Sanctions Hit Iran Trade Partners
A steady tightening of global sanctions aimed at pressuring Iran over its nuclear programme has significantly impacted the country’s trade with the UAE. Financial restrictions by the United States and European Union are specifically designed to limit commercial interactions with Iran. Consequently, numerous banks, exchange houses, and other financial institutions have drastically reduced their dealings with Iran.
This development has posed challenges for thousands of UAE traders who re-export a wide range of goods across the Gulf. Many are finding it difficult to secure letters of credit or other types of financing necessary to facilitate shipments. Under pressure from the UAE Central Bank and Western entities, several banks have opted to halt their interactions with Iran altogether.
In a recent development, the Society for Worldwide Interbank Financial Telecommunication (Swift), headquartered in Belgium, announced its compliance with an EU ban on doing business with Iranian institutions, including the country’s central bank. Previously, Swift had been a favored option for UAE traders seeking to finance their business ventures.
“Any bilateral talk between the two countries is positive,” expressed Ardelan Zamin Peyma, a brand manager at a wholesaler of toys and other goods in Deira, which ships some products to Iran. “We hope for the best and hope things improve as the two countries have been together geographically for so long, and it gets difficult when there’s a gap in relations.”
The exchange of goods between the two nations—much of it directed toward Iran—accounts for approximately 7 percent of the UAE’s GDP. This relationship holds equal significance for Iran. An estimated US$20 billion (Dh73.46 billion) worth of goods moving from the UAE across the Gulf constitutes about one-third of Iran’s total imports.
The UAE has affirmed its commitment to adhering to global sanctions while striving to ensure the uninterrupted trade of essential goods, such as medicine and food, which are not subject to bans. “I would imagine the UAE wants to take a more nuanced approach as they are mindful of their commercial relationship with Iran,” noted Edward Bell, an economist specializing in Iran at the Economist Intelligence Unit (EIU).
However, officials are concerned that the flow of goods is beginning to diminish. Hamad Buamim, the director general of the Dubai Chamber of Commerce and Industry, recently acknowledged that exports from Dubai to Iran are declining “day by day.” He called on the government to provide clearer guidelines regarding business dealings with Iran.
With the list of Iran’s global trading partners shrinking, its partnership with the UAE has become increasingly vital. The UAE accounts for around 87 percent of Iran’s trade with the GCC. “Iran is not in a position to cut off ties with the UAE,” stated Ayesha Sabavala, a Middle East analyst at the EIU, emphasizing that the nation’s economic situation and devaluation of its currency leave it with limited flexibility.
Ruined by reduced revenue from oil exports and escalating inflation, Iran’s people and government are facing significant hardships. According to forecasts by the EIU, the Iranian economy is likely to enter a recession this year for the first time since 1993.
As the region navigates the complexities of these economic sanctions, the relationship between the UAE and Iran remains pivotal, deeply intertwining their economic fortunes.
