Tehran-Abu Dhabi Economic Ties Strained by Political Tensions

Economic relations between Iran and the UAE, long bound by common interests in trade, has been strained over what some business figures, including the head of Iran Export Confederation Mohammad Lahouti, consider a result of political tensions.

In a write-up for the Persian monthly Ayandeh-Negar, Lahouti said that despite the political tensions, trade potentials between Iran and the UAE remain high.

The UAE has been one of the most important markets for Iran’s foreign trade over the past three decades. Many Iranians opened offices in that country during the 1980-88 Iraq-Iran War and nuclear sanctions. There were only four to five countries that maintained their economic relations with Iran over the sanctions years, one of which was the UAE.

The Arab country, well known as the “reexport country”, has one of the most active airports in the region, the most up-to-date airlines, fully-equipped ports and is in fact among the most important service-providers in the Middle East.

The highest level of trade between the two countries was recorded during sanctions years at around $30 billion. Iran's trade with the UAE saw a decline following the nuclear deal of 2015, formally known as the Joint Comprehensive Plan of Action, thanks to the elimination of intermediaries.

Unfortunately, the changing political landscape in the region and the UAE’s alliance with Saudi Arabia hit political relations between Iran and the UAE.  

The ongoing Iran-Saudi Arabia strife has mainly affected relations between Tehran and the UAE.

The Saudi execution of Shia cleric Sheikh Nimr al-Nimr last year without due process sparked a flurry of retaliatory developments between Tehran and Riyadh. Soon after, a group of Saudi allies, broke off diplomatic ties with Iran, while the UAE downgraded its relations to chargé d’affaires.

The UAE said on Friday it fully supported the new US policy toward Iran and renewed its commitment to work with Washington to act against the Islamic Republic. It was referring to US President Donald Trump's Friday speech, saying he would not certify the nuclear deal Iran signed with world powers back in 2015.

The country has imposed strict limits over trade with Iranians. Emirati banks are still stringent in their dealings with Iranians, despite the lifting of sanctions. Today, Emirati banks are not willing to provide letters of credit or establish correspondent banking relationships with Iranian banks. Iranian subsidiary banks in the UAE are not allowed to have transactions with major international banks.

Yet, there is considerable trade potential between the two countries. The UAE is a transit country, so it can play a significant role in Iran’s foreign trade as an intermediary.

Although political ties have been strained over the past years, the two have never severed their trade links.

Latest figures show the UAE is the second top export destination for Iran, as around $2.95 billion of Iran’s non-oil products were exported to the UAE during the six months since the beginning of the current fiscal year (March 21, 2017), 17.1% less than the same period of last year.

The neighboring country is also the second top exporter to Iran by selling $4 billion worth of non-oil goods over the six-month period.