Iran sanctions leave Dubai out in the cold
Tightening global sanctions against Iran are threatening the UAE's links with one of its biggest export markets and risk choking its economic growth.
"This is a serious issue. Any negative impact [on trade] will have an impact on the economy of Dubai," says Mohamed Lahouel, the chief economist of the Dubai Department of Economic Development.
Traders say they are struggling to secure finance for even the most basic exports such as timber and foodstuffs that are not listed as sanctioned goods.
Iran is the UAE's fourth-biggest trading partner, with US$10.4 billion (Dh38.19bn) of goods exchanged last year. It is the second-largest trading partner for Dubai, the UAE's base for non-oil exports.
Morteza Masoumzadeh, the managing director of Jumbo Line Shipping Agency, based in Dubai, is one of many businessmen in the emirate who is feeling the impact of sanctions on their business.
"All banks are hesitating to get involved with financing business with Iran even with machinery, furniture and timber," he says.
Iran accounts for about half his company's overall shipment volumes. "No question, trade has been hit badly due to sanctions, particularly due to banking restrictions." Jumbo Line's business is down by 20 per cent over the past year. For years, dhows laden with everything from cars to clothes bound for Iran have left the emirate's creek. Dubai's position as a regional trading centre and Tehran's frosty relations with the rest of the world, meant the emirate benefited from servicing demand for global goods from its near neighbour.
But that relationship may now be at risk.
Global sanctions against Iran have increased in the past year in response to its rejection of demands to suspend uranium enrichment.
The IMF has warned that losses from disruptions to trade links caused by the sanctions could reach 0.2 to 0.7 per cent of the UAE's annual GDP. Reduction in the availability of trade finance and payment schemes would be the main channel through which the sanctions could affect trade, it said in a report released in May.
Dubai's proximity to Iran, however, and the country's needs to upgrade infrastructure means it will continue to be an important trading partner of Dubai, says Mr Lahouel.
UN Security Council sanctions, agreed a year ago, focus on restricting financing and military goods, limiting letters of credit for shipments to the country.
Trade, transport and the gas and oil industry are the focus of EU sanctions.
In the latest action, the US Treasury said last month it had blacklisted Tidewater Middle East, a major Iranian port operator, and the country's national airline, IranAir.
The Dubai-based Balaji Shipping Lines' shipments to Iran have fallen back close to zero in the past year. "We have to go where the customers are and it's becoming more difficult to get finance as banking channels don't accept trade with Iran," says Lawrence Fernandes Balaji's vice president.
One of the barriers to the company's trade is that US companies leasing most of the containers have banned them from being taken to Iran.
The Export Credit Insurance Company of the Emirates, the UAE's main export credit agency, does not offer credit to Iran.
"Because of the strengthening of sanctions we have been forced to neglect the market," said Schuyler D'Souza,the chief commercial officer of agency.
Sanctions against Iran could also harm recovery in Dubai's property market, the IMF warned.
Iranians are the fourth-largest buyers of Dubai property after citizens from India, the UK and Pakistan.
"By complicating the execution of payments and settlements, sanctions risk stifling demand for real estate from Dubai," the IMF said in its report.
Trade between Iran and the UAE accounted for about 5 per cent of the Emirates's total trade, according to data from the Ministry of Foreign Trade.
Trade rose to $10.4bn, up from $8.4bn the year before.
Although no trade data is yet available for this year, Iran is estimated to be the second-biggest destination of UAE exports after India.
"With Iran a big trading partner to Dubai we hope there will be a resolution of the situation in the near future," said Mr Lahouel.
Updated: July 4, 2011 04:00 AM