I have been scanning Iranian media over the last few days, trying in vein to find a juicy story that explores Iranian perspectives on the unfolding Dubai debt crisis. No luck. Much of the Iranian coverage I have seen has been rehashings of wire service stories that don’t really add much to what’s out there in English.
Why aren’t Iranian media paying much attention? One possibility (as suggested by an IranGCC co-contributor) is that Iran needs all the allies it can get now, and is reluctant to crow about Dubai’s misfortune. I’m more inclined to say its a symptom of the short shrift that foreign economic news tends to get in Iran’s press. In any case, Dubai should be a much bigger story in Iran.
The crisis triggered by Dubai World’s request for a six-month repayment standstill on its debt, precipitated by a crash in overheated property values and the credit crunch, will affect Iran and Iranians in several ways. A quick overview:
Remittances: There are tens of thousands of Iranian nationals and Emiratis of Iranian origin living in Dubai and a number of Iranian institutions (a hospital, elementary schools, a branch of Azad Islamic University, the list goes on). While Iranians will not be hit as hard as Indians, Pakistanis or Filipinos working in the emirate, many will lose their jobs in waves of layoffs.
Property holders: Wealthier Iranians, too, were caught up in the property bubble that is now bursting – no doubt underwater on mortgages or out down payments on developments that will no longer be built. Dubai will surely lose cache as the place for vacation or investment properties, which will likely put a bigger damper on retail sales. Shoppers at the Mall of the Emirates Zara will likely be hearing a lot less Farsi for the next few years.
Banking and Transactions: Iranian banks are not among the top countries with exposure to Dubai World’s debt; most are European, so the banking crisis is not likely to spread across the Gulf. Yet Dubai has long been an offshore hub for Iranian transactions, a role that has intensified as U.S. sanctions began more aggressively targeting Iranian banks. (The U.S. also has a program at Treasury intended to shut down banking opportunities for Iranians in Dubai). Several analysts have been floating the possibility that one of the things Abu Dhabi will demand in return for bailing out Dubai will be a crackdown on Iranians doing business in the emirate.
I am skeptical of the “Abu Dhabi Iran Crackdown” thesis for two reasons. One is that Iranian trade and investments are one of the pillars underpinning Dubai’s recent growth; to alienate Iranian investors, shoppers, property holders would be to freeze out one of the main populations that has made Dubai the hub it is today. Secondly, the volume of trade is so vast (and often informal) that it policing such an agreement would be almost impossible. The pressure from Abu Dhabi on Dubai to cut Iran ties may very well be there, but this will likely amount to a slap on the wrist (indeed, there were reports after the recession began of Dubai visa troubles for a handful of Iranian businessmen). But don’t expect Iranian business out of Dubai any time soon.
-WW
photo courtesy of Flickr user faceymcface1 under a CC license.
“One possibility (as suggested by an IranGCC co-contributor) is that Iran needs all the allies it can get now, and is reluctant to crow about Dubai’s misfortune.”
Kind of along those lines, Iran could have some leverage over Dubai. I remember reading stories a year or two ago about property prices fluctuating in Dubai according to expectations of a US or Israeli strike on Iran. I don’t know what Iran would want from Dubai – maybe it would only want to look out for the interests of wealthy Iranians in Dubai – but it seems that Iran is in a position to exert economic pressure on Dubai now.
Ahmedinejad only needs to give a few fiery speeches to rile up Israel and people will start freaking out about a possible strike on Iran. Dubai’s already high credit risk could become too high if everybody fears a major regional conflict. Iran could be telling Dubai, “look out for our wealthy citizens’ interests or we’ll start beating the war drum and undermine your creditworthiness.”
Thanks, hadn’t thought about that angle. I guess the bottom line is that all the back and forth between Iran and Dubai creates a set of shared stakes (and corresponding pressure points) that are very hard to unwind, even in the face of outside pressure.
Just saw this.