With the imposition of the latest international economic sanctions against Iran and the UAE being under pressure from Washington to enforce them, Tehran’s trade ties with the Gulf Arab neighbor and its considerable economic interests in the region have taken a direct hit.

The UAE is Iran’s biggest trading partner and is home to a large Iranian business community and numerous Iranian off shore companies. While Iran and the UAE-based companies owned by Iranians have been the hardest hit, the economic curbs have begun to bite the UAE as well. 

“Trade between Iran and Dubai, a key source of imports for the Islamic Republic, is being squeezed due to sanctions over Iran's nuclear program,” Hamid Reza, chairman of Iranian Business Council in Dubai, told a local daily.

The Iranian business community in the UAE has received a double whammy as the economic war on Iran has almost halved the value of Iranian currency. 

Iranian traders in Dubai have reported a 40 percent decline in transactions in the past couple of weeks.  

There had been panic in the Gulf markets on Tuesday after Iran’s Industry, Mines and Commerce Minister Mehdi Ghazanfari was reported as saying that all trade with the UAE was halted until further notice. First Vice President Mohammad Reza Rahimi, however, stepped in to dismiss the talk of trade freeze. He, however, urged the UAE to not bow to the US.

The Iranian official accused the Gulf state of initiating what he called “anti-Iran measures” but added they would not harm the Islamic republic.

“They are not in the interest of the UAE either,” he pointed out.

The UAE, however, has been trying to walk a fine line between its relations with Western allies and its historical ties with Iran.

The UAE has tightened customs inspections and financial curbs are being enforced with most banks being reluctant to touch companies with Iranian links.

"Iranians in Dubai are starting to feel that pinch in a sharp drop in remittances. No one wants to be associated with Iranians because it can raise a red flag and people don't want to be investigated," an Iranian businessman said.

"Iranian businesses operating in Dubai and serving the Iranian market by routing business from Europe through Dubai are finding it difficult to get trade finance instruments such as letters of credit and guarantees. With the new sanctions, doing business (with companies) owned by Iranians will be harder."

Commentators in the UAE refused to speak on what they termed as a speculative issue.

Iran is the UAE's second-largest re-export market, accounting for about 17 per cent of the volume, while the UAE is one of Iran's top sources of imports, accounting for more than 15 per cent.

The value of direct exports between Dubai and Iran is Dh1.8 billion while re-exports stand at Dh24 billion, according to the latest statistics compiled by Dubai Exports.

Gold and lubricating oil feature high on the list of exports while rice, textiles and motor parts and accessories have topped the list of re-exports between the two countries.