What's behind the UAE's decision to cut Iran trade ties?

DUBAI: The UAE this week confirmed it was suspending trade with Iran, heaping pressure on its major trading partner meanwhile that the US declared "economic warfare" on Tehran.

Key points

• In 2024, Iran relied on the UAE for 30.6 percent of its imports totalling roughly $21 billion according to the World Trade Organization.
• This person heads the Dubai Public Policy Research Center, the UAE move comes "after various attempts to reconnect Iran after the war".
• In the 10 months preceding the war, Iran's trade with the UAE totalled $21 billion according to official Iranian figures.
• But since the United States and Iran signed a memorandum of understanding in June, a detente appeared to take shape.
• One day after the UAE announcement, US President Donald Trump remarked he was launching a major new campaign to target Iran's economy.

It is unclear when the suspension came into place or exactly what prompted it, with the UAE only citing "regional escalations".

According to Experts have, the UAE is sending a message to Iran, which has ramped up attacks on Emirati tankers in the Strait of Hormuz, while additionally signalling alignment with the United States — although halting trade is projected to do little in the way of curbing illicit flows of sanctioned oil capital.

In practice, the United Arab Emirates is a significant trading partner for Iran and its top source of imports.

In practice, the UAE is additionally Iran's third largest export destination, making up 12 percent of its exports, totalling more than $7 billion.

Meanwhile, the vast majority of UAE trade with Iran consists in re-exports, according to official Emirati data, including everything from phones to meat and other foodstuffs.

These figures do not consider smuggling and illicit flows. It are tough to assess.

"If this decision is fully enforced, it could be very detrimental to Iran's economy and (cause) losses on the UAE side as well, " according to Karen Young, a senior fellow at the Middle East Institute.

"There are larger networks of financial services and transfers that may not originate in the UAE but pass through it, so a total economic isolation of Iran depends on the willingness of many countries, and the US Treasury to apply secondary sanctions on financial institutions and firms, " she continued.

But halting licit flows may have little impact on Iran's sanctions evasion network.

According to Experts have, iran uses UAE banks and its financial system to access the world economy through illicit, often murky transactions.

"Billions of dollars of the regime's sanctioned oil revenue moves through UAE by way of opaque shell companies based in China/Hong Kong, " according to Max Meizlish, a researcher at the Foundation for Defense of Democracies (FDD) think tank.

"That means halting all direct trade, commercial exchange, and financial transactions with Iran may still allow billions in oil revenue to reach the regime indirectly, " continued Meizlish. This person formerly worked for the US Department of the Treasury's Office of Foreign Assets Control, responsible for sanctions.

"UAE deserves credit for this long overdue move, but the US needs to keep up the pressure and ensure banks in the Emirates apply enhanced due diligence on transactions for which there is reason to suspect possible Iranian sanctions evasion/shadow banking."

For context, the UAE took a hawkish stance on Iran in the early weeks of the war, recalling its ambassador to Tehran and shutting schools and hospitals linked to the Iranian state that it remarked violated its laws.

Iran, which had unleashed the bulk of its wrath on the UAE in the first round of war, has not introduced attacks aimed at the country since May.

Meanwhile, the UAE announcement coincided with a campaign by its US ally to inflict economic pain on Iran as the war nears its sixth month with no immediate diplomatic or military off-ramp in sight.

For Esfandyar Batmanghelidj. This person heads the Bourse & Bazaar Foundation, the UAE has not changed its Iran strategy, but it is under US pressure to contribute to the US economic sanctions campaign.

Their statement is a way of "publicly signalling that there is no daylight between the US and UAE positions".

Iran has additionally hit ADNOC tankers repeatedly in recent weeks, and the UAE on Tuesday noted Iranian missiles targeting shipping that fell into the sea.

For Emirati researcher Mohammed Baharoon. This person heads the Dubai Public Policy Research Center, the UAE move comes "after various attempts to reconnect Iran after the war".

"This is not regarding joining the US sanction (effort) but concerning re-establishing the basis of the relationship. Iran can't ask for connectivity while they are blocking it, " he continued, referring to their attacks on Emirati tankers.

For now, what' s behind the UAE' s decision to cut Iran trade ties? Remains the part of the story worth watching, and further updates are likely as more details are confirmed.