Dubai trade in the frontline of Iran sanctions

On the concrete wharfs of the creek that divides Dubai, bundles of goods wait to be loaded aboard vessels bound for Iran, the Gulf emirate's largest trading partner.

Three rounds of UN sanctions since 2006 failed to strangle this flourishing trade, which reached 4.8 billion dirhams ($1.8 billion dollars) in May according to the Dubai Chamber of Commerce.

But the measures did have an adverse effect.

The UN Security Council last week imposed a fourth round of sanctions after Iran refused to stop enriching uranium. Teheran insists its nuclear programme is peaceful but the West and others suspect it may be aimed at building an atom bomb.

Iran does an estimated $10 billion of trade per year with Dubai, a major centre for re-exports.

Goods land in the tiny emirate from around the world and are loaded onto waiting dhows, the traditional sailing boats that head daily for Iran's southern Gulf ports.

But Morteza Masoumzadeh, vice-president of the Iranian Business Council in Dubai, says business has been taking a hit.

"Over the past six months our company's business has gone down by 60 per cent," said Mr Masoumzadeh, who owns one of Dubai's oldest shipping companies.

"This is due to the (global) economic crisis as well as the sanctions," he said, adding that banking and financial restrictions imposed by two sets of sanctions in 2008 and the previous year have had an adverse impact on trade.

Besides the official trade figures, there is also an "informal trade by the dhows," said a Western diplomat of a system where businessmen buy goods in Dubai and load them aboard Iran-bound vessels without leaving a paper trail.

He said that another paperless trail that "is not counted in the official figures is the "hawala" system, which does not go through banks or identifiable means and will always function."

Hawala is a traditional, paperless "moneygram" system where an agent accepts money from a client in one country, then tells a relative, friend or business associate in another country to deliver the equivalent amount to the intended recipient.

Dubai authorities succumbed to US pressure on the federal government in Abu Dhabi to prohibit any goods bound for Iran that could have dual civilian and military use, said the diplomat, who was speaking on condition of anonymity.

"It is impossible to cut trade between Dubai and Iran because there is a human element," he said, noting that about 400,000 Iranians are based in the United Arab Emirates.

Analysts in Gulf Arab countries believe that the latest sanctions, affecting trade in nuclear power generation, ballistics, heavy arms and banking, should have a limited impact.

"The Iranians are prepared for the sanctions," said Ibrahim Khayat, a Gulf-based analyst.

"Their overland trade with (neighbouring) Iraq reached $4 billion, whereas with certain Asian countries they have recourse to barter, which is a way of circumventing the hurdles."

The sanctions prohibit the sale to Iran of several types of heavy armaments, but Iran "does not need to import weapons - it exports to some 67 countries," said Mr Khayat, an expert in strategic analysis.

Teheran "has enough experts and capacities to develop armaments," he said.

The new sanctions also allow inspection on the high seas of Iran-bound vessels suspected of carrying banned items, but Mr Khayat said care was needed in Gulf waters patrolled by the Iranian navy.

"Nobody wants a war with Iran and nobody wants to cause an incident that ignites a powderkeg," he said, echoing the sentiments of Gulf countries that have no wish for a confrontation.

But Mustafa Alani of the Dubai-based GULF Research Centre fears a long-term escalation, and does not rule out a strike against Iran by Israel, Tehe-ran's arch-foe.

"The Gulf countries will be the victims in either case: if the military option is retained the Iranian response could be against these (Gulf) countries, and if Iran continues its military programme it will become a regional superpower," he said.