Diplomacy With Iran: Opportunities and Risks for the UAE

26 Feb 2021

Diplomacy With Iran: Opportunities and Risks for the UAE

As tensions with Iran are expected to ease under the Biden administration, the UAE’s economic ties and legacy relations position it to potentially play a pivotal role in Gulf outreach to Tehran.

By Banafsheh Keynoush

The Arab Gulf States Institute in Washington (AGSIW)

February 26, 2021


The path forward toward renewed negotiations between world powers and Iran will not be simple, given Iran’s violations of the 2015 nuclear deal, domestic politics in the United States and Iran, and objections from U.S. regional allies. But there are opportunities to move forward if a peaceful solution can be reached that addresses the international community’s concerns about the Iranian nuclear program. At a moment when the new U.S. administration of President Joseph R. Biden Jr. is offering to restart talks with Iran, the United Arab Emirates’ strong economic ties and legacy relations with Iran position it to potentially play a pivotal role in Gulf outreach to Tehran.

Despite regional tensions with Iran, the UAE has maintained ties in various capacities. When the Saudi Embassy in Tehran was attacked in January 2016, the UAE downgraded relations, but it maintained diplomatic representation in Iran, although Saudi Arabia, Bahrain, and several other countries severed ties with Tehran. In 2020, the UAE joined Kuwait and Qatar to provide aid to Iran during the coronavirus pandemic, and it operated several medical emergency flights as part of the UAE’s humanitarian approach and “spirit of tolerance.” According to Iran’s foreign minister, Mohammad Javad Zarif, Iran and the UAE agreed to continue a dialogue on the “theme of hope” for the region.

Significant trade ties with Iran are part of the reason why the UAE has retained relations with Tehran. When nuclear talks started between world powers and Iran in 2013, the UAE accounted for 96.7% of Gulf Cooperation Council states’ exports to Iran. In 2015, Iran had $200 billion in investments in the UAE. In 2017, the UAE was Iran’s main import partner, with trade between the two countries reaching $12.9 billion. A large part of this included imports from Iran to Fujairah, which operated as a bunkering hub and fuel storage center for trade vessels. Until the end of the administration of President Barack Obama, the UAE followed the U.S. policy of encouraging trade with Iran, after Washington eased sanctions against Iran under the terms of the 2015 nuclear deal, the Joint Comprehensive Plan of Action.

The U.S. withdrawal from the JCPOA, followed by the reimposition of sanctions on Iran in 2018, led the UAE to introduce new regulations to comply with the sanctions and restrict visas and impose tighter banking regulations on Iran. But the UAE remained Iran’s top trading partner, although the volume of trade dropped to $3.5 billion in 2019, and two-thirds of the trade involved reexports of Iranian products via Dubai in compliance with the sanctions exemptions issued by the United States.

Following tanker attacks in the Strait of Hormuz, the UAE sent a delegation from its coast guard in July 2019 to Tehran to hold maritime security talks with Iranian officials. Tehran has encouraged trade with the UAE Merchants Association, and in September 2019 the UAE said it would look into regranting business visas to Iranians after those visas were suspended due to sanctions. However, the UAE reportedly stopped issuing new visas to nationals of Iran and 12 other countries in November 2020 citing security concerns.

As Iran seeks to prioritize its non-oil sector exports, it will depend on the reexport capacities of ports in the UAE. In 2016, the UAE was Iran’s top non-oil trade partner. Tehran’s “economic diplomacy” initiative to reach wider markets means using these ports to link Iran to Eurasia. This North-South trade corridor will enable Iran to reach markets across the Indian Ocean. The UAE and Iran are members of the Indian Ocean Rim Association, which promotes trade and cooperation. The two countries are trade partners for Eurasian countries, work with the Eurasian Economic Union, and are states key to the success of China’s Belt and Road Initiative. Additionally, both countries are interested in expanding trade and investments in Africa through trade routes in the Indian Ocean. Emirati ports offer Iran the lowest costs to reach these international markets; Tehran has therefore prioritized trade with its Gulf neighbor and Africa in its latest 5-year macroeconomic plans.

The prospects for increased trade are again showing promise. Iran’s exports to the UAE increased by 8%, or $1 billion, between March and June 2020, again mostly in reexport capacity. Several organizations in Iran play a key role in facilitating this trade, including the Trade Promotion Organization’s Office of Arabian and African Countries, the Customs Administration, and Iran’s Ports and Maritime Organization.

But trade is not without risks. The UAE wants to make sure that Iran does not use the economic benefits of increasing trade to gain a military advantage over the Gulf region. Iran’s polarizing influence, given its constant tensions with the Gulf Arab states, Israel, and the United States, disrupts prospects for improved relations. In addition, Tehran recently threatened to attack the UAE following its decision to normalize relations with Israel. And Iranian proxies allegedly planned to attack the UAE Embassy in Ethiopia to avenge the killings of high-profile Iranians.

Considering regional tensions and the challenges facing the Iranian economy, Iran cannot afford to irreversibly harm its ties with the UAE. But it nonetheless ignores Emirati concerns over frequent Iranian provocations. Still, Iran says it wants to build regional security collectively by ensuring sustainable growth for the region. Given Tehran’s commitment to trade, this could encourage a distribution of opportunities among the Gulf Arab states and Iran, which comes with a distribution of risks for all these states that are responsible for upholding regional security.

As tensions with Iran are expected to ease under the Biden administration, the UAE has appointed its former representative to Iran, Khalifa Shaheen al-Marar, to serve as minister of state for foreign affairs. UAE President Khalifa bin Zayed al-Nahyan and Mohammed bin Rashid al-Maktoum, the ruler of Dubai and prime minister of the UAE, both congratulated Iran ahead of the anniversary of the Islamic Revolution in February. But UAE leaders remain concerned by Iranian intransigence over its controversial nuclear program, which does not promise a quick resolution on the issue with the United States, as well as by its missile program and support for proxy forces in the region. Iran says the United States should take the first step and remove sanctions in return for Iranian compliance with the JCPOA, but a policy of quick easing of sanctions is no guarantee of immediate Iranian action to address the other regional differences with its Gulf neighbors. Responding thus far coolly to the Biden administration’s offer to resume talks if Iran complies with the deal, Iran has warned that there is not much time left to save it. To underscore the point, Tehran initially said that it would restrict international inspections of its nuclear sites, although recent media accounts indicate it has walked back that threat to some degree.

Despite ongoing tensions with Iran, the UAE has maintained a limited degree of engagement. How these relations develop in the future will, to a significant extent, be shaped by the trajectory of the likely upcoming negotiations between Iran and the United States, along with the Europeans. For now, what is clear is that bilateral trade, diplomatic ties, and humanitarian efforts offer a supportive backdrop for the major nuclear diplomacy and related efforts to come.