May 17, 2012 | Quote

Syria Scours More Trade Routes in Search for Grain

LONDON, May 17 (Reuters) – Syria is casting a wide net in a frantic bid to secure grain for its population as a sanctions-induced trade finance freeze scuppers big deals and forces the country to meet its needs with smaller deals, sources say.

The European Union, the United States and other Western countries have imposed sanctions on President Bashar al-Assad's government in response to his bloody crackdown on a revolt that has cost more than 9,000 lives.

While those sanctions are not aimed at food, they have complicated trade, hampering grain deals.

“There are certainly enquiries by Syria for wheat using Black Sea ports in Ukraine and Russia. This seems to be coming from Indian brokers or other places such as Istanbul and would be for small sized shipments,” said one trade source.

“None of the big players will touch it of course.”

Traders said the tougher trade conditions have forced Syria to hunt for grain from smaller suppliers and in smaller quantities, rather than panamax vessels, which can carry around 60,000 tonnes.

“It's mostly Russia and Ukraine who have supplied Syria,” said another trader, noting recent deals had been in small parcels.

Traders said the Black Sea region, including Ukraine and Russia, remained a key supply area providing wheat for food as well as barley and corn for animal feed.

Sources also said there was speculation Iraq and Jordan could also be used as transhipment points for Syria. Another trade source said bringing in wheat from Kazakhstan via the Caspian Sea was another mechanism Syria was exploring.

“They are using some of the conduits that the Iranians set up. It is de facto Kazakh origin that is sold to middle men based in Uzbekistan and then sent onwards,” a trade source said.

Another said there had been enquiry looking for cargoes to Syria from Argentina.

Last month the United Nations' Food and Agriculture Organisation forecast that Syria's cereal import needs in the marketing year 2011/12 would rise to 4 million tonnes, 1 million tonnes higher than the previous year.

Separately, the International Grains Council has forecast Syria, which has a population of 23 million, will need to import 900,000 tonnes of wheat in 2011/12, up from 500,000 tonnes in 2010/11.

Ukraine, which exported about 2.4 million tonnes of grain in April, shipped only 32,200 tonnes of wheat and 38,500 tonnes of barley to Syria with no corn sold, Ukrainian trade sources said.

Data from consultancy Ukragroconsult showed from July 2011 to March 2012 Ukraine's exports to Syria reached 112,173 tonnes of wheat, 189,035 tonnes of barley, 440,626 tonnes of corn and 2,751 tonnes of millet.

“There are always problems with letters of credit. That is why Syrians have to pay much higher prices to buy something, though sellers should be prepared for a high risk of default,” one Ukrainian trader said.

A Syrian source, whose mill produces around 50,000 tonnes of flour a year, was still receiving shipments via the Syrian port of Tartous using Turkish banks to pay for transactions.

“They are no longer the French and U.S. origins that we are dealing with. We are mostly buying from Russia and Ukraine,” the milling source said.

Iran Trade

In remarks on Wednesday to a Russian TV channel, Assad said Western sanctions were affecting his country but that Syria still had a “wonderful relationship” with non-Western countries.

“One of the goals of sanctions is to squeeze the regime and put it in a position where it has to spend its time and resources trying to keep its economy running,” said Mark Dubowitz, head of influential lobby group the Foundation for Defense of Democracies, which has been involved in drafting sanctions with U.S. lawmakers.

“This is sanctions busting that the international community is willing to tolerate because it redirects the energies of the regime.”

Syria's state grains agency issued an international tender on April 30 to buy 150,000 tonnes of animal feed barley but had yet to make a purchase, trade sources said.

Syria has struggled to source its sugar needs and is also facing shortages of fuel and heating fuel, adding to the hardships faced by people.

Syria was also trying to find ways around the finance freeze using conduits in neighbouring Lebanon.

“Lebanese traders buy it to sell on to Syria as they have other means of getting money from Syria. They ship directly to Syria but the financial transaction is done in Lebanon,” a trade source said. “The majority of transactions are done against faxed copies hence the banks don't usually see the end destination of the cargo.”

In contrast, Iran, Syria's main ally in the Middle East, has managed to purchase over 2 million tonnes of milling wheat in recent months, after the Islamic Republic managed to sidestep Western sanctions using alternative financing routes.

“Despite the severe economic pressure that it faces domestically, I expect Iran to help the regime. The Iranians will likely seek to supply Syria with grain, but may struggle to supply the quantities required and in a timely manner,” said Anthony Skinner with risk analysis company Maplecroft. “So this is unlikely to provide a sustainable and long-term solution.”

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