Going Through the Back Door: Will UAE Sideline Renewed Iran Sanctions?

Despite sanctions in place against Iran for many years, the United Arab Emirates’ trade with and exports to Iran has grown, making UAE the biggest back door for breaching Western-imposed sanctions. Will anything change now with the latest rounds of sanctions re-imposed on Iran?
Going Through the Back Door Will UAE Sideline Renewed Iran Sanctions

Although Western-imposed sanctions on Iran have been in effect for some three decades, one country, in particular, has shown its mastery in disregarding them.  The United Arab Emirates (UAE) for years has been able to flout the sanctions and, despite its official anti-Iranian stance, to conduct trade and export goods to Iran through the proverbial back door.

The Iran nuclear deal or Joint Comprehensive Plan of Action (JCPOA), signed in 2015 by Iran, the US, and five other states, led to the lifting of most sanctions against Tehran effective January 2016, in return for curbs on its nuclear program.

However, with the US pulling out of the JCPOA earlier this year, the US has now re-imposed far-reaching sanctions, the first round in July, and the second on November 5.

The question is will the UAE respect those sanctions or continue record levels of trade between UAE and Iran?

Although little or no public information is available regarding the UAE’s official sanctions program, the UAE authorities have claimed the UAE enforces US, EU, and UN sanctions on an ad hoc basis upon the issuance of “internal directives.”  However, such internal directives may be more observed in the breach, if they exist.

The UAE is Iran’s largest non-oil trading partner, as well as Iran’s largest source of imported goods, valued around Dh100 bn in 2016.  The UAE is also said to have accounted for 96.7% of trade between Iran and the GCC countries in 2013.  Iran’s non-oil trade with the UAE reached $16.83 billion in the fiscal year ended March 20, 2018, a 21.18% rise compared to the year before, according to the Islamic Republic of Iran Customs Administration’s statistics

Ironically, the GCC is an “alliance of Sunni states intended to be a bloc of collective defense against Iran,” according to former US Ambassador to Israel Daniel Shapiro, which the Saudi-led boycott of Qatar has divided and distracted.

The UAE has been heartily hailed as the place from which to do business with Iran. Before the JCPOA’s lifting of the sanctions, The Economist reported on July 23, 2015:

“At Dubai Creek in the United Arab Emirates, the dock workers load everything from computers to cigarettes onto dhows headed across the Persian Gulf to Iran. At the airport, some ten minutes away, men with suitcases full of dollars board planes bound for Tehran. Dubai, the busiest entrepot in the Gulf, has long been the back door through which smugglers have entered Iran to swap goods and cash in breach of Western sanctions.”

Ironically, then, it concluded:

“It is now hoping to become Iran’s front door as well.”

In June 2018, the Center for Advanced Defense Studies in a report entitled, “Tracing Sanctions Evasion Through Dubai’s Luxury Real Estate Market,” revealed that Dubai is used by seven individuals sanctioned by the US and the EU as well as their respective networks who bought 81 luxury properties in the UAE as part of an extensive “money laundering scheme” worth millions.

The report stated:

Dubai, the largest city in the United Arab Emirates (UAE), has become a favorable destination for these funds due in part to its high-end luxury real estate market and lax regulatory environment prizing secrecy and anonymity. While the UAE has taken steps to address this issue, its response thus far has failed to fully confront the underlying drivers enabling the manipulation of its real estate market. The permissive nature of this environment has global security implications far beyond the UAE. In an interconnected global economy with low barriers impeding the movement of funds, a single point of weakness in the regulatory system can empower a range of illicit actors. Our research shows that lax regulatory and enforcement environments –in Dubai, but also in other financial centers – have attracted criminal capital from around the world and offered a pathway into the international financial system for illicit actors and funds.

Similarly, the report stated that one of these individuals, Iranian businessman Kambiz Mahmoud Rostamian, was sanctioned by the US Department of the Treasury in February 2017 “for procuring controlled materials and other illicit technology on behalf of the Iranian government in support of its ballistic missile program.”

In October, the UAE was accused of complicity with Iran in conducting an illegal charcoal trade with Somali militants.

The numbers say it all.  The UAE has “substantial skin in the game,” according to Dr. Sandeep Gopalan, Pro Vice-Chancellor for Academic Innovation and Professor of Law at Deakin University in Australia.

“Iran was the second largest market for exports from the UAE in 2016 with trade worth $8.8 billion. For the fiscal year ended March 2018, total non-oil trade between Iran and the UAE was worth $16.83 billion. Iran imported $10.06b worth of goods from the UAE and exported $6.76b worth back to the country. The UAE’s exports to Iran grew 57 percent by value year on year for the 2017-18 period.”

So will the UAE comply with the re-imposed sanctions?  Given its past history, the large sums of money involved, and its “hard-headed pragmatism,” as Dr. Gopalan refers to it, that seems unlikely.