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Iran hopes boost Dubai confidence

|By Arabian Post Staff|Analysts are consistently arguing in favour of a pickup in Dubai’s economic prospects in the wake of a possible boost in trade with Iran following the lifting of sanctions.

Low oil price, which cast a shadow over the Gulf’s oil economies, has also affected Dubai, with its real estate sector, a key determinant of the emirate’s economic performance, showing signs of a clear slowdown.

But investors are betting that lifting sanctions on Iran will boost Dubai – a view that is causing the emirate’s debt to outperform the rest of the region, according to a Reuters analysis.

Bond prices and credit default swaps, used to insure against the risk of a sovereign default, have barely moved in Dubai, even though cheap oil has dampened investor sentiment toward the rest of the region.

The spread of a May 2022 U.S. dollar sovereign sukuk from Dubai over an April 2019 sovereign bond from Abu Dhabi narrowed to 1.83 percent on Tuesday from 1.97 percent at the start of this year.

Five-year Dubai CDS are down 65 points from the end of last year to 210 points, according to Markit data. The CDS of most sovereigns in the six-nation Gulf Cooperation Council are lower in absolute terms, but all of the region’s CDS except Dubai have risen this year.

A major reason is expectations that Dubai will quickly reclaim its traditional status as a hub for trade with and investment in Iran after international economic sanctions, imposed over Tehran’s nuclear plans, are lifted early next year.

Sarosh Zaiwalla, Senior Partner of the international law firm Zaiwalla & Co, the company that has successfully represented Iranian banks and trading businesses entangled in the sanctions rigmarole, believes that the lifting of sanctions on Iran will mark a new dawn for trade and commerce in the region, including Dubai.

Zaiwalla says that a post-sanctions Iran will provide a land of new opportunities and a very sophisticated market for traders in the Middle East, especially in the banking and energy sectors.

 “With nearly fifty oil and gas projects worth $185 billion that the Iranian government hopes to sign by 2020, the potential for investments in the Iranian economy is vast,” he said.

“Lifting sanctions against Iran is a point that Dubai will benefit most from. Dubai has a strong history of close trade interaction with Iran and should be the key beneficiary among all GCC credits when Iran opens its market – this is what CDS are pointing to,” said Sergey Dergachev, senior portfolio manager for emerging market debt at Union Investment Privatfonds in Germany.

The IMF has estimated that removing sanctions on Iran could add 1 percentage point to the UAE’s GDP growth between 2016 and 2018, simply by boosting non-hydrocarbon exports. Dubai, with its sophisticated trading infrastructure, could grab most of that benefit.

The emirate would also profit from increased Iranian demand for services exports such as trade finance, transport, tourism and hospitality. The number of Dubai hotel guests arriving from Iran has almost halved since 2010; it could now recover, the Reuters report pointed out.