Repercussions from Iran sanctions spread to Arab states

March 11, 2012 - 15:37
The effect of sanctions on Iran was one of the major risks for the economies of Persian Gulf states following the Arab Spring, especially if sanctions are escalated, said Henry Azzam, the regional chairman of Deutsche Bank.
All around the world, the West is putting the squeeze on Iran's oil industry - constricting the flow of payments and complicating trade relations.
The United States has recently extended its sanctions to target any company trading in Iranian oil, and, in the next tightening of the screw, the EU is expected to cease trading in Iranian crude by July.
 "Tighter enforcement of sanctions against Iran would definitely impact countries that have strong trade relations with Iran … mainly the UAE, where trade with Iran accounts for 8 percent of gross domestic product," Azzam said. "If trade goes down, this would be transmitted to the banking sector."
Iran, the second-biggest economy in the Middle East, was the UAE's fifth-most important trading partner in 2010 after India, the EU, Japan and China, according to the latest available trade data from Eurostat.
Banks operating in the UAE have been affected by U.S. sanctions against Iran in recent years, which have targeted firms including Bank Saderat Iran and Bank Melli Iran and the country's central bank.
Saderat and Melli, the two banks with which Noor traded, are allowed to operate in the UAE because they are not subject to United Nations sanctions, said a Central Bank official who asked not to be named.
Unilateral sanctions such as those implemented by the U.S. and the EU did not have jurisdiction, but international banks operating within the UAE were subject to exposure to sanctions in their home countries, the official said.
"They've risk management functions and they know the risks of dealing with such banks," the official said.
HSBC revealed in its annual report that it was facing investigation by U.S. officials for historical transactions with Iranian parties, which it expected could lead to criminal or civil charges.
In 2010, the Dubai Financial Services Authority said that a number of organizations and individuals inside the emirate's financial free zone, including Persia International Bank, an Iranian lender, were subject to an asset freeze in light of tougher sanctions from the EU.
Saderat and Melli were respectively the third and fourth most profitable foreign banks operating in the UAE in 2010, after Standard Chartered and HSBC, according to the latest available data from the Emirates Banks Association.
Both experienced a growth in total assets during the year, despite the effects of western sanctions.
Saderat's loans grew by 13.2 percent to Dh6.8 billion (US$1.85bn) in 2010 compared with a year earlier, while Bank Melli increased lending by 15.3 percent per cent to Dh2.9bn during the same period.
Iran has the largest fleet of crude tankers of any country in the Persian Gulf, and is better equipped than its neighbors to deal without hired tanker capacity.