A Smokin' Old Time in Tehran
Why U.S. cigarettes are all the rage today in Iran
To punish Iran for backing terrorism and going nuclear, Washington has slapped on trade sanctions and moved aggressively against its banking industry. But in one area, business between the two nations is booming: smokes. Exempted from the sanctions regime as agricultural products, U.S. tobacco exports to Iran have grown to $142 million over the past five years and now dwarf those of all other American goods shipped there.
The shipments are allowed under a U.S. law, passed in 2000, that eased the embargoes against Iran, Libya, and Sudan, allowing exports of medicine and agricultural goods. The law-the Trade Sanctions Reform and Export Enhancement Act-was pushed hard by interests from food-farming states, but the tobacco industry has become the big winner. While exports of U.S. cigarettes to Libya and Sudan never amounted to much, shipments to Iran-considered a premier market by tobacco exporters-have soared.
From 2002 to 2005, tobacco made up nearly half the value of all U.S. exports to Iran, according to trade data compiled by the U.S. Census Bureau. The $50 million worth of tobacco products shipped there in 2005, the last year for which figures are available, is nearly three times that of the next largest category, pharmaceuticals, and over six times the amount of all other farm goods. "It's obviously not what was intended," says Rep. Brad Sherman, a California Democrat and chairman of the House Terrorism, Nonproliferation, and Trade Subcommittee. Sherman, who has pushed for tougher sanctions on Iran, says the embargo was eased because of concern over deprivation. "That's why it was about food and medicine," he said. "It would have been ironic to put in medicine and cigarettes."
As a top oil producer, Iran earns some $50 billion a year from petroleum exports, enough to amply fund the nuclear and missile programs that have Washington on edge. But its leaders are also profiting from the tobacco trade, because sales are run by a government monopoly. According to Iran's state-owned Islamic Republic News Agency, the IRNA, 50 billion cigarettes are consumed there annually, resulting in some 50,000 smoking-related deaths each year.
Smugglers. U.S. export records show that last year, British American Tobacco-maker of Kent, Pall Mall, and Lucky Strikes-shipped over 1 million pounds of cigarettes from Charleston, S.C., to the Iranian port of Khorramshahr. A BAT spokeswoman told U.S. News that the company, concerned over possible new restrictions, no longer exports to Iran from the United States. Cigarette makers R. J. Reynolds and Philip Morris also say they do no business with Iran.
One concern not reflected in official trade statistics is smuggling. By evading taxes and embargoes, tobacco smugglers can earn enormous profits, and Iran is a magnet for many. As much as 70 percent of the cigarettes sold in Iran are smuggled into the country, reports IRNA. Moved from U.S. ports to Cyprus, the shipments are typically diverted to Lebanon, Turkey, Oman, or the U.A.E. before ending up in Iraq and Iran, according to a 2003 World Health Organization report.
U.S. officials hope to tighten the embargo on Iran. "As we see the conduct coming out of Tehran, more and more companies are making decisions not to do business with the regime," says Treasury Department spokesperson Molly Millerwise. Leading international banks UBS, HSBC, and Standard Chartered, among others, have taken steps to limit their exposure to Iran, according to a speech in Dubai last week by Treasury's counterterrorism chief, Stuart Levey.
To get its message across, Treasury-which enforces the U.S. sanctions-has blacklisted some 20 individuals, banks, and companies tied to Iran's nuclear program and support for terrorism. Last week, Rep. Tom Lantos, the California Democrat who chairs the House Foreign Affairs Committee, introduced legislation that would further tighten trade restrictions on Iran, including a ban on U.S. subsidiaries of foreign oil companies operating there. Although the measure doesn't target tobacco exports, Lantos also wants a full stop to the few Iranian imports still allowed into the United States. While Iranians may be able to get their U.S. smokes, Americans may have to get by without Persian rugs, pistachio nuts, and caviar.
With Monica M. Ekman
This story appears in the March 19, 2007 print edition of U.S. News & World Report.