Dubai traders hail Iranian rial action

Workers load goods bound for Iran, one of Dubai's major trading partners, on dhows docked at Dubai Creek. Paulo Vecina / The National

Traders in Dubai hope Iran's introduction of a more flexible exchange rate will help to stimulate trade flows under pressure from sanctions and the Iranian rial's slide.

The rial has fallen by close to half against the US dollar in black-market trading in the past year, pushing up the cost of goods flowing to Iran. Most trade has been based on the unofficial rate of 19,000 rials to the dollar.

In an effort to ease costs, the government is to supply dollars at the lower official rate of 12,200 rials to the dollar for the import of basic goods, the official Iranian Students' News Agency reported on Saturday.

It will also supply dollars at the rate of 15,000 rials to the dollar for capital and intermediate goods, the agency reported.

"It will be a positive step for traders as they will be able to trade with more confidence and know what rate is applicable for which trade," said Morteza Masoumzadeh, the managing director of the Jumbo Line Shipping Agency in Dubai and a member of the executive board of the Iranian Business Council in the emirate.

The sharp devaluation in the rial has followed toughened trade sanctions from the West and a deteriorating economy in Iran.

The currency's decline has left more than Dh1 billion (US$272.2 million) owing to Dubai traders by Iranian buyers unable to pay for goods because of the rial's fall in value. Much of the debt relates to letters of credit based on the currency's black-market value against the dirham, which is pegged to the dollar through a fixed exchange rate. Anecdotal evidence suggests demand has been weakening from Iran for goods re-exported through Dubai.

"The Iranian public have still to get used to the sudden increase in the exchange rate," said Ardelan Zamin Peyma, the brand manager at Abdulla Ahmed Al Awazi General Trading in Dubai.

His colleague, Masood Al Awazi, said he hoped the exchange rate change would help to revive Iranian appetite for the tea trays and other goods the firm sells at the family shop located near the Spice Souq in Deira.

The market had declined to "almost zero" this year from previously representing 25 per cent of all sales, he said. "Other markets have picked up demand, like Afghanistan, Egypt, Sudan and Iraq," he added.

Iran Insurance, a Dubai insurer of export credit for trade with Iran, has suffered a 10 to 15 per cent slump in demand from businesses looking to ship to Iran.

"Dubai is losing a lot of trade," said Ali Sowdagar, a marketing representative of the insurer.

"Iranian buyers are going directly to source and are bypassing the use of currency by bartering foodstuffs and other goods directly from Pakistan, India and elsewhere."

For years, Dubai has served as a gateway for the onward passage to Iran of a wide range of goods including grain and cars.

The trade accounts for about 7 per cent of the UAE's GDP, estimated Capital Economics.