Executives Describe Bottlenecks, Red Tape in Iran's Pharmaceutical Sector

Iran has made strides in the development of its domestic pharmaceutical sector. When measuring by dosage, just 3 percent of pharmaceutical products consumed last year were imported. But when looking to sales value, imports accounted for USD 1.6 billion of the USD 3.6 billion in total sales last year. Many of the pharmaceuticals that Iran imports are expensive therapies, having been produced using advanced technology that Iran currently does not possess.

Given the importance of many of these imported medications are for the treatment of life-threatening diseases, Iran’s Ministry of Health and Medical Education (MoHME) regularly publishes a list of pharmaceuticals that the country needs and is allowed for import. The list for August included pharmaceuticals needed to treat a range of life-threatening diseases, including Lymphoma, Morquio syndrome, Crohn’s disease, and prostate cancer.

US sanctions have made the import of these pharmaceuticals and the raw materials needed to domestically manufacture more basic pharmaceuticals increasingly challenging. While US sanctions ostensibly do not target the humanitarian sector, international financial institutions remain wary of processing humanitarian transactions with Iran due to fear of falling foul to US sanctions, contributing to medicine shortages.

I interviewed two individuals working in Iran’s pharmaceutical sector in late August to discuss medicine shortages and some of the challenges that foreign and local companies operating have faced since the reimposition of US sanctions. Both interviewees, while highlighting an acute need for some medicines, shed light on some of the regulatory, operational and integrity risks that foreign pharmaceutical companies face on the ground. 

Ara (A) owns a pharmacy and is a business development specialist for a company that manufactures pharmaceutical products. Fariba (F) works in pharmaceutics in the manufacturing and production of drugs. Their names have been changed to protect their identities.

Has there been an increase in medicine shortages in recent years?

F: Before, it was very easy to import some medicines like Paladix or Aspirin, but now their import is very limited. Branded pharmaceuticals are limited in availability. A lot of the products that are available in pharmacies are from prior to the reimposition of sanctions.

Do you have an example of a pharmaceutical product that witnessed a shortage in the market in recent years?

F: We had massive problems importing insulin pens, which used to be imported through a foreign pharmaceutical company because they cannot be manufactured in Iran. I believe we are still having problems importing them. When you go to pharmacies nowadays it’s very difficult to find insulin pens. We were forced to tell people who had diabetes and needed the pens to go back to their old ways of injecting insulin so that they don’t use insulin pens anymore. Now, Iran is moving towards the direction of manufacturing insulin domestically.

Are shortages of raw materials needed to produce pharmaceutical products contributing to medical shortages?

A: It’s even become more challenging for domestic companies to manufacture pharmaceuticals for which there is a shortage of in the market because they are having difficulty obtaining the raw materials needed to manufacture finished pharmaceutical products. Foreign companies have been less willing to send us raw materials. India and China are some of the big suppliers, but even importing raw materials form China has become increasingly difficult in the past year. Indian companies are better, but if we want to import raw materials from Europe or elsewhere, it’s very difficult. So even if companies have active licenses to manufacture a product, they are unable to because they don’t have the raw materials needed, causing medicine shortages. However, despite these shortages due to the inability to import raw materials, the IFDA [the Food and Drug Administration of Iran] sometimes won’t allow the finished product to be imported, citing companies that have an active license to manufacture the product in Iran. Part of the reason the IFDA does this is that it wants to spur domestic production—including for raw materials—in the pharmaceutical sector.

F: A huge problem is the import of the raw materials that we need. A lot of raw materials are made by our own chemists, but sometimes we don’t have the products we need to manufacture the finished pharmaceutical product (i.e tablets). For example, for my own work, I order some of my products from two foreign pharmaceutical companies, but it’s become harder for us to import it from them. The shipping times have become longer and there’s also the issues of sanctions and COVID-19. In another example, I wanted to work on Posaconazole, an anti-fungal medication for which the needed raw material is expensive. Posaconazole is needed for people who are in the ICU because they have a fungal infection that isn’t responding to routine medication. We are looking for a company that will be willing to ship it to us, even in small quantities, but we can’t find any willing company. Posaconazole is not being manufactured in Iran, and with the countries that do produce it, there are problems with the shipping and exchange rate. Before the sanctions, we were going to order some products from Spain, Italy, and Holland, but when the sanctions were re-imposed, all of these got cancelled.

Has it become more challenging to import drugs from foreign manufacturers in the past two years?

 A: Yes. Foreign companies need to look at the list of pharmaceuticals published by the MoHME that Iran needs and is allowing to be imported. It has become very hard for pharmaceutical companies operating in Iran to import drugs that are manufactured in the country and the chances of importing them is very low. For the drugs that the country needs, like drugs that they cannot locally manufacture because they use advanced technology, IFDA will usually issue companies a conditional license to import the product. For example, the IFDA will issue a company a conditional license in which it will allow the import of a pharmaceutical product for a short period of time on the condition that next year the company will manufacture the product domestically. In some instances, when the renewal time comes for an active license to import a pharmaceutical product, if it is now being manufactured in Iran, the ministry will not renew the license.

F: The MoHME’s budget is now going more towards hospitals and ensuring that they have what they need to combat COVID-19, so the import of some drugs has reduced, especially the ones that can be manufactured in Iran generically.

Has it become harder for foreign companies to get the necessary license and permits for their operations and has it become easier for domestic companies in recent years?

F: No, you can’t say that exactly. It’s true that we are trying to locally manufacture some drugs, but for some drugs while we have the ability to manufacture the medicine, we currently don’t have the technology needed for the device needed to deliver the drug. For example, for insulin pens, the problem isn’t the medicine, it’s the technology of the pen. Sometimes, it’s not that that it’s too hard to locally manufacture a drug that’s the issue, it’s that it’s too expensive to produce, so it’s not worth it for the manufacturers to produce. However, when sanctions were re-imposed, local manufacturers were forced to try and make some drugs that they otherwise wouldn’t pursue, because there is a need.

What are some things that Iran has been doing to strengthen domestic production in the pharmaceutical sector? 

A: If a company now wants to import a pharmaceutical product, the MoHME will sometimes, for example, give the company a license to import only 5 percent of the drug’s market share. In other words, they won’t let one company take control of the whole market for a drug. Before, it was more common that when domestic companies were manufacturing a drug that some companies could import the drug alongside it. But now, the ministry has made it much more difficult to do this. Because of this, the underground market has also become stronger.

 F: One way that the government has been trying to drive domestic production of pharmaceuticals that we currently cannot manufacture is through a program called markaze roshd [Growth Center]. If university students have an idea to manufacture a pharmaceutical product, some public universities will provide them funding for up to two years to create it. The University of Tehran and Shahid Beheshti University currently have this program. If the students are not successful in creating the product, it is okay, but if they are successful, they will have to give the university a portion of their profits.

Has the underground market for pharmaceuticals become stronger in the past two years?

A: On the one hand, it’s become harder to import products, but on the other hand, the underground market has thrived in the past few years. Many doctors continue to only approve branded products, so when they prescribe patients pharmaceuticals, they’ll advise their patients to definitely opt for the branded version. Since branded products have become less available in pharmacies, the patient goes towards the underground market to find the product, which could pose a reputational risk to those brands.  

How do pharmaceuticals enter the underground market? 

A: A lot of kolbars [Kurdish porters who smuggle goods between the Kurdish areas of Iran, Iraq, Syria and Turkey] bring products from Kurdistan in neighboring Iraq. A lot of the products in the underground market come from Turkey, since the price for them is low there. Some travelers from other countries bring products to sell. There are many ways.

Photo: IRNA

New Trump Admin Channel for Iran Humanitarian Trade Comes With a Killer Catch

The Treasury Department has announced that it will operationalize a financial channel to ease humanitarian trade with Iran, after acknowledging to European officials that recent sanctions imposed on the Central Bank of Iran (CBI) risked encumbering trade in food and medicine. 

The channel, which was originally expected to become operational in February 2019, was first was first proposed by the Swiss government in the aftermath of the Trump administration’s reimposition of secondary sanctions on Iran in November of last year.

Switzerland is a leading exporter of pharmaceutical products to Iran. The Swiss government had sought to safeguard its bilateral trade by seeking legal clarity from the Treasury Department on behalf of Swiss banks. But the National Security Council, then led by John Bolton, blocked its operationalization despite support for the channel within the State Department. 

The new announcement expands the scope of the channel to include any American or foreign financial institution engaged in humanitarian trade with Iran. This expanded scope and the timing of the move likely reflect concerns over the impact to humanitarian trade resulting from the Trump administration’s move to designate Iran’s central bank under a terrorism authority. That sanctions designation eliminated a long-standing exemption permitting a role for CBI in trade in food and medicine. 

Over the last few weeks, European multinationals involved in the sale of humanitarian goods to Iran have been scrambling to understand the impact of the new designation on CBI. The Treasury Department failed to issue guidance in the aftermath of the designation to inform changes to compliance policies.

In particular, European companies engaged in the sale of food and pharmaceuticals were unclear as to whether the reliance of their customers on foreign currency allocations made by the Central Bank of Iran constitutes exposure to the new designation. Bourse & Bazaar contacted treasury managers and compliance officers at six European multinational companies in the days following the designation of the central bank. All refused to provide comment, but confirmed that the new sanctions had triggered internal reviews. 

The move to finally launch the humanitarian channel appears to be an attempt to manage the unintended consequences of CBI’s terrorism designation. Over the last few weeks, European officials raised concerns with American counterparts about the impact of humanitarian trade. Speaking on background, a European official confirmed to Bourse & Bazaar that U.S. officials had described the launch of the humanitarian channel as a way to assuage those concerns. 

Under the new framework, financial institutions which accept payments related to the sale of food and medicine to Iran will be permitted to “seek written confirmation from Treasury that the proposed financial channel will not be exposed to U.S. sanctions.” For years, European banks have sought “comfort letters” from the Office of Foreign Assets Control (OFAC) for humanitarian trade. It has been OFAC policy not to provide such letters and humanitarian transactions are not eligible for the licensing process due to the exempt nature of the trade. In this regard, the new framework represents a significant shift in policy. 

But the new framework may introduce more problems than it solves. In order to receive such comfort letters, the financial institutions must undertake an enhanced due diligence process, reporting to Treasury “a great deal of information on a monthly basis.” The due diligence requirements go far beyond what has been considered the industry standard process for companies engaged in trade with Iran. Considering the significant costs and administrative burdens of such reporting, the requirement will likely limit the uptake of the new framework to those financial institutions engaged in the greatest volume of humanitarian trade with Iran.

The reporting requirements will also raise concerns among Iranian banks. Among the information requested by the Treasury Department are the “monthly statement balances with the value, currency, and balance date of any account of an Iranian financial institution” held at the foreign bank and used for humanitarian trade. 

Concurrently with its announcement of the new channel, the Treasury Department identified Iran as “a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act.” As Tyler Cullis warned in Bourse & Bazaar in July, this move could independently have a devastating impact on humanitarian trade:

Under the proposed rule, US banks would be required to undertake “special due diligence” with respect to correspondent accounts maintained on behalf of foreign financial institutions. Such “special due diligence” does not require that US banks close the accounts of foreign banks that themselves maintain accounts for Iranian banks so long as such banks do not permit Iran indirect access to the US correspondent account. But US banks are unlikely to narrowly tailor their conduct to the precise nuances of law and will show reluctance to continue banking foreign correspondents that themselves bank Iran. As a result, European banks that maintain accounts on behalf of Iranian financial institutions are likely to take steps to shutter such accounts so as to sustain their own accounts at US banks.

It is unclear whether companies can opt not to seek comfort letters through the new framework. Some financial institutions may prefer to maintain trade without the additional legal clarity as they have done since the reimposition of secondary sanctions last year, relying on the existing general licenses issued by the Treasury Department to permit humanitarian trade.

But the Treasury Department’s pursuit of “unprecedented transparency into humanitarian trade” and its allegations of Iran’s use of “so-called humanitarian trade to evade sanctions and fund its malign activity,” may see Trump administration officials pressure companies to use the new framework, requiring disclosures of sensitive financial information that will be unacceptable to Iranian banks and companies wary of U.S. intentions. The Trump administration’s latest gesture to ease humanitarian trade may end up doing just the opposite.

The Treasury Department’s announcement may be intended to pre-empt next week’s launch of a major report from Human Rights Watch that is expected to show significant failures on the part of the United States to safeguard humanitarian trade in accordance with its own sanctions policies. The administration continues to claim that its “unprecedented economic pressure” is “not directed at the people of Iran.”

Photo: IRNA

Why Iran Pays More for Each Kilogram of European Medicine

Since the year 2000, Iran has about doubled its annual imports of pharmaceutical products from the European Union, reflecting both advances in Iranian healthcare and the growth in Europe-Iran trade ties. This growth has remained durable in the face of multilateral—and more recently—unilateral sanctions. Pharmaceutical products can be sold under longstanding humanitarian exemptions under both the US and EU sanctions regimes.

Yet, reporting from Iran has highlighted the significant disruptions in the price and availability of many medications in Iran. Iranian medical professionals complain that despite the exemptions, sanctions are making it more difficult for patients to reliably and affordably access medication. US officials have countered that there has not been an dramatic drop in pharmaceutical exports to Iran, but their defense relies on an incomplete picture of the nature of the trade disruption. Iranian patients are not principally struggling because of a supply disruption. They are suffering because of a price distortion that can be observed in the relationship between the quantity of European pharmaceutical exports to Iran, and the declared value of those exports.

To contextualize the distortions in European pharmaceutical exports to Iran, it is possible to conduct Pearson correlation analyses for the quantity and value of monthly pharmaceutical exports from the European Union to Russia, Turkey, Pakistan, and Iran for the period between January 2000 and June 2019. Intuitively, we would expect that an increase in the quantity of exports from Europe to these countries would be correlated with an increase in the declared value of those exports—if Europe is selling more it should be earning more. 

This is clearly the case when looking to European pharmaceutical exports to Russia, Turkey, and Pakistan in this period. The observed correlations are strongly positive and statistically significant. However, the underlying data tell slightly different stories for each country. In the case of Russia, the magnitude of the increase in the value of exports since 2000 has been greater than the increase in quantity. In Turkey, the opposite is true. To put it more simply, Russia is buying slightly more medicine at a significantly higher price, while Turkey is buying significantly more medicine at a slightly higher price. That is an observation that deserves its own analysis, but in the context of understanding comparative differences with Iranian purchases of European medicine, what matters is that in both cases an increase in quantity of medicine exported correlates with an increase in the value of medicine exported.

The data for Russia, Turkey, and Pakistan shows relatively low levels of volatility. This can be seen when the value and quantity of monthly exports are indexed. Fluctuations each month can be explained by a range of factors such as seasonal or cyclical demand, as well as variation in the composition of exports, particularly in terms of price. Many medicines weigh roughly the same amount, but have vastly different prices—consider the price of aspirin and the price of pills used in the treatment of rare diseases.

Sudden spikes in pharmaceutical exports are often related to disaster response. The December 2005 spike in European exports to Pakistan corresponds to the 2005 Kashmir earthquake, which killed nearly 90,000 people. The August 2010 spike in exports to Russia corresponds to a weeks long heatwave that led to thousands of deaths and triggered extensive wildfires. 

Putting these spikes in context, and looking to fluctuations over time, we see that the expected relationship holds—the greater the quantity of pharmaceutical products exported from Europe to Russia, Turkey, and Pakistan, the greater the declared value of those exports. 

In the case of Iran, the expected relationship also holds, but not so definitively. Looking to the period between January 2000 and June 2019, the correlation between quantity of exports and value of exports is still positive and statistically significant, but is notably weaker. The explanation becomes clear when looking at a chart of indexed export quantity and value. Sales of European pharmaceutical products to Iran are marked by huge volatility. In more recent years, it appears that the declared value of exports has increased without a commensurate increase in the quantity. 

There has been extensive reporting on the impact of sanctions on Iran’s ability to reliably important pharmaceutical products. To test whether the relative weakness in the relationship between export quantity and value is sanctions related, it is possible to test the relationship in two time periods. Multilateral sanctions on Iran reached their apogee in July 2012, when the United States imposed strict sanctions intended to cut off Iranian banks from the global financial system. The number of correspondent banking relationships dwindled, meaning that even for trade in pharmaceuticals, which remained an exempted category, European exporters and Iranian importers faced significant challenges in identifying viable banking channels. When such channels were found, their use typically entails higher transaction costs and payment delays. 

Looking to the period prior to July 2012, we can observe a moderately positive and statistically significant correlation between export quantity and value. When limiting the analysis to the period after July 2012, that relationship is only weakly positive. This is a remarkable finding, suggesting that since 2012, the price paid by Iranian importers for European pharmaceuticals is only loosely related to the quantity of goods ordered. Sanctions may have exacerbated whatever factors led the relationship between quantity and value to be weaker than that observed for Russia, Turkey, and Pakistan.

As a consequence of the weakened relationship between quantity and value, Iranian importers are paying significantly more for each kilogram of European medication they purchase than importers in Russia, Turkey, or Pakistan. In the period between June 2018 and June 2019, European exports to Iran can be “priced” at EUR 8464 for each 100 kilograms exported. By comparison, exports to Russia were just EUR 5707 for each 100 kilograms, while exports to Turkey were EUR 5645. In the case of Russia and Turkey there may be economies of scale at play—the value of monthly European pharmaceutical exports to these countries are on average 9 and 3.5 times higher, respectively, than those to Iran. But even Pakistan, which imports less than half the pharmaceutical products that Iran imports from Europe each month, benefits from a significantly lower price of EUR 7509 per 100 kilograms. Taking the average of the price enjoyed by Russia, Turkey, and Pakistan, in the most recent 12 months for which data is available, Iran paid EUR 2723 more for each 100 kilograms of pharmaceutical products. This premium is almost certainly being passed onto consumers, with devastating effects. 

It is difficult to say to what extent distortions in Europe-Iran pharmaceutical trade are attributable to sanctions impacts. Certainly Turkey, Russia, and Pakistan do not share the same experience of being targeted by unilateral and multilateral sanctions, though they do share many of the same political and economic risk factors that can serve as an impediment to bilateral trade. There are other possible explanations for Iran’s highly volatile pharmaceutical imports, including issues related to the devaluation of the Iranian rial, the use of middlemen in transactions, and changes in the composition of imports related to protectionist policies.  

Looking to total relative proportion of total export quantities in 2018, it is possible to take a snapshot of the composition of European exports to the four countries. What we find is that the composition of exports is broadly similar, with nearly all of the top ten export categories for Iran represented among the top ten for Russia, Turkey, and Pakistan, albeit with differences in proportion. What is clear is that all of the countries import significant volumes of pharmaceutical ingredients, such as vitamins, for use in domestic pharmaceutical manufacturing. Iran imports significantly more vitamin E than the other countries, but significantly less wadding. Neither is a particularly expensive good.

What is most remarkable about the price distortion is that it can be observed through European customs data. In this data, the value of goods is reflective of the value declared by the European seller at time of export. This distinguishes the analysis here from reports focusing on the price increases observed by Iranian consumers. It would appear that at least some of the exorbitant increases in the price of medication for Iranians are attributable to disruptions in trade that originate outside of Iran, rather than tariffs, hoarding, price gouging, or other market disruptions that are known to exist within Iran. 

The price distortion also challenges the conception of sanctions impacts on pharmaceutical trade as being principally about reduced export volumes or shortages within Iran. The analysis presented here suggests that European pharmaceutical exports to Iran could theoretically grow in both absolute value and quantity under sanctions, and yet there could still be harms felt by Iranian consumers if the price of medication continues to rise unchecked. This means that sanctions policy cannot be defended on the basis that trade data shows limited disruption in the value or quantity of exports. The price related disruption shown here only becomes clear when looking to the relationship between export value and quantity over time. Any significant increase in the price of medication at time of export will necessarily lead to circumstances where the sick and dying in Iran cannot afford the medication they need.

Photo: IRNA

Trump’s NSC ‘Blocks’ Swiss Effort to Ease Iran Humanitarian Trade

In November of last year, as the Trump administration reimposed secondary sanctions on Iran and embarked on its “maximum pressure” policy, the Swiss government opened discussions with the Treasury and State Departments to ensure that Switzerland’s significant sales of pharmaceutical products and medical devices—technically exempt from U.S. sanctions—could continue unimpeded. 

But the hardline sanctions policy being pushed by the National Security Council has so far prevented a Swiss effort to ease trade in food and medicine in a remarkable subversion of longstanding U.S. protections for humanitarian trade with Iran. 

According to Swiss customs data, in 2017 Switzerland exported CHF 236 million in pharmaceutical products to Iran. Last year, the total fell to just CHF 164 million, hampered by both the Trump administration’s withdrawal from the Iran nuclear deal and volatility in Iran’s foreign exchange market. In the first half of this year, exports have totaled CHF 79 million. 

European companies engaged in trade with Iran have become adept at finding payment solutions in the absence of normal correspondent banking. Some European and Swiss banks continue to process Iran-related transactions for sanctions-exempt trade, particularly for large clients with longstanding commercial relationships in Iran. 

But when trade manages to flow despite the direct and indirect effects of sanctions, it is often with higher transaction costs for all parties, which are then passed onto the consumer. Additionally, many advanced therapies or specific medical devices are produced by smaller Swiss companies, which do not have the same capacity as major Swiss pharmaceutical firms to find alternative payment solutions to sustain their trade with Iran. Hidden in the trade data is the reality that specific medications are not being sold to Iran as reliably, contributing to the shortages that have compromised the treatment of many of the most vulnerable Iranians, particularly those with chronic illnesses. 

In light of such challenges, which were first experienced under Obama-era sanctions, the Swiss government entered into discussions with the Trump administration, seeking additional clarity for Swiss banks engaged in humanitarian trade around “two key challenges.” As described by a Swiss official to Bourse & Bazaar, the Swiss government was seeking “some sort of ‘certainty’ for banks involved [in humanitarian trade with Iran] so that they will not be excluded from the US market.” Additionally, the Swiss government was hoping to provide their banks clarity on the permissibility of “the transfer of Iranian-origin funds into the Swiss accounts” when Iranian importers pay Swiss importers for humanitarian goods. 

Early discussions proceeded quickly, not least because the Swiss were seeking to reinstate a compliance model that had been used by the Treasury and State Departments before, during the period in which the Obama administration was tightening its secondary sanctions on Iran. In late January, several reports indicated that the payments channel had become operational—that was incorrect. Despite delays, Swiss officials believed they were in the “final stages” of launching the payment channel in February. They too were mistaken. 

Six months on, the Swiss government and Swiss banks have yet to receive any meaningful clarity from the Trump administration on their proposed channel for humanitarian trade. As NBC’s Dan de Luce reported in March, administration officials were still debating “a proposal from Switzerland to set up a humanitarian payment channel that would encourage Swiss banks to handle sales of medicine, medical devices and other items to Iran without fear of violating U.S. sanctions.” 

Importantly, what the Swiss are proposing is entirely consistent with existing U.S. sanctions laws and does not seek to undermine secondary sanctions powers. The Swiss approach does not entail the creation of a special purpose vehicle in the manner of INSTEX, the company established by the French, German, and U.K. government to support their sanctions-exempt trade with Iran. The INSTEX project was itself launched after the Trump administration rejected a request by the E3 governments for expanded waivers covering humanitarian trade. 

European officials with knowledge of the Swiss negotiations tell Bourse & Bazaar that while officials at the State Department and Treasury Department had quickly understood the intention and importance of the Swiss request and moved to provide the requested assurances, the necessary administrative actions were later “blocked” by officials at the National Security Council, which has taken an unusually active role in sanctions policy in this administration.

The debate over the Swiss humanitarian trade mirrors similar disagreements among key administration officials about the reasonable limits of the Trump administration’s maximum pressure campaign. Led by John Bolton, the NSC has taken the same hard stance in debates around the revocation of the oil waivers permitting controlled exports of Iranian oil, around the sanctions designation of Iran’s Islamic Revolutionary Guard Corps (IRGC), and around the partial revocation of waivers that permit civil nuclear projects central to the non-proliferation commitments of the JCPOA. 

Earlier this week, the State Department published a video in which Special Envoy for Iran Brian Hook sought to dispel several “myths about sanctions that continue to be promoted by the Iranian regime,” including “myth” that sanctions target humanitarian trade. Back in December of last year, the State Department provided a supportive statement to the Financial Times in response to questions about the Swiss payment channel, declaring: “We understand the importance of this activity since it helps the Iranian people. It has never been, nor is it now, U.S. policy to target this trade.” Officials at the NSC apparently disagree. 

Photo: Wikicommons

European Pharmaceutical Exports to Iran Fall Sharply

Editor’s Note: In the course of writing this report, it was discovered that there are major discrepancies in the data on Denmark’s pharmaceutical exports to Iran as presented by Eurostat and Danmark Statistik. The Danish exports cited below are as reported from Eurostat, but the data is pending correction. We are in touch with the relevant agencies to find out why the data is inconsistent. There is no reason to believe Eurostat figures are otherwise inaccurate.

Data from Eurostat and the Swiss Federal Customs Administration show that European exports of pharmaceutical products to Iran have fallen considerably on a year-on-year basis. While some of Iran’s smaller trade partners have seen total export values rise, Iran’s top sources of European pharmaceutical products are seeing exports contract.

Looking to cumulative export totals from January to September—the most recent month for which data is available—exports among the 28 member states of the European Union are down 6 percent when compared to the same point last year, while the total quantity exported has fallen 10 percent. Among the 6 member states which exported in excess of EUR 30 million in pharmaceutical products to Iran in 2017, only Germany and the Netherlands have seen export volumes rise this year.

German exports were about EUR 40 million in September 2018, the largest one-month total in the past two years and perhaps an indication of stockpiling by Iranian importers. However, Austria, Italy, France and Belgium have all seen exports fall substantially indicating that any stockpiling is not widespread.

Switzerland is Iran’s second largest source of European pharmaceutical products after Germany. While Swiss exports were down 43 percent year-on-year in September, the figures have regained some ground. October data, which is available in Switzerland, shows exports now down 21 percent, from a cumulative total of CHF 156 million in October 2017 to CHF 123 million in October of this year.

These concerning figures may explain why the Swiss government has opened a dialogue with the Trump administration on establishing a dedicated channel for humanitarian trade.

Aside from their humanitarian importance, pharmaceutical products are a major component of bilateral trade between Europe and Iran, accounting for 7 percent of total exports from the European Union to Iran, and about 40 percent of Swiss exports to Iran, a reflection of Switzerland’s standing as a world-leader in the pharmaceutical sector. Overall, Iran imported nearly EUR 1 billion in pharmaceutical products from Europe last year.

The new export data substantiates fears that reimpostion of US secondary sanctions on Iran has begun to restrict humanitarian trade, despite the fact that the sale of humanitarian goods, including pharmaceutical products, is technically sanctions exempt. This disruptions are already being felt in Iran, as medical professionals report new shortages of critical medications.

One of the persistent questions surrounding shortages of medicine in Iran is whether they are caused primarily by interruptions in the supply chain outside Iran or by challenges inside Iran. Reports of delays at customs, hoarding by wholesalers, and panic buying by consumers suggest that the shortages are likely exacerbated by domestic circumstances.

However, the clear drop in exports from Europe indicates that fewer pharmaceutical products are arriving at Iran’s ports in the first place. Europe is by far the most important source of medicine and medical devices for the Iranian market.

Reduced sales could be the result of the increased cost of importing medication due to the devaluation of the rial or difficulties faced by Iranian importers in securing allocations of the necessary foreign currency to make the purchases.

But given that consumers are generally price insensitive when it comes to essential goods like medication, and given that the Iranian government has prioritized foreign exchange allocations for importers of essential goods, it is more likely that the fall in European pharmaceutical exports to Iran is related to the widely reported banking difficulties that are effecting Europe’s humanitarian trade with Iran.

While European exports may have rebounded beginning in October, is unlikely that situation will look very different when data is made available for the final quarter of the year.

As Europe works to establish a special purpose vehicle (SPV) to address the limited banking channels available for exporters, thereby enabling a greater volume of trade with Iran, there will be significant pressure for the forthcoming mechanism to focus on humanitarian trade first. This year, every EU member state has exported pharmaceutical products to Iran, demonstrating broad commercial interest that could help incentivize cooperation among member states to establish an SPV for humanitarian trade.

Europe must ensure a quick rebound in pharmaceutical exports, not simply for the sake of those suffering from illness in Iran, but also to demonstrate its ability to protect its trade starting with where it should be least vulnerable—the export of sanctions exempt products.

Photo Credit: IRNA

Under Trump, US Sale of Medical Goods to Iran Down Nearly 40%

With just two weeks until Trump reimposes secondary sanctions on Iran, administration officials are under increasing pressure to prove that the returning sanctions will not adversely impact humanitarian trade.

Secretary of State Mike Pompeo has declared that “sanctions and economic pressure are directed at the regime and its malign proxies, not at the Iranian people.” But a review of US trade data shows that humanitarian exports from the US to Iran have withered under the Trump administration, lending credence to claims that while sanctions exemptions for humanitarian trade persist in principle, companies are struggling to avail themselves of these exemptions in practice.

In August, US exports to Iran surprisingly surged to nearly USD 150 million dollars, levels not seen since late 2008, when the Bush administration oversaw the sale of a significant volume of wheat to Iran, pushing monthly exports above USD 100 million for several months. The sudden increase in US exports to Iran was even reported upon by Iranian media outlets.

Looking into the content of those exports, just over USD 140 million dollars of the August trade is attributable to the sale of American soybeans to Iran, the number one destination for the crop that month. Due to Trump’s trade war, the export of soybeans to China has collapsed 95 percent, making commodities traders eager to offload supply to Iran.

But August’s sharp increase in exports to Iran remains exceptional for the Trump administration. Looking to data for the twenty months of the Trump presidency, a clear pattern emerges—along with overall trade, the export of humanitarian goods like food and medicine remains significantly lower than average monthly values registered during the Obama years.

Isolating humanitarian trade within United States Census Bureau export data can be done by analyzing twenty-one of ninety-nine standard “Schedule B” commodity codes, used to categorize trade in live animals, cereals, food oils, pharmaceuticals, and medical devices, among other goods that may fall under sanctions exempt or readily licensed trade.

Looking to the average monthly export value for goods in these categories, the Trump administration’s average of USD 15.4 million is actually about 6 percent higher than the monthly average of 14.5 million dollars registered during the Obama years. However, the Trump average is significantly distorted by the bumper trade in soybeans during July and August. When excluding these two months from the calculation of the Trump average, the monthly export value falls to just USD 7.1 million dollars, about half the level seen during the Obama years.

The significant decline in humanitarian trade is also evidenced by looking to the median monthly export value, which may better account for the natural volatility in US exports to Iran. In the 96 months of the Obama presidency, the median value of humanitarian exports to Iran was USD 9.4 million dollars per month. In the 20 months of the Trump presidency so far, the same figure has fallen to USD 5.8 million dollars per month, a 40 percent reduction.

The most regular kind of humanitarian trade between the US and Iran is the export of pharmaceutical goods. There was just a single month during the whole Obama presidency in which no exports of pharmaceutical products to Iran were registered. Likewise, pharmaceutical exports to Iran have so far been registered in every month of the Trump presidency. However, even in this routine trade, the Trump administration is falling short.

Under Obama, the United States exported an average of USD 2.1 million in pharmaceutical products to Iran each month. Under Trump, that monthly average export value has collapsed to just USD 720,000, a paltry one-third of the former level.

Importantly, in the last few years, the trade in medical devices to Iran has outpaced trade in pharmaceuticals, which may point to Iran succeeding in finding other suppliers of key medications while also boosting domestic production. The shift begins around March 2014, shortly after the January 2014 implementation of the Joint Plan of Action (JPOA)—the precursor of the nuclear deal—in accordance with which the Obama administration began to expand secondary sanctions relief for humanitarian trade, including pharmaceutical exports to Iran. It is likely that European exports continue to offset the fall in American exports, including the reexport of American-made products from European divisions of American companies.

However, when adding medical devices and equipment into an overall calculation of exports of medical goods, the picture remains dire. During the Obama years, the US exported an average of USD 6.3 million in medical goods each month. In the first 20 months of the Trump administration, that figure has fallen to USD 4.6 million, a significant 37 percent drop.  

The decline of medical exports to Iran is unlikely to reflect falling Iranian demand. There were no exports of medical devices or equipment to Iran during the first nine months of the Trump presidency. But in October 2017, the same month when Trump “decertified” the JCPOA nuclear deal, exports of medical devices and equipment began again, and have recently reached the highest monthly level since 2015, despite the fact that the sharp devaluation of the real has made such imports much more expensive. Add to this the clear evidence from Iran that sanctions are beginning to result in shortages in key medicines and foodstuffs, and it is obvious that there remains significant scope for the Trump administration to expand its humanitarian trade with Iran.

It would seem that the Trump administration has reached a kind of crossroads when it comes to its strategy for humanitarian trade with Iran. It has publicly insisted that it will allow trade to flow and export volumes in the last few months are more consistent with the decade-long pattern of exports in food and medicine sustained by the US concurrently with the imposition of secondary sanctions.

At the same time, moves such as the recent sanctions targeting Parsian Bank, suggest that the administration is unwilling to send reliable signals to those companies and financial institutions engaged in vital humanitarian trade with Iran. Whether the administration will make good on its own reassurances and meet its moral obligation to facilitate humanitarian trade with Iran remains to be seen.

Photo Credit: IRNA

Iran: The Case for Protecting Humanitarian Trade

This article has been republished with permission from the European Council on Foreign Relations. 

A crisis is looming in Iran’s healthcare sector: patients are reporting shortages in life-saving medicine. The situation is expected to worsen once US sanctions on Iran are reimposed in November. European and US companies that can provide the advanced medicine and equipment needed to treat chronic diseases inside Iran are grappling with how to sustain their operations. The goods that are making it into Iran are being sold at soaring prices due to a sharp currency downturn following Donald Trump’s sanctions decision.

Millions of ordinary Iranians are bracing themselves for the impact of these sanctions. The UN special rapporteur for human rights warned that the sanctions will undermine human rights in the country, drive people into poverty, and make imported goods unaffordable. The impact of incoming sanctions on the humanitarian sector contradicts the US administration’s repeated statements in support of the Iranian people.

Iranians experienced similar hardship between 2012-2013 when the United States and Europe introduced the severest of sanctions to pressure Iran to restrict its nuclear program. At the time, the US Treasury provided broad authorization and exceptions for the sale of medicine and medical devices. Yet only a limited number of Western companies managed to operate under these conditions. Many were forced to halt or downsize trade due to disruptions in banking and high operational costs.

A repeat of this situation must be prevented. Unilateral US sanctions must not be allowed to needlessly cause suffering to millions of Iranian citizens. This is especially the case given that Iran continues to implement restrictions on its nuclear program under the 2015 deal. Europe, China, and Russia have also vowed to uphold the agreement.

The overarching hurdle facing many companies that export medical goods and services to Iran is related to securing banking services and finance to enable such transactions to happen. This includes a recent foreign currency shortage with which to reimburse European companies. The lack of clarity over how the US will enforce its sanctions has exacerbated these problems. For example, while the latest US OFAC guidelines reaffirm that there is broad authorization for humanitarian transactions, there is ambiguity over how extensively the US will use secondary sanctions to target private Iranian banks.

Since the nuclear deal, such banks were clearly exempt from secondary sanctions. That meant that non-US companies could establish ties with such banks to facilitate payments for the sale of humanitarian goods to Iran. Their position is now unclear. The US has outlined plans to sanction the Central Bank of Iran (CBI); but it is inevitable that any local private Iranian bank will have to transact with the CBI. Under the current US sanctions framework it is unclear if this would trigger a designation for that local bank, meaning that European banks would most likely refuse to transact with that entity.

Such uncertainty can effectively block payment channels into Iran and prevent life-saving assistance from reaching doctors and Iranian patients. Indeed, several leading pharmaceutical companies currently engaged in Iran have shared with us their concerns that banks, insurance companies, and distribution channels that have facilitated humanitarian trade with Iran are getting cold feet, fearing they could fall foul of US sanctions. Competing interpretations of the OFAC guidelines also are causing over-compliance by European companies whose board members are reluctant to accept reputational damage in the US even for humanitarian exchanges with Iran.

For Iranians, access to basic healthcare is a constitutionally protected fundamental human right. In recent years, health conditions in Iran have been gradually improving for underprivileged patients. In part this has been due to the easing of international sanctions that have made healthcare products more affordable and easily accessible. President Hassan Rouhani’s government also introduced new reforms that offer healthcare to almost 11 million previously unprotected people.

Treatment for chronic diseases is a major challenge for Iran where successful treatment requires advanced devices, training, and pharmaceuticals that are often provided through Western companies. Protecting access of such companies to Iran is therefore imperative.

As global powers look to salvage the nuclear deal despite the US withdrawal, they should seek to preserve humanitarian trade with Iran. Despite opposing views between Europe and the US on the nuclear agreement, saving the lives of Iranians should not be a topic of debate. Brian Hook, the newly appointed US special representative for Iran, recently stated that the US and Europe should be working together to “find lasting solutions that truly support Iran’s people”. Europe should press the US to fulfill this offer by working to immediately facilitate and remove obstacles to humanitarian trade with Iran.

European governments should urge the US Treasury to quickly clarify the ambiguities created by its latest guidelines and ensure that a reasonable number of Iranian private financial institutions remain exempt from US secondary sanctions. The European Union should double down on efforts to ensure payment channels with Iran are preserved, including Iran’s access to the SWIFT financial messaging service. As a matter of priority it should aim for banks in Europe to remain open for humanitarian trade with Iran. To help foreign companies sustain the profit margins of operations inside Iran, the Iranian government could also offer cost-saving incentives for companies that import medicine and medical goods into the country.

The European Commission recently announced it will provide an €18m economic package for the social benefit of ordinary Iranians. If required, it should introduce similar new provisions after November to bridge any gaps in funding and payment facilities for medicine exported by European companies. This lending mechanism (in euros as opposed to US dollars), should be large enough to at least cover the import of life-saving medicine into Iran and should be flexible enough to respond to new needs. The EU and Iran could also consider establishing a medical fund for donating pharmaceuticals and equipment to Iran. In such instances, no banking transactions will be required and therefore the risks to European companies will be reduced.

The EU could also encourage expanded scientific cooperation with Iran in medical research and training. Relative to many countries in the Middle East, Iran has advanced public and private medical research institutions that are likely to welcome such bilateral cooperation. In fact, Iranian and US scientists have long engaged in successful health diplomacy projects. European governments can support and facilitate such humanitarian-focused projects. Such measures from Europe can demonstrate that their commitment to the humanitarian needs of Iranian people goes beyond rhetoric.

Many Western governments view sanctions as an effective economic tool to alter the actions of adversary states. Yet sanctions have repeatedly hit ordinary people the hardest and resulted in a negative impact on health in the targeted country. The human cost of sanctions in countries such as Iraq, Iran, Syria, and Venezuela has been severe. Going forward, the international community must implement safeguards to fully protect humanitarian sectors of trade. As Europe pledges to demonstrate its commitment to the Iran nuclear deal, it could take a lead in this dialogue and provide concrete solutions.

Photo Credit: IRNA

Ambiguity in Trump Sanctions Could Put Humanitarian Trade with Iran at Risk

In the years prior to the nuclear deal, when Iran was under broad international sanctions, the country saw shortages in key foodstuffs and life-saving medicines. Despite attestations to the contrary by proponents of the economic blockade, who spoke of its "targeted" nature, international sanctions hurt the Iranian people in cruel ways.

According to Iran's Food and Drug Administration, the list of medicines subject to shortages in Iran extended to 350 drugs in the sanctions period. Shortages were precipitated by a number of factors. Several multinational corporations downsized their operations or withdrew from the Iranian market. Interruptions in banking channels saw payments turn from the use of industry-standard letters of credit and deferred payment terms to cash-in-advance payments using exchange houses. Transaction and operational costs skyrocketed, with costs being passed on to the consumer, whose buying power was eroded by currency devaluation. 

After the lifting of international sanctions as part of the Iran nuclear deal, the situation improved dramatically. Today, the number medicines subject to shortage has dropped to 65 drugs. Yet, it is important to realize that the shortages precipitated by sanctions would have been even worse had it not been for specific carve-outs for humanitarian trade established by the United States’ sanctions enforcement agency, the Office of Foreign Assets Control (OFAC),  part of the Department of Treasury.

As per OFAC’s own guidance on the matter, “the U.S. maintains broad authorizations and exceptions that allow for the sale of food, medicine, and medical devices” to Iran by both U.S. and non-U.S. persons. During the sanctions period, the more committed multinational companies, often those with longstanding ties to the Iranian market, took advantage of these exemptions to maintain their sales to Iran. While a commercial incentive reigned supreme, the Iranian people benefited to the extent that the country was not under a total blockade. 

Now, with U.S. sanctions poised to return, more suffering seems to be on the horizon. The Trump administration has announced that it will be reinstating all primary and secondary sanctions removed as part of the Joint Comprehensive Plan of Action (JCPOA). This total reapplication of sanctions, which is to take place despite Iran’s proven compliance with its commitments under the nuclear deal, has taken many by surprise given its extreme and unjustified breadth. But take a closer look at the mechanics of the so-called “snapback” and what the Trump administration is seeking to do could prove much more dangerous than anything Iran has been subjected to before.

There is exists an important caveat to OFAC’s exemptions for humanitarian transactions with Iran. These sales “do not trigger sanctions under U.S. law… so long as the transaction does not involve certain U.S.-designated persons (such as Iran’s Islamic Revolutionary Guard Corps or a designated Iranian bank) or proscribed conduct.” The emphasis on banks is what matters here. 

Iran’s private sector banks play a vital role in facilitating humanitarian trade. The major multinational corporations selling and manufacturing agricultural commodities (eg. Cargill, Bunge), food (eg. Nestle, Danone), and medicines and medical devices (eg. Sanofi, Novartis, GE Healthcare) depend on these types of banks to access the financial services necessary for day-to-day operations in Iran. 

Importantly, while Iran’s private sector banks were targeted as part of efforts to isolate Iran from the international financial system and were included on the SDN list, this was done under designations for which secondary sanctions did not apply.

Foreign companies and financial institutions were prohibited from transacting with Iranian financial institutions under the Iran Freedom and Counter-Proliferation Act (IFCA) in 2012 and Executive Order 13645 in 2013. However, there was a notable carve-out created for those "Iranian depository institution[s] whose property and interests in property are blocked solely pursuant to E.O. 13599." The Iranian financial institutions included in the E.O. 13599 list include the country's private sector banks. The unique status of the banks on this list partly reflects that these entities maintain higher compliance standards and clearer governance structures, lack exposure to government or IRGC shareholders, and have no known history of financial crime or terrorist financing.

The Trump administration has made clear that it intends to re-list all of the entities that had been removed from the SDN list as part of the JCPOA (these entities are listed in the attachments to Annex II of the nuclear deal). What remains unclear is whether Trump’s intended re-listing of these entities means returning them to their precise status prior to the nuclear deal. Legal experts and former government officials are coming to different interpretations of the relevant sanctions guidance.  OFAC’s FAQs document issued following Trump’s announcement of the U.S. withdrawal from the JCPOA addresses precisely this question for entities on the E.O. 13599 list. The entry reads:

Will the persons that were placed on the List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599 (E.O. 13599 List) on JCPOA Implementation Day (January 16, 2016) be put back on the SDN List?

The provided answer is concerning (emphasis added):

No later than November 5, 2018, OFAC expects to move persons identified as meeting the definition of the terms “Government of Iran” or “Iranian financial institution” from the List of Persons Blocked Solely Pursuant to E.O. 13599 (the “E.O. 13599 List”) to the SDN List. OFAC will not add these persons to the SDN List on May 8, 2018, to allow for the orderly wind down by non-U.S., non-Iranian persons of activities that had been undertaken prior to May 8, 2018, consistent with the U.S. sanctions relief provided for under the JCPOA involving persons on the E.O. 13599 List. The Government of Iran and Iranian financial institutions remain persons whose property and interests in property are blocked pursuant to E.O. 13599 and section 560.211 of the ITSR, and U.S. persons continue to be broadly prohibited from engaging in transactions or dealing with the Government of Iran and Iranian financial institutions. Beginning on November 5, 2018, activities with most persons moved from the E.O. 13599 List to the SDN List will be subject to secondary sanctions. Such persons will have a notation of “Additional Sanctions Information – Subject to Secondary Sanctions” in their SDN List entry.

The guidance indicates that the entities moved from the E.O. 13599 list to the SDN list “will be subject to secondary sanctions." In practical terms, the guidance can be interpreted to mean that all of Iran’s private sector banks will be listed with a designation more restrictive than was the case prior to the nuclear deal. In this scenario, after November 5, 2018, any company that transacts with Iran’s private sector banks will be exposed to U.S. secondary sanctions.

Several sanctions experts, speaking on background given the sensitivity of the subject, pointed to this concerning lack of clarity. In the assessment of an attorney specializing in U.S. sanctions, "It is not clear whether the mere placement of persons identified on the E.O. 13599 List back on the SDN List will subject private Iranian banks—not otherwise designated pursuant to an authority other than E.O. 13599—to secondary sanctions. If it returns to the pre-JCPOA sanctions, then it will revert to the rules established by IFCA and E.O. 13645." But if the new guidelines do reflect an intention to make secondary sanctions for Iranian banks that were previously exempt, "OFAC has the discretion to do so," the attorney noted. 

This reading was echoed by a former U.S. government official: "One could read [the FAQs] to suggest the pre-JCPOA identifications, which is what E.O. 13599 was created to address, are all becoming SDNs. This would be a significant escalation. Most of the private banks on E.O. 13599 were never subject to secondary sanctions because we never had evidence of bad behavior."

If this interpretation holds, the typical exemptions for humanitarian trade will no longer apply for the multinational companies bringing vital foodstuffs and medicines to Iran. This is because the private sector banks that they have customarily used to facilitate this trade will be considered “a designated Iranian bank" exposing their counter-parties or clients to secondary sanctions. Re-listing Iran’s private sector banks in this manner would prove devastating to humanitarian trade. 

Several major international law firms are advising clients that the re-listing will not exceed the restrictions of the pre-deal designations. In this assessment, the transactions that were not sanctionable pre-JCPOA should not be sanctionable on November 5. The problem is that such a fundamental question, with a direct bearing on humanitarian trade, should not be a matter for interpretation. OFAC has historically offered clear and reliable guidance is these fundamental areas.

It remains possible that OFAC has simply made a mistake in leaving things ambiguous regarding E.O. 13599 entities. In the assessment of many sanctions attorneys, the FAQs released on May 8 are sloppy and incomplete—perhaps an indication of the last-minute nature of their preparation as President Trump announced his decision on the nuclear deal earlier than expected. If this is just an error in the guidance, OFAC must immediately update its FAQs and provide clarity on the matter.

However, if the re-designation is intended as an escalation, and the United States does aim to designate Iran’s private sector banks as SDNs and target their multinational clients with secondary sanctions, the international community must use all available means to compel the Trump administration to restore full and unfettered humanitarian exemptions for Iran trade. Thousands of lives are at stake. 

Photo Credit: IRNA