The UAE is expected to benefit significantly from the lifting of nuclear-related sanctions on Iran, with 2016 promising to be a flagship year in terms of bilateral trade between the two countries.  

Exports to Iran accounted for 11 per cent of the UAE’s total non-oil exports in 2014 (the last year for which full figures are available), worth $11.5bn. It was the UAE’s most important destination for exports, exceeding India, which has been traditionally its largest export market. 

Dubai in particular has been an important trading hub for Iran, and with its position as a base for the Middle East operations of many international companies, the emirate is expected to gain further traction as a trans-shipment point for goods bound to the Islamic Republic. 

“I would expect a sharp rise in the value of UAE exports [into Iran] in 2016… to about $12bn to $16bn,” Hossein Asrar Haghighi, executive vice-president and co-founder of the Dubai-based Iranian Business Council, tells MEED. Growth beyond 2016 is also expected to follow an upward trend.

Manufacturing boom

Demand is expected to pick up quickly for industrial machinery and spare parts, as Tehran seeks to revive its manufacturing sector, especially for construction materials such as cement. Output from these plants is expected to be absorbed by the domestic building sector, while any surplus will be exported to markets including the UAE.

Strong demand is also expected for motor vehicles and automotive spare parts, since the sanctions generally barred the sale of these goods into the Iranian market for several years.

Dubai’s proximity to southern Iran’s 2,000 kilometres of shoreline also means it will remain attractive for food and livestock exports. “Shipment by sea takes only three hours, which means the goods reach the Iranian market the following business day,” says Haghighi.

Source: UAE Federal Competitiveness and Statistics Authority

There are questions around the total value of goods exported to Iran in 2014. The final figure could have been overstated by as much as $3bn, according to Haghighi, due to some goods earmarked for Iran instead going to the republic’s neighbouring countries, such as Iraq and Afghanistan.

“While the shipping manifests indicate Iran as a final destination, some traders over the past few years have opted to sell their products instead to other countries due to the phobia created by the international sanctions,” Haghighi tells MEED.

Balancing commerce and politics

However, just as the lifting of most international embargoes against Iranian entities is expected to significantly reduce this ‘phobia’, a new diplomatic row between both states surfaced in January this year.

Saudi Arabia’s execution of a prominent Shia cleric convicted of terror-related offences triggered protests in Iran, which resulted in the kingdom breaking off diplomatic ties with the Islamic Republic. The UAE government followed suit by downgrading its diplomatic ties with Tehran. The UAE also supports the Saudi-led military coalition in Yemen, which is seeking to restore the country’s legitimate government and dispel the Houthi rebels, understood to be supported by Iran.

With these developments, it is conceivable that the UAE, particularly Dubai, will have to continue to walk a fine line between balancing its trade interests in Iran with maintaining its political allegiance to its GCC partners.

Regardless, the 400,000-strong Iranian community living in the UAE is expected to revive plans to invest in the UAE.

Renewed investment

Haghighi expects many Iranians to reactivate their commercial base in the UAE now that the secondary sanctions have been lifted. “The infrastructure here is good and the Dubai government in particular maintains a friendly and welcoming environment regardless of complex political considerations,” he says.

Long-term investment decisions, however, will rely on how the UAE’s policies evolve over time.

Those complex situations can re-emerge. It is understood some Iranian homeowners in Dubai have had difficulty renewing their residence visas prior to the lifting of the nuclear-related sanctions, for instance, a situation most Dubai-based Iranians hope will soon improve. As it stands, the potential restrictions imposed by state policies will ultimately decide whether or not more Iranians will invest in sectors such as real estate.

With lower oil revenues and the need to diversify its economy away from hydrocarbons more pressing than ever, the UAE cannot afford to ignore Iran’s growing importance as a trade partner. The main challenge for both states now lies in developing a neutral framework that fully integrates political and commercial interests, a complex task that will require more work than originally thought.