The UAE has suspended all trade and financial transactions with Iran, saying Tehran fired two ballistic missiles towards the Gulf State. The move could have significant ramifications for the Islamic Republic’s economy, as Abu Dhabi is its second-largest trading partner and has also helped to circumvent sanctions
The US-Iran war has been ongoing for six months. And the fighting seems to be escalating, as the United Arab Emirates (UAE) announced that it was suspending all trade and financial transactions with Iran until further notice.
The reason for the UAE’s action: it claimed it had to deal with two incoming ballistic missiles from Tehran on August 18. While one of the missiles fell outside the country, the other fell within its territorial waters.
What exactly happened? What will be the impact of the UAE’s move against Iran? We take a closer look and explain as developments unfold at a breakneck speed.
UAE suspends all trade with Iran
On late Tuesday evening (August 18), the UAE suspended all trade and financial dealings with Iran until further notice.
The director of the strategic communications department at the Ministry of Foreign Affairs in the UAE (Mofa), Afra Al Hameli, stated that the decision was taken “in light of the regional escalation that has undermined regional and international peace and security”.
The move comes after the UAE defence ministry said its air-defence systems detected two ballistic missiles launched from Iran towards its territory, in what would be Tehran’s first direct attack on the Gulf state since May. It triggered an emergency phone alert to the UAE’s residents.
More from Explainers
The defence ministry said assessments showed the missiles had been targeting maritime traffic but also stated one weapon fell into the sea outside the UAE’s territorial waters while another fell within.
As the UAE contended with the missile threats, it also sent out a threat alert to its residents, asking them to seek cover. “Due to the current situation, potential missile threats, immediately seek a safe place in the closest secure building,” read the phone alert, which was lifted shortly afterwards.
Tuesday’s alert was the first such since a false alarm in June and an alert in July for an attack that ultimately did not enter UAE territory. Before that, the last missile warning came in early May.
Iran denies involvement in the UAE attack
Following the UAE’s announcement that it was suspending all trade and financial activities with Iran, Tehran denied any involvement in the missile attacks.
Esmaeil Baghaei, spokesperson for Iran’s Ministry of Foreign Affairs, said the allegation was “contrary to the principle of good neighbourliness and undermines ongoing efforts to strengthen trust among the countries of the region”.
A little later, Iran added that the UAE was “carrying out US Treasury Secretary Scott Bessent’s order for economic warfare against Iran”, calling the UAE’s missile attack “fake news”. The Islamic Republic added that the UAE’s move was the official start of Bessent’s operation following his announcement last week of applying “measures that have never been seen in history” against Iran.
Last Thursday (August 13), Treasury Secretary Scott Bessent noted that the United States was planning to inflict more economic damage on Tehran later in the week. The US would apply measures that have “never been seen in the history of economic isolation on a country”, Bessent said.
At the time, the Trump administration hadn’t said what it was planning to do, but experts had noted that there were still pressure points that Bessent’s Treasury Department could hit.
A woman walks by a mural depicting Iran’s late Supreme Leader Ayatollah Ali Khamenei, on a street in Tehran, Iran. Reuters
Iran to pay heavy price after UAE suspends trade
The UAE’s decision to halt trading with Iran is a significant move and could hurt the Islamic Republic’s already struggling economy.
Why?
The UAE is Iran’s second-largest trading partner behind China. Before the war, annual trade between Iran and the UAE stood at around $27 billion, about 80 per cent of it Emirati exports to Iran. As Salman Al-Ansari, a political researcher, wrote on X, “The significance is enormous. The UAE has been Iran’s second-largest trading partner after China, with bilateral trade reaching around $27 billion. Earlier this year, Emirati official @Dhahi_Khalfan described the UAE as ‘the lung through which Iran breathed under sanctions’. That lung now appears to have been cut off, if the suspension is truly and fully enforced.”
Moreover, Dubai has served as a financial backdoor for Iran, helping it bypass sanctions and access global markets despite restrictions on systems like Swift. According to the Eurasian Review, Dubai has long served as an important commercial and financial gateway for Iranian businesses, making any broad suspension of trade and financial activity potentially consequential for companies and markets on both sides.
UAE’s move to suspend trade with Iran also has significant ramifications for the smuggling and money-laundering networks that keep Iran’s government running, as many of these operations conduct transactions within the UAE’s opaque “free zones”.
In an Al Jazeera report, Mark Kimmitt, retired general and former US assistant secretary of state, said the UAE’s suspension of trade with Iran could carry more weight than US sanctions, given the Gulf country’s role in Iran’s economy.
“I don’t think that you can overstate or understate the importance of the trade, both financial and goods trade, between Dubai and Iran,” Kimmitt said in the Al Jazeera report. “Right now, Dubai, UAE, is the largest seller of import goods to Iran, exceeding China, exceeding Turkey. So, one-third of Iran’s imports in any given year come from the UAE.”
Kimmitt added that Dubai’s role as a financial hub has also long given Iran a channel to circumvent sanctions. “In many ways, the embargo being put on by the UAE is even more significant than the embargo being put on by the United States,” he said.
Iran-UAE tensions amid war
The move by the UAE is a new escalation in the war which started in February when the US and Israel launched missiles at Tehran, killing Ayatollah Ali Khamenei. In retaliation, the Islamic Republic began to attack all US allies in the region, namely the UAE, Bahrain and other Gulf countries.
The UAE bore the brunt of Iran’s assaults, sustaining almost 3,000 missile and drone attacks. It also responded with scores of its own strikes against Iran.
Smoke rising from an area near the Dubai International Airport after a drone attack hit a fuel tank, according to Dubai authorities, amid the US-Israel conflict with Iran, in Dubai in mid-March. File image/Reuters
However, tensions between the UAE and Iran eased following a memorandum of understanding between Washington and Tehran in June. After the agreement began unravelling in early July, Iran directed its attacks mostly against Bahrain, Kuwait and Jordan.
In recent months, the UAE reactivated diplomatic and economic channels with Iran while doubling down on military ties with Israel and the US. However, the missile attacks now threaten to disrupt the sense of normality that returned to the UAE.
With inputs from agencies