Dubais trade statistics for 2012 are in. And they show that, finally, western sanctions on Iran are crippling trade with the Islamic republic.The emirate started its path to regional entrepot status at the turn of the 20th century, when the ruling family offered a new home to Persian traders facing a rising tax burden.
Since then, Iran has been central to Dubais economy, in trade, tourism and real estate.
All that is changing as US financial sanctions finally close down one of the main avenues for global trade into Iran.
Trade between Dubai and Iran trade fell by nearly a third, from Dh36bn ($9.8bn) in 2011 to Dh25bn in 2012.
The extraterritorial sanctions, which threaten to cut off lenders from the US financial system if they deal with sanctioned Iranian entities have been tightened over the past few years, closing down trading operations based in the emirate as financing dried up.
The decline had been expected earlier but traders put up a rearguard effort, using barters and dodging sanctions to maintain the flow of goods, from agricultural produce leaving Iran to white goods and machinery heading to the Islamic republic.
Western companies seeking to export to Iran have also been sending goods to Dubai and then re-exporting them to the Islamic republic.
Ahmed Butti, director general of Dubai Customs, says the decline was prompted by last years precipitous drop in the value of the Iranian riyal, which lost half its value in US dollar terms, as well as a reluctance from UAE-based banks to fund trade.
International banks have for several years avoided Iranian trade on the basis that the due diligence required to satisfy US regulators is too onerous and have even been closing down accounts on the basis of Persian-sounding names.
Big fines imposed last year on Standard Chartered and HSBC, coming as they did after previous penalties against Lloyds and Credit Suisse, have only served to focus bankers minds.
Domestic banks in the UAE have been slower to follow suit, given their dependence on this strong revenue stream during the tough times since the financial crisis triggered a collapse in the real estate markets of Dubai and then Abu Dhabi.
But years of strong US lobbying of the UAE government have coincided with a tougher regulatory approach at home, as the UAE backs its neighbours in the Gulf in an increasingly open war of words with the Islamic republic.
The Arab Gulf states, like their western allies, are worried about Irans nuclear programme and have accused Tehran of political interference in Iraq and Bahrain, where protests inspired by the Arab spring and led by the majority Shia continue to undermine the stability of the Sunni monarchy in Manama.
Iranians a major component of Dubais expatriate population are playing a lesser role in the emirates recovery on stronger trade, increasing tourism and a revived property market.
Iranians, for example, say it is much harder to secure visit and work visas these days. Many are therefore eschewing the real estate market, in contrast with the noughties boom that ended in the 2008 crash.
Tehran is looking to other trade partners, who are less subject to political pressure, such as Turkey, Malaysia, China and Oman, as alternative conduits.
Dubai can shrug off the fall in business with Iran, which now represents just two per cent of its overall trade, as it replaces the Islamic republic with new destinations in south Asia, where India for several years has been its biggest trade partner, as well as the Far East, central Asia and Africa.
But decline in trade with Iran has slowed overall growth in the regional trade hub.
Trade expanded 13 per cent in 2012 after record growth of 22 per cent in 2011. Non-oil exports jumped 47 per cent and imports increased 12 per cent, but re-exports only rose 5 per cent.
So while Dubais geography and infrastructure mean it can get by without Iran, the emirate will no doubt hope that one day this historical trade route can be revived.
By FT
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