Boost for UAE-Iran trade
Accord to revitalise two-way trade; export, re-export activity to benefit most
The historic deal between world powers and Iran on Tuesday on limiting Iranian nuclear activity in return for the lifting of international economic sanctions will have far-reaching positive implications for the export and re-export activities of the UAE, the traditional trading partner of the sanctions-hit country.
With the UAE accounting for more than 80 per cent of Iran's trade with its neighbouring GCC, the lifting of the sanctions in the wake of the deal will revitalise the two-way trade that had plummeted during the past two years.
The UAE, the fourth-largest trading partner of the embattled country, recorded a surge in trade exchange with Iran to $17 billion (Dh62.42 billion) last year but remains lower than the record $23 billion set in 2011 before sanctions began to bite. Most of that trade originates from Dubai, home to a 400,000-strong Iranian community that runs a large business network.
According to analysts, the landmark deal, capping more than a decade of negotiations, could transform the whole of the Middle East, particularly the GCC. Trade with the UAE is likely to go up by between 15 and 20 per cent.
In a 2012 consultation paper, the International Monetary Fund estimated that a 30 per cent reduction in UAE exports to Iran as a result of the increased sanctions introduced during that year would knock about 0.3 per cent off the UAE's GDP.
An analyst estimated that an increase in trade that might result from the deal could have a positive effect over time, with the benefits particularly accruing to Dubai.
While the impact of an accord won't be immediate, growth is set to accelerate from 2016, with gross domestic product expanding 7.9 per cent, Emirates NBD said in a report on Monday.
The accord would have "significant implications for both the Iranian economy and global energy markets", economists Khatija Haque and Jean Paul Pigat wrote. "The impact on domestic consumption, investment and trade in Iran would be enormous."
The deal spurred a pickup on GCC bourses on Tuesday. Most stocks in the GCC, led by Oman. Muscat's MSM30 Index advanced 0.9 per cent to the highest in more than four months.
Saudi Arabia's Tadawul All Share Index retreated 0.3 per cent, while gauges in Abu Dhabi and Qatar increased 0.4 per cent. Kuwait's measure advanced 0.6 per cent. Dubai's DFM Index was little-changed.
Charles Robertson, RenCap's global chief economist, said the first year after Iran is opened up to investment would see the most bullish sentiment. The market discovery process for Iran is likened to the process Russia undertook in the mid-1990s, he said.
"We are confident that Iran opening up will be one of the most interesting and positive developments for the emerging and frontier market asset class in many years. This economy is more diversified than any other we have evaluated. It is the only country that in 2012-2013 exported every single category of exports as defined by the IMF," RenCap said in a report.
"Assuming sanctions are gone in early 2016, we see Iran's oil exports rising 0.8 million bpd," it said.
"We assume Iranian oil production will rebound by 750,000 bpd to 4.4 million bpd in 2016, and together with 19 million barrels of stored oil, this could increase Iran's 1.6 million bpd of  exports to 2.4 million bpd in 2016.
As a result, we see the EU share of Iran's exports rebounding from two per cent in 2014 to the 17 per cent seen in 2011 [before oil exports were sanctioned]."
"Oil and gas developers will be relieved to learn a final agreement with Iran has been reached and preparation for re-entry can be stepped up a gear. The deal, which will end years of debili-tating restrictions on trade, will pave the way for a new era of Iranian natural resources and will open the door to international developers queuing up to re-enter the potentially lucrative market," said George Booth, oil and gas partner at Pinsent Masons .
"Iran is ambitious about the contribution it can make to global hydrocarbons with some sources estimating one million barrels per day hitting the export market in just two months once sanctions are lifted. Even with a more conservative outlook, [Tuesday's] news could be a game-changer at a time when the global oil industry has been in a state of flux," he added.
Booth said it will take time for the investment environment in Iran to develop to give Iran the best chance to capture the inflow of capital and know-how it needs in the context of a very competitive global market place for resources.
"However the current signs are cautiously positive. Inflation has reduced substantially, there is an ambitious privatisation schedule planned and there is underway a programme to root out corruption in government."
Zia Ullah, partner and sanctions expert at law firm Eversheds, said in reality, the historic deal would be the start of a new process, one which has many potential hurdles and detractors.
"The key issue for Iran has been sanctions and it would appear that a clear road map to their ultimate removal now exists. The next challenge will be to persuade domestic stakeholders that the removal of sanctions will be in the long term interests of all parties. From a US perspective, the greatest threat to the potential derailment of any deal is Congress as they now have 60 days in which to review the agreement," said Ullah.
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