Dubai has long been the Islamic Republic’s gateway to the global marketplace and stands to gain if and when embargoes are lifted. Published in MEED, 5 January 2015
When international sanctions on Iran are finally lifted, there is little doubt the main beneficiary beyond the Islamic Republic itself will be the UAE and, more particularly, Dubai. The emirate has long been Iran’s entry point to the global marketplace, and even the sanctions have not dented that entirely.
According to the most recent data available from the UAE’s National Bureau of Statistics, the value of goods imported into the country from Iran was just under AED5bn ($1.4bn) in 2013. That is lower than the AED6.8bn a year earlier, but higher than the years before that. Similarly, exports from the UAE to Iran totalled AED2.6bn in 2013, below the level seen in 2011, but again higher than any other recent year.
Even so, a lot of trade has clearly disappeared and Iran is falling in relative importance to the UAE from a trade perspective. Exports from the UAE to Iran accounted for 1.8 per cent of the country’s total non-oil exports in 2013. As recently as 2006, they amounted to 6.7 per cent of the total. But as and when sanctions are removed, that trend could quickly reverse.
The Washington-based IMF noted in June 2014, at the end of its annual review of the UAE’s economy, that “a permanent easing of international sanctions on Iran could benefit the UAE economy in light of the potential resumption of closer economic and financial linkages”.
Others in the region take a similar view. “There’s little doubt the UAE, being a key trading hub in the region, would be a natural beneficiary when a more normal situation prevails,” says one Dubai-based banker.
Dubai has made little secret of its desire to recapture all the trade that has been lost. In a rare public statement on the issue, Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, told the BBC in January 2014 that he thought the time was now right for sanctions to be lifted. “You see, Iran is our neighbour and we don’t want any problem,” he said. “[If] they agree with America, and America agrees and lifts the sanctions, everyone will benefit.”
It is clear foreign firms are eager to re-engage with Iran and its 75 million consumers, but they remain wary in case the nuclear talks falter and Tehran becomes even more isolated. European and Asian companies have been visiting the Islamic Republic in large numbers ever since the interim deal was agreed by Iran with the US and its negotiating partners in November 2013, but actual investments are few and far between. Instead, most continue to sit on the sidelines, waiting for the situation to improve further.
“We are not in Iran at the moment and we haven’t started to look at the market, at least not officially,” says one senior executive at a French multinational. “When we go into Iran, it will be through partners, not directly.”
For many firms, Dubai will be the most natural jumping-off point as they work out how best to tackle the market. But bankers in the emirate, who are critical to oiling the wheels of trade, are also wary as to just how quickly business might pick up for them. “Dubai and Iran have a long history and the relationship has always been based on trade,” says another banker based in Dubai. “I assume the banks will grow alongside the improvements in trade with Iran, but all the lenders here will necessarily be very cautious.”
Much will depend on how quickly the sanctions are lifted. Iran has reportedly been pushing for a fast and comprehensive withdrawal of the restrictions, but the US is likely to take a more measured approach. That means some industries and goods could remain under sanctions, even as trade in other goods is freed up.
In terms of exports from the UAE to Iran, the biggest category of goods in 2013 was pearls, precious stones and metals, with a value of AED773m. Other significant categories included books and other printed material (AED268m), plastics (AED240m) and animal and vegetable oils (AED173m), according to the National Bureau of Statistics.
In the other direction, major exports from Iran to the UAE include copper and copper products (AED950m), and fruit and nuts (AED444m). It is widely assumed that plenty of other goods are moving across the Gulf, beneath the radar of customs officers and hence unaccounted for in any official statistics.
“Sanctions generate corruption, and if there is an already existing corrupt environment, they are going to encourage corruption,” says Sara Bazoobandi, assistant fellow for the Middle East and North Africa programme at UK think-tank Chatham House. “One of the biggest sources for corruption in the Iranian political and economic elite since the tightening of the sanctions [in 2012] comes as a result of their effort to find back channels.”