JAKARTA/KUALA LUMPUR (Reuters) ? Indonesia, the world's top palm oil producer, would study any approach by Iran to trade by barter, it said on Friday, as tightening sanctions hurt Iran's ability to pay for basic staples.
Western financial sanctions have crimped Iran's purchases of grain, cooking oil and tea, and barter could provide one way to resume shipments. Iran may turn to countries that have large Muslim populations and resources, such as Indonesia and Malaysia, for its needs.
Commodities traders have told Reuters Iran is offering gold bullion in overseas vaults or tankerloads of oil to secure food for its 74 million people, but could not give specific details on deals. Barter deals are often between governments rather than companies.
Indonesian Trade Minister Gita Wirjawan said the government would consider proposals but had not received any overtures from Iran. Trade officials said such deals have proved troublesome in the past.
"We have not got barter trade proposals from the Iranian government so far. If they really want to have barter trade with Indonesia and ask us to do so, then we have to study it first before doing the barter," Wirjawan told reporters, adding if any barter trade was discussed gas would be preferable to oil.
New sanctions imposed by the United States and European Union to punish Iran for its nuclear program do not bar firms from selling Iran food but they make it difficult to carry out the international financial transactions needed to pay for it.
Iran has not approached Malaysia for barter deals to keep its palm oil supplies flowing, two Malaysian government sources told Reuters on Friday, after traders said the country has stopped shipping the vegetable oil to Iran this year.
One said Malaysia is no longer keen to do barter trades after facing problems in a deal with North Korea in 2009 when $20 million worth of palm oil was to be exchanged for cash and fertilizer components.
"No matter how you do it, these countries don't have enough to barter. So Malaysia is not going to do barter trades for the time being," said the source, who had direct knowledge of the matter. Malaysia is the world's number two palm oil producer.
"We are more concerned if there are declines in exports in our top markets like India and China rather than Iran," the source added, declining to be identified due to the sensitivity of the issue.
DUCKING FOR COVER
Barter deals have grown more likely as foreign banks find it too difficult -- or simply not worth the chance of damaging their links to the United States -- to trade with Iranian banks.
U.S. sanctions have also sought to isolate Iran's central bank as a way of choking off hard currency flows.
Singaporean firms have stopped supplying Iran with Indonesian palm oil on concerns over the country's ability to make payments in the wake of Western sanctions, trading sources in Singapore have said.
Singapore banks will not risk getting cut off from access to U.S. dollar flows as that will kill their business.
"For most financial institutions, they'll run away the moment they see Iran," a senior banking source said on Friday.
Barter trade isn't without its difficulties, Indonesian officials said.
"We have some experience in doing counter-trade with several countries although we were not so successful on the trade," said Deddy Saleh, Director-General of Foreign Trade at the Trade Ministry, pointing to the complexity of past deals.
"It should be arranged under a government to government agreement umbrella although the goods which will be counter traded are in the hands of private companies," Deddy said.
CHALLENGES
Barter trade for Indonesia's palm oil sector was a clear example of the challenges, said Fadhil Hasan, Executive Director of the Indonesian Palm Oil Association (GAPKI).
"It is rather difficult to do barter trade, and normally there should be a government role. However, especially for palm oil, I think it would be difficult because palm oil is a high demand commodity. Indonesian palm oil producers, I suppose, will be reluctant to participate in the barter trade."
The Malaysian government has had a longstanding barter trade facility and more than 20 countries have used this scheme including Iran, North Korea, Pakistan, Myanmar, Iraq, Cuba and Russia. About half a billion U.S. dollars is allocated by the Malaysian government for the scheme and about half has been used up, local media reports show.
Indonesia has done barter type trades before at a government level. In 2003-2004, Indonesia swapped palm oil and rubber for fighter planes from Russia, and it has also exchanged civilian planes for rice from Thailand.
"We don't have political problems with Iran and in principle we are very open if there is a trade-off offer," said Mahfuz Shidik, of the Islamic Prosperous Justice Party and head of the Indonesian parliamentary group handling foreign affairs.
"Also, if due to sanctions the impact is felt by the food supplies of the Iranian people, Indonesia must respond by sending humanitarian aid."
India, too, has a long history of barter trade involving food for military equipment during the Soviet era and the government says it is not bound by U.S. and European sanctions.
Rahul Khullar, trade secretary of India, one of Iran's main trade partners, said on Thursday: "If the EU and the U.S. both want to stop exports to that country, please tell me why I should follow suit? Why shouldn't I take up that business opportunity?"
Under U.S. pressure, India shut down a payments system for trade with Iran last year. Under a new system, Indian firms are expected to pay for 45 percent of their Iranian oil imports in Indian rupees to avoid going through international banks. Implementing the system has been stalled while Indian authorities work out whether to subject such payments to tax.
(Reporting by Yayat Supriatna and Olivia Rondonuwu in JAKARTA and Niluksi Koswanage in KUALA LUMPUR and Kevin Lim in SINGAPORE; Writing by Matthew Bigg and David Fogarty; Editing by Jo Winterbottom)
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