Iran seeks closer trade ties with UAE as nuclear talks lift mood

FT.com

Jamshid, a leading Iranian importer of basic commodities, was outraged when authorities in the United Arab Emirates refused to renew his residence permit, ending his decade-long business in Dubai.

It was in 2012 and US banking sanctions over Iran’s nuclear programme had been tightened. International banks closed accounts of Iranian nationals to protect their own interests.

Jamshid consequently moved from Jebel Ali free trade zone in Dubai to Oman, where he is still struggling with banking sanctions but is “welcome” to stay. “Banks in Dubai treated Iranians very badly and that proved to us that Emiratis can pull the plug,” he says.

When the US and the EU imposed banking and oil sanctions, Iran’s central bank was no longer able to provide the country’s Saderat and Melli banks in Dubai with hard currencies to open letters of credit.

Meanwhile, Emirates’ authorities refused to renew residence permits of many Iranian businessmen because they did not have bank accounts with UAE banks. It is not known how many Iranian companies in UAE came to a halt over the past two years because of sanctions.

But now that Iran is in nuclear negotiations with major powers to reach a comprehensive deal by July 20 – the deadline may be extended – many Iranians who had shifted to Kuwait, Oman, Jordan and Turkey are considering whether to return to UAE.

While Jamshid is still bitter and plans to stay in Oman, he does not deny Dubai’s unrivalled infrastructure in the region including its advanced banking system, customs, insurance, transportation, ports and vicinity to Iran. All these factors played a part in helping the country circumvent the sanctions.

Annual imports from UAE dropped by 54 per cent from $19.7bn in the Iranian year ending in March 2012, and were running at an annual level of $9.2bn a year later, according to Iran’s Customs Organisation. On top of this, however, about $15bn worth of goods is believed to have been smuggled into Iran every year – as was happening before sanctions – which makes UAE Iran’s top trading partner in real terms.

“Some Iranians are upset with UAE, but we should remember Emiratis also lost a lot because of sanctions,” says Yahya Ale-es-hagh, president of Tehran Chamber of Commerce, Industries and Mines. “UAE is and will remain one of Iran’s biggest trade partners.”

Dubai remains crucial for businessmen because, in particular, it is the best channel for the informal hawala system of cash transactions that has proved the most efficient way of getting around banking restrictions.

Nonetheless, the Islamic regime is determined to reach a nuclear deal with six major powers – the US, UK, France, China, Russia and Germany – so that sanctions can be lifted in return for a big reduction in Iran’s uranium enrichment activities.

While both sides insist differences are massive, there is a strong sense in Tehran that a permanent nuclear deal is only a matter of time, mainly because Iran’s economy cannot survive without easy access to its petrodollars and to foreign investments.

The Islamic regime leaders have called on foreign investors to look into business opportunities in sectors such as petrochemicals, steel, mining, agriculture, food industries, transportation, tourism, housing and IT.

Iran needs to attract $700bn in foreign investments over the next five years to meet a target of 8 per cent GDP growth. Many European, Asian and Middle Eastern business delegations have visited Iran this year to assess the potential.

“When sanctions are lifted, we will surely see a massive influx of foreign investors toward Iran’s economy,” adds Mr Ale-es-hagh. “Emiratis should join.”

Iran has called on UAE businessmen to embark on joint investments when sanctions are lifted, despite the political tensions between Tehran and neighbouring Arab states.

While Shia leaders in Tehran have strained relations with Sunni rulers of Saudi Arabia due to their intense rivalry in sectarian conflicts in Iraq, Syria and Lebanon, the government of Hassan Rouhani has reached out to smaller Gulf states calling for strengthened business ties.
"When sanctions are lifted, we will surely see a massive influx of foreign investors"

Iran’s foreign minister, Javad Zarif, visited Abu Dhabi in April to prepare establishment of a joint commercial council.

It was not clear if he also tried to help resolve an arbitration dispute which centres on a 25-year agreement signed between UAE’s Crescent National Gas Corporation and the National Iranian Oil Company in 2001 for the supply of 600m cubic feet a day of Iranian gas.

No gas has been delivered to date, a failure blamed on Iran for not completing production facilities and demanding to be paid more. There are rumours that Iran is liable to pay Crescent several billion dollars in compensation, which could strain mutual relations.

The two countries have also had a long land controversy over three islands in the Gulf.

Nonetheless, a 39-man Emirati business delegation came to Iran in early June, the biggest in about a decade, to help strengthen business ties.

Hamid Hosseini, a senior member of the Tehran Chamber of Commerce who has been involved in this process, says there have already been some changes in the UAE as far as Iranians are concerned, with residence permits being renewed and some frozen money being released.

“Emirati banks blocked $4bn-5bn of Iran’s money because of sanctions, which is going to be released for the purchase of foodstuffs,” he says.

Iran’s leading businessmen hope tensions will be reduced, enabling ties with UAE to extend beyond reimports.

“Emirati businessmen should start joint investments when sanctions are lifted,” says Masoud Daneshmand, chairman of a department in the Iran Chamber of Commerce which deals with trade with the UAE. “They have the money and we have natural resources which means we can produce goods in Iran and sell in world markets together.”

Copyright The Financial Times Limited 2014.