As U.S. Cracks Down on Iran’s Oil Sales, It Calls Out an Ally U.S. officials have warned the U.A.E. over the trade of sanctioned oil through its ports The port of Fujairah, in the east of the United Arab Emirates, is a trading hub for sanctioned oil and other products, according to U.S. officials and traders in Tehran and Dubai. Photo: karim sahib/Agence France-Presse/Getty Images By Benoit Faucon and Sune Engel Rasmussen Updated Sept. 8, 2019 12:20 pm ET On a scorching June day, a senior U.S. official arrived in the United Arab Emirates with a clear message: The Trump administration intended to tighten the screws on Iran through sanctions targeting its oil sales. “We are going to increase our sanctions on Iran and continue our foreign policy,” Brian Hook, the White House special envoy on Iran, told CNBC from the U.A.E. capital of Abu Dhabi. Days earlier, a significant breach in the sanctions campaign had occurred about 160 miles from where Mr. Hook met with Emirati officials to warn them about the threat Iran poses to the region. Ship-tracking data show an Iranian oil tanker delivered its cargo to a local vessel in the U.A.E. port of Fujairah in violation of U.S. sanctions imposed in May on Iran’s crude exports. The U.A.E., along with Saudi Arabia, was an early backer of the Trump administration’s decision to withdraw from the 2015 multilateral nuclear deal and impose crippling sanctions on rival Iran. Such steps aimed to push Iran to sign a new deal with curbs on its weapons program and regional interference. But when it comes to enforcing sanctions on Iran, U.A.E. authorities often look the other way to preserve business with Iran that helps support the economies of some of the country’s seven semiautonomous emirates. The U.S. Treasury Undersecretary on terrorism finance, Sigal Mandelker, told reporters in Abu Dhabi on Sunday that some of Iran’s petrochemical sales were going through the U.A.E. She urged local companies, along with the U.A.E. central bank and finance ministry, to respect U.S. sanctions. On Wednesday, the Trump administration called out Emirati companies as it added fresh sanctions on what it called an Iranian “oil for terror” exporting network. U.S. officials said the network uses front companies that span the globe, including in the U.A.E., to sell oil worth more than $500 million this past spring alone. Penta Ocean Ship Management and Operation LLC, and Fourteen Star Shipping Management—two U.A.E.-based companies controlled by Indian businessmen—assisted Iranian oil shipments to Syria and processed millions of dollars in expenses incurred by vessels connected to those entities, the U.S. Treasury said as it designated them. The companies and their owners couldn’t be reached for comment. Iranian traders say they have for years used the Fujairah port, which lies on the Gulf of Oman and is the main hub for oil-products shipments in the country, to re-export sanctioned crude, fuel oil and other products. U.S. representatives this summer visited Fujairah to complain about the continued flow of illicit Iranian oil through the port, according to U.S. officials. “They have to be careful. There could be sanctions consequences,” one U.S. official said. “We are losing patience.” Companies based in the U.A.E.—the region’s biggest transshipment hub—regularly handle consignments of sanctioned goods that include American smartphones and consumer goods that end up in Iran, according to U.S. officials and traders in Tehran and Dubai. The U.A.E. also remains a conduit for foreign currency through the hawala money-transfer system, they said. Such clandestine trade deals have exposed gaps in the Trump administration’s economic-pressure campaign against Iran. The U.A.E.’s interior and energy ministries didn’t respond to a request for comment. Under U.S. pressure, the U.A.E. has made it more difficult for sanctioned Iranian businesses to operate on its shores, Iranian traders say. Many Iranians have seen their local bank accounts shut down in the past year, they added. But the trade in physical goods with Iran, which can’t be detected through the financial system, has continued, Iranian and Emirati traders say. They say payments are simply made in cash or in other countries like Oman. A bitumen exporter in Tehran said volumes are the same as before the sanctions but that now he trades secretly—and at additional cost. His company sends the bitumen, used largely for road surfacing, to the U.A.E., where it is repackaged and given a fake certificate of origin marking it as Emirati, he said. He has a U.A.E. bank account through a local partner, who officially owned 51% of the business without investing anything. The U.A.E. has been trying to improve relations with its neighbor and avoid a potentially damaging military conflict in the region amid heightened tensions between Washington and Tehran. A war on its doorstep would likely involve the U.A.E. as well, threatening its reputation as a safe regional commercial hub. Already, its economy is vulnerable to external shocks in an era of low oil prices. In recent weeks, Abu Dhabi has sent an official delegation to Iran to discuss maritime security and said it is scaling back its engagement in the war against Iran-aligned rebels in Yemen. Iranian officials told local media they had received assurances from Dubai authorities following the visit that Iranians would be able to open bank accounts and get residency there. “I don’t think U.A.E.’s view of Iran has changed. It still sees Iran as fundamentally a very dangerous state,” said Elizabeth Dickinson, a senior analyst with the International Crisis Group focusing on the Arabian Peninsula. “They fear that [President Trump] can do something erratic or unexpected that can have quite negative repercussions for them,” she added. Related Iran Accelerates Nuclear Research, Threatens to Boost Uranium Stockpile (Sept. 7) Iran to Breach Nuclear Deal Again in Setback to Europe’s Bid to Salvage It (Sept. 5) New U.S. Sanctions on Iran Set Back French Mediation Efforts (Sept. 4) The U.A.E.’s moves to dial down tensions with Iran come after Tehran pushed back in recent months as U.S. sanctions have hurt its economy. Six commercial tankers have been attacked since May in the Persian Gulf region, several near the U.A.E. coast, which the U.S. accused Iran of orchestrating. Tehran denied the allegation. Meanwhile, it shot down a U.S. reconnaissance drone and seized a British-flagged vessel. For Abu Dhabi, any opening toward Iran, which it considers a strategic rival in the region, means it must try to balance the economic and security concerns of its emirates with the risk of rankling the Trump administration. A State Department representative said cooperation between Washington and Abu Dhabi remained strong. “They too share our commitment to ensuring that Iran is not an abnormal nation, that it ceases its destabilizing activity there.” Unlike the oil-rich capital, though, Dubai and other emirates such as Ras al Khaimah and Fujairah rely on trade and investment from Iranian businessmen who use the semiautonomous states to import goods and stash cash as Iran’s national currency flounders. Iran was the second-largest destination of Emirati exports after India in 2016, with an annual $8 billion, according to the most recent World Bank data. Tehran customs says the U.A.E. was its largest trade partner after China in 2018. Dubai, the primary base for Iranian business in the U.A.E., is facing its own economic downturn, worsened by the loss of Iranian business. —Rory Jones contributed to this article. Write to Benoit Faucon at benoit.faucon@wsj.com and Sune Engel Rasmussen at sune.rasmussen@wsj.com https://www.wsj.com/articles/as-u-s...ales-it-calls-out-an-ally-11567944003?mod=mhp