Pakistan is set to sever its trading ties with Iran instead of earn the wrath of US sanctions, officials said on Wednesday. The worry for most Pakistani businesses is on the export side. Pakistan’s exports to Iran were worth $426 mn in 2008, but have since dropped to just $53 mn in 2011. Rice constitutes about half of all Pakistani exports to Iran.
This would involve transacting directly between Pakistani rupees and Iranian riyals. The Iranian riyal has plunged in value by over 40% during the past year and a half, and looks set to keep on dropping. Pakistani exporters, who also worry about the fluctating rate of the rupee against the dollar, say that trading with Iran on non-dollar basis "makes little sense."
The consensus is that both banks and the government feel that exports to Iran are not worth the rise of US trade sanctions. The country accounts for only about 0.6% of all goods exported by Pakistan. That seems too small a number to lose the ability to transact in dollars and euros over.
Analysts say that Pakistan has already begun implementing the sanctions against Iran. Pakistan’s imports from Iran fell by 66% in 2011 to just $304 million, compared to $884% million in 2010.
The drop in oil imports is even more dramatic: Iran was Pakistan’s fourth biggest supplier of oil in 2008, behind the United Arab Emirates, Saudi Arabia and Kuwait.
In 2011, that rank slipped to 20th. At this point, Pakistan can completely eliminate Iranian oil imports by increasing shipments from the UAE by just 0.6% per year. Informal trade, and smuggling, continue to proliferate between Iran and Pakistan.