UAE Continues to Serve as Hub for Iranian Sanctions Evasion

The Treasury Department imposed sanctions yesterday on five companies based in the United Arab Emirates (UAE) for their role in facilitating petroleum and petrochemical sales by the clerical regime in Iran. These designations reflect the importance of petrochemical exports for the regime’s financial survival and the Emirati government’s continuing failure to prevent sanctions evasion despite its rhetorical support for Washington’s maximum pressure campaign against Iran.

Tehran has become increasingly reliant on exports other than crude oil due to American sanctions, which have reduced Iranian crude sales by roughly three-quarters since May 2018. From March 2018 through March 2019 (Persian calendar year 1397), petrochemicals accounted for 32 percent, or $14.1 billion, of Iran’s non-oil exports, according to official data.

China is the top destination for Iran’s petrochemical products, but the UAE purchased $2 billion worth from March 2018 to March 2019. Even though the United States imposed sanctions on the entire petrochemical sector in November 2018, the UAE spent about $481 million on Iranian exports from December 2018 through March 2019, according to Tehran’s official data.

Iran stopped publishing detailed trade data in April 2019, apparently to conceal (at least partially) which countries were violating U.S. sanctions. The regime selectively released aggregate data, however, which show that non-oil exports remained relatively strong from March 2019 through February 2020 (the first 11 months of Persian year 1398), generating $38.5 billion, or only 5 percent less than they made during the same period the previous year. Of those non-oil exports, the UAE accounted for $4 billion, or 10.5 percent of the total, as compared to $6 billion from March 2018 to March 2019.

There are hints that Emirati purchases of Iranian petrochemical products continue unabated. A Reuters investigation found that Iran was using front companies in places such as Dubai and Turkey to export its petrochemical products, often to third countries. This underscores the UAE’s role as a critical waystation that gives Iran access to markets further afield.

Signaling its impatience, the United States has openly criticized the UAE for turning a blind eye to sanctions evasion. Last September, the U.S. undersecretary of the Treasury for terrorism and financial intelligence made a point of telling reporters that Iranian petrochemical sales were going through the UAE.

For their part, Iranian officials have hinted that the status quo remains unchanged. Last December, the director-general of the Pars Energy Special Economic Zone identified the UAE as a destination of Iran’s petrochemical products despite U.S. sanctions. Earlier this month, Hamid Hosseini, the spokesperson of an Iranian petrochemical exporters union, announced that Tehran’s petrochemical exports from March 2019 through January 2020 increased 5 percent in comparison with the previous 10-month period. One should treat such claims with caution, yet Chinese customs data show that its appetite for Iranian petrochemical products remains strong.

The UAE has not published detailed trade data of its own, so one can only estimate the UAE’s actual imports of Iranian petrochemical products. If one assumes that petrochemicals account for a constant percentage of the UAE’s total non-oil imports from Iran, then one can infer the level of imports over the past year from the previous year’s figure. The UAE’s total non-oil imports from Iran amounted to $6 billion from March 2018 through March 2019, but fell to $4 billion for March 2019 through February 2020. Since petrochemicals accounted for 32 percent of the total in first period, a corresponding decline suggests their value fell from $2 billion to $1.36 billion.

Likewise, extrapolating from the average monthly petrochemical exports to the UAE from December 2018 to March 2019, for which data is available, produces a similar figure. Based on these two estimation methods, Emirati petrochemical imports from Iran for March 2019 to March 2020 likely totals around $1.3 billion.

The Iranian state owns many petrochemical firms, so their exports generate hard currency for the regime or facilitate key imports. The United States should demand detailed trade data from Abu Dhabi to ensure that Emirati imports of Iranian petrochemical products stop immediately. If there is no change, the United States should escalate its designations of Emirati targets.

Saeed Ghasseminejad is a senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Saeed and CEFP, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.