The nuclear deal’s other winner

AT DUBAI CREEK in the United Arab Emirates the dock workers load everything from computers to cigarettes onto dhows headed across the Persian Gulf to Iran. At the airport, some ten minutes away, men with suitcases full of dollars board planes bound for Tehran. Dubai, the busiest entrepot in the Gulf, has long been the back door through which smugglers have entered Iran to swap goods and cash in breach of Western sanctions. It is now hoping to become Iran’s front door as well.

The nuclear deal between Iran, America and five other world powers will gradually lift most sanctions if the mullahs keep their end of the bargain. This has raised fears that a more prosperous Iran will step up its meddling in Arab affairs (see article), and that its renewed oil sales will lead to yet lower prices and a battle for market share. But others see an opportunity, as the region’s largest market—home to nearly 80m mostly young and typically well-educated people—reopens. Dubai is best placed to take advantage.

Of the 400,000 or so Iranians who now call the UAE home, many live in Dubai. The emirate also plays host to nearly 10,000 Iranian businesses and trading companies, by one estimate—though some are mere fronts for smuggling. Little wonder, then, that the UAE is Iran’s second-largest trading partner, after China, even though commerce between the countries has slowed since sanctions began to bite in 2011. If the Iranian economy grows fast, as analysts predict, the amount of cash, goods and tourists crossing the Gulf will likely surge.

It so happens that the three sectors of the Iranian economy worst hit by sanctions are ones where Dubai excels. Start with air transport, which has suffered in Iran due to a lack of spare parts for its ageing and increasingly unsafe fleet of planes. Dubai, meanwhile, has created a vast air-services hub, including maintenance and manufacturing facilities, around its airport, one of the world’s busiest.

Similarly, Iran’s oilfields have been crippled as sanctions kept needed equipment out of the country. Much of the investment in new Iranian infrastructure will now run through Dubai’s port at Jebel Ali, which is a hub for everything to do with pipes, pumps and rigs.

The third sector is finance, where sanctions have left Iran completely outmoded. Dubai, by contrast, hosts the regional headquarters of most big banks. Rouzbeh Pirouz of Turquoise Partners, an investment firm in Tehran, is reminded of Hong Kong, where global financial institutions and multinational firms set up to gain access to the young Chinese market. “Dubai can play a similar role [for Iran],” says Mr Pirouz. It is already a hub for firms looking to do business in the Middle East and Africa. Tehran is just two hours away by plane and trade links between the countries are centuries old.

There are already about 50 flights a week between Dubai and Tehran, and dozens more between various other cities in the UAE and Iran. FlyDubai, a discount carrier, has increased the number of Iranian destinations it serves from two to nine this year. Emirates, the region’s biggest airline, already flies to Tehran and will now also connect with Mashhad, Iran’s second most populous city and a Shia pilgrimage site. Meanwhile, the port at Jebel Ali, which saw shipping volumes from Iran fall as a result of the sanctions, is set to bolster its place as a main trans-shipment point for Iran-bound goods.

Analysts caution that the economic impact of Iran’s opening will be delayed. Sanctions will be lifted at intervals, and only if Tehran complies fully with the agreement. America’s own trade embargo, related to terrorism, will remain in place. Companies looking to trade in Iran will also encounter a range of bureaucratic hurdles (see article). The country is a woeful 130th on the World Bank’s ease-of-doing-business list. Some firms may choose to wait. The smugglers of Dubai Creek will not go out of business just yet.