Pat Dollard | Young Americans

DUBAI, United Arab Emirates (AP) - As the sun sets, the sky slowly turns a deep orange rose over Dubai. Crates of merchandise—food, clothes, General Electric appliances, Hewlett-Packard computers—are loaded onto dhows, the traditional wooden vessels that still ply the ancient routes to Iran about 60 miles to the north.

But it’s no longer business as usual. The West, led by the United States, is cracking down on business in and out of Iran to protest against its nuclear ambitions. And Dubai is caught in the middle—eager to maintain its lucrative business with Iran just across the Gulf, but wary of angering the United States and the United Nations.

So the pressure is increasing on thousands of Iranian businessmen in Dubai, such as Mustafa Hoobakht. Hoobakht sends Iran refrigerators, freezers and even the color for Teflon pots and pans that he imports from Germany, but these days he has trouble getting bank loans because of the crackdown. His profit is barely $100,000, down from a minimum of $800,000 to $900,000 in the past.

“It’s all been loss for me,” he says. “It’s the hardest time I’ve ever had, because fish need water to survive and a trader needs money.”

In the Bastakiya quarter of Dubai, rows of tall wind-towers and rectangular, coral-stone houses with beautifully carved wooden doors and windows are testimony to a strong connection with Iran.

This is where many wealthy Sunni Muslim merchants from Iran’s southern Gulf coast settled at the turn of the last century, fleeing rising tariffs in their country. The neighborhood is named after the Bastak region in Iran from where they came, bringing their architecture and way of life.

Today, their offspring make up a good portion of the population of the United Arab Emirates, to which Dubai belongs. The men in their headdress and flowing white Arab robes known as dishdashas are indistinguishable from their Arab brethren.

After the Islamic Revolution, the Emirates was the only country in the region to open its arms to Iranians, this time mostly Shiites. Some 450,000 Iranians now have residency here, and about 8,500 Iranian businesses are registered in the Emirates. The Emirates holds about $300 billion in assets from Iranians living abroad, the second largest amount after the United States.

While many Iranian exiles in places such as London or Los Angeles want to topple the Islamic regime, Iranians here maintain close personal contacts to home. In the 21st-century bazaar that is Dubai, Iranians are among the chief investors. They worry that more severe U.N. sanctions—even worse, war—will deal a serious blow to Dubai and the rest of the Persian Gulf.

Compared with other Arab Gulf states, the Emirates enjoys exceptional relations with Iran that have weathered many storms in the past. But the relationship is under strain from increasing U.S. pressure to isolate Tehran.

The prospect of more U.N. sanctions dimmed somewhat recently when U.S. intelligence concluded that Iran had halted nuclear arms development. But Washington is slapping its own unilateral actions on Iran, targeting energy firms and shutting down operations of Iranian banks in America.

Already, the U.S. government has stepped up its anti-Iran efforts in Dubai, opening the State Department’s Iran Regional Presence Office. In March, Stuart Levy, the U.S. undersecretary for terrorism and financial intelligence, traveled to Dubai to warn Arab bankers to halt dealings with Iran or face U.S. sanctions. Washington and the Emirates also maintain a joint team to track Iran-linked financial transactions, ostensibly for ties to Tehran’s nuclear program.

Although there has been no official change of policy toward Iranian businesses by the Central Bank in the Emirates, most international and local banks here—including the National Bank of Dubai—are issuing fewer letters of credit for trade finance involving Iranian-owned businesses. The Emirates also acted on a U.N. move earlier this year against Iran’s Bank Sepah, which is said to be linked to Iran’s Islamic Revolutionary Guards Corps., a target of U.S. sanctions.

“There are 48 European banks based here that have started imposing restrictions on companies that do business with Iran, even though they know the merchants very well and have a history with them,” says Hadi Motameni, president of the Iranian Business Council. “When businesses don’t get loans from banks, they can’t function.”

Bank-to-bank money transfers have also become difficult, with bankers asking about the purpose of the transfer and the nature and use of the item being shipped. Motameni says if pressures intensify, no bank will deal with merchants doing business with Iran. They could also close personal bank accounts.

To avoid losses, many Iranian merchants are diversifying—doing business with other countries as well as Iran. Others avoid dealing with Iran at all.

Emirates officials are apologetic.

“We greatly value our trade with Iran … We would like to continue this without disruption, but unfortunately the pressure is being brought on Dubai,” says Abdullah Saleh, director of the National Bank of Dubai. “It’s very sad and very unfortunate.”

Since financial restrictions were imposed earlier this year. Iranian businessmen say, Emirates authorities have been holding up goods longer than usual—up to two or three weeks—and charging fees, even though Dubai is a free port. Sunburned Iranian sailors lounge on the containers piled up on the broad paved promenade, awaiting clearance before they sail through the strategic Strait of Hormuz—under the eyes of the U.S. Navy’s 5th Fleet in the Gulf.

“We’ve been under one form of sanctions or another for 28 years,” notes Khosrow Mohammadi, 34, awaiting clearance to sail his 40-foot dhow to Iran’s Kish Island, where he was born.

Despite the restrictions, Iranian businessmen in Dubai say the government helps them find loopholes. But Iran itself is not helping. When Iranian merchants in Dubai complained directly to Iran’s president in May about how his defiant rhetoric over nuclear plans was hurting their business, Mahmoud Ahmadinejad was less than sympathetic.

Ahmadinejad told the merchants it was time to take a stand against American-led pressures. And he added: Be prepared for consequences.

Consequences have yet to show up in the numbers. Iran-Emirates trade came to $12 billion last year, according to the Iranian Business Council. About $8.5 billion of it involved the re-export of goods to Iran, mostly American goods, and the remaining $3.5 billion involved the import of goods from Iran for local markets or other Gulf States, India and Europe.

One group that has gained from the bank restrictions on dollar transactions is moneychangers catering to Iranians who can’t cable money to the West through their banks. Other possible winners, say businessmen and Emirates officials, are sanctions-busting smugglers. Already, American cigarettes, electrical appliances and gold are smuggled through Khasab, a fishing village at the head of the Strait of Hormuz.

“The Emirates will not be able to stop it, so it will have to look the other way,” said Abdulghaffar Hussein, a prominent Emirates businessman and a former mayor of Dubai.