Dubai prepares to capitalise on Iran opening

By Simeon Kerr

The many daily flights between Dubai and Tehran are always busy. But these days the Iranians heading home after business and shopping trips are being joined by rising numbers of briefcase-toting western and Asian passengers.

They are part of a new wave of foreign investors eager to investigate business opportunities in post-sanctions Iran, a potentially lucrative trade that Dubai, the commercial hub of the United Arab Emirates, is eager to capitalise on.

Last week, Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum called for sanctions to be lifted on the Islamic republic. “I think we need to give Iran space, Iran is our neighbour and we don’t want any problem,” he told the BBC in an interview. “If they agree peace with the Americans and the Americans lift sanctions, then everyone will benefit.”

It is a stance that puts him at odds with most Sunni Gulf leaders. While the UAE, which includes Dubai, has long been one of the most hawkish voices on Iran, Dubai, built on trade with the Islamic republic and home to a large Iranian community, is eager to renew these business links, analysts say.

Limited sanctions were lifted on Monday, allowing the Islamic republic to take gradual control over $4.2bn of oil receipts frozen overseas, lift insurance restrictions on Iranian oil exports to Asia, and raise thresholds on money transfers.

Restrictions will also be eased on other areas of the economy, including the petrochemical, precious metals, gold and car sectors. Companies from the oil and gas, construction and medical supply sectors have already inundated lawyers with questions about how quickly they can set up operations.

Sarosh Zaiwalla, a London-based lawyer who represented Iran’s largest private bank in its successful legal challenge in 2012 against the EU sanctions, says his small firm has received 40 inquiries over the past six weeks.

November 2013: Hassan Rouhani, president of Iran, talks to Lionel Barber, FT editor, about the interim agreement between Iran and world powers on curbing its nuclear programme and his country’s role in seeking international agreement over Syria.

European and Asian companies are especially interested in the Islamic republic’s prodigious oil and gas reserves, large domestic industrial base and well-educated population of 75m. “I am taking a group of big investors to meet ministers and potential partners,” said one Iranian financier. “But these will be cloak and dagger meetings – no one wants to let slip what they are up to.”

Prospective investors are not only concerned about commercial competition but also potential pitfalls. Those who move too far, too fast could be left exposed by any collapse in nuclear negotiations. “No US sanctions have actually been lifted yet and they are draconian, especially for those with US interests,” the financier says.

For Dubai, however, Iran’s potential emergence from the cold is another economic boon for a debt-laden economy that is recovering after it was hit by a 2008 real estate crash. Since a peak of $10bn in 2009, trade with Iran fell by a third to $6.8bn in 2012, dragged lower by the Iranian currency’s collapse and restrictions on trade finance.

Dubai has always had a pragmatic approach to the Islamic republic. Sheikh Mohammed has often argued in private that he doubts Iran intends to acquire a nuclear weapon.

Iran’s President Hassan Rouhani is looking to pursue a foreign policy of moderation after tough financial sanctions have brought the Islamic Republic’s economy to a standstill

But the push to rebuild trade is not without complications.

UAE’s foreign policy is led by the capital, Abu Dhabi, which had to bail out Dubai with loans of more than $20bn in 2009. Dubai’s large Iranian community, once central to the city’s fortunes, has felt neglected in recent years as political tensions heightened between the Islamic republic and its Arab neighbours.

The Gulf’s Sunni majority has grown fearful of increasing Iranian interference in their affairs, especially the Shia-led revolt against Bahrain’s Sunni monarchy. In the UAE’s security-conscious environment, Iranians have found it harder to secure visas and expatriates suspected of being linked to the Iranian revolutionary guards have been deported.

Rumours are now bubbling out of Abu Dhabi about a potential deal for Iran to return three islands in the Gulf claimed by the UAE. Iranian officials have denied the potential for a transfer of sovereignty to resolve one of their sorest bilateral issues.

Whether or not a historic deal could be secured, most businessmen believe the historically deep ties linking Dubai and Iran – as many as a third of Dubai’s nationals can trace their heritage to these immigrants – will overcome the tensions of the past three years. “Yes, it’s been hard for Iranians in Dubai, but it’s been harder elsewhere,” says the Iranian financier. “The mood is positive and Dubai is in pole position to become the springboard into Iran.”-Financial Times