy. A frequent contributor to international publications and conferences, he has authored chapters in six books and appeared regularly as a commentator in the international media. He holds an MBA from the London Business School, an MS in Planning & Policy Development from Rutgers University, and a BA in International Relations from Tufts University.
]]>A new report released by the International Crisis Group this week examines the efficacy and unintended consequences of sanctions on Iran and suggests steps that can be taken during the diplomatic process to unwind them and mitigate their humanitarian consequences while addressing the nuclear issue more effectively. “The [...]]]>
A new
report released by the International Crisis Group this week examines the efficacy and unintended consequences of sanctions on Iran and suggests steps that can be taken during the diplomatic process to unwind them and mitigate their humanitarian consequences while addressing the nuclear issue more effectively. “The Iranian case is a study in the irresistible appeal of sanctions, and of how, over time, means tend to morph into ends”, says Ali Vaez, Crisis Group’s Senior Analyst for Iran. “In the absence of any visible shift in Tehran’s political calculus, it is difficult to measure their impact through any metric other than the quantity and severity of the sanctions themselves”.I’m still making my way through it, but it’s already clear that this is one of those don’t-miss reports for Iran-watchers and those who are interested in US-Iran relations. I’ve reproduced the recommendations from the executive summary below, beginning with the most important issue related to the sanctions regime — the healthcare crisis in Iran — which Lobe Log contributor Siamak Namazi wrote about today in the New York Times:
RECOMMENDATIONS
To address the healthcare crisis in Iran
To the government of Iran:
1. Streamline currency allocation, licensing and customs procedures for medical imports.
To the government of the United States and the European Union:
2. Provide clear guidelines to financial institutions indicating that humanitarian trade is permissible and will not be punished.
3. Consider allowing an international agency to play the role of intermediary for procuring specialised medicine for Iran.
To sustain nuclear diplomacy and bolster chances of success
To the P5+1 [permanent UN Security Council members and Germany] and the government of Iran:
4. Agree to hold intensive, continuous, technical-level negotiations to achieve a step-by-step agreement and, to that end, consider establishing a Vienna- or Istanbul-based contact group for regular interaction.
5. Recognise both Iran’s right in principle to enrich uranium for peaceful purposes on its soil and its obligation to provide strong guarantees that the program will remain peaceful.
To the governments of Iran and the United States:
6. Conduct bilateral negotiations on the margins of the P5+1 meetings or parallel to them.
To address the immediate issue of 20 per cent uranium enrichment
To the P5+1 and the government of Iran:
7. Seek agreement on a package pursuant to which:
a) Iran would suspend its uranium enrichment at 20 per cent level for an initial period of 180 days and convert its existing stockpile of 20 per cent enriched uranium to nuclear fuel rods; and
b) P5+1 members would provide Iran with medical isotopes; freeze the imposition of any new sanctions; waive or suspend some existing sanctions for an initial period of 180 days (eg, the ban on the sale of precious and semi-finished metals to Iran or the prohibition on repatriating revenues from Iranian oil sales); and release some of Iran’s frozen assets.
To address the issue of Fordow
To the P5+1 and the government of Iran:
8. Seek agreement on a package pursuant to which:
a) Iran would refrain from installing more sophisticated Centrifuges at Fordow and implement additional transparency measures, such as using the facility exclusively for research and development purposes and allowing in-house International Atomic Energy Agency (IAEA) resident inspectors or installing live-stream remote camera surveillance; and
b) P5+1 members would suspend sanctions affecting Iran’s petro-chemical sector or permit Iran’s oil customers to maintain existing levels of petroleum imports.
To reach a longer-term agreement
To the P5+1 and the government of Iran:
9. Seek agreement on a package pursuant to which:
a) Iran would limit the volume of stockpiled 5 per cent enriched uranium, with any amount in excess to be converted into fuel rods; ratify the IAEA’s Additional Protocol and implement Code 3.1; and resolve outstanding issues with the IAEA; and
b) P5+1 members would provide Iran with modern nuclear fuel manufacturing technologies; roll back financial restrictions; and lift sanctions imposed on oil exports; the P5 would submit and sponsor a new UN Security Council resolution removing international sanctions once issues with the IAEA have been resolved.
To rationalise future resort to sanctions on third countries
To the U.S. and European Union:
10. Consider setting up an independent mechanism to closely assess, monitor and re-evaluate the social and economic consequences of sanctions both before and during implementation to avoid unintended effects, harming the general public or being trapped in a dynamic of escalatory punitive measures.
11. Avoid where possible imposition of multi-purpose sanctions lacking a single strategic objective and exit strategy.
]]>by Siamak Namazi
The United States Treasury has issued a new explanation for the shortage of medical drugs and equipment in Iran. They claim the Iranian government is intentionally trying to exploit the problem for political purposes. A senior US Treasury official recently pointed to just-released US International Trade Statistics (USITS) [...]]]>
by Siamak Namazi
The United States Treasury has issued a new explanation for the shortage of medical drugs and equipment in Iran. They claim the Iranian government is intentionally trying to exploit the problem for political purposes. A senior US Treasury official recently pointed to just-released US International Trade Statistics (USITS) to support this claim, arguing that while these figures show falling medicine exports to Iran, the export of wheat has gone up, therefore, Iran could use whatever banking it used for the wheat to procure medicine.
Not really. At least the data that’s being referred to proves no such thing.
The USITS data showed a drop from $31.2 million to $14.8 million in US pharma exports from the US to Iran between 2011 and 2012. These figures are highly misleading and seriously discount the scale of the problem. I checked the sales figures of a single large US pharmaceutical company (on the conditional of anonymity) with the person in charge of them out of Dubai. Well, this American company alone experienced a drop of sales to Iran from around $50 million to $20 million during the same time period.
The USITS data simply shows what goods left the US directly for Iran. This is while the US pharma company is likely to have supplied Iran with drugs from a manufacturing or storage facility in Europe, Dubai or Singapore.
The food figures are just as inconclusive. Sure, they went up because of an $89 million sale of wheat in 2012. Keep in mind that $89 million is nothing; it’s peanuts for a country that often imports over $1 billion of wheat. Such a figure probably amounts to one or two single orders at best. When did that take place? Early 2012, before the tightening of sanctions? Was it part of the $1.4 billion Shell-Cargill deal allowing Shell to pay its debts to Iran by crediting Iran’s account with Cargill (if that actually went through?).
All in all, the trade figures of the USITS are irrelevant to the debate at hand.
There are many arguments among pundits when it comes to the overall effectiveness of sanctions against Iran and whether or not they will ultimately persuade decision-makers in Tehran to change their nuclear policies.
But the effect of sanctions on the shortages of medical equipment and drugs in Iran is much easier to assess. Talk to the people in charge of the Iran account among the American and European pharma companies and ask them where the problem is. It’s not that hard to understand: these companies need to get paid and banking channels are very limited while Iran has a shortage of hard currency (I mean Euros and Dollars, not Rupees and Yuan); therefore, the amount of trade is curtailed. Perhaps the fact that only one international bank remains willing to brave the wrath of US sanctions — even though we are talking about fully legal trade under humanitarian exemptions — lends further testimony to where the main problem exists.
Let me be perfectly clear: sanctions are not the sole problem here. The Iranian government deserves stern criticism for its maladroit handling of the shortages of medicine and medical products. It must dramatically improve its foreign currency allocation competence and transparency, as well as governance of the sector, and it must crackdown on corrupt practices.
However, the Iranian government alone cannot solve the issue of Western medicinal shortages. Sanctions are a major impediment and unless Washington and Brussels rethink the humanitarian waivers — specifically by removing the banking bottleneck and allowing Iran to convert some of the money it earns from oil sales to Euros and Dollars for the narrow purpose of clearing trade debt related to medical drugs and equipment — this problem is going to get worse, not better.
A recent study that a group of independent consultants conducted for the Wilson Center explains this issue’s various complications and their solutions in more detail.
– Siamak Namazi is a Dubai-based consultant and a former Public Policy Fellow at the Woodrow Wilson Center for International Scholars.
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