Economy, Domestic Economy

UAE Between a Rock and a Hard Place

UAE Between a Rock and a Hard PlaceUAE Between a Rock and a Hard Place

Although the UAE lately downgraded its diplomatic ties with Iran in the wake of tensions between Riyadh and Tehran, many believe the opportunities arising from the recent removal of western sanctions against Iran will prove too costly for the Arab state to cut trade ties with the Islamic Republic.

On Saturday, the US, EU and the United Nations ended their anti-Iran sanctions after the UN nuclear watchdog IAEA confirmed Iran has made good on its promise to abide by the July 14 agreement with world powers to limit its nuclear program.

Ever since the nuclear deal, many world countries have sought to take advantage of the reemerging Iranian market. Nonetheless, many believe neighboring countries such as Turkey and the UAE, whose trade with Tehran took a beating during sanctions, are the first to benefit from the post-sanctions climate.

“Trade between Iran and the UAE have followed a downward trend in the past decade due mostly to sanctions,” Asadollah Asgaroladi, who chairs Iranian joint chambers with Russia and China, told our sister publication Tejarat-e-Farda.

Two-way trade stood at $20 billion in 2010 and rose to $23 billion next year before dropping to $17 billion and $15 billion in 2012 and 2013 respectively. Incidentally, the United Nations Security Council began to impose a series of additional sanctions on Iran’s economy.

Prior to the lifting of sanctions, the International Monetary Fund forecast that $13 billion would be added to the UAE’s economy after the removal of sanctions, as trade between the two countries increase between now and 2018.

That is equivalent to a 1% gain in real GDP growth each year over the next three years, the IMF said in its annual report on UAE economy, Abu Dhabi-based newspaper The National reported.

“Over the past year, both countries have tried to expand their economic ties,” says Asgaroladi.

“They planned to continue using Emirati ports, and Dubai in particular, as a pathway for trade between Iran and the world community in the post-sanctions era.”

Emirati ports, notably Dubai’s Jebel Ali Port, played an active role in UAE-Iran trade, which mostly came in the form of reexports.  

However, those plans are now facing challenges amid the ongoing Iran-Saudi Arabia strife that has affected neighborly relations between Tehran and the UAE.

The Saudi execution of top Shia cleric Sheikh Nimr al-Nimr earlier in January sparked a flurry of retaliatory developments. A group of protesters broke into the Saudi Embassy in Tehran and its consulate in Mashhad. Iranian authorities condemned the attack and called for the prosecution of the perpetrators, nonetheless Riyadh halted diplomatic and trade ties as well as air traffic with Tehran.

Soon after, a group of Saudi allies, including Bahrain, Sudan, Djibouti and Somalia, followed suit and broke off diplomatic ties with Iran, while Kuwait and Qatar recalled their envoys and the UAE downgraded its relations to chargé d’affaires.

Asgaroladi, however, rules out any prospective reduction in trade with the UAE, “as Iranians have deep-rooted trade ties with Emirati cities, especially Dubai, which account for 90% of the Arab country’s trade with Iran.

Iranians, according to Asgaroladi, have made huge investments in the UAE. There are as many as 30,000 Iranian company offices in Dubai, and Iranians now account for 40% of the city’s residents.

In 2013, Iran accounted for 12% of the UAE’s non-oil exports, valued at $12 billion that year, while in 2014 the Islamic Republic constituted 16.5% of the UAE’s reexport market, according to Monica Malik, chief economist of Abu Dhabi Commercial Bank.

“The UAE is well positioned to benefit from an opening of the Iran market by serving as a transshipment point for renewed trade activity,” the IMF report read.

“Iran is a huge market for the UAE. It is unlikely for the Emiratis to forgo this bonanza,” Asgaroladi concluded.