Iran and UAE Relations: Separating Economy from Politics

The severance of relations between Saudi Arabia and Iran marked the end of a long saga involving a mix of Shia-Sunni disputes, proxy wars in Syria and Yemen, the political crisis of the Bahraini rulers with the Shia majority in that country, and Saudi dissatisfaction with the agreement between Iran and global powers regarding the resolution of Iran's nuclear case. In the economic sphere, this verbal conflict has been public for months, a war tinged with oil as the drop in global prices and Saudi Arabia's refusal to back down on oil production and exports drew the ire of Iranian officials, including Hassan Rouhani, who has periodically accused Saudi Arabia of deliberately lowering oil prices to pressure Iran and Russia. Beyond the oil competition between the two countries in global markets, Iran's announcement of readiness to enter the oil market and insistence on reclaiming market share prior to sanctions, alongside the announcement of severed relations with Saudi Arabia and the alignment of several other countries with the Saudis, represents another chapter in the book of disputes between the two nations in the realm of economic relations. An examination of changes in regional stock markets and the global oil market in recent days following the deterioration of Tehran-Riyadh relations shows that the reactions in these markets have been so limited and negligible that they can be overlooked. However, Iran's economy is at a time when it is looking forward to foreign investors, primarily from European and Asian capitals, hoping to benefit from the opened markets for its economy, while Saudi Arabia and subsequently its political partners, including Bahrain, Jordan, Egypt, and Sudan, have severed their ties with Iran. The trade relations between Iran and Saudi Arabia, based on statistics from Iranian customs over the past eight months of the current solar year, have been less than 200 million dollars, which is not a significant number in the scale of trade for both countries, with the trade balance favoring Iran by more than 110 million dollars. Iran's main exports to Saudi Arabia have included dried fruits and steel products, while the most significant item imported by Iran from Saudi Arabia during this period has been soft drink cans, neither of which are considered essential goods with irreplaceable markets for either country. Asadollah Asgaroladi, a well-known Iranian businessman and head of the Iran-China Joint Chamber of Commerce, emphasizes in an interview with ISNA that the trade and economic relationship between Iran and Saudi Arabia has been conducted through a third country such as Kuwait, the UAE, or Oman throughout these years. Another major issue between the two countries is the pilgrimage and travel of Iranian pilgrims to Saudi Arabia, which, according to the website 'Sedaye Eghtesad', brings a profit of 1500 to 2000 billion tomans for the Saudis from the annual 500,000 Umrah pilgrims and 100,000 Iranian pilgrims for obligatory Hajj. A report in the newspaper Shargh, published in Tehran, cites a tourism expert estimating the profit for the Saudis from Iranian pilgrims traveling to this country at up to 3,000 billion tomans annually. However, as stated by Adel al-Jubeir, the Saudi Foreign Minister, the severance of relations with Iran does not include Hajj travel. The Iranian government has, so far, prohibited the import of any Saudi-made goods from any source and has continued to halt Umrah pilgrimages, but the decision regarding obligatory Hajj has been left to the Supreme Leader of the Islamic Republic. A review of the total trade relations of Iran with the countries along the southern shores of the Persian Gulf shows that, apart from the trade relationship with the UAE, which includes significant figures, Iran's relations with other sheikhdoms and Arab countries along the southern shores of the Persian Gulf have not been particularly remarkable or noteworthy. For example, the trade relationship between Iran and Bahrain in 1393 (2014) was valued at less than 350 million dollars, which was more beneficial to Bahrain, which was the source of audio systems imported into Iran. The trade relationship between Iran and Qatar last year barely reached 100 million dollars, which is a negligible figure in the economic dimensions of Iran and Qatar. Kuwait, which is a buyer of Iranian cement and various steel products, is also one of the main sources of incoming vehicles to Iran. The trade relationship between Iran and Kuwait last year amounted to 250 million dollars. Iran's economic relations with countries like Jordan, Egypt, and Sudan have also been assessed as cold over the past three decades. However, the story of the UAE and Iran is different; the UAE has been considered one of the most important and major trading partners of Iran in recent years. The volume of trade between the two countries last year exceeded 15 billion dollars, with Iran's share being more than 4 billion dollars and the UAE's share, primarily consisting of re-exported goods produced in other countries to Iran, exceeding 11 billion dollars. According to Iranian statistics on foreign trade performance in the first nine months of this year, total trade with the United Arab Emirates reached approximately 9.5 billion dollars, during which Iran imported more than 5.7 billion dollars worth of goods from the UAE. During the same period, the value of Iranian exports to the UAE also exceeded 3.7 billion dollars. Perhaps it is these significant numbers that have compelled the Emiratis to consider reducing their level of relations with Iran instead of severing ties altogether, trying to balance their relations with both Saudi Arabia and Iran. An examination of the daily import and export trends between Iran and the UAE during the height of tensions also indicates that no significant changes have occurred in this regard. The chart shows that the trend of Iran's imports from the UAE from the first working day of Dey (December) this year until 21 Dey (January) has maintained a consistent fluctuation. The figures in the chart are derived from Iranian customs reports. On 14 Dey (January), the UAE announced, following Saudi Arabia, that it would reduce its level of relations with Iran; however, the daily import trend from this country in the days following this date indicates that no significant or sustained decrease has been observed. The UAE's rank among the countries of origin for imports to Iran during this period fluctuated from second to sixth. The Iranian customs has not published statistics on Iran's exports to the UAE before 14 Dey, making it impossible to study the figures for Iranian exports to the UAE before and after this specific date, but the days following 14 Dey up to a week later also show that the value of Iranian exports to the UAE has not decreased. The figures in the chart are derived from daily customs reports. In recent days, as discussions about escalating tensions between Iran and Arab countries in the southern Persian Gulf have intensified, comments have been heard regarding the replacement of the UAE with another country as a major trading partner. For instance, Yahya Al-Ishaq, former head of the Tehran Chamber of Commerce, mentioned in an interview with Mehr the necessity of replacing another country like Oman instead of the UAE in Iran's foreign trade. He even mentioned conducting a 2,000-page study on managing such conditions. Whether Iran is seriously seeking to change its trade relations and find a substitute for the UAE for its imports, exports, and foreign trade in light of recent developments, or if this statement is merely a threat in the context of the verbal dispute between officials from both countries, remains to be seen. Moreover, in the first nine months of this year, the volume of foreign trade between Tehran and Muscat has not even reached 300 million dollars, remaining at 294 million dollars. During this period, Iran imported over 36.5 million dollars worth of goods from Oman, primarily vehicles, while the value of direct exports of Iranian goods to Oman amounted to 257 million dollars. This volume of foreign trade between Iran and Oman indicates that replacing Oman with the UAE in the short term is not feasible. Meanwhile, Asadollah Asgaroladi, head of the export commission of the Iran Chamber of Commerce, assured the website 'Eghtesad News' that 'no changes will occur in trade between Iran and the UAE.' According to this well-known Iranian businessman, 'the removal of the UAE from the trade exchanges with Iran would be detrimental to the UAE itself, not to Iran.' Based on these figures, it can also be concluded that the escalation of this political tension in the economic arena will not be particularly significant, although the rise in tensions carries indirect messages in the economic domain, and that message, at a time when Iran is trying to normalize its relations with the world, presenting itself as a 'anchor of stability' in the region, will be paradoxical. It may be justifiable that the Iranian government, especially the economists within the government, are more concerned about the indirect economic repercussions of tensions with Riyadh than the direct economic consequences.