Iranian car imports rise by 150% after easing of sanctions

Iranian women past a dealership for used BMW and Mercedes Benz cars in Tehran, Iran. Franco Czerny / Getty Images

Iranian car imports rocketed by 150 per cent in the five months to August, as a loosening of trade sanctions against Tehran in February ushered in a resurgence of car exports from the UAE.

Nearly 44,000 cars were exported to Iran from February to August, compared with 17,000 the previous year, according to the Customs Administration in Tehran.

“There’s been a big jump in imports because of temporary relief of sanctions – everybody has been trying to get into the market,” said Pierluigi Bellini, an analyst who covers the car industry at the research firm IHS. “There’s pent-up demand.”

In the Al Aweer car market in Dubai, thousands of right-hand drive cars sit in a lot, waiting for export to Angola, Turkmenistan, and Iran.

“Ninety per cent of the business here is for export markets,” said Taj Shaikh, a manager at Ideal Cars in Al Aweer. “Business here depends on exports.”

The sentiment is echoed across the Al Aweer market, where a salesman at Western Auto said that exports to Iran were increasing dramatically.

“It’s about 35 per cent more than last year. The volumes are good,” said Shameer Sameek, a salesman at Western Auto.

“Iranian customers buy in volume, and are very particular on the specifications,” he said. They were typically wholesale dealers who sell cars in Iran at a markup of around 30 per cent.

These dealers buy cars decked out with accessories – DVDs, airbags, alloy wheels – to justify higher prices in Iran.

Dealers also said that Iranian customers always demand the latest models. “If you stock the right models, you can clear your entire inventory with sales to one or two Iranian customers,” said Mr Sameek.

But margins for Dubai’s re-exporters are decreasing, even as sales volumes increase. With rising competition and a subsequent fall in prices, all of the used car businesses in Al Aweer have switched to export.

Also the relaxing of sanctions have made sales to Iran easy. “The documentation is easy, there are few limitations,” said Mr Sameek.

Iran’s car market is staging a comeback after it was hit heavily by an executive order in June last year, prohibiting trade between US firms and the Iranian automotive sector.

“Iran is a promising market, but because of the political situation it has been hit very heavily,” said Mr Bellini, the car industry analyst at IHS. “In 2014 the market is growing quite fast, after two very strong drops in the last few years.”

The Iranian car market halved in size to 800,000 sales last year from 1.7 million in 2011, according to data from IHS.

Mr Bellini estimated that the Arabian Gulf exported several hundred thousand cars to Iran before the sanctions.

“There has always been a large grey channel of imports from the UAE and other countries in the Gulf,” Mr Bellini said.

But sanctions hit car dealers, banks lending to exporters, and insurers alike. “Bridge loans, trade finance, and insurance were all affected,” said Mr Bellini.

While there were ways to circumvent sanctions, restrictions pushed up costs for dealers.

“Firms [exporting cars to Iran] need to insure the shipped goods. But the problem with sanctions is that insurers were much more expensive or unwilling to insure goods sent there. The costs increased dramatically,” said Mr Bellini.

Sanctions threw the economy into recession, while the devaluation of the Iranian rial pushed up import prices for Iranian customers. Both of these made it difficult for firms in the UAE to sell to Iran.

But there are considerable opportunities for UAE exporters now that sanctions have been relaxed, said Mr Bellini.

“It’s a big car market – around the size of Italy.”

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