Raymond Barrett

by Raymond Barrett,
for The Guardian

Dubai’s open-door policy has been a major factor in the failure of Iran sanctions and there’s little reason to expect this to change

For more than 30 years, US-led efforts to isolate Iran from the global economy have faced a constant weakness: the Dubai connection.

Dubai – separated from Iran by the waters of the Gulf – has excelled as a channel for circumventing the variety of international sanctions that have built up over the decades. Be it restrictions on badly needed aviation spare parts, “dual use” electronics or blackballed financial institutions, Dubai is one of several major ventricles through which contraband and money flow in and out of Iran.

Yet Dubai has always preferred the term “re-exporting” to “sanctions busting”, and the process itself is relatively straightforward. Iranian firms establish legitimate trading concerns in Dubai’s Jebel Ali Free Zone or in the bustling district of Deira close to the city’s famous creek; prohibited items are then purchased, with Dubai listed as the final destination on the manifest. Depending on the scale of the enterprise, cargo planes or diesel-powered dhows then transport the goods to Iranian ports such as Bandar Abbas or Kish.

Dubai has long been a vibrant regional entrepot for trade, both legitimate and illicit, and this was a natural role for it to assume. Along with an estimated 400,000 Iranians living in Dubai, around 40% of the “local” population are ajam – an Arabic term used to denote emigrants from the southern coast of Iran who moved to Dubai more than a century ago.

Over the years, this Dubai connection has morphed into a $10bn-a-year import/export industry vital to both parties and supplying Iran with everything from electronics to cosmetics.

While much of the re-export trade involves innocuous consumer goods such as air-conditioners and tyres, criminal cases in US courts occasionally shine a light on “sanctions busters”. In the eyes of the US department of justice, the big fish that got away must be AQ Khan, the father of Pakistan’s nuclear bomb, who sold centrifuges used to enrich uranium to Tehran while using Dubai as the trans-shipment point.

As America’s desire to pursue sanctions has waxed and waned under different presidents, Dubai has rolled with the prevailing winds. When the shortlived “Persian detente” of the latter Clinton years changed to the “axis of evil” mantra of the junior Bush administration, Dubai demurred accordingly. The local authorities were always most welcoming when US officials swept into town calling for tougher enforcement of export controls and financial transactions. While such visits were sometimes followed by minor crackdowns, words alone were never going to get of rid of a business model embedded deep in Dubai’s DNA.

Among the proposals that President Barack Obama is trying to sell this time round are increased restrictions on sea freight, fuel imports and banking services. There are also specific sanctions designed to weaken both the coffers (and the resolve) of Iran’s Revolutionary Guard Corps – the powerbase buttressing both the ruling clerics and President Mahmoud Ahmadinejad.

While there is no doubt that sanctions have inflicted serious damage to the Iranian economy, they have failed to land a knockout punch and bring about the regime change long sought in Washington.

Sanctions specifically targeting Iran’s nuclear programme have been in place for more than 15 years yet have not altered the behaviour of its leaders. And when it comes to issues of broader economic development, Iran is increasingly looking towards China for the technology it needs to develop its aging petroleum industry. In such a situation, Beijing’s continuing reticence is easy to understand.

But some commentators see the recent economic implosion of “Dubai Inc” as an opportunity to close Iran’s back door to the rest of the world. In the light of oil-rich Abu Dhabi’s recent $20bn bailout of Dubai – both are members of the United Arab Emirates – the US could push Abu Dhabi (which has its own outstanding territorial issues with Iran) to have a word in Dubai’s ear about its willing embrace of all things Persian.

Yet there is little indication that Dubai will alter the open-door policy it has practised for more than a century. Given the recent difficulties Dubai has encountered as it raced to develop a 21st-century economy, its more antediluvian trade links with Iran may prove a safer bet.

And in a region often rife with ideology, there is something refreshing about Dubai’s precariously balanced geo-political pragmatism. Over the years, it has welcomed the aircraft carriers and frigates of the US navy’s fifth fleet while simultaneously providing a home to financial institutions such as Bank Sederat Iran, which has (allegedly) directed money to both Hezbollah and Iran’s nuclear programme.

Tightrope walking is a skill all Middle Eastern enterprises must learn in order to succeed, and Dubai seems poised to continue its own particular high-wire act for some time to come.