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Sanctions squeeze Dubai’s trade with Iran
It’s bad news for businessmen, as a fourth round of UN sanction seems to mean trade relations between the UAE and Iran are coming to a standstill.
November 25, 2010 1:41 by Reuters
A sharp decline in Iranian trade could hit Dubai’s economy, still dusting itself off after last year’s debt crisis hit confidence in the emirate that is home to the world’s tallest tower and three man-made palm islands visible from space.
“The anecdotal evidence of a sharp decline in the Iran-bound re-export business is accumulating, although the statistical evidence is still lacking,” said David Butter, Middle East and North Africa director at the Economist Intelligence Unit (EIU).
“However, the new measures are likely to bite in the second half of this year. The effects on Dubai’s GDP will be significant, but should not be overstated.”
In July, Iran still ranked as the second largest re-export destination for the UAE — topped only by India — with the re-export trade worth a total 2.2 billion dirhams ($599 million) in that month alone, UAE customs data showed.
Butter said whatever the decline in trading relations with Iran, Dubai’s trade with other countries appears to be picking up, potentially making up for any losses.
Trade between Iran and Dubai is long established.
The Strait of Hormuz, through which around 40 percent of the world’s oil supplies pass, separates the UAE from Iran by only 54 kilometres at its narrowest point.
Persian traders migrated from towns in southern Iran in the early 20th century and settled along Dubai’s creek, where today the wooden ships dock and boatmen unload spices, clothes and other goods from India, East Africa and Iran.
Wealthy Persian merchants built windtower houses along the creek that still cluster in Dubai’s Bastakia area.
Dubai’s business with Iran flourished as other countries grew increasingly wary, in recent years, of flouting sanctions.
Exchange traders in the UAE expect that sending money to and from Iran will become increasingly difficult, even though there is no official ban on dealing with Iran’s rial currency.
“We expect a trade drop, so eventually it will affect all other businesses related to the same circle, including money transfers,” Mohamed al-Ansari, chairman and managing director of Abu Dhabi-based Al Ansari Exchange, said.
“The financial sector and banks take extra caution not to be involved, especially when it’s routed transactions which have to go through Europe or the United States. They try to be away from these type of transactions.”
Ansari said money transactions with Iran accounted for less than 5 percent of his business, but authorities had increased inspections, although it was not always easy to determine the nature of transactions in Dubai, which until recently was considered a major money-laundering hub.