Re-Exports Provide Upside Risks To Bullish Dubai Outlook
BMI View: The potential for a gradual loosening of Iranian sanctions places upside risk to our already bullish forecast for the UAE and, in particular, Dubai. Whilst we do not expect sanctions on Iran to be lifted anytime soon, there is significant potential for constructive talks to see a slight easing of restrictions on the country. This could predicate a return for Dubai's once significant re-export sector.
Negotiations between Iran and the 5+1 powers (the United States, Russia, China, France, Britain and Germany) on the Islamic Republic's nuclear programme have significant implications for the UAE's economy, specifically Dubai's re-export sector. Whilst talks ended short of a deal on November 10 and we do not expect a sudden breakthrough, there appears to be potential for a gradual relaxation in Iranian sanctions (See: Potential For Progress In Nuclear Talks Remains November 10). Any agreement would have significant implications for the rest of the Middle East on both a political and economic level. Economically, it is clear that Iran has most to benefit from a relaxation in sanctions, however the implications for the UAE and in particular Dubai are substantial.
Historically, the UAE has been a key centre of re-exports serving the Iranian economy due to its proximity, the presence of substantial Iranian communities in the country and its role as a conduit for trade around the Middle East. Dubai has been the focal point for this trade, and we estimate the re-export sector to have accounted for approximately 8% of the emirate's GDP in 2011, before sanctions started to bite in earnest. Other emirates, notably Sharjah and Fujairah, relied on Iran for a slightly lower, but still significant share. The UAE has therefore been significantly affected by sanctions on the Iranian regime, as pressure from the West and Abu Dhabi has restricted Dubai's willingness to trade with Iran, whilst Iran's problems with accessing trade finance has restricted its ability to trade with Dubai.
|Sanctions Take Effect|
|UAE - Re-Exports by Destination in 2011 (RHS) and 2013, % of Total|