EconomicsDubai/Iran: Smuggling economy: Black market trading networks

Karim Raheemtulla, a stock analyst and advisor, is making a tour of the Gulf States, where centered in Dubai, he notes the powerful presence of many small craft in the harbour, even an excess.  They are that transhippers from Iran, as they represent a response to the sanctions by Iran's wealthy (including the mullahs who are hedging their bets against a revolution by the desperate majority of the populace).  And that wealth is being invested in real estate and even the building of new structures in Dubai, despite the fact that Dubai's government is cash-strapped and many building projects have resulted in empty buildings, whatever their purpose.

— EconoMix, refWrite Frontpage economics, business, and labour


Oil & Energy Daily (Nov21,2k12)

Opium, Oil Money and Other Secrets of Smugglers’ Creek

Published Wed, Nov 21st, 2012   Karim Rahemtulla, Investment Director

I talked last week about Dubai – the gleaming tourist mecca that boasts such attractions as the Burj Khalifa, the world’s tallest building.

But while its skyscrapers and shopping centers dazzle the senses, I described how they also mask the emirate’s precarious financial situation.

Well, there’s something else Dubai has hidden below the surface that I wanted to cover today: One of the world’s largest black market trading networks.

And during my visit, I got the opportunity to observe some of the underground trading take place firsthand.

I was in the port area of Deira, where throngs of people shop in the Gold Souk (pictured to the right) and crowd the tiny restaurants dotting the waterfront. The wafting aroma of fresh Middle-Eastern cuisine – shish taouk, kebabs and shwarmas – was everywhere.

However, as I maneuvered through the marketplace, my attention was suddenly drawn away from all the beautiful gold jewelry on display.

Moored right across from the market werehundreds of small boats. Some were dhows, a few were fishing boats and a couple passenger ships. More than anything else, though, it was the dhows that piqued my curiosity.

I knew I’d have to make contact with one of the captains to see if I could hitch a ride to the Strait of Hormuz. But as I approached, I realized that many of the boats were captained by Iranians.

There are a lot of Iranians in Dubai, the UAE and Oman. In Dubai alone there are more than 10,000 Iranian-owned businesses. While most are legitimate, there are many that thrive off of Iran’s status as something of a social pariah.

And with U.S. sanctions choking off Iran’s ability to buy goods on the open market, the black market has soared to new heights.

Indeed, Dubai’s port is nicknamed “Smugglers’ Creek” for a reason.

Dhows swarm into Smugglers’ Creek laden with Iranian goods, like Persian rugs – and then leave with

cigarettes, tires and food. That’s how Iran is surviving the sanctions.

And it doesn’t end there.

As I mentioned last Friday, the UAE has long served as Iran’s banker. And you’d be surprised at where some of those Iranian dollars end up by way of the black market.

In fact, one of my contacts – someone who’s been active in the Dubai real estate business for decades – let me in on some information that really floored me…

He mentioned it during a discussion in which I’d brought up all the empty commercial and residential towers that dot Dubai’s landscape.

You see, despite all of the obvious vacancies, Dubai is still building. And I couldn’t understand why. After all, the government of Dubai is cash-strapped, having barely survived default during the global financial crisis in 2008.

“We’re not building for now,” I was told. “We’re building for the future, 15 and 20 years from now.”

What’s funny is, all real estate developers say that when the market’s saturated. In fact, it reminded me of a similar conversation I had last year when I met with a prominent real estate developer in Shanghai.

So I decided to be more direct and ask where all the money was coming from.

Well, it turns out that the money’s coming from Russia, the Arab Spring nations, China and – most surprisingly – Iran, by way of Afghanistan.

According to my source, the big money was coming in from the Iranian Mullahs who are worried about the outcome if the sanctions persist and the people revolt.

But how is it that these Mullahs (a pious lot I’m sure) are coming into so much cash? Well, as the rulers of Iran, they obviously have their hands in a good bit of oil money.

That’s not all, though

A good chunk of change is coming from Afghanistan. More specifically, Afghanistan’s drug trade.

You see, more than 90% of the world’s non-pharmaceutical opium comes from the poppy fields of Afghanistan. And while this export doesn’t show up in government trade figures, the wealth it generates is very real.

Indeed, most of Afghanistan’s opium passes through Iran on its way to the Gulf for worldwide distribution. Millions of dollars are exchanged along the way as “commissions” and guarantees for safe passage.

And that money, along with Iranian petrodollars, is finding its way into Dubai real estate.

It’s all part of one big shadow economy – one that’s actually fueled by U.S. sanctions, rather than restricted by them.

And “the chase” continues,

Karim Rahemtulla

P.S. To see more photos from my amazing journey, check out the Oil & Energy Daily Facebook page by clicking here.