Iran's gateway in Dubai highlights sanctions' bite

[February 01, 2011]  DUBAI, United Arab Emirates (AP) -- The appeals from cash-starved businesses in Iran come in nearly every day at the small shipping office in Dubai.

Can they get goods on good-faith credit? Can the company help as economic sanctions on Iran cut off access to international banking and commercial markets?

"It's almost always a negative answer from us," said Ali Davani, whose family operates traditional wood-hulled ships that have ferried car parts, construction material and just about everything else between Dubai and Iran since the mid-1990s. "We know they are suffering in Iran, but so are we."

Just a few years ago, the family's Sky Star Co. could barely keep up with demand from Iranian businesses making orders via Dubai, one of the main transit points for consumer products and other goods heading for Iran. Today, the company's cargo ships spend as much time in drydock for overdue repairs as making the 150-mile (240 kilometers) journey to Iran's chief Gulf port, Bandar Abbas.

"We can hang on a couple of years like this," said Davani. "But this cannot be sustained."

The lean times at Sky Star are echoed by Iranian-linked businesses across Dubai. Their troubles offer a clearer look at how stronger economic sanctions are squeezing average commerce and Iran's merchant middle class, who face a dwindling supply of business partners abroad and have been effectively blackballed from getting loans and credit on international markets.

Iranian officials give almost no reliable data to assess the effect from the array of sanctions -- by the U.N., the United States, the European Union and others -- over Iran's refusal to halt uranium enrichment. Iran again rebuffed U.N.-drafted proposals at talks on its nuclear program in Istanbul in January, leading to speculation that more economic pressures could be imposed.

Much of the Western calculations on the fallout from sanctions come from tallying up the companies leaving the Iranian market and anecdotal evidence such as the slowdowns from bellwether places such as Dubai -- home to one of the world's largest concentrations of businesses doing trade with Iran.

Dubai serves mostly as an important way station. Goods purchased by Iranian firms often move through Dubai ports for re-export to Iran, with trade valued at more than $600 million a month until recently.

The almost nonstop transit had been seen by the U.S. and others as a weak link in enforcing sanctions, but United Arab Emirates officials have sharply stepped up controls in shipping and banking sectors since the latest round of sanctions last year.

In June, the UAE's central bank ordered financial institutions to freeze accounts linked to dozens of firms named in U.N. sanctions. UAE officials also significantly boosted scrutiny on money transfers to Iranian banks such as Bank Sepah, which has ties to Iran's Revolutionary Guard.

During a visit to the Gulf earlier this month, U.S. Secretary of State Hillary Rodham Clinton urged the UAE and other nations to "do everything within reason" to implement the sanctions.

The unusually harsh steps in the UAE brought complaints from the Iranian business community in Dubai and led to a rare appeal directly to the city-state's rulers in November to loosen the banking restrictions.

"It's brought business with Iran to a virtual halt for many companies in Dubai," said Morteza Masoumzadeh, vice president of the Iranian Business Council.

There are still no significant signs of shortages on store shelves in Iran. Importers are managing to keep up inventories of everyday goods such as Turkish cookies and Chinese electronics, but other items such as specialized machinery or auto parts are growing scarcer or far more costly.

But Iranian President Mahmoud Ahmadinejad maintains that sanctions are not bogging down Iranian economic engines. Before the nuclear talks in Turkey, he insisted that "100,000 resolutions" by the U.N. would have no effect on Iran and predicted that the Islamic Republic would surge to join the top economies by 2015. Iran currently ranks about 100 in terms of per capita GDP.

The boasts are in clear contrast to claims by Western officials that sanctions are hitting Iran hard. Even the president of the Iranian Chamber of Commerce, Mohammad Nahavandian, acknowledged in October that sanctions were driving up the costs of imports by 15 to 30 percent.

At Davani's shipping company, they have resorted to unorthodox strategies to keep goods flowing and help some valued clients.

One Iranian auto supply company, for example, wanted to purchase thousands of tires -- three shipping containers full -- from an Italian distributor. But the Italian firm no longer wanted to do business directly with Iran because of the sanctions, Davani said.

The solution: the Iranian company sent money to Davani's family to purchase the tires and ship them to Dubai, then onto one of the Davani vessels for the trip across the Gulf. It worked, but at a high cost. The extra shipping, taxes and transit fees raised the price of the tires by more than 40 percent, he said.

"It doesn't make a lot of economic sense, but this company in Iran had really no other choice," said Davani. "This is the kind of tough call that lots of Iranian businesses have to make now."

His company also has to make decisions on how much to help clients in Iran.

A few Iranian importers -- shunned by international banks for business loans -- have turned to Davani's shipping company for needed cash. The company has taken out loans under its name with a 5 percent surcharge for the Iranian firms, he said.

"We've only done this for a few very trusted clients," he said. "It's a desperation measure."

Others are turned away.

Davani said the company receives calls almost daily from Iranian importers and distributors seeking to get goods shipped on credit. The answer is usually no.

"In our hearts, we'd like to help. But every business dealing with Iran is having hard times now," he said. "We're just trying to survive like everyone else."

[Associated Press; By BRIAN MURPHY]

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