Relations between Iran and UAE begin to improve

Relations between Iran and UAE begin to improve

The interim deal with Iran could prove an economic boon to the UAE. Close trade relations plus the growing congruence of diplomatic opinion between the U.S., the UAE’s most important security partner, and Iran, means that the country is well-positioned to reap the rewards from looser sanctions and more trade.

The world’s eyes are on Iran. The start date for the interim agreement reached back in November has passed, and so far everything is going according to plan. If all continues to go well, there are significant economic opportunities to be seized upon. And few are better poised to reap the rewards than the UAE.

In a recent interview with the BBC, the leader of Dubai and the current Prime Minister of the UAE, Sheikh Mohammed bin Rashid al-Maktoum, highlighted the fact that economic engagement is key to solving the Iranian nuclear problem, and everyone would benefit from the easing of sanctions.

Some have criticized this conciliatory approach. A Saudi government advisor called this view “narrow and trade-focused.” And the leaders of Abu Dhabi have always been much more wary of close relations with Iran than those in Dubai. But this does present an important step in the easing of relations between the UAE and Iran, one that could lead to a prosperous trade relationship.

Dubai has historically been a key trading partner for Iran, and the two share a close relationship. Prior to the tightening of sanctions in 2012, Iran was the UAE’s second largest market for the export of non-oil goods and re-exports. Even now, non-oil trade between Iran and the UAE reached nearly $10 billion for the first three quarters of the Iranian calendar year, according to new customs data. Most of this is through Dubai.

Dubai’s orderly but loosely regulated ports make it an attractive location for both licit and illicit trade with Iran. Despite sanctions and international pressure, the UAE is one of Tehran’s primary sources of imports, and its most important connection to the global economy. Dubai also prospers from this relationship. Billions of dollars of trade flow through its ports. Its huge re-export trade with Iran has made it the third largest re-exporter in the world, after Hong Kong and Singapore.

Dubai is also home to the second-largest Iranian diaspora community in the world. Many of those living in Dubai are legitimate businessmen, but U.S. sanctions have forced many to shut down. There is a strong feeling in Dubai that they should not have to sacrifice their economic well-being at the behest of the United States. The mutually beneficial relationship has made it hard over the last few years for UAE leaders to reconcile the desire for profits derived from trade with Iran (especially in a time of economic uncertainty) with growing pressure from the U.S. to enforce sanctions more strongly.

Still, UAE leadership harbours deep concern over the ambitions of Tehran and has developed a very close defense relationship with the U.S. The federal government, and Abu Dhabi leadership in particular, has for years been worried about the threat of Iran’s “hegemonic” intentions, and is acutely worried about their nuclear programme. Over the past several years, both public and private statements have reinforced the fact that they see Iran as the largest threat to their national security. And during the Arab Spring, many governments accused Iran of interfering with their internal sectarian balance, agitating Shi’a political sentiment against the Sunni majority.

One of the most persistent sources of bilateral tension has been the sovereignty of three islands in the Persian Gulf: Greater Tunb, Lesser Tunb, and Abu Musa. Important because of their strategic location close to key shipping lanes, ownership of the islands has been disputed since the UAE gained independence in 1971. The UAE recalled its envoy to Iran two years ago after President Ahmadinejad made a visit to one of the islands, and last year Iran’s foreign ministry said the issue was “not negotiable.”

But recently, relations seem to be improving. The UAE was one of the first countries in the region to welcome the nuclear deal reached with Iran last November. And the UAE has been central to Iran’s recent regional “charm offensive,” a key aspect of President Rouhani’s new diplomatic policy. At a meeting in early December, Iranian Foreign Minister Mohammad Jayad Zarif said that Iran hoped to “institutionalize” relations between the two neighbours.

Recent reports suggest that the UAE and Iran may be close to a deal on the islands. Defense News reported that a deal for the return of the islands had been laid out during a recent visit of the UAE Foreign Minister to Tehran. While this has not subsequently been confirmed by either Tehran or Abu Dhabi, the fact that a conversation is taking place is a definite step in the right direction.

It suits the UAE just fine that this détente is occurring simultaneously with an improvement in U.S.-Iranian relations. In the past the problem for the UAE in their relationship with the U.S. has been the U.S.’ insistence that in return for greater security cooperation, the UAE improves enforcement of international sanctions, which, as mentioned, is unpopular. But now that international sanctions are easing, it is beginning to look like the UAE can have its cake and eat it too.

So what does this mean for the UAE and Iran going forward? So far it looks like several important pieces are falling into place, and the two countries could turn this improvement into more permanent cooperation. The most obvious field of cooperation is economic, given mutually beneficial trade relations and the opportunities created by the easing of sanctions. There is also the possible diplomatic benefits to Iran of having a more solid ally within the Cooperation Council for the Arab States of the Gulf (GCC).

Of course, there are potential spoilers. If the current legislation being floated in the U.S. Congress to impose more sanctions on Iran passes, it could scuttle the interim deal and we would be back at square one. And there is also no assurance that a permanent deal will be agreed upon before the interim period ends. But as it stands, prospects are positive for UAE-Iran relations.

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