UAE boosts trade with Iran after eased restrictions on business activity

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Trade between Iran and the United Arab Emirates has surged as the Gulf’s commercial capital eased restrictions on business activity between the two neighbours, business people and officials say.

Executives said the UAE has in recent months rolled back limits on corporate registrations and the issuance of visas to companies from Iran, which remains subject to tough US sanctions. Iranian financiers are also exploring how to enhance bilateral trade by creating financial mechanisms to fund legitimate transactions, they added.

Flourishing trade relations between Iran and the UAE, the traditional centre for re-exports into the Islamic republic, forms part of the Gulf state’s pivot towards regional de-escalation and a focus on business. This comes after a decade of muscular interventionism in the wake of the Arab spring uprisings of 2011.

“UAE foreign policy seems to have shifted toward one that is primarily driven by economic statecraft,” said Afshin Molavi, senior fellow at Johns Hopkins University School of Advanced International Studies in the US, while adding that current and future sanctions on Iran would temper this growth.

UAE diplomatic outreach to Iran since 2019, in response to attacks on international shipping around the Gulf, has been strengthened by the China-brokered breakthrough this year that re-established relations between the Islamic republic and its traditional foe Saudi Arabia. This has helped to ease a decade of cold war-style tensions between the rival Gulf powers.

The Saudi-Iranian rapprochement has raised hopes that ongoing negotiations could extend into a lasting political settlement. The release of US prisoners held in Iran could also presage talks towards a new — perhaps unofficial — agreement, with Iran to barter a reduction in sanctions for limits on its nuclear activity.

While China is Iran’s premier trade partner, the UAE is the second largest. Trade between Iran and the UAE has recovered from a pandemic slump of $11bn in 2020/2021 to $24bn in the 12 months ending in March, according to Iranian data.

The increase surpasses the $22bn recorded in 2012 before US-led sanctions started to bite. Iranian officials have said they are now targeting a further increase in bilateral trade towards $30bn in the next two years.

“Pressure from the UAE central bank has decreased and some Emirati banks have started opening bank accounts,” said Masoud Daneshmand, a former head of Iran-UAE chamber of commerce. “Currently, some Iranian companies which used to be in the UAE but had become inactive have become active again. Some new companies have also started business.”

In diplomatic exchanges, Iranian officials have been asking their Emirati counterparts to find new mechanisms for financing trade, according to people briefed on these conversations.

US sanctions on Iran have created anxiety around Iran-linked transactions because of the risk of US fines. Although the UAE is keen to extend its hand to Iranian business, there are still concerns about provoking a hostile reaction from the US.

Molavi said upcoming elections in the US could also “give pause to UAE investors” because of another potential swing in US policy.

“Our economic relationship with Iran has long been of major importance,” said the UAE’s economy ministry. “The UAE’s trade with Iran is conducted in full compliance with global rules and standards.”

Some Iranian companies and banks have used trustees in the UAE who can act as a proxy for cross-border transactions as a way of sidestepping the current restrictions.

“When goods come from Europe and Canada to Iran’s market, an Emirati pays for them and Iranians pay the Emirati,” said Daneshmand.

Some Iranian banks are now approaching counterparts in the UAE in a bid to formalise the previously grey nature of their business, said a UAE-based businessman.

“For years there’s been self-imposed restrictions on business with Iran, but these have been gradually eased in recent years,” the businessman said. “There’s a sense of more openness.”