Impact of Iran sanctions on UAE moderate — IMF

Reuters -- The recent tightening of international sanctions against Iran are expected to only have a "moderate" impact on the economic growth of major trading partner the United Arab Emirates, the International Monetary Fund said yesterday.

Trade could be affected by reduced demand from Iran due to economic hardship, and by complications with trade finance and payments, the Fund said in a staff report following regular consultations with the UAE in March and February.

"The trade impact... is expected to be moderate," it said, adding that a 30 per cent reduction in exports to Iran would impact the growth rate for the UAE's gross domestic product by 0.3 percentage points.

A year ago the IMF said that the sanctions against Tehran that existed at the time could shave off 0.2 to 0.7 per cent of the UAE's annual GDP.

The UAE's economic growth rate is forecast to ease to 3.1 per cent this year, a Reuters poll showed in March, down from the IMF's estimated 4.9 per cent in 2011, in part due to the global slowdown. The country has yet to release the 2011 result.

Sanctions against Iran over its disputed nuclear programme which have been in place since June 2010 have so far not led to a lasting reduction in Dubai's trade with Tehran, the report said.

With the exception of Dubai, the regional trade and business hub, Gulf Arab trade links with Iran are minor. Last week the head of Dubai's government advisory council also said the emirate's economy had felt only a modest impact on trade from sanctions against Iran so far.

Dubai's foreign trade, which accounts for nearly a third of the UAE's GDP, jumped by a record 22 per cent in 2011, driven by strong flows with Asia that offset the impact of sanctions.

Source of demand

Dubai's direct re-exports to Iran grew 29 per cent to Dh31 billion ($8.4 billion) last year, the fastest growth rate over the past five years, although figures showed a marked slowdown in the last three months of 2011.

In addition to being an important trade partner, Iran has been a significant source of demand for real estate, tourism and financial services in the UAE, one of the world's top five oil exporters.

"The impact of sanctions on the real estate market is ambiguous, influenced on the one hand by capital flight from Iran, and on the other hand by the difficulty for Iranians to carry out large financial transactions in the UAE," the IMF said.

"Tourism is likely to be negatively affected as are financial services, including trade finance. However, the latter is unlikely to significantly affect the profitability of the UAE banking system," it said.