UAE-IRAN RELATIONS: AN UNEASY CALM

1. (C) Summary: The UAE and Iran have long had a wary
co-existence. While the two countries enjoy robust trade
ties and have historical social and cultural links, Iran's
nuclear program and the possibility of a clandestine weapons
component, interference in Iraq's internal affairs, and
continued military occupation of three disputed islands cast
a shadow on its political relations with the UAE. In
response to the perceived threat, the UAE is reinforcing its
military capability to protect its borders, but is also
careful not to jeopardize the substantial commercial
interests it has with Iran by antagonizing the militarily
superior Islamic Republic. President Khalifa is following in
the footsteps of his father, the late Sheikh Zayed, who
advocated using diplomatic approaches with Iran. We will
discuss UAE/Iran economic and commercial relations septel.
End Summary.

UAE/Iran: Close Trade and Historical Ties


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2. (U) Trade and cultural links between the UAE and Iran are
significant. There are places in the UAE, such as Sharjah's
fishing port, where the only language one hears is Farsi. In
Dubai, which acts as a major re-export center for Iran, there
are more than 2,000 Iranian companies active in the port. An
estimated 250,000 Iranians reside in the UAE, including more
than 150,000 in Dubai alone, and many Emiratis belong to the
Arab Qawasim tribe which once lived on the Iran and UAE
coasts. Commercial ties between Dubai and Iran are
expanding: the UAE is Iran's largest non-oil trading partner,
and the majority of the UAE exports (and re-exports) to Iran
come from Dubai and the northern emirates. According to
official statistics, 2003 non-oil trade between the two
countries stood at over $3.3 billion. Although the UAE has
not finalized its statistics, officials from the Ministry of
Economy and Planning estimate that trade between the UAE and
Iran during 2004 grew by 50% from 2003. In contrast to the
brisk commerce the UAE enjoys with Iran and despite cultural
and social ties that have spanned the Gulf for centuries,
UAE-Iran political relations are problematic -- most would
say strained.

UAEG: Iran a "Major Threat"


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3. (C) Iranian intentions in the UAE and in the Gulf as a
whole are a grave concern to the Emiratis. Iran is a "major
threat" to the UAE, MFA Under Secretary Abdullah Rashid Al
Noaimi told us last month. The UAE believes that Iran is
determined to develop nuclear weapons and possess an arsenal
of long-range missiles, he said. Abu Dhabi Crown Prince
Sheikh Mohammed bin Zayed (MbZ) told visiting NATO
parliamentarians June 18 that Iran's military presence in the
Gulf poses a threat to Gulf trading routes and the Straits of
Hormuz. MbZ said he was concerned that the Iranians may have
a "hidden, long-term agenda" rooted in their past as a
"Persian superpower." The UAE does not believe the Iranian
argument that they need nuclear energy for peaceful purposes
when Iran has vast oil and gas resources and is burning off
as waste enough natural gas to replace the power that would
be produced at its nuclear power plants. This was a point
Under Secretary of State for Arms Control and International
Security John Bolton had made to the UAEG during his visit
here in January 2005. MbZ also said he considered the EU-3
initiative to be "very good," but added that he was
"skeptical" about the EU's effectiveness in persuading Iran
to abandon its nuclear program. He expressed concern that no
one was telling Iran what the "red lines" were. The
potential threat from Iran partly explains the Emiratis'
quest for a stronger military deterrent, including its
acquisition of 80 F-16 Block 60 fighter aircraft from the
U.S., the first tranche of which were delivered in May.

Countering Iran's Nuclear/Proliferation Threat


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4. (C) Iran's pursuit of WMD capabilities is another serious
concern for the UAE's leadership, and senior UAEG officials
have consistently expressed to us their conviction that Iran
is intent on developing nuclear weapons. In his meeting with
U/S Bolton last January, Minister of Information Sheikh
Abdullah said that all countries must join in applying
pressure to Iran and that anything less would not result in a
positive outcome (ref C). Sheikh Abdullah also expressed
concern that if the U.S. were to refer Iran's case to the UN
Security Council, Iran could use its wealth and resources to
buy votes in the UN. The UAEG voiced its opposition directly
to Hassan Rowhani, Secretary of Iran's Supreme Council for
National Security, when he called on President Khalifa June 7
as part of a regional tour to brief Gulf leaders on Iran's
talks with the IAEA. For his part, Khalifa stressed the need
for all countries to be committed to eliminating all banned
weapons and to resort to peaceful negotiations to resolve any
existing conflicts as per the UN charter, and expressed hope
that Iran would reach an agreement with the EU-3. The
Iranians are "bazaaris" who will continue bargaining with the
international community on their right to develop a nuclear
program "until the end," Al Noaimi opined to Ambassador on
June 8. Al Noaimi also told us that a nuclear Iran would be
very dangerous and "not acceptable" to the UAE.



5. (S/NF) However, with Iran as a considerable trading
partner, the UAEG sustains a delicate balance in maintaining
its viable economic interests and halting suspected
proliferation from Iran. Significant numbers of Iranian
front procurement companies are suspected of operating out of
Dubai. The government of Dubai has shut down a number of
suspected Iranian front companies and stopped containers that
were suspected of being diverted to Iran. In October 2004,
the MFA handed over to the Ambassador a list of 28 UAE-based
Iranian companies whose activities were suspicious (ref B).
Two months ago, the UAEG, acting on an Interpol Red Notice,
arrested Dubai-based Iranian Mahmud Seif, who is wanted for
attempting to export latest generation Night Vision Goggles
from the U.S. to Iran in violation of the U.S. Arms Export
Control Act. The Iranian government has been pressuring the
UAEG for Seif's release, Al Noaimi told Ambassador June 19,
while the USG has been working with the UAEG to have Seif
deported to the United States.



6. (S/NF) While these types of actions send a clear message
to the Iranians that the UAE will not tolerate Iranian
proliferation activities, Dubai Customs continue to face
challenges in examining cargo for export to Iran due to
difficulties recognizing dual-use technology. However, with
the implementation of the U.S. Department of Homeland
Security's Container Security Initiative (CSI) in March,
Dubai Customs has been noticeably quick to respond when given
information about a specific container, company or individual
suspected of being involved in proliferation activity.
Furthermore, Dubai Customs recently informed Embassy's DHS
Attache that it now wanted to search all Iranian containers
destined for the U.S. because they had seen a dramatic
increase in unmanifested cargo (i.e. smuggling) in containers
originating in Iran.

Shared Concerns about Iran's Influence in Iraq


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7. (C) Since the end of the Iraq war, the UAE has grown
increasingly concerned about Iran's influence in Iraq,s
internal affairs and its hegemonic intentions in the Gulf.
MbZ told USAF Chief of Staff General John Jumper February 24
that the UAE would support "any Iraqi, Shi'a or Sunni, Muslim
or Kurd, who was not under the control of Iran" would be an
acceptable Iraqi leader in the eyes of the UAE (ref A). MbZ
told the NATO parliamentarians this week that the UAEG is
concerned about Iranian involvement in Iraq. He said Iranian
funds were flowing into Iraq, and that Iran was influencing
the Iraqi Cabinet. Iran also has an influence on Shi'a
minorities in other Arab states, he added. The UAE
leadership has not publicly denounced Iranian interference in
Iraq, and some of our contacts speculate that this goes back
to the UAEG's unwillingness to upset the status quo, at least
in terms of its economic and commercial interests with Iran.
The bottom line for the UAE is that the Gulf does not want
Iraq to fall under the influence of Iran leaving the region
with "two Irans," a political-military analyst at the UAE
Armed Forces' Directorate for Military Intelligence told Pol
Chief June 7.

Long-running Dispute over the Islands


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8. (C) Another irritant in the political relationship is the
34-year-old dispute over three strategically located islands
in the Gulf ) Abu Musa and the Greater and Lesser Tunbs.
The islands have been under Iranian military occupation since
1971, and most of the UAE nationals living and working on the
islands were expelled in 1992. Both countries claim
sovereignty over the islands. The UAE raises the islands
issue at every major international and regional meeting,
including calls for bilateral negotiations that would result
in giving territorial sovereignty over the islands to the
UAE, or for a resort to the International Court of Justice.
The UAE's claim to the islands is supported by GCC members.
Iran has rejected any regional or international mediation or
arbitration, saying it is only willing to talk bilaterally
with the UAE only to clear up what it calls
"misunderstandings." Iranian Foreign Ministry spokesman
Hamid Reza Asefi rejected a GCC resolution issued at the
foreign ministers' summit about the islands. IRNA quoted
Asefi June 12 as saying, "These three islands have been an
inseparable part of the Iranian territory and will remain so
and allegations made in this regard lack any legal basis."
None of our contacts believed that the Iranian presidential
election would change Iran's stance on the islands.

Fishing Boat Tit for Tat


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9. (C) The diplomatic tension ebbs and flows. In May, the
Iranian coast guard seized UAE fishing boats and their crews
and accused them of crossing into Iranian waters. Iran
detained six UAE fishermen, an Omani, 20 Asian fishermen, and
five dhows. Iran freed the fishermen 23 days later, on June
8, after UAE diplomats intervened. During the same period,
the UAE had seized two Iranian boats. Although the latest
fishing boat incident is over, Al Noaimi told Ambassador that
the Iranians acted like "bullies," going as far as emptying
the fuel tanks from the dhows before returning them to the
UAE.

Limits to UAE Criticism of Iran


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10. (S) Officially, MbZ and HbZ, in cooperation with Dubai
Crown Prince Sheikh Mohammed bin Rashid in Dubai, make Iran
policy. Some of our contacts said they believe that the UAE
leadership is not taking Iran's ambitions seriously. Khalifa
Bakhit Al Falasi, a former ambassador to Australia and now a
reformist and human rights advocate in Dubai, told Pol Chief
that he tried in vain in the 1990s to get HbZ to prevent Iran
from "gaining a foothold and more influence in the UAE," but
the UAEG did nothing. Now, he said, "Iranians are all over.
They know what's going on. Their influence is spreading."



11. (C) The Gulf Research Center (GRC), a Dubai-based think
tank, believes the government of Iran is seeking to pressure
the UAEG to close the center for criticizing Iranian
influence in Iraq. "The Iranians are concerned that the
GRC's views will be adopted by the UAEG and others, which is
happening," GRC president Abdelaziz Sager told Pol Chief.
But Al Falasi and others asserted that the UAE's leadership
has refrained from taking any action to limit Iran's growing
influence within the UAE so as not to jeopardize substantial
local commercial interests, particularly in Dubai. Academic
Ebtisam Al Kitbi said Dubai's economic and commercial
interests "override" its political interests. "They want
money. They don't consider the political ramifications."
Laheeb Abdul Khaleq, an Iraqi Sunni journalist, opined that
if Abu Dhabi were to stop supporting the northern emirates
financially, Iran would "fill the gap" and the northern
emirates would welcome Iran's aid.

Comment:


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12. (C) While the Emiratis have been openly critical of Iran
on the islands dispute, and President Khalifa has made clear
to Iran's Rowhani the UAE's commitment to nuclear arms
nonproliferation, the UAE leadership has yet to utter a word
in public about Iran's interference in Iraq's internal
affairs. Our assessment is that the UAEG is unlikely to risk
jeopardizing its substantial commercial interests with Iran
by antagonizing Tehran.
SISON