Israeli Ambassador to the United States Yechiel (Michael) Leiter said on Thursday a second round of talks with Lebanon focused on advancing peace, prosperity, and security, while adding concerns over Hezbollah and Iranian influence.
"Our goals remain clear: peace, prosperity, and security for our citizens from Iran and its terror proxies," Leiter posted on X.
Iran-UAE ties have unraveled over the past two months, beginning with Iranian airstrikes on Emirati targets during the US-led war and escalating into a crisis that now threatens one of Tehran’s most vital trade and financial channels.
During the conflict, Iran struck civilian buildings, oil facilities, and sensitive infrastructure, including a data center linked to Oracle. In response, the UAE recalled its ambassador from Tehran, signaling a swift escalation in diplomatic tensions.
The diplomatic fallout deepened further this week when UAE state security authorities said they had arrested members of what they described as a “terrorist group linked to Iran’s ruling system” in Sharjah. The suspects were accused of planning attacks, undermining national security, and facilitating illicit financial transfers.
At the same time, Tehran has formally demanded compensation from several regional states, including the UAE, for allowing their airspace and bases to be used by the United States and Israel in strikes against Iran.
These developments have intensified a crisis that threatens to disrupt one of Iran’s most vital economic lifelines.
A deeply rooted economic partnership
Despite long-standing disputes, including disagreements over the islands of Abu Musa and the Greater and Lesser Tunbs, Iran and the UAE have built extensive and resilient economic ties over the past several decades.
Geographical proximity, advanced port infrastructure, and liberal trade regulations have transformed the UAE into a hub for Iranian commerce since the end of the Iran-Iraq War. Thousands of Iranian companies have established operations there, and a large share of Iran’s imports has flowed through re-export channels based in Dubai. Over time, the UAE became not just a trading partner but a critical gateway to global markets for heavily-sanctioned Iran.
For much of the past two decades, the UAE has ranked either first or second among Iran’s trading partners, often competing closely with China. Today, it remains one of the largest suppliers of goods to Iran, accounting for a significant share of its imports.
Roughly one-third of goods entering Iran—from mobile phones and electronics to auto parts, cosmetics, and clothing—have passed through the UAE, representing trade worth billions of dollars annually. The disruption of this flow is already being felt. In some sectors, such as mobile phones, prices have reportedly surged by 40 to 50 percent following the halt in imports.
With limited alternatives offering the same combination of proximity, infrastructure, and financial connectivity, any prolonged rupture could deepen Iran’s economic isolation and accelerate a costly realignment of its trade networks.
Trade imbalance and export structure
Iran’s exports to the UAE have largely consisted of oil products, petrochemicals such as fertilizers and industrial feedstocks, metals and minerals, agricultural goods including fresh produce and nuts, and construction materials like stone. However, much of this trade has been indirect, with the UAE serving as a re-export hub for Iranian goods destined for third markets.
At the same time, exports from the UAE to Iran have consistently exceeded Iran’s exports in the opposite direction, creating a significant trade imbalance. The UAE’s role as an intermediary—rather than a final destination—has been central to this asymmetry.
Sanctions and the UAE’s pivotal role
The importance of the UAE grew dramatically after the tightening of US and European sanctions on Iran, particularly following Washington’s withdrawal from the 2015 nuclear deal (JCPOA) in 2018. As direct trade routes narrowed, the UAE became the primary conduit for goods, capital, and financial flows into Iran.
Emirati exports to Iran rose from around $5.2 billion in 2018 to more than $20 billion in recent years. Dubai also became a financial hub for Iranian exchange houses, many of which played a key role in facilitating currency transfers and circumventing sanctions. Exchange rates set in Dubai’s markets often influenced the value of the Iranian rial domestically.
However, this system is now under pressure. UAE authorities have reportedly targeted Iranian exchange houses and so-called “trust companies,” freezing accounts, shutting offices, and detaining some operators. These actions could severely constrain Iran’s access to international financial channels.
Impact on the Iranian diaspora
The measures taken extend beyond trade to the large Iranian community in the UAE. More than 500,000 Iranians have lived and worked there, supported by frequent travel links that once included around 300 weekly flights between the two countries.
Since the outbreak of hostilities, Emirati authorities have taken a series of restrictive measures. A long-standing Iranian government hospital was closed, along with Iranian schools and a branch of Islamic Azad University. Some students were reportedly detained before later being released.
In addition, assets linked to Iranian state institutions, including the Islamic Revolutionary Guard Corps (IRGC), have been targeted. While ordinary Iranian residents have not broadly faced asset seizures, many report visa cancellations, especially for those outside the UAE at the time. Others have been given only days to leave.
Business owners say bank accounts have been frozen in some cases, and many who built livelihoods over decades now face abrupt displacement. As a result, numerous Iranian traders are seeking to relocate operations to alternative hubs such as China, Hong Kong, Oman, or Turkey, highlighting a potential long-term shift in regional trade patterns.
US Senator Lindsey Graham said on Thursday because of President Donald Trump, Iran is no longer the world’s leading state sponsor of terrorism, praising what he called Trump’s “resolve” and leadership.
"They do not have a pathway to nuclear bomb, they are no longer largest state sponsor of terrorism, they do not have missiles to terrorize the region and the world like they used to. This has been an amazing success and President Trump is right. Do not be in a hurry, get it right," Graham told Fox.
US Senator Eric Schmitt said on Thursday Washington’s strategy toward Iran is to “apply pressure, create leverage, then negotiate,” adding that the blockade is having a direct economic impact.
"The blockade is working, Iran is isolated and their economy is starved. That creates conditions for a deal but The Presidents is not going to make a deal if it is not a good deal," Schmitt told Fox.
The Foundation for Defense of Democracies (FDD) estimates that Iran’s economic losses from the ongoing conflict could total between $50 billion and $300 billion, or roughly 40 percent of pre-war GDP, in a preliminary assessment of the war’s impact.
The report says Iran’s opaque financial system, large informal economy, and wartime conditions make precise estimation difficult, and notes that several major cost categories, including human capital losses and reconstruction costs, were not included in the model.
Israel Ambassador to US Yechiel (Michael) Leiter said on Thursday progress toward peace between Israel and Lebanon depends on confronting Hezbollah, praising US President Donald Trump’s administration for advancing negotiations and invoking the Abraham Accords as a model.
"If Hezbollah and IRGC operatives continue to be treated with kid gloves, a real process of achieving our mutual goal will remain unachievable," Leiter said at the White House.
"Time and again, Iran and Hezbollah have dragged Lebanon into war against Israel. Due to the degrading of Iran and its proxies through the leadership of President Trump and Prime Minister Netanyahu, we believe the time has come to put an end to this intolerable situation, once and for all," he added.