x Abu Dhabi, UAESaturday 22 July 2017

Is trade with Iran worth the risk for UAE companies?

Lawyer Farhad Alavi says companies ask themselves: do we want to work in a market of 70 million or risk losing a market of 300 million?

DUBAI // Trading in vital goods such as medicines has been hit by the US sanctions against Iran, and this is likely to continue as the new measures make companies even less keen to deal with the country.

“There is an exception for medical devices, medicines and food, and that’s probably going to be routinely spurned,” said Farhad Alavi, a lawyer.

“I think most companies are just not going to look at that, they’re going to say ‘We are not going to deal with Iran’. If they make that decision they’re probably going to eliminate all their business and not create little exceptions.”

The US can freeze the assets of, and block transactions with, citizens of other countries by adding them to its “specially designated nationals list”.

“These companies do a cost-benefit analysis,” added Mr Alavi. “Do you want to avail yourself of a market of 70 million or do you want avail yourself of a market of 300 million?

“If these companies are ever designated by the US in any capacity, even if they don’t do any business in or with the US, the mere fact that they’re on a list could make their life miserable. Even if they’re doing business with countries like Germany, Japan or Korea, they run into the same problem. Some company in Japan is going to say, ‘These guys are on a list, we’d better just not deal with them’, even though that list has nothing to do with dealings between Japan and the UAE.”

Lawyer Ramsey Jurdi said: “A less publicised but very important new sanction is the prohibition on dealing with persons that have been blacklisted by the US.

“Going forward, any person that conducts significant transactions with Iranian blacklisted entities, including the government of Iran, can also be blacklisted.

“Further, for any type of significant transaction with Iran, UAE parties should be conducting due diligence on the buyer to ensure that it is not acting as a front company for a blacklisted entity, or the UAE party risks being blacklisted.

“That being said, US enforcement will be focusing on major players and significant transactions. Personal remittances and other innocuous transactions are not likely to be the target of enforcement efforts.”

An Iranian trading firm based in Dubai was last month included on a list issued by the US treasury department that identified front companies allegedly controlled by the Tehran leadership.

Mr Alavi said the US sanctions had put a lot of pressure on the UAE.

“Iran is this big neighbour across the water, and Iran’s trade with the Arabian Gulf states predates the inception of the US.

“At a time when Dubai in recent years – less so now – was hurting financially, it was a double whammy that business had dried up and then the Iran sanctions hit Dubai.”

Mr Jurdi, who has written a detailed report about the new restrictions for clients, said: “The US has in the past imposed sanctions on entities in the UAE without political controversy.

“The imposition of such sanctions should not be viewed as a violation of sovereignty or affront to the UAE, but rather the inevitable side effect of being a global trading hub. Companies in Singapore, for example, are also a common target of sanctions.”

The new sanctions are the first to come into force since the election last month of the moderate cleric, Hassan Rouhani, as president.

Like earlier measures, the new restrictions are targeted at Iran’s nuclear programme. Iran maintains it is developing nuclear technology for civilian purposes, but some western countries believe it has embarked on an arms programme.

Restrictions aimed at Iran’s motor manufacturing industry could also have an impact here.

“UAE companies that are providing goods or services to the automotive manufacturing industry could be affected, particularly if they have ties to the US,” said Mr Jurdi.

Some restrictions have been eased – for example, moves to prevent sales of mobile phones, laptops and other personal communication products to Iran have been lifted. This is intended to boost freedom of expression through social networks and other internet-based platforms.

csimspson@thenational.ae