Iran sanctions have moderate impact on UAE trade
Iran’s sanctions have only had a ‘moderate’ impact on the growth of its key trading partner United Arab Emirates (UAE), according to the IMF. However, global oil prices are expected to rise as geopolitical tensions mount.
The IMF’s Q3, 2011 trade data indicates that since June 2010, the sanctions on Iran have not caused a reduction in its bilateral trade with Dubai.
Dubai’s world exports (including to Iran) rose in 2011, reflecting the significance of re-exports, which account for more than 90% of bilateral trade with Iran.
Iran's economy is projected to grow by 0.4% this year, compared to 2% last year.
The country’s resilience to the imposed sanctions has been aided by the global demand for the country’s real estate, tourism and financial services, according to the IMF.
Tourism is expected to be negatively affected, as are financial services, including trade finance. Although, financial services are unlikely to significantly affect the profitability of the UAE banking system, the IMF says.
UAE trade however, could be damaged by the reduced demand from Iran, due to the economic hardship and by complications with trade finance and payments. Further, if trade begins to dwindle then so will the country’s GDP − a 30% reduction of exports to Iran would impact the UAE’s GDP growth by 0.3%.
Additionally, Iran’s oil exports are expected to drop due to the heightened geopolitical tensions. In turn, this will increase the country’s oil rates, causing a hike in global gasoline prices. The IMF predicts that as a result of the sanctions, oil prices will perhaps reach around US$119 a barrel throughout 2012.
The EU, which currently buys approximately 20% of Iran's oil exports, banned the import of Iranian crude oil on January 23, 2012, although countries with existing contracts with Iran have until July 1 to end their deals.
In an interview with the Wall Street Journal, Iran's minister of economy and finance, Shamseddin Hosseini admitted that the sanctions were posing economic difficulties for Iran’s capital Tehran, but believes that the country will endure “the financial onslaught”.
He added however that the sanctions are hurting Iran, and warned that the damage could spread to Western countries.
According to a Moody’s report published this week, higher oil prices would be credit-positive for international oil companies, but would negatively impact corporate sectors such as retail, oil refining and European car manufacturers.
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