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09 December 2023

Iranian trade lacks bank support

By VM Sathish


Wholesale merchants who re-export textiles from Dubai are cutting back their exposure to the Iranian market after experiencing problems collecting payments.

Banks are reluctant to provide letters of credit because of concerns about sanctions imposed by the United Nations to deter Tehran from proceeding with its nuclear programme. The US is pressing for tougher measures against Iran.

Traders at the Bur Dubai Wholesale Textile Market said they were worried about the impact of the sanctions. Iran, with a population of 70 million, had been sustaining its businesses after it encountered difficulties with other major markets such as Iraq and Russia. The UAE is Iran’s biggest trading partner and the majority of shipments contain textiles and heavy machinery.

“There are 800 textile merchants in Dubai and many have good business with Iranian customers,” said an Indian trader in Dubai, who is a member of the trade association Texmas.

“The Iranian textile market is huge. Iranians buy a lot of male and female suit materials, fancy clothes and black cloth for burqas and abayas. Now the problems created by the sanctions and the banks’ reluctance to open letters of credit are causing us trouble. Russians and Iraqis, who sustained the market for some time, have started procuring directly from China and India.”

Another Texmas member said: “During the past three years, I have been trying to reduce my business exposure to the Iranian textile market.

“Iranian traders have their own business. Now we have diversified into construction and construction materials.” And a third Texmas source said: “Iran is a major re-export destination for UAE textile merchants.”

Some UAE banks – both local and foreign – have stopped issuing letters of credit for trade finance involving Iran-based companies because of the nuclear row. The banks are not required to take such measures by the UAE Government but are acting on the basis of their own risk assessments.

Nasser Hashenpour, vice-president of the Iran Business Council, said: “Some banks are not issuing letters of credit to Iranian firms and traders are facing payment problems. However, trade continues between the two nations. There are 19 entry points to Iran and sanctions won’t prevent the flow of goods for Iranian consumers. Hundreds of Iranian firms operate here and curbs cannot prevent goods from reaching end users.” The manager of a branch of Bank Melli Iran in Dubai said: “Some foreign banks are reluctant to issue letters of credit to Iranian firms but we don’t see any reason to stop.”

Jagadish Jani of Arjay Traders said: “Iran was a good market. We used to receive payment after every shipment but now it is difficult to get cash from Iranians. I have Iranian customers who come to Dubai to buy clothes. We do not arrange containers or transport for them. They come on their own expense and buy clothes, paying cash. Then they load the stock onto launches that go to Iran.”

Similarly, traders in other sectors here are also experiencing  payment problems. The UAE has introduced new export controls to regulate the flow of dual-use technologies and products – and the number of inspections of cargoes bound for Iran has been stepped up. About 40 companies have been closed because of transshipment offences.

The Iranian mission in the UAE has set up the Iran Trade Centre as part of its efforts to formalise decades-old bilateral arrangements between the two countries.

Big Business

Iran is the largest single market for members of the Dubai Chamber of Commerce and Industry. Third quarter exports to Iran this year were Dh9.5 billion – 21 per cent of the total figure.

Dubai’s textile trade is worth more than Dh14bn according to Texmas, which represents 300 merchants who control 80 per cent of the business. The trade is at the centre of a booming consumer market of 1.4 billion people stretching from the former Soviet republics to Africa and the Indian Subcontinent.

Textiles are one of the region’s most profitable commodities and Iranians have traditionally been a driving force as traders and customers. Fabrics and garments imported into the UAE come mainly from South Korea, Japan, China, India, Indonesia and Thailand, a report by the Emirates Industrial Bank disclosed.

Top destinations for re-exports are Iran, Iraq, Saudi Arabia, east Africa and the former Soviet republics. The report said Dubai’s textile imports were worth Dh13.6bn last year and re-exports were Dh6.87bn.