US sanctions strain Iran-Gulf trade

The new American sanctions on Iran have posed a significant test for the economic relations between Tehran and the Gulf states. Iran heavily relies on exporting products such as petrochemicals, minerals, and foodstuffs to the Gulf, while importing food commodities, consumer goods, as well as industrial equipment and spare parts primarily through the United Arab Emirates, which has played a crucial role in facilitating this trade. The UAE's announcement to suspend trade with Iran threatens to reduce the flow of foreign goods into the Iranian market, prompting Tehran to seek alternatives such as Oman via the ports of Sohar and Salalah. However, Iran continues to face financial challenges due to U.S. control over the international financial system, which could increase the cost of Iranian trade by more than 30%. The sanctions are leading to a decline in trade volume and higher costs for goods, impacting Iranian consumers and increasing both export and import burdens on the Gulf region. There is also a potential shift toward trading goods in local currencies or resorting to intermediaries, although options remain limited, especially for goods that are exempt from sanctions. Despite the current trade volume reaching $21 billion between the UAE and Iran in 2024, economic relations between Tehran and the Gulf countries remain below their potential. These relations could be strengthened by reducing security tensions—especially in technology and energy sectors—while also addressing ongoing threats to the Strait of Hormuz and the continuation of sanctions, which raise trade costs and exert pressure on the Iranian economy.

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