UAE watchful as EU summit crafts new sanctions on Iran

Gulf states could come under pressure to scale down trade with Iran as the EU looks set to follow the UN in tightening sanctions against the country. Iran's isolation from the global economy is likely to increase with a set of EU penalties targeting its trade as well as its oil and gas industries. The EU hopes the restrictions will force Iran to stop enriching uranium because of fears it is secretly building a nuclear weapons programme.

Iran says its uranium enrichment is intended exclusively for non-military purposes. The penalties would prohibit new investment in key sectors of the country's oil and gas industries and would limit technical assistance and transfers of technology, equipment and services, said a statement prepared for an EU summit yesterday. Given its extensive trade links with Iran the UAE is likely to be closely monitoring the EU proposals on restrictions to trade, including the export to Iran of goods with potential military use. Shipments of a vast array of consumer goods leave Dubai for Iran daily.

"Now the EU and US are tightening up sanctions, the UAE may come under more pressure to squeeze trade with Iran," said David Butter, the director of the Economist Intelligence Unit for the MENA region. The UAE has repeatedly stated it would abide by all UN resolutions. The foreign ministers of the 27-member EU on Monday agreed on a text outlining further restrictions on trade insurance and the cargo operations of the Iranian state-owned Republic of Iran Shipping Lineand its subsidiaries.

The latest measures follow US demands for wider sanctions against the country and a UN resolution calling for restrictions on financial transactions with Iran, and limits on cargo that could be used in nuclear weapons or missiles. Some central Asian countries are already taking steps to comply with the new round of sanctions. Kazakhstan and Turkmenistan may redirect oil exports to Russia rather then shipping them to Iran under swap agreements, Reuters reported yesterday, citing an industry source.

Kazakhstan has been shipping about 24,000 barrels per day (bpd) of crude into northern Iran in exchange for equivalent supply in the Gulf. Turkmenistan exports about 40,000 bpd of oil, but it is unclear how much goes to Iran. Redirecting the oil would not leave Iran short of crude but would require moving more oil from its southern oilfields to the north of the country, increasing the cost to the government of domestic fuel supplies.

* with additional reporting by Tamsin Carlisle @Email:[e-mail]