An Iranian steel maker is paying a premium to small banks in Malta and Turkey for letters of credit, and in some cases must give European suppliers cash up front for purchases, according to an executive who asked that his name and the company’s not be disclosed, Bloomberg reported.

The reluctance of advanced industrial countries to sell equipment for possible military uses, such as graphite electrodes, had forced the steel company to buy inferior components from India, China and Russia, the executive said.

Six months ago, member countries of the Paris-based Organisation for Economic Co-Operation and Development cut Iran’s country-risk rating for export credits by a notch to the second-worst level. That put Iran, the Middle East’s second largest oil producer, in the same category as Albania, Bangladesh and Mozambique.

The lack of credit from foreign banks has made it difficult for Iranians to buy imported goods, financial analysts say. European Union machinery and transportation-equipment exports to Iran fell 20 per cent to e3.9 billion in the first nine months of 2007 from the year-earlier period, according to Eurostat, the EU data agency.