The unwillingness of the UAE's banks to write letter of credit (L/C) business for trade with Iran is a product of political tensions between the emirates and the Islamic Republic according to a senior Iranian business figure.

Head of the Iranian Export Confederation, Mohammad Lahouti, says that these tensions are now straining commercial relations between the two countries

Trading links

Writing in the Iranian monthly Ayandeh-Negar, Lahouti said the UAE has been one of the most important markets for Iran's foreign traders for the past three decades.

Many Iranians opened offices in the emirates - Dubai in particular - during the 1980-88 Iraq-Iran War and more recently after sanctions were imposed on Iran in response to its nuclear ambitions.

Only four or five countries maintained economic relations with Iran over the sanctions years, one of which was the UAE, and Iranian businesses used the emirates' sophisticated re-export oriented banking and logistics sectors to connect with the global economy.

Political tensions

But increased tensions between Saudi Arabia's Sunni and Iran's Shia oriented politics have led to Saudi allies, including the UAE, distancing themselves from Iran.

The Saudi execution of Shia cleric Sheikh Nimr al-Nimr last year sparked a flurry of retaliatory developments between Tehran and Riyadh. Soon after, a group of Saudi allies broke off diplomatic ties with Iran, while the UAE downgraded its relations with Iran to chargé d'affaires.

Strict limits

The UAE has now imposed strict limits over trade with Iran. Emirati banks are still stringent in their dealings with Iranians, despite the lifting of sanctions and are not willing to provide L/Cs or establish correspondent banking relationships with Iranian banks according to Lahouti.

Iranian subsidiary banks in the UAE are not allowed to transact with major international banks he adds.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.