Dubai | Crippled Creek

Increasingly tough sanctions directed at Tehran strike an unintended blow against Dubai’s Iranian traders

Iranian sailor Ali Veysi performs evening prayers on the banks of Khor Dubai, an important trading channel for the UAE city. Kamran Jebreili / AP Photo
01 November, 2010

ALONG THE NORTHERN BANK OF KHOR DUBAI, a saltwater creek that divides the city into Deira and Bur Dubai, hundreds of traditional wooden dhows float alongside what’s known locally as the Iranian Bazaar.

The bazaar and its immediate surroundings are in sharp contrast to the Brobdingnagian Vegas-style real estate developments that have defined Dubai’s image abroad in the last decade. The creekside quarters are older, lower, softer, in colours of sand-brown; they lack the wildness of the city’s modern architecture.

Right opposite the bazaar, Ali, a 32-year-old boatman from Iran’s Fars province, is standing on the quayside of his boat, smoking a cigarette. His dhow, like many on the creek, is empty. Some others are packed tight with crates possibly filled with electronic items, spare automobile parts, clothes, bags, shoes and even furry teddy bears.

His skin is rough and he has a toothy smile. When he speaks, his breath is a mix of tobacco and raw onions. He says it’s been 33 days since he sailed to Iran. The boat’s Emirati owner would like him to sail to Africa, but Ali prefers not to undertake the new route.

“My boss says there’s no business for shipping to Iran because of America. They seem to be creating problems everywhere,” he says and spits into the creek. “I will wait for another 30 days and if I don’t sail with goods then I’ll return to Iran on another boat.”

As he waits for his deadline, Ali helps other boatmen load and unload their goods for some spare change that sorts out his food and cigarettes. He sleeps on the boat.

Long before the discovery of oil catapulted Dubai and the six other states that comprise the United Arab Emirates into enormous wealth, it was trade that defined Dubai’s economy, with the creek acting as a critical lifeline. Boats have carried goods from Dubai to the southern coast of Iran since the early 19th century, and the city has become a critical re-export hub for shipments to Iran during the Islamic Republic’s years under US sanctions.

Though Iranian president Mahmoud Ahmadinejad dismissed the fourth, and most severe, round of UN sanctions as “meaningless” during an interview this September, Iranian businessmen and traders in Dubai are not so sanguine about their impact.

“This time is different,” says Morteza Masoumzadeh, the vice president of the Iranian Business Council-Dubai and the managing director of a shipping agency. There are about 8,000 Iranian businesses in Dubai, and the city’s annual trade with Iran is estimated at about 10 billion dollars; Masoumzadeh expects that figure to drop by about 40 percent this year.

The recent UN sanctions are only part of the equation, Masoumzadeh explains: the United States and the European Union have also each introduced unilateral sanctions, and local businessmen fear the end result will cripple any trade with Iran.

“After the US and the EU, the Japanese followed, then the South Koreans and now we’re hearing maybe the Australians,” he says. “It’s hard to operate. Our ships are being subjected to extra checks by the UAE’s customs officials. There’s extra screening of the containers. We’re being asked to provide more documentation and verification. Even the free zones are being monitored.”

As a result of the EU and US sanctions, which place new restrictions on foreign trade and financial services, local and international banks are refusing to grant Iranian traders letters of credit. A letter of credit (LC) is a document issued by a financial institution and acts as a guarantee to sellers that a trading partner will pay for imported goods. It is used in international trade. Iranian traders say that the absence of LCs will affect trade as a whole, including shipping basic necessities such as food to Iran. The traders are also finding it increasingly difficult to secure insurance as the new sanctions make it illegal for European insurers to cover cargo being shipped to Iran.

Small and medium-sized businesses have been hit particularly hard by the recent clampdown on transferring money to Iran, which is hurting the entire trading community. The local newspaper, Gulf News, cited an unnamed source in a June report that the UAE had closed down more than 40 companies in a crackdown on those “illegally dealing in strategic dual-use equipment and materials and money-laundering.”

According to Masoumzadeh, “In the last two years, 400 companies have shut down because of earlier sanctions and the recession.”

In the bazaar, there are numerous Iranian shops that trade spices, blankets, clothes, toys and surreptitiously sell fake designer bags. Western tourists traipse through the bazaar’s alleys, pausing in front of gunny bags of spices and incense. Eager Iranian men call out in English, French and Russian, selectively inviting the persons with the cameras and baseball caps into their shops. The spice shops are busier than the wholesale stores.

Afshin, who asked not to give his last name, is a third-generation Iranian trader. His shop still occupies the stall established by his grandfather, who came from Iran to set up the family business 100 years ago. “We are an Iranian family having a business in Dubai. But we don’t import or export to Iran, so our business is still operating without problem. We are experiencing problems in converting local currency into Iranian money,” he says.

His neighbour, Aslam Saleem, an Indian wholesale trader who imports toys from China and re-exports them to Africa and Iran, has not been so lucky. Saleem is owed about a million dollars by Iranian importers. “The Iranians are saying they have sent the money but my bank is not releasing it,” he says. In 2009, Iranian businessmen accounted for 70 percent of Saleem’s exports. This year, he says, they represent less than five percent.

According to the Iranian business community, many of the traders have no ties to the Iranian government or the Revolutionary Guard. “The Iranian business community in Dubai doesn’t understand why they are victims of the sanctions. They are private sector and are not connected to the government of Iran,” says Masoumzadeh.

Analysts say Dubai now has to follow stricter policing of the new sanctions because of the UAE’s larger foreign policy interests. “In the past, Dubai has generally followed its own economic policy that has been independent from the country’s foreign policy, which allowed it to benefit from trade with Iran,” says Dr Samir Pradhan, a researcher at the Gulf Research Center.

However, the potential for a nuclear-armed Iran is of concern to the Gulf’s Arab nations including the UAE, whose capital Abu Dhabi has recently signed a civilian nuclear co-operation deal with the US. A group of South Korean companies will build the country’s first nuclear power stations.

In Dubai, the Iranian business community is making its point through various media channels, but Dr Pradhan is more concerned about the impact of the sanctions on the Iranians in Iran. “Sanctions will hurt all businesses, whether they are Iranian or dealing with Iran. But until Iran finds another re-export hub to replace Dubai, it’s the Iranian population that will struggle,” he says. “Inflation is already at 11 percent and if the cost of business rises, it’s not the businesses that will pay, but the everyday people.”