UAE companies to benefit from relaxation of sanctions on Iran

Labourers load a dhow bound for Iran with textiles. Dubai’s position as a trading gateway for shipments into Iran has eroded as global sanctions against Tehran have tightened in recent years. Antonie Robertson / The NationalShow less

UAE companies could greatly benefit from any relaxations in sanctions on Iran’s nuclear programme agreed during the Vienna negotiations, said analysts.

“It’s going to be a bonanza,” said Patrick Murphy, a director at the legal firm Clyde & Co. “It’s the last great developing market. Whether you’re a lawyer or someone who is physically going and selling goods there, there are opportunities in every corner.”

World powers and Iran have agreed to extend talks on the country’s nuclear programme until July 1, the Iranian state news agency reported.

A population of 77 million, a young, sophisticated, consumer market, and an urgent need for new infrastructure investment create opportunities for foreign investors, Mr Murphy said.

A relaxation of sanctions will be “very beneficial” for both the UAE and Iran, said Asrar Haghighi, vice president at the Iranian Business Council, a trade promotion organisation based in Dubai.

“Iran shares 2,500km of [maritime] borders with the UAE,” Mr Haghighi said. “Given this geographical, strategic advantage and the available infrastructure, the UAE will be the best place for the southern part of Iran to do business.”

A majority of UAE companies in a range of industries would be willing to expand their trade with Iran following the relaxation of sanctions, according to a Clyde & Co survey.

Mr Haghighi expects that transportation and medical services would be the most likely sectors to benefit from any relaxation in sanctions. This would “definitely create opportunities for UAE companies”, he said.

But the removal of sanctions on banking and insurance are critical to any meaningful revival of Iranian trade.

“When you cut off … banks or insurers, you start indirectly affecting the man on the ground in the Middle East,” Mr Murphy said. “That more than anything has been the biggest break on trade with Iran,”

In 2012, sanctions were widened to prohibit Iranian firms from using the Swift system of international financial transfers.

“If Swift restrictions are removed, that will speed up business and increase the circulation of trade,” Mr Haghighi said.

This has slowed but not halted Iranian trade.

Mr Haghighi points out that Iranians have paid for imports through a mixture of barter, individual exchange houses and proceeds for oil exports.

Trade has also been diverted through countries where US and EU firms are less prominent, Mr Haghighi said.

“Right now trade is being rerouted via neighbouring countries at higher prices,” he said. “At lower prices [after the end of sanctions], Iranians will be willing to buy directly from the UAE.”

The International Monetary Fund has said that “international trade and financial sanctions …[have] pushed the economy into a deep contraction”, and that Iran has lost oil revenues equivalent to about 15 per cent of GDP since the introduction of sanctions.

But an end to sanctions could allow Iran to grow at between 6 and 8 per cent, as the country’s youthful population and outdated industries attract foreign investment, according to Bryan Plamondon, a Middle East economist at IHS.

If sanctions continue, Iran can expect 1.5 per cent growth next year, Mr Plamondon said. That is equivalent to a per capita growth rate close to zero when population growth is factored in.

“Iran’s economic prospects now hinge on the progress of [the Vienna] negotiations,” said Andrew Kenningham, a senior global economist at London-based Capital Economics.

Mr Haghighi said that even if sanctions were eased, it would take time for Iranians to feel the benefit.

“[The resumption of trade] is not going to happen overnight,” he said. “It will take time to get all the obstacles removed and to create trust between companies.”

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