UAE trade embargo could shut Iran’s key economic escape route: Here’s why 

The United Arab Emirates announced an indefinite trade embargo on Iran on Wednesday, accusing Iranian forces of firing two ballistic missiles at its territory. Iran denied launching missiles and described the reported attack as a “false flag operation” by Israel and the United States.

The UAE’s embargo has been described as highly significant by analysts, who say Iran is heavily reliant on its neighbour for critical imports and access to financial markets.

“In many ways, the embargo being put on by the UAE is even more significant than the embargo being put on by the United States,” Mark Kimmitt, a retired US general and former assistant secretary of state, told Al Jazeera, referring to US sanctions and the ongoing American naval blockade of Iranian ports.

The recent developments come shortly after the June 17 memorandum of understanding (MoU) between the US and Iran lapsed on Monday, with little prospect of being renewed.

Here is more about the UAE announcement and how its embargo could affect Iran.

What has the UAE announced?

In a statement, the UAE’s Ministry of Foreign Affairs said: “All trade, commercial exchanges and financial transactions with Iran have been halted until further notice.”

The decision was made in “light of escalations that undermine peace and security in the region”, it added.

The statement came soon after the UAE’s Ministry of Defence reported that its air defences had detected two ballistic missiles it claimed were launched from Iran, with one falling in the country’s territorial waters and the other outside.

In a follow-up statement, the ministry said the missiles were “targeting maritime traffic” and promised to “resolutely confront any attempt to undermine the security of the nation or maritime navigation in the region”.

However, the Iranian Ministry of Foreign Affairs rejected the accusation as “baseless”, with spokesperson Esmaeil Baghaei suggesting it was a “false flag operation” amid the US-Israel war on Iran.

Has Iran attacked the UAE before?

In the first six weeks of the war, which began with US-Israeli strikes on Tehran that killed then-Supreme Leader Ayatollah Ali Khamenei on February 28, Iran hit back with drone and missile strikes on US military assets as well as energy and other infrastructure in several neighbouring Gulf countries. It struck the UAE more than any other country, however.

In all, Iran launched more than 530 ballistic missiles, 26 cruise missiles and more than 2,200 drones towards targets in the UAE, which it has described as US assets in the country. However, the UAE says civilian sites have also been hit either by missiles or by debris from missiles intercepted by US-supplied THAAD and Patriot missile defence systems.

On March 1, the day after the US and Israel launched strikes on Iran, Dubai’s port of Jebel Ali, the largest constructed deep-water harbour in the world, was struck.

A day later, a fire broke out at Musaffah fuel terminal in southwest Abu Dhabi when it was struck by a drone. Then, falling debris from a drone interception caused a fire at the Fujairah oil terminal along the eastern coast of the UAE. No injuries were reported.

On March 17, oil loading at the port of Fujairah was partly halted after an Iranian drone attack caused a fire at the export terminal, while operations at the Shah gasfield remained suspended after an earlier attack, officials said. Fujairah lies just outside the Strait of Hormuz and is typically the outlet for more than one million barrels per day of the state company’s Murban crude.

Another significant target in the UAE was its Barakah Nuclear Energy Plant, near which a fire started following a drone strike on May 18.

Overall, Iranian strikes have killed 15 people in the UAE, including two military personnel, one civilian contractor and 12 other civilians, and injured 246.

The latest missile attack is the first on the UAE since May, coming days after Abu Dhabi accused Tehran of attacking two of its state-owned Abu Dhabi National Oil Company (ADNOC) vessels in the Strait of Hormuz. Iran has denied attacking the ADNOC vessels.

How much trade does the UAE do with Iran?

According to the most recent trade data from the Observatory of Economic Complexity (OEC), official goods trade between the UAE and Iran amounted to $6.2bn in 2023. The UAE’s exports to Iran were valued at approximately $5.8bn, with imports of about $450m worth of goods in return.

That year, Iran imported telephones worth $2.81bn from the UAE. Other products imported by Iran were computers, tobacco and nuts. Iran exported nuts, fruits, spices, crustaceans and building stone to the UAE that year.

In May 2024, the two countries held the first session of their Joint Economic Committee summit in Abu Dhabi, where they agreed to deepen cooperation in transport, logistics, agriculture, renewable energy and tourism.

But besides formal trade between the two countries, the UAE has also long served as a vital informal trade conduit for Iran, say analysts, enabling it to bypass international economic sanctions.

When Western exporters stopped selling products to Iran directly, merchants in Dubai would buy and then re-export consumer goods, industrial equipment and food into Iran.

Iran is one of the most heavily sanctioned countries in the world, having been subject to US sanctions for decades. Overall, sanctions have caused Iran’s gross domestic product (GDP) per capita to fall from $8,000 in 2012 to $5,000 in 2024.

Last week, US Treasury Secretary Scott Bessent said the US plans to intensify economic pressure on Iran, partly through the ongoing US naval blockade of Iranian ports. The US will also apply measures that have “never been seen in the history of economic isolation on a country”, Bessent said without giving details.

Does the UAE embargo matter much for Iran’s economy?

Kimmitt told Al Jazeera that the UAE’s trade embargo could indeed hurt Iran more than any US sanctions to date.

He noted that Dubai has quietly become Tehran’s most important trading partner, surpassing China and Turkiye and supplying roughly one-third of Iran’s annual imports.

The UAE suspended direct cargo shipping between the two countries in early March, just days after the war began, and resumed trade only in late June via Dubai’s Jebel Ali Port.

The Jebel Ali Port at the northern end of Dubai is the largest constructed deep-water harbour in the world and serves cargo from the Indian subcontinent, Africa and Asia.

Operated by the Dubai-based DP World, the port has four sprawling container terminals that can berth some of the world’s largest ships. The port is not only a critical global cargo hub, but a lifeline for Dubai and surrounding emirates, serving as the point of entry for essential imports. It has also long been a central hub through which Iran traded via the UAE, but was also hit by Iranian missiles early in the war.

In July, after the US resumed strikes on Iran despite the MoU being in place, an explosion at the port caused a fire.

“I don’t think that you can overstate or understate the importance of the trade, both financial and goods trade, between Dubai and Iran,” Kimmitt said.

That reliance runs deeper than goods on ships, given Dubai’s standing as a global financial hub, which Kimmitt said has long given Iran a discreet way to move money around international sanctions, cutting off a route Tehran has long relied on for years.

Kimmitt added that the UAE’s move is significant enough that Tehran could interpret it as “bordering on an act of war”, likening it to the near-total embargo the US imposed on Japan after World War II.