Dubai's next black hole?
The UAE's new crackdown on business with Iran will no doubt draw applause in Washington but alarm in Dubai.
The United Arab Emirates' new crackdown on business with Iran will no doubt draw applause in Washington but alarm in Dubai.
New regulations preventing transactions with Iranian banks means trade between the two nations has all but come to a standstill in recent weeks, according to those affected.
In 2009 total trade was worth an estimated $12bn, making the oil-rich Arab nation Iran's top trading partner.
But the reality is that only one of the seven emirates that make up the UAE federation has been responsible for the bulk of Iranian trade and is thus regarded as Tehran's backdoor to the West – Dubai.
For years, Dubai has been seen by the West as dragging its feet on rigorous enforcement of UN sanctions - an accusation it always denies.
But Dubai's much publicised debt problems, which required a $20bn lifeline from the emirate of Abu Dhabi next door, has changed the power balance in the UAE.
Abu Dhabi has limited trade with its Persian neighbours across the Gulf and is highly concerned at the prospect of them becoming nuclear-armed. Abu Dhabi is desperate to show the US that it is an ally that can be relied upon.
When the UAE Central Bank (based in Abu Dhabi) moved in June to freeze 41 bank accounts and businesses believed to be linked to Iran's Revolutionary Guard, there were few complaints from Dubai.
Nobody made the case that any of those banned were innocent legitimate companies but the new restrictions don't seem to distinguish between the intended targets of sanctions and those earning an honest living.
So just how much damage will this cause to Dubai's already strained balance sheets? Quite a bit, according to Robin Amlot, managing editor at CPI Financial.
"We're now saying total trade could halve. That's obviously got to hurt, if you knock $6bn in terms of money coming through the emirate off, that's got to cause significant issues for the Dubai economy," Amlot said.
"Over the course of the past couple of years Iran's been steady business and that steady business is now going to go away but it's been the one constant that has carried on throughout the course of the financial crisis."
The hardest hit will be Iranian businesses in Dubai; some have been operating here for decades in what they say is purely legitimate trade.
Over the past six months, I've spoken regularly to Morteza Massoumzadeh from the Iranian Business Council about the changing dynamic he's facing.
His usual positive outlook was clearly waning when I visited him this week. He's hoping for a "miracle" that things might change but warns the economic impact is going to be severe.
"There is no doubt if these circumstances continue for the next six months, hundreds of companies here will close down. Those companies are not necessarily Iranian-owned, they can be of any nationality who established their businesses in this country aiming to supply goods to Iran," Massoumzadeh said.
An ominous cloud on the horizon for anyone hoping Dubai had already weathered the worst of its economic storm.