Higher offtake of goods from the United Arab Emirates to Iran will depend on the stance of UAE banks on opening letters of credit, say trade sources, as last week nuclear deal between Iran and the P5+1 paved the way for the lifting of western sanctions against Tehran.
“Due to restrictions imposed by various banks and suppliers we deal with, we would need to get an official go-ahead from them before we can start doing any business with Iran,” said Ashish Panjabi, chief operating officer at Jacky’s Electronics. “Till then the status quo remains.”
Intensification of sanctions over Tehran’s nuclear energy program has disrupted banking transactions between Iranian businessmen and global firms.
There is still time for UAE businesses and the financial services industry to formulate their plans, Gulf News reported on Sunday.
The final shape of the nuclear agreement that will roll back sanctions is to be announced by June 30.
In this regard, there will be heavy responsibility placed on banks in the country to state their position on what can — and cannot — be done in terms of business-to-business ties and the movement of goods between the UAE and Iran. And all of which will need to show up clearly on the radar if banks are to sanction the necessary support from their side.
“Banks will be circumspect for a while and initially deal with only the highest rated counterparties,” said Sameer Lakhani, managing director of Global Capital Partners. “But there is a long history of cross-border business, so there is familiarity as well. This could mean that the initial period of hesitation should, hopefully, be short-lived.”
Apart from what banks are likely to do, the other issue that will have a bearing on the offtake of goods from the UAE will be the credit periods Iranian importers will want.
Even if banks become more amenable to Iran exposures, UAE businesses will also need to be on their guard over the credit periods they are willing to offer on orders placed with them. In the short to medium term, they may not be willing to be that generous on the payback periods.
“It is likely that initial caution will lead to lower credit period requests [from UAE businesses],” said an industry source. “However, given the demand and competitive market dynamics, it will soon be arbitraged away to more normal periods as more competitors enter the field.”
After the immediate euphoria of the deal being struck, businesses are taking on a more cautious attitude towards what their Iran plans should be. For instance, while everyone agrees on the market’s retail potential, UAE business groups will want a clearer picture to emerge on what can be done and how.
