Iran shrugged off a fresh wave of international economic sanctions against it last week, saying they would have no impact on its trade with other countries. But in Dubai, one of Iran's top trading partners, businessmen are starting to worry.
The restrictions imposed on the Iranian traders here are
getting so hard that they are virtually going to go out of business, said Morteza Masoumzadeh, a member of the executive committee of the local Iranian Business Council and managing director of the Jumbo Line Shipping Agency.
They are facing a hell of difficulties. Within a year or two, they will have to shut down. And these traders are dealing with basic commodities. There is no involvement with those banned items, or missile technology, he said.
Over the last five years, the United States, the European Union and other countries have imposed an escalating series to sanctions over Iran's controversial nuclear programme, which is suspected of seeking to make atomic weapons. Most U.S.-Iran trade has been banned, and foreign banks are effectively deprived of access to the U.S. financial system if they do business with Iranian banks.
But Iranian trade with Dubai, 150 kilometres (100 miles) across the Gulf, has thrived, with the emirate serving as a convenient conduit for other countries' business with Iran. United Nations sanctions against Iran have focused on nuclear-related materials and weapons and targeted Iranian companies and people involved in those programmes, so the bulk of merchandise trade remains legal. Sanctions in other countries may have had the effect of pushing more trade through Dubai.
Around 8,000 Iranian traders and trading firms are registered in Dubai, Masoumzadeh said in his 14th floor office overlooking the sparkling waters of the Dubai Creek, where wooden dhows dock to take on cargo for transport to Iran.
According to the latest data from the United Arab Emirates' customs authority, re-export trade between Iran and the UAE -- goods sent to the UAE for on-shipment to Iran, and Iranian goods sent to the UAE for on-shipment to other countries -- totalled 19.5 billion dirhams (3.37 billion pounds) in the first six months of this year, up from 14.3 billion dirhams a year earlier.
That represents a significant proportion of Iran's non-oil foreign trade; its total imports amounted to $92.4 billion (58.6 billion pounds) in all of 2010 while exports, including oil, were $116.5 billion.
For Dubai's community of traders, many of them like Masoumzadeh of Iranian descent, the business is also key; Iran accounts for about a quarter of the UAE's re-export trade. But for the UAE as a whole, which is expected to see its exports, dominated by oil and gas, climb to nearly $300 billion this year, the trade is not nearly as important.
There is still a lot of consumer demand in Iran. A lot of this is still being satisfied through the traditional route of re-exports via Dubai. And this is showing up on the customs statistics, said David Butter, director for the Middle East and North Africa at the Economist Intelligence Unit in London.
Products delivered by dhows across the Gulf include household goods, rice, sugar, cooking oil, tubes, tires and timber. Bigger ships also operate, taking larger volumes, including higher-end goods.
Luxury sports car maker Maserati is interested in doing business with Iran, a company official said. We are going to start in Iran now, it's a very particular market. It's all cash-based; we have an unbelievably high number of people who are considered millionaires compared to the overall population, said Umberto Cini, managing director at Maserati Middle East and Africa in Dubai.
Now, however, the cumulative weight of the international sanctions, augmented by new measures announced by several countries last week, may be starting to have an effect on Dubai's trade with Iran.
Last week, the United States named Iran as an area of primary money laundering concern, a step designed to dissuade non-U.S. banks from dealing with it; blacklisted 11 entities suspected of aiding its nuclear programs; and expanded sanctions to target firms that aid its oil and petrochemical industries.
Britain banned all its financial institutions from doing business with Iran, including the Iranian central bank, and Canada said it would ban the export of all goods used in Iran's petrochemical, oil and gas industries and block virtually all transactions with Iran.
Such sanctions still do not forbid flows of merchandise trade through Dubai, but they do make it increasingly difficult for traders to get financing for their business. Even banks from countries which do not ban financial ties with Iran may be reluctant to extend financing for fear of jeopardising their U.S. business, or because they fear being exposed in the event of future sanctions.
Now, none of the UAE banks are opening a new account for any Iranian trader, Masoumzadeh said.
We cannot establish letters of credit to our suppliers in Europe or the Far East. They cannot send the goods to us, and we cannot do the trade. Therefore, our trade department has lost at least 70 percent of its business during the last two years.
In June last year, the UAE central bank told financial institutions to freeze Iran-linked accounts belonging to firms targeted by UN sanctions. UAE banks contacted by Reuters declined to comment publicly on Iran business, but banking sources confirmed there was now very little of it.
Iran has been on the sanctions list for a long time so there should be, with the exception of one or two branches of Iranian banks on the ground, almost no business between Iranian banks and local banks here, said a treasury source at a UAE bank, who declined to be named.
I'm sure some might try and push the boundaries occasionally but any transactions would turn up on the regulatory radar so I don't see it happening that much.
Some trade can be paid for by cash and through personal transfers of money through foreign exchange houses. But Mohamed al-Ansari, chairman and managing director of Al Ansari Exchange, a major house, said such transfers were also under pressure.
Remittances between the UAE and Iran have reduced due to the sanctions, he told Reuters. Although the sanctions are not targeted at individual transactions, they are creating difficulties.
Even though there are no legal restrictions to do individual transactions, because of the difficulties, banks and exchange companies are not interested to do Iranian transfers.
The United States has been pressing other countries to enforce sanctions strictly. The U.S. Treasury's top national security official, undersecretary for terrorism and financial intelligence David Cohen, visited the UAE last weekend to discuss the new U.S. steps with government officials.
Under such pressure, the UAE's enforcement of customs checks on trade appears to be becoming more aggressive, with the effect of deterring some Iran-bound shipments from coming through Dubai, analysts said.
The shipping and customs controls are getting tougher. A lot of the shipping that was coming to Dubai now goes to Pakistan for disembarkment of goods there, said Theodore Karasik, director of research at the Institute for Near East & Gulf Military Analysis in Dubai. Customs are doing more inspections.
Meanwhile, sanctions are having a chilling impact on shipping services to Iran; although most trade remains legal, the sanctions are complex so some international shipping firms are wary of falling foul of them by accident, and find it easiest to cut back services to Iran, shippers say.
Much of any Iranian trade lost to Dubai can potentially obtain financing and new trans-shipment ports in Asia. When Iran's biggest crude oil tanker operator, NITC, lost its ship insurance cover earlier this year because European providers pulled out, it said it obtained fresh cover that was 80 percent underwritten by Asian insurers.
Nevertheless, such changes can be expensive, as the countries pushing for sanctions against Iran understand. The U.S. government is pursuing a strategy of raising the costs of doing business past where the burden is sustainable, said J. Peter Pham at U.S. think tank The Atlantic Council.
(Additional reporting by David French in Dubai and Jonathan Saul in London; Editing by Andrew Torchia)