Iran is ramping up imports of wheat, including rare purchases from the U.S., in a sign Tehran is building a strategic stockpile of grain in anticipation of harsher sanctions or even military conflict.
The country has bought wheat from the U.S., Australia, Brazil, and Kazakhstan in the past few months, and is in talks on what could be a major wheat buy from India, according to market watchers and official data.
Iranian President Mahmoud Ahmadinejad holds stalks of wheat at a campaign rally in 2009. The country is importing large quantities of the grain, including from the U.S., ahead of sanctions possibly tightening.
Such a maneuver could bolster the Islamic regime at a time when the West is increasing pressure over Iran's disputed nuclear program, including curbing purchases of Iran's oil and freezing its government banks out of international networks. Current U.S. sanctions allow companies to sell food to Iran.
Access to wheat is crucial for the country, enabling it to prevent spikes in the cost of bread, a key staple among its 78 million citizens.
Such spikes have in the past led to social unrest in Iran and elsewhere in the Middle East.
Iran is likely getting ahead of any tightening of sanctions, as well as a further decline in its currency, said Paul Sullivan, a Middle East security expert and adjunct professor at Georgetown University.
The Iranian rial has fallen 30% against the U.S. dollar in the past six months, making purchases in U.S. dollars more expensive.
"It's clear they're worried about their currency declining and potential war ahead of them," Mr. Sullivan said. "The country is really being squeezed."
Recent dry weather in the region also may lend urgency to Iran's purchases, he said.
Iran is due to start harvesting a new wheat crop in May, and could be concerned about lower production, said Chris Gadd, an agriculture analyst at Macquarie, in an email.
Pedestrians carry local bread in Tehran earlier this month. Bread prices are politically sensitive in Iran.
Traders are watching purchases by Iran, which often imports relatively little wheat. But wheat supplies are fairly robust at the moment, and the deals haven't sent prices soaring.
Wheat is up just 1.1% in the futures market in 2012, to $6.595 per bushel, well below last year's peak near $9.
It is common for countries in conflict to continue to trade with each other. Still, the buys represent a striking contrast to the West's attempts to ratchet up pressure on Iran.
The U.S. Department of Agriculture estimates Iran will import 2 million metric tons of wheat in the year through June.
That is a tenfold rise from a February estimate, and enough to cover 13% of Iran's annual consumption, according to USDA data.
Industry officials say Iran is also negotiating to buy up to 3 million tons of wheat from India, but it isn't clear if that deal will come to pass.
The U.S. sold Iran 180,000 tons of hard red winter wheat, widely used to make bread.
Before 2008, when Iran bought U.S. wheat when its crops were ravaged by drought, the country hadn't bought U.S. wheat for almost three decades.
This time around, the Iranian crop is relatively plentiful, observers say.
It isn't clear which firms are selling wheat to Iran currently, but major grain shippers Bunge Ltd., BG -1.02% of White Plains, N.Y., and Cargill Inc., based in Minneapolis, both say they sell agricultural commodities to Iran under provisions of the sanctions that allow for exporting food.
"We take great care to ensure that these sales respect both the spirit and the letter of the law while trying to make sure that ordinary people are not deprived of basic foodstuffs," Cargill said in a statement.
Bunge also said its exports to Iran are "in accordance with all applicable economic sanctions laws."
As sanctions expand, it has become increasingly difficult for Iran to arrange and pay for such purchases, Middle East businessmen and bankers say.
Iranian banks typically send payments to the U.S. via a European or Middle Eastern bank.
But some banks have stopped doing business with Iran out of fear of retribution from the U.S., they said.
The Europe-based organization that clears money transfers, known as Swift, this month banned 20 Iranian financial institutions from using its international bank-transfer system.
Congress is debating sanctioning some of the few remaining Iranian financial institutions involved in such trade, which could choke off other avenues, regional businessmen and officials say.
President Barack Obama said this month he would "take no options off the table" to prevent Iran from getting a nuclear weapon. Iranian officials say its nuclear program isn't aimed at developing a nuclear weapon.
Iranian officials haven't publicly commented on the wheat purchases. Officials in Tehran didn't respond to written requests for comment. A spokesman at Iran's mission to the United Nations didn't return calls.
Bread prices are politically sensitive in Iran, as they are across much of the Middle East, where flatbread is a staple.
The price of a popular Iranian bread, known as nan-e sangak, has risen by about 30% in the past few months, according to Iranians.
Producers are also selling other food products to Iran. Emerald Seed Co., of El Centro, Calif., sells Iran seeds for growing vegetables such as broccoli and peppers.
"You don't withhold food from people," said Robert J. Brown III, sales and marketing manager for Emerald Seed. He said the trade is worth less than $1 million annually.
Mr. Brown says Iran's plunging currency has made it harder for customers to pay. "We're sitting on business that's not shipping," he says.
Source: Argentine Beef Packers S.A.