The UAE prime minister’s call for international sanctions against Iran to be dropped comes amid an atmosphere of improving relations between the Middle East’s second- and third-largest economies.

In a rare interview with the BBC on 12 January, Ruler of Dubai Sheikh Mohammed bin Rashid al-Maktoum urged the US and other world powers to scrap economic measures targeting Iran’s banks and energy sector.

“Give Iran space. Iran is our neighbour and we don’t want any problem,” Sheikh Mohammed said.

Iran has long been a key trade partner with the UAE, especially Dubai, but their bilateral relationship has been strained by political tensions with the UAE’s powerful Washington allies.

Prior to the tightening of sanctions in 2012, Iran was the UAE’s second-largest market for the export of non-oil goods and re-exports, and its fourth-largest trading partner overall.

Most of the trade has been conducted through Dubai. In 2009, the last year for which data is publicly available, Dubai’s GDP totalled $81bn. Based on these figures, re-export trade with Iran could be estimated to account for about 10 per cent of Dubai’s GDP.

US sanctions against Iranian financial institutions, including the central bank in Tehran, have forced UAE authorities to clamp down on legitimate companies operating in Dubai, leading many to shut down or seek other bases to conduct business.

The UAE has long struggled over how to deal with the West’s stance against the Tehran government, as its emirates are divided in their relationship with the Islamic Republic. The priority of the UAE capital and key oil exporter Abu Dhabi is maintaining strong ties with the US and it is fearful of potential Iranian aggression.

Another issue fuelling tensions between Iran and the UAE is the dispute over the ownership of three islands in the Gulf. The complex dispute dates back to 1971, the year the UAE was formed, when Tehran seized control of the islands of Abu Musa, Greater Tunb and Lesser Tunb, after Iran and the UAE failed to agree on the sovereignty of the territories.

Recently Iran’s foreign minister said that the country’s sovereignty over the islands is not negotiable.

Following the deal between Iran and the US-led P5+1 (China, France, Russia, the UK and the US, as well as Germany) powers in November 2013 for Tehran to scale back its nuclear programme, there have been reports of several meetings between Gulf cabinet members and their Iranian counterparts.

With the agreement coming into effect on 20 January, the interim period may provide a good opportunity for rapprochement between the UAE and its neighbour across the Gulf.