Tightening sanctions on Iran are set to have widespread effects on UAE traders, oil prices and the petrochemical industry.
Sanctions on Iran to affect Emirates
Local businesses that ply their trade with Iran are bracing for tightening western sanctions on the UAE's fourth-biggest trading partner.
The US, UK and Canada increased restrictions on Iran's finance and energy sectors yesterday in an attempt to pressure Tehran into abandoning its suspected nuclear weapons programme.
A report released this month by the International Atomic Energy Agency, the UN nuclear watchdog, suggested Iran could still be working on designing an atomic bomb, although Tehran said its nuclear programme is social.
Iran is Dubai's second-biggest trading partner and last year trade between the UAE and Iran stood at US$10.4 billion (Dh38.2bn).
Previous rounds of sanctions against Iran have made banks reluctant to offer financing for businesses that cater to the country, and the new restrictions could affect about 8,000 traders in Dubai who deal mainly on re-export goods to Iran, said Morteza Masoumzadeh, the managing director of Jumbo Line Shipping Agency, a company that sends goods such as steel and timber to Iran.
"It's not only Iranians doing business with the Iranian market," said Mr Masoumzadeh. "There are British, there are French, there are Germans, there are Japanese - you name it. They have established their businesses in this country only to deal with the Iranian market, and all of these nationalities are under pressure now - not only Iranians."
He said his company's annual turnover had declined by 70 per cent from about Dh300 million two years ago, in part because of the difficulty in securing credit.
"You cannot send $8.5m or $9m in cash to your partner in Thailand. To send cash to a supplier is a risky affair," said Mr Masoumzadeh. "To minimise our risk, instead of buying 15,000 tonnes, we buy one thousand. The business will shrink, obviously."
The sanctions also helped to push up the price of Brent crude for the first time in four days, with the European benchmark topping $108 yesterday. Iran, Opec's second biggest producer, pumps 3.53 million barrels per day, according to the International Energy Agency in Paris.
"One constraint on US-led sanctions is the concern that sharply-lower Iranian crude oil output and production could translate to higher oil prices," said John Tottie, an analyst with HSBC in Riyadh.
"This is the delicate balance oil-consuming nations that favour sanctions on Iran have to face: how to discourage alleged illicit activities such as money laundering and prevent Iran from obtaining nuclear technology, without unduly undermining Iran's crude oil export capacity."
With Japan, China and South Korea ranking among the top buyers of its crude, analysts predicted that the sanctions would leave Iranian exports largely intact.
Iran's pumping capacity, however, is projected to decline by between 10 and 15 per cent a year because years of sanctions have deprived it of western investors, expertise and technology.
The fresh sanctions could impede Iran's efforts to head off that decline and help convince Chinese investors other nations could make better fields of investment.
"Chinese companies are among the few still active in Iran, and even China seems to be having second thoughts about how to move forward," said Mr Tottie.
The US sanctions also target for the first time Iran's petrochemical industry, which is responsible for 27 million tonnes of production, or about 4 per cent of the global market.
Iran, which holds vast gas reserves, had hoped to ratchet up its petrochemical production, but its projects have faced delays.
Abdulwahab Al Sadoun, the secretary general of the Gulf Petrochemical and Chemical Association, said it would be difficult to predict the scale of the impact of the latest sanctions. "It's like a black box, the Iranian industry," he said.