Trump's Success in Isolating Iran Can Be Seen on a Dubai Menu

(Bloomberg) -- Anyone wanting to gauge Donald Trump’s success in isolating Iran would do well to study the menu at Maryam Sharifi’s restaurant in Dubai.

Iranian businessmen are leaving the city as links with the Islamic Republic are slowly severed, and in July, she began offering pasta and biryani alongside Persian favorites like kebabs and saffron rice to attract a broader clientele. “We had to train our cook to make different dishes,” said Sharifi, an Iranian who moved to Dubai 12 years ago.

The Homa Iranian eatery’s changing fortunes highlight the U.A.E’s crucial role in enforcing U.S. sanctions on Iran, a historic trade partner situated a short sail across the Strait of Hormuz, the narrow entrance to the world’s oil-exporting nexus.

Oil-buyers are weaning themselves off Iranian crude and European firms are freezing investments even as their politicians race to save the nuclear accord the U.S. ditched in May. Restricting old trading routes like this one, however, deprives Iran of the hard-to-track commerce that helped it survive earlier sanctions regimes.

“The community has become smaller and trade with Iran has dropped,” said Hossein Asrar Haghighi, a founder of Dubai’s Iranian Business Council. Members left for Turkey, Georgia, Armenia, even Malaysia and Canada. “That won’t be a major issue for the U.A.E.’s economy, but it will harm Iran.”

Permits Rejected

Commerce between Iran and the United Arab Emirates, comprised of Dubai and six other sheikhdoms, jumped to $22 billion in 2017 from $18 billion the year before the 2015 nuclear deal was implemented. Siemens and financial services company EY were among those to use the U.A.E. as a base to oversee operations in Iran’s nascent market.

Then came Trump. America’s Gulf partners were cheerleaders for his campaign against Iran, a rival they saw gaining influence across the Middle East. U.A.E. authorities began enforcing restrictions on trade with Iran before the first U.S. sanctions snapped back in August. Trade data haven’t registered a sizable impact, but Sharifi’s restaurant points to the expected slump.

More Iranian applications for U.A.E. residency are being rejected, said Haghighi. In June, the U.A.E. central bank closed down seven foreign-exchange firms for money-laundering violations. Tehran newspapers said they had ties to Iranian businesses. Even before U.S. sanctions on Iranian oil exports resume on Nov. 5, tankers unloading at the main terminal in Fujairah are being asked to prove the origin of cargoes.

Historic Ties

An Iranian businessman who asked not to be identified reported increased scrutiny at U.A.E. ports. After an incident-free decade working through Dubai, industrial equipment he imported was recently held for 10 days as authorities demanded additional paperwork. Only the intervention of “personal contacts” ended the impasse.

Dubai’s trade with Iran existed long before it joined the U.A.E. Its entrepot status was boosted in the early 20th century by the arrival of merchants fleeing tax increases imposed by Persian rulers.

Sharifi’s restaurant occupies the first floor of an old building in Deira, Dubai’s original commercial center and for decades the heart of the Iranian business community. Though it’s been eclipsed by downtown’s glistening towers, the fortunes of the wooden dhows anchored along Deira creek remain a telling gauge of pressure on the Islamic Republic.

Trump's Success in Isolating Iran Can Be Seen on a Dubai Menu

Hamzeh Nahangi, captain of an Iranian-owned boat, previously sailed in from Iran’s Bushehr every fortnight, shipping back fridges, vegetable oil or cosmetics. He’s made two journeys in six months as the sanctions-induced collapse in the rial hit Iranian spending power. “The situation isn’t great, not for my work and not for the economy,” he said.

Funding Channels

It’s not just proximity that explains Dubai’s commercial importance to Iran. Its banks and hawalas, informal currency dealers, helped with financing not easily available elsewhere. That too, is changing.

In July, Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker outlined U.A.E cooperation in disrupting a currency-exchange network she said funneled illicit money to Iran.

Trump's Success in Isolating Iran Can Be Seen on a Dubai Menu

“A lot of operations, even from Europe, whether that’s investment or trade portfolios, had found banking mechanisms through Dubai into Iran,” said Ellie Geranmayeh, senior policy fellow at the European Council of Foreign Relations. The U.A.E. can “create an economic squeeze on Iran through clamping down on these alternative banking channels.”

While Dubai retained its trading links with Shiite Muslim Iran, the U.A.E.’s capital Abu Dhabi long viewed it with the antipathy common in other Sunni-led monarchies.

A deeper alliance with Saudi Arabia and Trump’s confrontational policies toward Iran hardened the U.A.E. stance. The young royals who now run affairs in Saudi Arabia and the U.A.E. -- Crown Prince Mohammed bin Salman and Sheikh Mohamed bin Zayed -- have choreographed more aggressive foreign policies as they tussle with Iran for regional dominance.

Trump “gets it” when it comes to Iran, U.A.E. Minister of State for Foreign Affairs Anwar Gargash said in August.

The Dubai government media office referred requests for comment to the federal U.A.E administration. Abu Dhabi’s National Media Council directed questions to the Ministry of Economy, which didn’t reply to emails and calls.

Oman Pressure

Parham Gohari, co-founder of Frontier Partners, which advises multinationals on entering Iran, said 80 percent of clients working through the U.A.E. had halted operations because of the restrictions and plunging rial. Some turned to nearby Oman, which has a more neutral relationship with Iran, he said.

Trump's Success in Isolating Iran Can Be Seen on a Dubai Menu

Even there, though, Trump’s drive to weaken Iran is being felt.

Iman Naraghi, founder of Tehran-based consumer goods company Dastan Group last year won approval from Omani authorities to establish a fund for retail projects in Iran. “It could have been a financial bridge between Iran and the world,” he said. “We did a lot of work and then in May, everything paused.” Oman’s ministries of foreign affairs and commerce didn’t respond to requests for comment.

Oman is evaluating projects case-by-case, said Gohari. “But a little bit more pressure from the U.S.” and this route could also close, he said.

©2018 Bloomberg L.P.