Iranian officials including the ambassador to the [UAE], Mohammad Reza Fayyaz, initially confirmed Tuesday that Iran had cut trade ties with its third-largest trading partner, the semiofficial Mehr News Agency reported. The Iranian Econews agency also quoted Mehdi Ghazanfari, the minister of industries and business, as saying that trade with the United Arab Emirates was halted because of its “anti-Iranian positions".
Following the statements, the rial fell to unprecedented lows against the dollar Tuesday, amounting to a 15 percent loss in value over the past three days, the Fars News Agency reported.
“There is sheer panic in the market,” one steel trader said. “The price of the dollar is increasing by the hour.”
Iran’s currency also dropped sharply in October 2010 after the United Arab Emirates implemented sanctions against Iran.After Tuesday’s plunge, First Vice President Mohammad Reza Rahimi denied that Iranian-U.A.E. trade relations were cut. He said the emirates had simply been “warned” not to go along with sanctions proposed by the United States, Fars News Agency reported.
While the linkage is a bit too simple --- the Iranian currency has been falling for weeks, with an accelerated decline in the last few days before the trade announcement --- Erdbrink usefully describes the confusion and even chaos within Iran's establishment:
Adding to the confusion, the Iran-U.A.E. Chamber of Commerce said it had received a letter from the Central Bank of Iran banning all trade in dirhams, the U.A.E. currency, starting Tuesday.
Massoud Daneshmand, chairman of the joint chamber, pleaded for calm, Mehr reported. “The U.A.E. trades with Iran for at least $25 billion,” the agency quoted him as saying. “Any decision about this country should be thoroughly thought through.”