Iran’s recent deal with world powers is expected to create a raft of trade and investment opportunities for Dubai, widely seen as Tehran’s stepping stone to re-engagement with global markets.
The preliminary nuclear agreement, announced on July 14, would allow Iran to resume trade on the international energy market and regain access to an estimated $100bn of frozen foreign assets, giving it vast resources to revive its stalled economy and boost trade and investment with neighboring Dubai.
Opportunities abound
While bilateral trade between Dubai and Iran fell by almost one-third between 2011 and 2012 alone due to sanctions, the UAE remains Iran’s second-largest trading partner after China and the return of Iran to the global marketplace offers extensive opportunities for Dubai. In particular, Dubai’s relative strength in terms of logistics and finance – two sectors that have stagnated in Iran as a result of the sanctions – bode well for the emirate.
Trade between Iran and the UAE could surge 15-20% in the first year if sanctions are lifted, Hossein Haghighi, vice-president of the Iranian Business Council in Dubai, told local press. Meanwhile Dubai’s economy could see as much as a 5% increase, according to Hasnain Malik, head of frontier market equity strategy at Exotix Partners in Dubai, speaking to media in April.
Thanks to heavy investment in transport and logistics, Dubai is well placed to take advantage of higher trade volumes, allowing it to act as a port of entry for regional freight movements and trans-shipment to Iran.
This will become more significant as Iran opens up to world markets and ramps up spending, with analysts from Bank of America Merril Lynch expecting Iran’s import demand to more than double from $80bn to $200bn by 2020.
Investors have already flocked to stocks in companies that stand to benefit from more open relations with Iran, such as DP World, which operates the Jebel Ali deepwater port in Dubai. The company’s shares jumped nearly 9% in the week after the initial framework for the preliminary deal was announced in early April.
Dubai’s role as a major air transit hub will also be reinforced, with carriers looking to add more routes to Iran in anticipation of higher passenger volumes. Dubai’s Emirates Airlines has led the way in increasing connections, announcing in mid-July it would begin flying to Mashhad in September, its second Iranian destination after Tehran. Sharjah-based Air Arabia, which already serves seven cities in Iran, is also set to benefit from greater air traffic.
Location, location, location
Given its proximity to Iran, Dubai is well positioned to become a base for foreign firms looking to capitalize on the Iranian market, much like Hong Kong has been for China. Garbis Iradian, chief economist at the Institute of International Finance in Washington, told local press in mid-July, “More foreign companies could be attracted to Dubai to do business in Iran.”
Some firms are already making moves in the emirate. In late June Sweden’s Assa Abloy, the world’s largest lock manufacturer, acquired Dubai-based Prometal Group, a leading producer of security doors. According to the company’s president and CEO, Johan Molin, the move was aimed at taking advantage of opportunities in the Iranian market.
“We are ready,” said Molin in an interview with Sweden’s TT News Agency on the prospects of doing business in Iran. “Among other things, we’ve bought a company in Dubai that we think should be able to export safety doors to Iran.”
While analysts forecast Iran’s return to energy markets could see oil prices fall by a further $5-10 per barrel, this will have less of a direct impact on Dubai than some other places in the region, with oil revenue accounting for less than 2% of the emirate’s GDP. Although weaker energy prices could still result in slower economic growth across the wider UAE, increases in trade and business opportunities will likely more than offset this.
Oxford Business Group
25 August
