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Dubai Feels Pinch of Iran Embargo
01/07/2013 9:15 am EST
Exports to Iran by members of the Dubai Chamber of Commerce and Industry have slumped by more than 75% in the past two years, and the downward trend is unlikely to change unless global sanctions against Tehran are eased, writes Tom Arnold of The National.
Levels of average monthly exports and re-exports had slid to Dh1.8 billion ($490 million) from about Dh7 billion two years ago, said the chamber's director general, Hamad Buamim.
"We have lost a big chunk of our trade with Iran," he said. "The biggest factor is sanctions and secondly there are limitations on financing trade with Iran. Thirdly, the depreciation of the Iran currency has made it difficult for Iranians to trade."
The data is a signal of the dramatic turnaround in the once bustling flow of goods to Iran from Dubai, which for centuries has acted as a gateway for the onward shipment of all manner of goods to the country. As recently as June 2010, Iran was the top export destination for members of the Dubai chamber, and at its peak Iran trade accounted for 7% of the UAE's GDP.
But obstacles to trade have emerged as the international community has agreed to sanctions over the past two years aimed at tightening the net around Iran's economy. The effort aims to bring pressure on the country over its suspected nuclear weapons program. Tehran says its nuclear ambitions are peaceful.
Buamim believes that without an easing of the sanctions, there will be little improvement in the outlook for Dubai's commercial ties with its near neighbor.
"If the restrictions on trade the sanctions have imposed are reversed with international blessing, we can gain some of the lost trade back," he said. "But until then Dubai will be affected, as Iran will build a relationship with other countries that are dealing with them."
In an effort to beat sanctions, Iran has sought to secure millions of tons of wheat through barter deals with India and Pakistan. Food is exempt from the global sanctions. But the UAE has so far not attempted a similar deal.
Arms and machinery and equipment for Iran's energy and aviation sectors are among exports barred under sanctions. However, exporting other goods to the country has become trickier as banks and exchange houses have cut their dealings with the country in response to pressure from the West and the UAE Central Bank. Many lenders have reduced letters of credit or other forms of finance to fund goods.
Iran's deteriorating economy has also taken its toll on trade. Iran's currency, the rial, has lost about half its value in open trading in the past year, pushing up the cost of foreign-made goods and stoking demand for locally produced items.
The currency sells at about 30,000 to the US dollar in the open market. A rate of 12,000 to the dollar is available for the import of some basic goods.
The rial's collapse has also made it difficult for many Iranian buyers to pay for goods. The National reported in March that Dubai traders were owed more than Dh1 billion by Iranian buyers.
"It's still too risky for many businesses in Dubai to do trade with Iran. Many who do will only do business in cash and not many people can afford to pay on the other [Iran] side," said Ali Sowdagar, a marketing representative with Iran Insurance, a Dubai insurer of export credit.
Re-exports to Iran from the UAE dropped by nearly a third in the first half of 2012 from the year earlier period, Dow Jones Newswires reported last week, citing a UAE Ministry of Foreign Trade official.
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