UPDATE 2-Syria tender for food calls for payment from Iran

Michael Hogan
Friday, 13 Dec 2013 | 9:12 AM ET

(Recasts, adds analysts, background)

HAMBURG, Dec 13 (Reuters) - Syria tendered to import food on Friday using a credit line from Iran's export bank in what could be a test of last month's landmark deal to ease Western financial sanctions on Tehran.

Sanctions also imposed on Syrian President Bashar al-Assad's government do not cover food but those on banking, asset freezes and the country's two-year-old civil war have made tenders difficult.

"This is the first time I have seen a tender from Syria specifically offering payment by Iran," one European trader said. "The tender document is very specific about payment."

Syria's General Foreign Trade Organisation is seeking to buy 150,000 tonnes of sugar, 50,000 tonnes of rice, 25,000 tonnes of flour and a wide range of other food using a credit line from Iran, traders said.

"The tender says there must be a written declaration by the bidder to say they are fully briefed on the Iranian credit line agreement between Syria and Iran and that they accept all the contents of the terms and conditions," another European trader said.

The tender specified that funds would come from the Export Development Bank of Iran (EBDI), the trader said.

"Iran has had much more success than Syria in making large food imports in the face of sanctions and naturally with the sanction suspension, payment via Iran would become much easier," one trader said.

The tenders follow a deal struck last month between Tehran and six world powers to curb the Iran's nuclear programme in exchange for initial sanctions relief.

Relaxed banking sanctions on Iran could allow the country to undertake more normal financial transactions with ally Syria, where the United Nations said this month evidence implicates Assad in war crimes against his own people.

Syria has struggled in recent months to buy food through tenders for rice, sugar, flour and wheat, although some deals have been struck outside of that process using middlemen.

Prospects for an especially hard winter have made Syria's plight even more urgent with the U.N. planning its first food airlift into the country.

Syria in the past has asked to pay for its food purchases through an unlocking of funds frozen in international bank accounts.

Industry observers said its new approach using Iran's EBDI could encourage more large trading houses to bid in Syrian tenders.

"This is pretty clean cut," said James Dunsterville, an analyst at Geneva-based AgFlow. "You've got tender terms, you've got payment terms, the question is can you do it? If the answer is yes, and if you have time, then it will be done."

If the Iranian funding works well, this may be the way Syria undertakes food imports while the current political upheaval continues, he said.

Another trader said: "Given there is yet to be complete clarity on this, one way they could make this work is Iran may opt to use their locked funds in various accounts that can be used for food payments. The feeling is this may work as it is humanitarian business."

"Cargill, like a variety of other multinational companies with a global agricultural footprint, does sell agricultural commodities to Iran and Syria as food is specifically excluded from the sanctions," a spokeswoman for the global commodities group said, but declined to comment on individual trades.

Syria's tender follows persistent market talk of Iran helping Syria with supplies of food including flour and frozen poultry.

Trade sources said Syria agreed deals to import around 157,500 tonnes of wheat flour from Iran, which itself is a major importer of wheat, and would have to buy the supplies for Syria in international markets.

Offers in the latest tender must be in euros and remain valid for 20 days, traders said.

(Additional reporting by Jonathan Saul in London, Sybille de La Hamaide in Paris and Maha El Dahan in Abu Dhabi; editing by Jason Neely)