Deal On Hormuz Islands A Positive Step For Region

BMI View : A potential deal between Iran and the UAE over Abu Musa and the Tunbs islands is a very positive step for the region in reducing geo-political risks. The deal removes of the few external risks facing the UAE, whilst also indicating Iran's change towards a more accommodative foreign policy.

A potential deal between Iran and the UAE over three islands in the Straits of Hormuz is a positive step in the region and sees a slight reduction in tension whilst also pointing to a more accommodative foreign policy from Iran. Negotiations over the status of the Greater and Lesser Tunbs and Abu Musa, three islands controlled by Iran but claimed by the UAE, appear to be reaching a conclusion with the two Tunbs being returned to the UAE and the final agreement over Abu Musa being ironed out at present. Iran will retain the sea bed rights around the three islands while the UAE will hold sovereignty over the land. Before independence in 1971, the Tunbs islands were controlled by Ras al-Khaimah whilst Abu Musa was under shared stewardship between Iran and the emirate of Sharjah under the British protectorate before independence. After independence was declared Iran took control of the islands and have been a source of dispute since, most recently when then-President Mahmoud Ahmedinejad visited Abu Musa and the Iranian Revolutionary Guard Command inaugurated a naval base in 2012.

The islands themselves have little intrinsic value. Greater Tunbs has a population of a few dozen, whilst Lesser Tunds is uninhabited and only 2km². All three islands receive little rainfall and the soil is unsuitable for farming. However, their importance lies in their geo-political role. Abu Musa hosts an Iranian military base and an airport. In addition, the islands are located in the Straits of Hormuz where a fifth of the world's oil exports pass. Indeed, given the topography of the sea bed in the Straits, most of the oil tankers pass between Abu Musa and the Tunbs islands.

Key Choke Point
Gulf - Location Of Tunbs Islands & Abu Musa

BMI View : A potential deal between Iran and the UAE over Abu Musa and the Tunbs islands is a very positive step for the region in reducing geo-political risks. The deal removes of the few external risks facing the UAE, whilst also indicating Iran's change towards a more accommodative foreign policy.

A potential deal between Iran and the UAE over three islands in the Straits of Hormuz is a positive step in the region and sees a slight reduction in tension whilst also pointing to a more accommodative foreign policy from Iran. Negotiations over the status of the Greater and Lesser Tunbs and Abu Musa, three islands controlled by Iran but claimed by the UAE, appear to be reaching a conclusion with the two Tunbs being returned to the UAE and the final agreement over Abu Musa being ironed out at present. Iran will retain the sea bed rights around the three islands while the UAE will hold sovereignty over the land. Before independence in 1971, the Tunbs islands were controlled by Ras al-Khaimah whilst Abu Musa was under shared stewardship between Iran and the emirate of Sharjah under the British protectorate before independence. After independence was declared Iran took control of the islands and have been a source of dispute since, most recently when then-President Mahmoud Ahmedinejad visited Abu Musa and the Iranian Revolutionary Guard Command inaugurated a naval base in 2012.

Key Choke Point
Gulf - Location Of Tunbs Islands & Abu Musa

The islands themselves have little intrinsic value. Greater Tunbs has a population of a few dozen, whilst Lesser Tunds is uninhabited and only 2km². All three islands receive little rainfall and the soil is unsuitable for farming. However, their importance lies in their geo-political role. Abu Musa hosts an Iranian military base and an airport. In addition, the islands are located in the Straits of Hormuz where a fifth of the world's oil exports pass. Indeed, given the topography of the sea bed in the Straits, most of the oil tankers pass between Abu Musa and the Tunbs islands.

Deal To Reduce External Threats
Short Term Political Risk Ratings

Whilst the exact details of the agreement have yet to be announced - most importantly what the UAE will offer in return - it does have significant implications. For the UAE, when the negotiations are confirmed and the status of Abu Musa is resolved, it removes the one of the few external risk factors. Indeed, following confirmation of the deal, we will raise the external risks component of our short-term political risk ratings for both countries.

For Iran and the region, the move indicates that the regime is moving away from the confrontational rhetoric which became the norm under former President Ahmadinejad, boding well for negotiations over the country's nuclear programme. The decision to return the islands may face opposition at home, especially if it is perceived as just for better relations with the UAE. However, it is likely that the move has support from the highest levels of government, including the Supreme Leader Ayatollah Ali Khamenei.

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This article is tagged to:
Sector: Country Risk
Geography: United Arab Emirates, Iran
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