Haaretz Op Ed 12 11 2009

While the world eyes Dubai’s failing economy with great concern, across the bay, Iran sees opportunity. Dubai is the only oil-free city-state of the United Arab Emirates. Until mid-November, it was best known for its spectacular economy and luxurious high-rises.

Intelligence services the world over, however, have long regarded Dubai as a rat’s nest of money launderers, smugglers and arms dealers, teeming with mobsters – Indian, East Asian and Russian thugs, Arab terrorists and Iranian government agents. Dubai’s underground banking system was used to transfer money to the 9/11 terrorists and Hezbollah. Abdul Qadeer Khan, the Pakistani nuclear scientist, used a Dubai shell company to distribute Malaysian-made centrifuge components, used for uranium enrichment.

The emirate turned a blind eye to these activities. With no oil, its economy was dependent on trade – of any color. Under growing U.S. pressure, however, official Dubai had to remove its blinders; it was that or sanctions. Thus in 2007, Emir Sheikh Mohammed bin Rashid al-Maktoum vowed to honor UN Security Council sanctions against Iran.

And at least on the surface, Dubai did initially work to comply. Most of its banks announced they would no longer be dealing with Iranian banks. Even worse for Iran, Dubai started cooperating with the United States to uncover shell corporations used by the Iranian Revolutionary Guards and other groups to import embargoed goods. It became harder for an Iranian citizen to get a work visa for Dubai. The West’s pressure had good reason: a nuclear one.

For Iran, Dubai had been a logical playground. There are more than 500,000 Iranians living in the Gulf, most of them in Dubai. Many are employed by the more than 4,000 Iranian-owned businesses. This made it easier for Iran to secretly place orders in Europe and Asia for materials that could be used for dual civil and military purposes. Once in Dubai, they were openly shipped across the bay to Iran.

When Dubai started complying more strictly with UN sanctions, however, Iran’s embargo-bypass methods started faltering. In one case, the Iranians unsuccessfully attempted a circular transaction from a European company, through China, to purchase vacuum pumps that could be used in civil industry, but are also essential for uranium enrichment. Another transaction, by Aban, an Iranian firm, involved the purchase from China of 30 tons of tungsten, which is used in the aircraft industry, but also for missiles. The emirate stopped that shipment in 2008.

Obviously, this and similar decisions by Dubai enraged the Iranians, who were not prepared to give up their stronghold there. The emirate’s financial crisis, which erupted in mid-November – Dubai has an estimated $140 billion in debt – provides a golden opportunity for Iran to renew its grip. First, Iran, which has plenty of undercover operatives in Dubai, is trying to identify foreign intelligence agents investigating embargo violations. Some could even be in mortal danger, should Iran start planning “accidents” for them.

Iran has spent the last three decades weaving a secret network of sleeper cells in the Gulf States. Adel Assadinia, who was Iran’s consul-general in Dubai until his defection seven years ago, told the Daily Telegraph in 2007 that these cells include well-trained agents working as teachers, doctors and nurses at Iranian-owned schools and hospitals. If his claim is true, then the agents could now be waiting for an Iranian order to “wake up” and destabilize Dubai’s regime. Their network was probably told to prepare itself to hit American interests and instigate civil instability in Dubai if the United States or Israel attack Iranian nuclear installations. Even before that, however, these sleeper cells could seize the opportunity created by the financial crisis to increase Iranian control.

Iran can rock Dubai in several ways, covertly and overtly. Iran owns about $300 billion in Dubai assets. Withdrawing substantial amounts of money from the emirate’s banks would make them – and Dubai’s economy – collapse in a matter of days. This would be just the beginning. Below the surface, Iranian agents could incite strikes: With Dubai’s failing economy and growing unemployment, this too would not be difficult. Iranian agents could also sabotage government installations such as the airport and power stations.

However, these steps may not be necessary. The emir is facing a serious dilemma. It is one thing to comply with U.S. demands and UN resolutions to avoid sanctions. But it is something else to put his emirate and his throne in jeopardy. He could confront the West’s sanctions and yield to Iran, becoming Iran’s puppet, or struggle to survive, with the help of Abu Dhabi, which would come with a hefty price tag economically and in terms of lost pride. Dubai and Iran are economically interdependent, and therefore, without an immediate bail-out, Dubai would quake not just financially, but also politically. Unless financial assistance comes from fellow emirates, or the West, Dubai will fall into Iran’s hands.

Iranian control over Dubai could spread across the rest of the largely pro-Western Gulf region, in a domino effect. Such a scenario of Iranian control is likely to happen only years from now, when Iran becomes nuclear. Then, the West’s ability to prevent Iran from forcing the oil-rich Gulf States to yield to its regional hegemony would be significantly diminished. The unavoidable conclusion is that a Western bailout of Dubai will only delay, but not prevent, Iranian control. With Ahmadinejad’s hands on the oil spigots of the UAE, which has the world’s sixth-largest reserves, the West’s economy should brace itself for the worst.

Haggai Carmon is an international lawyer and an author of four intelligence thrillers.