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As Sanctions Squeeze Trade, Iran Looks For Options

Above: Wooden boats known as dhows are used in trade between Dubai and Iran. The emirate has long been an economic lifeline for Iran, despite U.N., U.S. and EU sanctions against Tehran's nuclear program. But new financial restrictions imposed on Dubai by the United Arab Emirates' capital, Abu Dhabi, have made Iran-Dubai trade more difficult.

The United States this week expanded its sanctions against Iran over its nuclear program, but Tehran says the sanctions are having no effect.

Analysts say a new focus on enforcement has Iran seeking different trade arteries.

In the Persian Gulf emirate of Dubai, workers continue to load traditional wooden dhows with goods bound for Iran. The scene at the dhow port along Dubai Creek is much the same as it has been for decades.

The wooden boats are tied three or four abreast, many laden with all kinds of cargo. Tires, TVs and computer monitors, cases of Bloody Mary mix, and even automobiles are waiting to make the short journey across the Persian Gulf to Iran, a country that U.S. officials say is effectively shunned and isolated by the international community.

Dubai has long been an economic lifeline for Iran. Locals like to say that conservative Muslim Iranian families came to Dubai in the 1930s, when the Shah of Iran banned the chador, the full-length Islamic covering for women. Then more secular Iranians followed after the 1979 Islamic revolution, when women were forced back into the chador.

The U.S. bans American companies from selling most products to Iran. But the United Arab Emirates, which includes Dubai, is a huge importer of American goods, and much gets redirected to Iran.

But analysts are seeing signs that tougher sanctions and better enforcement are making inroads, even in this notoriously hard-to-police port.

Trade Down, Financing Difficult To Secure

The Iranian Business Council says hundreds of Iranian companies have closed their operations in Dubai in recent months, and economists are expecting year-end statistics to reflect an estimated 10 percent dip in total Iran-Dubai trade.

Adal Mirza with the Middle East Economic Digest says aggressive U.S. efforts to keep Gulf banks from financing Iranian trade are having an effect. He says this is partly due to the financial crisis that rocked Dubai's real estate market over the past two years. Dubai gratefully accepted a $20 billion bailout from its conservative, oil-rich neighbor Abu Dhabi, but Mirza says Dubai also lost some of its independence.

"Since the financial crisis, Abu Dhabi has actually increased its influence on [Dubai]," Mirza says. "They will put a lot of pressure on banks in the UAE to make sure the regulations are adhered to.

"Trade in dollars is obviously impossible with Iran," he adds, "so Iranian banks and companies are having to pay a premium to work with other currencies."

Looking For New Trade Routes

Since U.S. policy toward Iran has remained essentially unchanged for more than three decades, the Iranian regime is well used to sanctions and adept at creating front companies and employing other methods to evade them.

But Theodore Karasik with the Institute for Near East and Gulf Military Analysis says the rising influence of the UAE's federal government in Abu Dhabi has breathed new life into an old policy, and has Tehran casting about for new trade routes.

"I think the government here has been very strong in support of the sanctions," he says. "You're seeing a big difference. A lot of goods and services that used to come in and out of Dubai [have] moved to Pakistan, or in land transport from Turkey. So there has been a shift."

Iran has made no secret of its desire to shift even more of its trade from the Persian Gulf to Turkey. Other countries, such as Malaysia, are also gearing up for increased Iran trade. Analysts say this is why sanctions have traditionally been long-term projects.

But the increased financial pressure is coming at a time when Iran's leaders have begun to lift hugely expensive subsidies on fuel, bread and other necessities, putting a heavy strain on low-income Iranians.

World leaders will be watching closely to see how Tehran reacts should pressure begin to increase from the inside as well as the outside.

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