If confirmed, the news that Iran is prepared to do a deal with the UAE on the ownership of three disputed islands in the Gulf could have a significant impact on the political relations in the region.
US-based magazine Defense News reported on 15 January that the two sides have reached an agreement whereby the UAE would take sovereignty of the Greater and Lesser Tunbs and Abu Musa, which are part of a territorial dispute going back centuries.
In addition, the story claims that Oman, which it says helped broker the deal, would grant Iran a location on its Musandam Peninsula in exchange for free gas from Iran.
Musandam juts into the Strait of Hormuz the supply bottleneck for shipments in and out of the Gulf making it a strategic location for Iran, the UAE and other major oil and gas exporters.
Iranian politicians signed a bill to close off the Strait of Hormuz in 2012 as a response to strengthening sanctions against its financial and energy sectors, thereby threatening to disrupt international oil shipments.
It would come as a surprise to many if the UAE, a staunch ally of the US in the Middle East, ceded more control of the strait to Iran in light of these events less than two years ago. The decision would also appear to have isolated another key US ally, Saudi Arabia, for the negotiating table on a key issue affecting the GCC and the oil trade.
The Defense News report, which cited a high level UAE source, has yet to be confirmed by government officials in Abu Dhabi and Tehran.
The dispute over the islands has been one of the main issues fuelling tensions between Iran and the UAE government in Abu Dhabi.
The most recent chapter of this complex dispute goes 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 their sovereignty.
Tehrans official position has been that the islands have always belonged to Iran and has never renounced its possession of the territories.
Irans Foreign Minister Mohammad Javad Zarif said in early December that Tehran is willing to hold talks with the UAE on the misunderstandings [regarding the implementation of the 1971 memorandum of understanding] on Abu Musa, according to Irans Fars News Agency. Late last year Irans foreign ministry said the issue was not negotiable.
In 1971, before the end of the British Trucial States protectorate and the formation of the UAE, Iran claimed Abu Musa under a joint agreement with Sharjah. The UAE emirate conceded part of Abu Musa to an Iranian garrison and an equal sharing of any oil and gas discovered around the island.
When the Abu Musa deal went into effect, Iranian troops landed on the island. Meanwhile, the Iranians seized the Tunb islands after a brief firefight in which Iranian soldiers and members of the Ras al-Khaimah police force were killed.
The GCC has since repeatedly declared support of the UAEs claims, while Abu Dhabi has attempted to bring the dispute to the International Court of Justice.