More than a century ago, before oil changed the face of the Gulf, commercial boats were crossing its waters between the ports of southern Iran and Dubai, carrying with them goods, merchants, and capital.
The nature of this trade changed and its scope expanded. A large part of it moved to containers, free zones, shipping and exchange companies, and Jebel Ali Port emerged as one of the largest trade centers in the region. But the wooden ships, known as "dhows", did not disappear completely, and continued to transport foodstuffs, electrical appliances, and various consumer goods to Iranian ports.
Today, this relationship, which has withstood decades of sanctions and political tensions, faces one of its most difficult tests.
The UAE announced the suspension of all commercial activities, commercial exchange, and financial transactions with Iran until further notice, after it accused Tehran of launching two ballistic missiles that it said targeted maritime navigation and fell into the sea.
Iran denied responsibility for launching the two missiles, and described the Emirati accusations as “unfounded.”
But the repercussions of the decision, if fully implemented, may extend beyond the movement of goods, given Dubai’s role as one of Iran’s most important commercial and financial gateways to the world.
What is the actual size of this relationship? Can the UAE close this gate, and can Iran find an alternative to it?
Commercial ties between Iran and the Emirates preceded the declaration of the establishment of the UAE in 1971. The new state became home to a large number of Iranian merchants, many of whom settled around Dubai Creek, taking advantage of the city’s location and its open trade policies, and maintaining their connections to the ports from which they came.
The establishment of the Islamic Republic in 1979 did not sever these ties, but the revolution pushed a new wave of Iranian merchants and professionals to Dubai. During the Iran-Iraq war, Abu Dhabi leaned towards the Gulf position in support of Iraq, while Dubai remained an important trade and supply point for Iran, in a balance between security calculations and commercial interests that continued for many decades.
A major economic test came with the sanctions imposed by the Security Council in 2006 and tightened in 2010. The UAE strengthened oversight of companies and transfers linked to Iran, closed companies and froze accounts of entities subject to sanctions. Dubai's trade with Iran declined from $9.8 billion in 2011 to $6.8 billion in 2012, but it did not stop.
Then the 2015 nuclear agreement gave the relationship a breathing space, before it came under new pressure after US President Donald Trump withdrew from it in 2018 and reimposed sanctions. However, Dubai maintained its role as Iran's gateway to global markets.
According to data reported by the World Trade Organization, in 2024 the UAE was Iran's second largest trading partner after China, and the largest source of its imports, as 30.6 percent of the goods imported by the country came from it, and it was also the third largest destination for its exports.
Since the outbreak of the US-Israel war with Iran, the UAE has found itself at the forefront of the Iranian response, as it has been subjected to about three thousand missile and drone attacks, more than any other country in the region.
Its defenses intercepted the vast majority of them, but the attacks killed 15 people and injured hundreds. Tens of thousands of foreign residents also left the country, albeit temporarily, and tourism, aviation and trade were affected.
The UAE imposed major restrictions on trade with Iran, and direct shipping movement between the two countries was disrupted. But the memorandum of understanding reached by the United States and Iran in June reopened some channels, coinciding with a sharp decline in attacks on Emirati territory.
The Financial Times reported that wooden ships returned to transporting goods from Dubai to Iran, some Iranian flights resumed, and thousands of Iranians with residency permits were allowed to return.
But this path quickly changed. In recent weeks, Iran was accused of attacking ships operated by ADNOC in the Strait of Hormuz, and then the launch of the two missiles on Tuesday led to the first emergency warning of this kind that residents had received on their phones in several months.
Elie Hindi, an international relations expert based in Abu Dhabi, believes that the UAE’s decision to suspend trade and financial transactions with Iran reflects the Gulf state’s transition from attempts at calm and containment to using economic pressure.
He says that the Gulf states built their economies and image on stability, openness, and trade exchange, and therefore they do not easily sacrifice these interests except when they sense an “existential threat to the country.”
The suspension of trade came days after the end of the memorandum of understanding, and coinciding with indications that Washington is tightening its pressure on Iran. US Secretary of State Marco Rubio discussed with the UAE National Security Advisor Sheikh Tahnoun bin Zayed the security of the region and freedom of navigation in Hormuz. There are no announced indications that the decision was coordinated with Washington.
It is difficult to determine the volume of trade between the two countries with a single number. According to UAE data submitted to the United Nations International Trade Base, its total registered trade with Iran reached about $6.6 billion in 2024.
However, the data that Iran reported to international bodies indicate imports from the UAE at approximately 21 billion dollars and exports to it at more than seven billion, i.e. more than 28 billion dollars.
The gap may reflect different methods for registering re-exports and free zone trade, identifying the country of origin or shipment, as well as different time periods and customs valuation methods. But its breadth also reflects the difficulty of measuring a commercial relationship, some of which passes through intermediaries and re-export centers.
Iranian economist Nader Habibi says that the importance of the UAE is not limited to the goods that arrive at its ports and are then shipped to Iran, but rather includes the role of Iranian residents and companies in facilitating the dealings of companies inside the country with abroad. He explains that a large part of this activity is legitimate trade in goods that are not subject to sanctions, while some companies worked as a front for entities subject to them, or helped ordinary Iranian companies deal with global markets.
The UAE's role is not limited to goods. With Iranian banks cut off from much of the global financial system, importers and exporters have relied on exchange companies and brokers in the UAE to make payments in dirhams.
Habibi says that these companies helped, directly or through the hawala system, settle payments for Iran’s trade with other countries. The price of the currency circulating in what is known in Iran as the “dirham market” has become one of the indicators affecting the value of the riyal.
If the suspension is strictly applied to exchange and remittance companies, its impact may extend to trade whose goods do not pass through the Emirates, but rely on Dubai to settle its payments.
Habibi says: “In relations between the UAE and Iran, the most important factor remains implementation, that is, how the UAE government decides to implement these restrictions.”
He confirms that previous rounds of restrictions have shown that closing official channels does not completely stop flows, as some of them can move to intermediary companies and indirect financial and commercial paths.
As for the repercussions, they are likely to appear first in sectors that depend on goods and inputs that pass through the Emirates, including food, medicines, electronic devices, car spare parts, and feed. These products may not disappear from the market, but they may arrive via longer routes and more intermediaries, which increases their costs for consumers and factories.
During decades of sanctions, Iran has accumulated experience in searching for alternative paths. Habibi describes this as “a game of cat and mouse that has been going on for more than two decades,” as flexible networks try to open a financial connection in another country whenever a channel is closed to them.
Al-Hindi does not believe that relations have necessarily reached the point of no return. “In politics, there is no point of no return,” he says, noting that geography and history may eventually bring the two parties back to one table.
But he adds, "Something has been broken, and there is trust that has been completely lost, and we must go back to building it little by little."
Therefore, the question may not be whether trade will return, but rather when it will return, in what volume, and how much of it will move to other paths if the closure of Dubai Gate is prolonged.
