UAE restricts money dealings with Iran

UN sanctions on Iran continue to slow trade between the economic allies as UAE banks observe transactions with its Iranian counterparts.

By ADAM GONN / THE MEDIA LINE
Iran sanctions (photo credit: Associated Press)
Iran sanctions
(photo credit: Associated Press)
The waters between Iran and the United Arab Emirates used to be crowded by small cargo vessels carrying goods from the Dubai port to Teheran markets, but as the United Nations sanctions on Iran come into effect the flow of boats has slowed to a trickle and the cash flow is slowing considerably.
The United Arab Emirates, a close ally to the United States, is putting transactions between its banks and Iranian counterparts under increased observation, which in some cases has led to a total stop of transactions, according to AFP.
“United Arab Emirati banks are prohibited from dealing with individuals and entities that are specifically named in the latest sanctions document but the Central Bank is also tightening rules for transactions with Iran in general,” Ayesha Sabavala, who follows the Emirati banking sector for Economist Intelligence Unit, told The Media Line.
“Examples of this tightening include asking for prior approval from the Central Bank when transacting with Iranian companies,” she said. “This has made United Arab Emirati banks reluctant to lend or provide letters of credit to Iranian companies.”
For the month of August, the Central Bank has directed UAE banks to provide it with details of all remittances to and from Iran. Local financial institutions no longer accept property in Iran as collateral in borrowing deals. Therefore, transactions with Iran, both with corporations and individuals have been affected,” Sabavala said.
The trade between the United Arab Emirates and Iran is estimated at $8 billion.
“Although it is hard to gauge the impact on banks in the United Arab Emirates, one has to assume that this tightening has led to some loss of business since trade mostly re-exports between Iran and the UAE, specifically Dubai, is quite substantial and also due to the sizeable Iranian community in Dubai,” she said.
“That said, one must realize that a lot of trade with Iran also goes through unofficial channels and although sanctions will likely impact trade with Iran, trade between the two countries will continue,” Sabavala added. 
Dr. Christian Koch, director of international studies at the Gulf Research Center in Dubai said that while sanctions are affecting trade it would not grind to a halt. 
“Trade with Iran is still going on and will also continue despite the sanctions being imposed on Iran,” Koch told The Media Line.
“What is being done is that sanctions are being applied more effectively and yes, that leads to some curtailing in trade as conditions are getting more difficult,” he said.
“For the United Arab Emirates however, this is not an either/or issue and they do not see the declining trade with Iran as coming at a cost to the US relationship. United Arab Emirates – United States relations are strategic in nature and given the difficult GCC-Iran relationship as a whole, this is not going to change at any time soon,” Koch said referring to the Gulf Cooperation Council, a regional economic bloc made up of Kuwait, Bahrain, Qatar, Oman, Saudi Arabia, and the United Arab Emirates. 
“Furthermore, as a whole, trade volume with Iran is only a small part of the United Arab Emirates’ trade balance so in the end the actual impact will also be less than is usually assumed,” he added.
Tim Williams, a senior analyst with global intelligence firm Stirling Assynt, said that in the end Iran still needs the services of the United Arab Emirates.
“There may be some hostile rhetoric from Teheran and there is some risk that unresolved territorial issues could flare up,” Williams said referring to the contested ownership of three small islands in the Gulf.
“Iran will still be seeking to exploit United Arab Emirates’ relatively loose trade and financial controls to smuggle goods and, possibly, funds through Dubai,” he concluded.
The United Nations Security Council slapped a fourth round of sanctions on Iran in June, barring dealings with firms linked to the Iranian Revolutionary Guard Corps.
       
The Revolutionary Guard is a separate organization from the Iranian army and operates its own armed forces, navy, air force and militia. Its goal is to preserve the theocracy in Tehran, but over the years it has widened its scope to run a vast business empire, ranging from construction to telecommunications.
The new UN sanctions are the latest stage in an ongoing dispute between the United States and Iran over the end goal of Iran’s nuclear program. Washington and others claim Iran is using its program as a cover to produce atomic bombs, but Teheran argues the program is for the peaceful purpose of power production.
Following the new UN sanctions, which cover all 192-member states of the global body, both the United States and European Union tightened their sanctions further.  
In June, shortly after the sanctions were imposed, authorities in the United Arab Emirates closed down 40 companies for selling products to Iran or dealing with Iran’s Revolutionary Guard in violation of UN sanctions on Iran.
The 40 companies that were shut down reportedly had been found to be trading strategic dual-purpose goods, which could be used in both civilian and military production, as well as other dangerous materials.