|UAE businesses ready to reopen trade routes with Iran||
Traders in the UAE are poised to resume doing business with Iran as weakening sanctions raise the prospect of reviving a trade corridor once valued at $12 billion.
For now, difficulties in receiving payment for goods and fear of flouting existing sanctions are dissuading many from trading with their neighbor.
“If the sanctions are lifted, we’ll do it,” said Gopanatham Menom, the general manager of Al Badoor Shipping, a Fujairah-based ship supplier. “We will see with the business community here and decide.”
Iran last week suspended part of its nuclear development work, with the United States and Europe responding by lifting some of the sanctions that have buckled Iran’s economy in recent years.
Trade between Dubai and Iran sank by nearly a third in 2012 to Dh25 billion, down from Dh36 billion the year before, according to Dubai Customs. Trade between the UAE and Iran was estimated at $12 billion in 2007.
Of the goods still flowing, much of it is shipped from Dubai Creek, where dhows are laden with consumer goods.
Captain Ahmed Ibrahim, 40, said he hoped the lifting of sanctions would encourage a further liberalization of Iran’s economy. The dhow seaman, whose trade involves the purchase of cheap consumer and electronic goods, has struggled over the past year to import items through the port of Bandar Bushehr, a few kilometers away from the city of Shiraz, as officials imposed a protectionist policy that forced Iranians to buy goods from the local market.
“We are still waiting for things to get better,” he said as he loaded Panasonic-branded TV boxes, bags of rice and cooking oil on to his dhow bound for Iran. “We’re hoping that the economy improves so the market opens up, adds extra supplies, and prices of items go down.”
One dirham was equivalent to 1,000 Iranian rials last year, he said, whereas now the exchange rate has improved to 790 rials.
The rial’s rally is giving traders and export insurers more confidence about the ability of Iranian buyers to pay for goods they order using credit. Tightening global sanctions since 2008 meant the rial had been shedding value up until June, leaving Iranian buyers unable to pay for goods they ordered, sometimes up to six months before, on credit.
“If there’s an easing of international sanctions against Iran this will definitely benefit Dubai,” said Hamad Buamim, the chief executive of Dubai Chamber of Commerce and Industry. “If there’s a development, especially on the payment part, this will support the rebound in trade between Dubai and Iran.”
Another barrier to payment has come as a result of international and UAE banks closing credit lines involving any business with Iran. Iran has also been locked out of Swift, the world’s largest electronic payment system.
“The nature of doing business is still very risky for international vendors,” said a Dubai businessman who asked to remain anonymous. “If you’re given a letter of credit by an Iranian purchaser, which international bank is going to touch it? You would have to wait several months before you get paid.”
Many businesses remain cautious about resuming trade links with Tehran while the risk of breaking remaining sanctions is still present. The U.S. has warned it plans to continue to enforce those measures.
The initial focus of easing sanctions is expected to be on allowing Iran to resume exports of oil and gas.
“We don’t have vessels coming from Iran in our database,” said Gunnar Kjeldsen, the regional manager of DNV Petroleum Services, a petroleum consultancy based in Fujairah.
Mr Kjeldsen, who is responsible for marine fuel testing, said the quality of residual fuel had deteriorated in recent years in this region due to the sanctions in Iran, among other factors.
“Iran produces good fuel because they have simple refineries. The residual fuel quality in this region should improve if the sanctions are lifted and bunker fuel is again sourced from Iran.”
(Source: The National)
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