(Persia Digest) - The United Arab Emirates projects that its trade with Iran will plummet by half this year as the Middle East’s business and finance hub is buffeted by the impact of swingeing US sanctions on the Islamic republic, according to a senior UAE official.
Dubai has traditionally been a centre for Iranian businesses operating offshore and the UAE’s trade with the republic was worth Dh70bn ($19bn) last year, the official said.
But nervousness over heightened tensions in the region, the collapse of the Iranian currency and companies’ fears of breaching US sanctions have combined to cause the sharp drop in bilateral commerce, the official said.
The economic repercussions for the seven-member UAE underline how the stand-off between the US and Iran is having negative effects across the Middle East — even for nations that support Washington’s tough stance against the Islamic republic.
Abu Dhabi, the UAE’s capital and wealthiest emirate, has been one of US president Donald Trump’s staunchest backers as he has ramped up the pressure on Tehran.
Prince Mohammed bin Zayed, Abu Dhabi’s crown prince and the de facto leader of the UAE, has long been a hawk on Iran and the Gulf state was one of the few nations to welcome Mr Trump’s decision to withdraw last year from the 2015 nuclear accord Tehran signed with world powers.
UAE officials argue that the deal emboldened Iran. But they are also aware of the risks of the UAE becoming a target if heightened tensions with Iran spark a broader conflagration.
Unlike the US and the UK, Abu Dhabi has not blamed Iran for sabotage attacks on six tankers off the UAE’s coast in May and June. It has been tempered in its language towards the republic as officials have talked of the need for a de-escalation.
“Trade is down in part because of the extremely risk-averse compliance attitude of mainstream financial institutions who do not want to bank UAE customers who have business in Iran,” said Patrick Murphy, a partner at Clyde & Co law firm.
“They are driven to do that in large part by their US respondent clearing banks who have forbidden them from banking such customers on pain of withdrawal of US dollar clearing services.”
The plunge in Iranian trade comes at a time when the UAE is grappling with several years of lacklustre growth triggered by subdued oil prices and rising living costs.
In Dubai, where most Iranian businesses in the UAE are based, property prices are down by at least 25 per cent compared with 2014 and gross domestic product growth slowed to 1.9 per cent last year. The economic consequences of a conflict would be devastating for the UAE, which has built a business model around its ports and airports, tourism and regional trade.
Dubai is spending more than $8bn on infrastructure as it prepares to host Expo2020, the international trade fair, while Fujairah, another of the seven emirates, is home to one of the world’s largest hubs for oil transport.
Still, businessmen say the UAE has been complying more stringently with US sanctions than it did in previous years.
Small businesses and Iranian individuals often complain of having their banking services suspended or cancelled because of perceptions that they pose risks.
The number of Iranians living in the UAE has fallen from 117,000 three years ago to 73,000, while the number of Iranian visitors has halved from 700,000 in 2016 to 350,000, the UAE official said.
Many Iranian business, as well as foreign companies focused on Iran, are choosing to trade via Turkey, Oman and Malaysia instead of the UAE. As the security-minded Gulf state seeks to boost domestic security amid fears over Iranian sleeper cells, some Iranians have complained that the authorities are arbitrarily refusing to renew their UAE residence visas.
The spending power of Iranians has also been battered as the rial has lost about 60 per cent of its value since Mr Trump withdrew the US from the nuclear accord in May 2018.