Iran's dangerous trade game
Over the past two decades, imposition of sanctions on Iran has evolved into a dynamic game between Tehran and the international community, with every new round provoking a series of Iranian counter-measures. One of Tehran's weapons in this tussle has been to use its trade policy as a way of discouraging some countries from co-operating with sanctions or aligning themselves too closely with the anti-Iran camp.
A highly visible example has been Iran's trade relations with the six Gulf Cooperation Council (GCC) states – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates. Iran has deliberately expanded its trade and investment ties so as to increase the economic costs for them of joining western-sponsored sanctions initiatives. Since 2000, for instance, GCC exports to Iran have increased dramatically, reaching $13.4bn in 2008-09, and thus the GCC states, particularly the UAE, have enjoyed a sizeable trade surplus with respect to Iran.
Simultaneously, Tehran has used trade to discourage the GCC states from forming a united anti-Iranian front headed by Saudi Arabia. This is why it has called for the joint development of its shared gas fields with Kuwait and Qatar but not the Saudis, preferred to trade in UAE dirhams but not other GCC currencies, insisted on regional security arrangements, championed the cause of Shia Muslims in Bahrain and Saudi Arabia, maintained friendly relations with Oman where the vast majority of the population resent the Wahhabi/Saudi version of Islam, and given the Qatar Airways the right to operate its domestic flights.
Yet recent reports that Iran has blocked imports from the UAE "as a punitive measure" in response to its support for the US sanctions indicate that Iran's economic co-option strategy has failed. They also point to the catastrophic failure of Tehran's efforts to keep GCC states divided since the UAE is now fully aligned with Saudi policy towards Iran.
In the past, the UAE was often lukewarm towards international sanctions, as well as any military strike against Iran's nuclear installations, and this was mainly due to economic benefits that accrue to the emirate of Dubai from its extensive trade and investment relations with Iran. Disagreements between the ruling families of Dubai and Abu Dhabi with regard to Iran were another factor behind the UAE's refusal to co-operate with unilateral US sanctions. Under immense pressure from the US and concerned about Iran's offensive capabilities, its threat to close the Strait of Hormuz, perceived Iranian meddling in the GCC affairs and the apparent progress of Iran's nuclear programme, the UAE has, however, shown a greater willingness to follow the Saudi lead and support US sanctions since 2010.
Emirates 24/7 reports that "most banks in the UAE have stopped money transfers to Iran since January 2010", while "transactions by Iranian citizens are closely monitored and usually blocked". In addition, the UAE played an important role in persuading China to apply effective sanctions against Iran. As a member of the Rome Club it is also taking an active part in discussions on how to maintain stability in the global energy markets in the event of a formal embargo on Iran's oil exports and its central bank.
This recent shift in the UAE's attitude is also a result of the diminishing economic and financial power of Dubai within the UAE federal framework. Dubai's economic collapse in 2009 reduced its political power and increased that of the Abu Dhabi ruling family, which is less friendly towards Iran.
So, what is Iran's objective in blocking trade with the UAE? Since its economic incentives have failed to keep the GCC states divided and neutral, it may now be seeking the same objective by different means: threats and intimidation.
This is evident in the Iranian officials' use of inflammatory terms with regard to the shared gas fields. On 22 December, for instance, Emad Hosseini, spokesman for the Iranian parliament's energy committee, accused Saudi Arabia, Qatar and Kuwait of stealing oil and gas from fields that cross into Iranian territory.
Blocking imports from the UAE should also be seen within this context. In spite of massive improvements since 2009, Dubai still faces debt maturities of more than $10bn next year and may need to borrow more from Abu Dhabi. Aware of this, Tehran could be hoping that its move will cause internal tensions between Abu Dhabi and Dubai by depriving Dubai of an important source of income, thereby forcing the federal government to forgo some of its newly employed anti-Iranian measures.
Whether Iran's latest action will bear fruit or not is hard to tell. What is clear, though, is that sanctions are hurting the Iranian regime and that as a result its behaviour might become less predictable in the near future.
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