Dubai and transshipment

Transshipment -- the ship of goods to an intermediate location and then on to a final destination -- may be legitimate or illegitimate.

Dubai is known as an entrepot, as Webster's defines it, an intermediary center of trade and transshipment. The question is, how much of that reputation is built on illegitimate trade. Specifically, how much is due to the embargo of Iran?

Portfolio.com

The game is making the sheikdom rich and powerful. “They’re reluctant to go too far, in part out of fear of antagonizing Iran, but mainly because of the bottom line,” says Michael Jacobson, a former Treasury Department official who is now a senior fellow at the Washington Institute’s Stein Program on Counterterrorism and Intelligence. “This is the way they are making their money, and this is how they are putting themselves on the map.”

It is difficult to separate the rise of Dubai from the fall of Iran. In 1980, not long after the emirate began opening its ports, Iran entered a war with Iraq; seven years later, the U.S.—worried about Iran’s burgeoning nuclear program and its soft spot for terrorists—leveled its first trade embargo. Dubai began to blossom. With its secure and open business environment and the U.A.E.’s impressive oil reserves, the emirate attracted tens of thousands of Iranian entrepreneurs. As legitimate trade increased, so did smuggling. Much of the U.S. merchandise that had once gone directly to Iran was suddenly being rerouted through Dubai. Iranian traders bought what they needed in the emirate and then sent it home.

Jebel Ali became the best-known terminal. Its inner basin is about two miles long, with 71 berths for cargo ships and tankers. It was probably Dubai’s first expression of its grand ambitions. After completing the terminal, the sheiks built a free-trade zone around it in the desert and dubbed it the Jebel Ali Free Zone, or Jafza; the zone was unique in the region at the time. Free-trade zones operate under special conditions meant to facilitate trade: Tariffs are waived, taxes are nonexistent, and regulatory oversight is minimal. In other words, it’s a world of exceptions that exists outside of the ordinary stream of commerce.

The arrangement was especially well suited to businesses that wanted minimal bureaucratic hassle, but it was also perfect for the growing number of shifty operators angling to transport such goods as cigarettes, hard drugs, and counterfeit pharmaceuticals without being detected. (The European Commission insists that the U.A.E. is one of the major suppliers of fake drugs being smuggled into E.U. countries.)

Read the whole thing. Thanks to Samurai Sam for the tip.