FOCUS: Iran Shipping Line Weathers US Sanctions - Chairman

DUBAI --Iran's largest freight shipper is more concerned by a slowdown in the world economy than punitive U.S. sanctions designed to limit its trade, the chairman of the Islamic Republic of Iran Shipping Lines said.

The latest set of sanctions hasn't affected the shipping firm's business as the company has no direct dealings with U.S. businesses or the U.S. shipping sector at large, IRISL chairman Mohammed Hussein Dajmar told Dow Jones Newswires in a recent interview.

"We have not had any problem with admission of our ships. We have no shipping contracts and have no lines to America, and we have no relation with America's (shipping) routes. We work with Europe and Asia and when they sell something to Iran, they admit our ships," Dajmar said.

Sanctions have been part of the U.S. strategy to put pressure on Iran to halt its controversial nuclear energy program, which the Islamic Republic claims is purely for civilian purposes.

The U.S. Treasury Department in September designated IRISL and 18 of its affiliates "proliferators," and imposed fresh sanctions on them for allegedly "providing logistical services" to Iran's military.

The Treasury also accused IRISL of falsifying shipping documents and using deceptive terms to describe shipments in order to hide their activities from foreign maritime officials.

The sanctions prohibit U.S. citizens from conducting business transactions with IRISL and call for the freezing of any assets IRISL may have had under U.S. jurisdiction.

Dajmar downplayed the effect of the sanctions saying it was the global financial crisis instead that has reduced the line's business.

"Business has severely fallen -- not just for us, but in the global shipping sector as well," he said. "(Sanctions are) not the top problem for us."

Shipping companies in Iran have already adjusted to a great extent to the financial restrictions created by the last round of sanctions placed against the country, according to Masoud Khansary, who heads the transport and customs commission at Iran's Chamber of Commerce.

"Business for IRISL will be reduced but the impact of these sanctions on IRISL, in comparison with the other sanctions, is not much more," Khansary added.

Iranian businesses will instead revert to foreign lines to ship goods that previously would have been sent to and from Iran through IRISL, private Iranian shippers say.

UNDER PRESSURE

Firms under pressure from the U.S. not to accept IRISL ships for transportation can still receive shipments from Iran on foreign ships, said Masoud Daneshmand, managing director of private shipping firm Haml Varedat Iran Co.

IRISL vessels will then be sent on "other routes that are outside of American sanctions," he said.

According to Daneshmand, who also sits on the board of Iran's Chamber of Commerce, IRISL has the capacity to ship up to half of Iran's annual import and export volume, worth roughly 53 million tons a year. The rest is shipped using foreign shipping lines, he said.

IRISL can limit the effect of the unilateral sanctions by setting up foreign subsidiaries and reflagging more of its ships, analysts say.

Shippers often reflag their vessels to streamline regulatory control and documentation procedures, reduce tax obligations to their native governments, or to facilitate entrance into foreign harbors, a procedure also pursued by Iran.

Roughly half of the Islamic republic's 140-strong vessel fleet is flagged mainly in Malta followed by Hong Kong and Cyprus, according to Arne Hanssen, who manages investigations and research at Lloyds Marine Intelligence Unit.

Hanssen said IRISL most probably opted to flag its ships to facilitate financing. "The main reason why the company has foreign flags on many of its ships is probably that by doing so it should have clearly better access to finance from foreign financial institutions," he added.

IRISL Chairman Dajmar said the company began reflagging its ships about seven to eight years ago. "We participate in foreign business and contracts and therefore doing this is a natural trend in the shipping industry," he said. "Other large shipbuilders have done the same. Even the Americans have done it."

COST OF SANCTIONS

Sanctions have added some cost, however, and indirectly contributed to the rising inflation rate in Iran.

Shipping transactions worldwide are denominated in U.S. dollars, forcing most private Iranian shipping firms to issue letters of credit through the neighboring Persian Gulf trading hub Dubai in the United Arab Emirate dirhams and conduct business using the local currency, according to Daneshmand. This raises cost by about 10-12%, he said.

With the new U.S. sanctions, IRISL also has to pay more for ships from foreign shipping lines and give a discount on its own ships to improve its marketing abroad, raising costs by about 10% in additional freight charges, said Daneshmand.

By Roshanak Taghavi, Dow Jones Newswires; +98919 1064892; roshanakt@gmail.com

Copyright (c) 2008 Dow Jones & Company, Inc.