Dubai’s trade with Iran shrinks a third in 2012

(Reuters) - Dubai's trade with Iran plunged by a third in 2012, the Dubai customs authority said on Monday, an indication of how much U.S. financial sanctions are hurting Iranian business with the rest of the world.

Dubai, across the Gulf from Iran and home to tens of thousands of ethnic Iranians, has long been a major commercial hub for Iran, serving in particular as a channel for consumer goods imports into that country.

This role was damaged after U.S. sanctions, imposed in late 2011 over Iran's disputed nuclear programme, made it legally dangerous for banks around the world to deal with Iranian institutions. Banks in Dubai sharply cut back Iran-related dealings.

Two-way trade between Dubai and Iran was roughly 25 billion dirhams ($6.8 billion) last year, said Ahmed Butti Ahmed, Director General of Dubai Customs. That implied a drop of about 31 percent from 36 billion dirhams in 2011.

Sharp depreciation of the Iranian currency, which lost more than half its value against the U.S. dollar last year, hurt business in addition to the reluctance of Dubai banks to get involved, Ahmed told a news conference.

He said merchandise trade with Iran now represented about 2 percent of Dubai's overall trade. Iran's merchandise exports and imports totalled $194 billion in 2011, according to the most recent data from the World Trade Organization.

The vast majority of trade between Iran and Gulf Arab states is routed through Dubai. Wooden boats, known as dhows, continue to carry some goods across the Gulf, Ahmed said.

"There is traditional trade still going on especially through dhows, like food and others...that do not fall under the embargo," he said.

TOTAL TRADE RISES

Partly because of lower Iran business, growth in Dubai's total non-oil trade slowed in 2012. Trade expanded 13 percent to 1.235 trillion dirhams, after a record 22 percent jump in 2011.

Ahmed said growth could accelerate marginally in 2013, to as high as 14 percent, as the emirate's economy picked up.

Dubai's non-oil exports soared 47 percent to 163 billion dirhams in 2012 while imports increased 12 percent to 737 billion dirhams, customs data showed.

Re-exports, which are goods imported into Dubai and then sent to another country, grew just 5 percent to 334 billion dirhams, a sharp slowdown from an 18 percent rise in 2011.

The loss of Iranian business does not appear to have had a big impact on Dubai's economy. Officials have estimated it grew about 4 percent in 2012 after 4.3 percent in 2011.