City of Gold: Dubai and the Dream of Capitalism (47 page)

Not all the U.S. inroads in Dubai have harmed Iran. American firms, says Hashempour, have quietly courted the Iranian Business Council. With Obama in the White House, Iranians feel that a warming is due. Iran’s 70 million consumers make an alluring market. In October, there was a good sign: Citibank sponsored the business council’s monthly luncheon. “They are thinking of the future and of Iranian assets,” Hashempour says with a chuckle.

Cyrus Kheirabadi runs a company that imports spare parts for Chinesemade Komatsu bulldozers and cranes and reexports them to Iran. It used to be possible to run such a business from Iran. The equipment could be purchased in China with a letter of credit in dollars from, say, Bank Saderat Iran, and imported directly. When the Bush administration blocked Iranian banks from using dollars, Iranian firms switched to letters of credit denominated in euros. But then corresponding banks—even those in China—stopped dealing with Iranian banks. So Kheirabadi, like thousands of other Iranian businessmen, opened an office in Dubai. In Dubai he can usually get a letter of credit from an international bank and import goods to Dubai. Then he reexports them to Iran. Is it a hassle?

“Yes. It makes things costly for us. Credit lines are closed. Some banks don’t deal with us. We have to work with cash,” says Kheirabadi, the director of Prime Apex General Trading. “The end user winds up
paying more. The sanctions don’t do anything to the Iranian government. The ones who get hurt are the poor people.”

When America tightened its embargo against Iran around 2003, there were fewer than 3,000 Iranian-run businesses in Dubai. In 2008 there were nearly 10,000.

Charley Kestenbaum moved to Dubai in 1984, just three years after Iranian radicals finally released the fifty-two U.S. hostages they’d held in the U.S. embassy in Tehran for 444 days. The U.S. quarrel with Iran had a clear rationale and Kestenbaum, as the American commercial attaché, was Washington’s man to monitor trade with the Islamic Republic. For the next fifteen years, he was a familiar sight in Dubai’s trading souks and wharves. He oversaw the local implementation of Bill Clinton’s sanctions.

U.S. policy, as he describes it, is the economic strangulation of Iran. Washington means to put pressure on the Iranian regime in every possible way short of dropping bombs. That means blocking capital, technology, and investment, and sabotaging commerce.

“Part of sanctions enforcement against Iran was simply to make things more expensive for Iran and to bleed their economy over long periods of time,” Kestenbaum says. “Every dollar spent above normal market price was a dollar unavailable for other procurement.”

Dubai, as Iran’s main window, has long been targeted as the main hole in the embargo. Congress viewed the city’s merchants as working at cross-purposes to its wishes. That attitude was reinforced when, not long after the U.S. sanctions were announced, Dubai’s GE distributor told the press that he had no intention of complying, since U.S. law doesn’t hold sway in Dubai. Compliance meant giving up as much as 60 percent of his business.

“GE had to backpedal and shut that guy up quick,” says Kestenbaum. To this day products from Kodak and GE and everyone else are being loaded onto dhows and freighters in Dubai and Sharjah, and going to Iran. “There’s very limited control. Someone can say, ‘Okay, we’re not shipping to Iran. We’re shipping to Tanzania.’ The boat goes out and instead of turning south it runs east toward Iran. Who knows?”

These days subsidized Iranian gasoline—which sells in Iran for forty cents a gallon—gets exchanged in the UAE for all manner of goods
blocked by the U.S. embargo or thwarted by Iran’s import restrictions, from cases of Jack Daniel’s and cartons of Marlboros to microchips, software, computers, and cell phones.

The blatant embargo-busting makes Dubai a more sensitive destination for all sorts of U.S. goods, on the premise that sending them to Dubai is as good as sending them to Iran. One day Kestenbaum got a call from Washington asking him to track a shipment of bacterial culture, a precursor used in the manufacture of yogurt that might also be useful in biological warfare.

“We checked it out,” says Kestenbaum. “It was going to a yogurt factory in Dubai.”

Things in Iran would be a lot worse if it weren’t for Dubai. Dubai’s willingness to protect most of its trade in the face of Washington’s pressure is a great insulator, allowing Tehran a freer foreign policy hand while decreasing American harm to the country’s stability.

“Dubai is a very wide window that allows us to bypass the sanctions and our tough relations with the world,” says Saeed Leylaz.

Dubai’s leaders are justified in resisting pressure from Washington, says David Stockwell, the U.S. consul in Dubai in the mid-eighties. American and Emirati interests are not identical. The United States risks overplaying its hand. The UAE is a reliable oil producer, a huge purchaser of Boeing jets and U.S. military hardware, and a major ally.

“They have no reason to have to comply with U.S. wishes on this,” says Stockwell, “With all due respect to the U.S., the reality is that the UAE has to live in this neighborhood. If the U.S. pushes too hard, they defeat themselves. They don’t want to turn friends into enemies.”

The simultaneous presidencies of Bush and Ahmadinejad were a nightmare for Dubai. The specter of yet another Gulf war looked frighteningly close. Worse, this war might’ve dragged in the UAE, since it hosts U.S. bases that would be likely Iranian targets.

In the neutral atmosphere of Dubai, Bush and Ahmadinejad looked like angry men who shared philosophies and methods. Both hail from
the extreme right wing of their nation’s political sphere, both leaned on support from religious fundamentalists and rural bases; both used simple language with anti-intellectual overtones; both required external enemies—in this case, each other—to legitimize their grip on power. Neither had much use for diplomacy.

“Both of them are being jerks,” said twenty-one-year-old Hamda bin Demaithan. “They should just leave us out of it.”

How did Dubai manage to navigate the treacherous shoals between sworn enemies? By being pragmatic and staying out of politics. This is the central plank of Dubai’s diplomacy.

“It’s like the song: ‘Torn between two lovers, feeling like a fool.’ We have to satisfy them both. And it’s no easy task,” Abdulkhaleq Abdulla says with a smile. “When these two start going at each other you really need to be careful.”

Sheikh Mohammed was a confidant of both presidents. He enjoyed good rapport with President Bush at Camp David in June 2008. And he’s also spent time in Iran with President Ahmadinejad. Dubai presents itself as the essential neutral point, where all sides interact. “It’s a complex and dangerous situation but they’ve finessed it brilliantly all along,” Kestenbaum says.

America is central to the UAE’s survival. The two countries signed a defense cooperation agreement in the mid-1990s that was triggered by the shock of Saddam’s 1990 invasion of Kuwait. The agreement’s contents are secret, but the gist is that the U.S. military will respond to an attack on the UAE in exchange for use of air and sea bases.

With Saddam out of the picture, the UAE sees Iran as its chief military threat, especially given Iran’s nuclear program and its arsenal of ballistic missiles. The UAE’s defense strategy means sustaining a first strike and praying for allies—the United States, France, and Britain—to arrive.

In one sense, the United States is both the cure and the sickness. The most plausible reason Iran would assault the UAE would be in retaliation for a U.S. or Israeli strike on its territory. This possibility led UAE president Sheikh Khalifa to publicly forbid the United States from using UAE territory to attack Iran. He also banned the U.S. military from using
its Abu Dhabi-based spy planes to conduct intelligence missions over Iran.
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At the same time, the UAE has spent vast amounts on American military hardware, including $6.4 billion for 80 F-16 fighter jets in 2004. Americans train Emirati F-16 pilots at Al-Dhafra Air Base near Abu Dhabi. The UAE bought Raytheon’s Hawk missile defense system in the 1980s and since integrated it with the U.S. military, so the two countries can respond jointly in the event of an attack.
¹¹
The Hawk batteries can be seen scattered in the desert and along the coast. In 2007, the UAE notified Congress that it also wanted $9 billion worth of Raytheon’s longer-range Patriot defense missiles.

And, perhaps to show the Americans that their aggressive posture toward Iran isn’t appreciated, in 2007 the UAE invited France to open an air base. The UAE wants to further diversify its defense relationships away from America, which is seen as too favorable to Israel, a potential enemy. UAE fliers also pilot French Mirage jets, and their ground forces operate French tanks and Russian armored personnel carriers. But everyone knows that only the United States can protect them if there is real trouble. “When the sheikhs dial 911, it doesn’t ring in Paris,” Kestenbaum says.

In the long run, Iran is bound to win the tussle over the UAE’s loyalty, if only by dint of its location. While the UAE’s long-term plans call for diluting reliance on America, Iran, with its young population and huge reserves of oil and gas, is in the ascendancy.

And Dubaians can’t help but notice that Americans don’t really like them. There is a knee-jerk hostility in the States, as seen in the Dubai Ports furor. Partly this is because Dubai sits inside the UAE, the homeland of two September 11 hijackers. But mostly it’s because Dubai lies in the Arab world, and America’s view of Arabs is a dim one.

Relations with America are drifting. America tightened visa requirements for Emiratis, an understandable move after 9/11, but one that wound up diverting Emirati college students to Australia and Europe. Stories of Emiratis detained and humiliated by U.S. airport security are rife in the local press. At the moment, most of Sheikh Mohammed’s team
of advisers is U.S.-educated. They have a natural proclivity to follow the American style in business and government. But that will change as the new crop of leaders takes over. Crown Prince Hamdan studied at the London School of Economics.

The Bush administration’s vehement support for Israel and its wars in the region caused huge damage to its reputation.

“People in this region have moved on. They think, ‘These guys just hate us, pure and simple,’” says Hafed al-Ghwell, a World Bank official seconded to the Dubai School of Government. “The view is that Americans are not interested in discussion or truth. They’re going to do whatever they want because of internal American politics and whatever prejudices they have.”

Relations with Washington could go either way under the Obama administration. President Bush’s stark unpopularity in the Arab world masked a good working relationship with the UAE. Cheney, with his Big Oil ties, has long been a familiar figure in the Gulf. Obama, with his calls for a “new way forward with the Muslim world,” is far more acceptable to the masses, but his actions haven’t proven friendly. Obama joined the Democrats who came out against Dubai when DP World acquired the U.S. ports. His secretary of state, Hillary Clinton, was, as noted earlier, a chief orchestrator of the anti-Dubai hysteria. She will have some crow to eat before she is welcome in the UAE.

But Obama’s pledge to lessen tensions will bring relief to Iran-dependent Dubai. Ironically, any direct U.S. dialogue with Iran could also wind up sidelining Dubai as a key go-between. An end to the U.S. embargo would drastically cut Dubai’s reexport trade and make much Iranian foreign investment unnecessary.

Of course, it’s not just up to Obama to assuage the wounds. Relations also depend on another electorate. The voters of Iran were to go to the polls in June 2009.

THE MEANING OF DUBAI

BY
2008,
DUBAI
was bloated, with as much property under development as Shanghai, which has thirteen times the population.
¹
The city was like a runaway train full of champagne drinkers barreling down a mountain track. One way or another, the party was going to end.